Real estate

Here is one reason why Europe, while doing everything it can to make it seem (politically) like a bailout of Greece is out of the question, is and will continue to do all in its power to prevent a domino effect within the PIIGS countries: actually make that 1.5 trillion reasons. According to the IMF, the total amount of foreign claims, in this case focusing on Southern Europe countries, better known as PIIGS, on European international banks is $1.54 trillion. And while many have claimed that Germany would stand to lose the most from an implosion in the European periphery, that is in fact not true true: with $781 billion, France has much more at stake than Germany, whose banks have "just" $522 billion in "Southern European" claims. And while the IMF cut German GDP forecasts in large part due to the country's exposure to Southern Europe, it appears that France is next on the chopping block.

This is a very meaty piece, written for those who are serious about the true state of affairs in sovereign Europe as NOT reported in the mainstream media. Though not necessarily for freshmen, it is more than worthwhile for those who want to know what is not being said.

Economic contagion begets financial contagion, which will spread across much (if not most) of Europe, causing further economic contagion. This is what is written on the tea leaves in Ireland.

Minyanville's Todd Harrison is the latest to jump on the bandwagon for whom a "sideways or slightly down market" is not a victory for the bulls. In fact, Todd is outright bearish, and harkens to his prophetic call from September 2008 (oddly, a time when CNBC programming was far more balanced yet when everyone still thought the worst was behind us and Dick Bove had just issued a buy rating on Lehman, not to mention that every phone call from David Einhorn was being tapped under the guidance of the powers that be). Harrison prefaces: "Kevin Cassidy, a senior credit analyst at Moody’s, recently referenced the $700 billion in risky high-yield corporate debt on the horizon and offered, “An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this.” Minyanville offered a similar assessment entering September 2008 as $871 billion of corporate debt was set to mature into year-end. We opined there were two plausible scenarios; a credit cancer that would chew through the financial body, or a car crash that would crack the system under the weight of an indebted world." Todd was spot on back then. Will he be right again?

A suitable follow up to our earlier post on domestic equity fund flows (which have been negative year to date), and our conclusion that Primary Dealers are merely taking advantage of the ZIRP carry trade, is Rosie's observation that the only entities doing any relevant trading are the prop desks of the Big Five TBTFs. If that is indeed the case, the market, which Rosenberg concludes optimistically is 25% overvalued will certainly face a Black Monday-type correction as soon as the elusive "unpredictable" occurs and the Prop desks as always scurry for cover, with no volume consolidation to the upside. It would be such a wonderful time to truly implement the Volcker Rule as the bank's prop desks, if David is correct, are about to cause some major damage to the market... Of course, it is these very prop desks that are the staunchest opposition to the Volcker Rule and its negative implication on prop trading.

The maestro managed to run away from the old folks' bent on monetary destruction home just long enough to carry this amusing interview with Bloomberg TV's Al Hunt. Tomes (will) have been written about Greenspan's dementia, just as books will be available on the Kindle one day analyzing his successor's massive mistakes which are slowly but surely leading to an American day of reckoning, so we won't comment much, suffice to point out some of the key highlights in Greenspan's presentation. Most amusingly, note the escalating battle between Greenie and the Fed's new vice-chairman Janet Yellen, who blatantly contradicted Greenspan's that higher interest rates would have prevented a housing bubble. For all it's worth, Alan's response is actually quite interesting: "We tried to do that in 2004. We ran into a conundrum. For decades, every time the Fed raised its short-term rates, the 10-year note, which is really the proxy for mortgage rates, the yield went up with it. This time, it did not. And the reason it did not, is you cannot have the 10-year note determined both by arbitraged global finance and individual central banks. As a consequence of that…starting in the period where the sensitivity of the early stages of the bubble were building up, it was very clear that what was determining the rise in prices was movements in long-term mortgage rates going down, not the federal funds rate." In English, this is quite intriguing: China, which at about this time started running up massive trade balances, essentially became indifferent about US monetary policy, as it gobbled up everything east of 5 Years, with a preference on the 10 Year. The reason for this is the US consumer became the one driving force behind the massive Chinese economic expansion. With the consumer out, and with China set to report its first trade deficit in 6 years, and the Fed pulling out its support of mortgages, and the Chinese National Bank pulling liquidity, the move in 10 Year over the next few weeks is now more critical than ever, which is why the 10 Year - 30 Year MBS spread is paradoxically pressured at an all time tight spread, as all the early MBS shorts are covered, forcing pundits to say MBS are cheap as fighting momentum in this market is professional suicide. To be sure, this technical push down will soon end. And when this last coiled spring blows out, watch out below, first in housing, then in rates, in corporates, and last, in equities.

Before delving into an ECB speech chock full of insight, a deflationist rant 'Through the Looking-Glass' of social mood as per:

[1] the management of inflation expectations;

[2] the implications within central bank (CB) exit strategery; and

[3] 'what Alice is likely to find' in Mr. Market's immediate future. If you think Bernanke an idiot and see hyperinflation-a-coming, you probably don't wanna read this.

Housing is still in trouble, CRE is in worse shape, low inflation is the result of deflationary factors, and at the ground level where most loans are made, credit is still stuck. It's pretty hard to spin the data into a positive.

• Asian shares mostly lower; but exporters hold Tokyo up.
• China won't succumb to foreign pressure on revaluation of Yuan, Zhong says.
• Dubai supports Dubai World’s debt restructuring with $9.5B of funds
• European try to find solution to Greek debt crisis as euro slides, Portugal downgraded.
• Germany asserts European clout to impose IMF role in EU rescue of Greece.
• IMF could demand stricter path out of Greece's economic crisis than EU.
• Oil hovers below $81 in Asia after US crude inventories increase.

The DOW rebounded from a crushing six point opening sell off to close the day at 21,626, up 43 points for the day. The rebound came after there were reports, later denied, that European officials are working on a bailout for EU member Greece. Greece has been in a state of near suspended animation since debt woes struck the country in early 2010, though strikes have been averted through the daily airing on government controlled television of an Anthony Quinn film extravaganza.

At 10:00 AM Tim Geithner will take the podium to pretend he has some clue of how to reform the GSEs (which is funny, because he doesn't). Those who want to watch Geithner live and commercial free can do so here. As we posted yesterday, here is a copy of Tim Geithner's prepared remarks.

An internationally known authority on Ponzi schemes gets cleaned out by Bernie. Believable modest returns and feigned exclusivity did the trick. Lessons for us all from Carlo. Better hire the "private dick"

Risk aversion in euro is back big time. Not just is the euro getting whacked as fundamentals and technicals finally overtake the endless rumor mill, but increasingly desperate rhetoric out of Greece is making it seem inevitable that we could finally see the preparations for the landmark Santorini Sotheby's auction. Adding olive oil to the fire is Greek deputy Prime Minister Theodoros Pangalos, who is now playing Russian Roulette with a fully loaded gun and confusing it for poker, this time saying that it has been Germany's secret agenda to see Greece fail all along (not all that naive - we have been saying it for months). Alas, saying out loud what everybody knows is always a horrible move - just consider the US debt/GDP ratio of 140% which nobody wants to talk about. Quoting T-Pan: "As long as southern Europe is under fire, the euro is being shaken and falling and the conditions under which they (Germany) can win massive exports to the third world, to the rest of the world, are improving. I am quite worried that if a decision is not taken quickly ... then the euro will make no sense and if the euro fails this will take us many decades backwards in terms of European integration." Oh, and don't look now but the Bund just hit an all time high. At least real estate prices in America's richest city Newport Beach will hit another record as a result.

A meltdown of Biblical proportions hits the vacation home market. A market plagued by giant snow drifts and burst pipes. Cash out refi’s have come back to haunt. Sales on the county court house steps at prices down 60%-70% from the 2006 peak. Jumbo financing is now an extinct species. A shortened school year has killed the rental market. A “bear” market of a different sort. Care to join Fredo Corleone?

Even as the Lehman scapegoating campaign is on in full force, there is little doubt that the man who somehow was in the middle of virtually everything, was not Dick Fuld, or any of the bevy of rotating Lehman CFOs, but Lehman's very much under the radar Global Product Controller, Gerard Reilly. Reilly was the point man on Repo 105, the point person for E&Y's "investigation" into the Matthew Lee whistleblower campaign, Lehman's Level 2 and Level 3 asset valuation, the brain behind the idea to spin off Lehman's commercial real estate business, Lehman's Archstone investment, and likely so much more. Reilly stayed on at Lehman, solid as a rock, even as the CFO's above him rotated one after another. Tragically, on December 29, 2008, a 44-year old Gerald [sic] Reilly died while skiing alone on New York's Whiteface mountain, while on a trip with his wife, 4 small children, and two other families.

My take on views expressed by Jim Rogers at a BBN interview on Mar. 18 about the recent currency and trade confrontation between the US and China, the Canadian loonie and the U.S. bond market.