Reuters

AIG just conducted a two-fold master class of i) how to confuse Wall Street of having "superb" earnings, and ii) how to avoid paying any corporate taxes for years to come. Because as part of the company's just announced massive $19.8 billion profit, a whopping $17.8 billion was nothing short of the oldest tax accounting gimmick in the book - the release of a valuation allowance (i.e., deferred tax liability vs deferred tax asset conversion). In other words, apples to apples, the real Net Income attributable to shareholders was not $19.8 billion but realistically $2 billion, which would compare to last year's $11.2 billion if only it was not for a $13.5 billion gain on divested business posted in Q4 2011, when the company again was fudging numbers like a drunken sailor. Anyway, we are confident even the algos will figure it out eventually. But the real slap in the face coming from this bailed out company is that as a result of this accounting change, AIG will essentially not pay any taxes for years to come, most likely until its next insolvency.

“Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.” The Reuters Global Gold Forum confirms that in the small print of the Greek “bailout” is a provision for the creditors to seize Greek national gold reserves. Reuters correspondents in Athens have not got confirmation that this is the case so they are, as ever, working hard to pin that down. Greece owns just some 100 tonnes of gold. According to IMF data, for some reason over the last few months Greece has bought and sold the odd 1,000 ounce lot of its gold bullion reserves. A Reuter’s correspondent notes that “these amounts are so tiny that it could well be a rounding issue, rather than holdings really rising or falling.” While many market participants would expect that Greece’s gold reserves would be on the table in the debt agreement, it is the somewhat covert and untransparent way that this is being done that is of concern to Greeks and to people who believe in the rule of law.

• IMF Official: 'Huge' Greek Program Implementation Risks In Next Few Days (WSJ)
• European Banks Take Greek Hit After Deal (Bloomberg)
• Obama Urged to Resist Calls to Use Oil Reserves Amid Iran Risks (Bloomberg)
• Hungary hits at Brussels funds threat (FT)
• Bank Lobby Widened Volcker Rule Before Inciting Foreign Outrage (Bloomberg)
• Germany fights eurozone firewall moves (FT)
• New York Federal Reserve Said to Plan Sale of AIG-Linked Mortgage Bonds (Bloomberg)
• G-20 Asks Europe to Beef Up Funds (WSJ)
• New Push for Reform in China (WSJ)

Crude oil spiked to nine-month high primarily on investors fear of potential conflict over the escalating tensions between the US, Europe, Israel, and Iran.  Right now, it seems Iran could be the one blinks first (war or peace).

• Obama Administration Said Set to Release Corporate Tax-Rate Plan Today (Bloomberg, WSJ)
• Greece races to meet bail-out demands (FT)
• IAEA ‘disappointed’ in Iran nuclear talks (FT)
• Hilsenrath: Fed Writes Sweeping Rules From Behind Closed Doors (WSJ)
• Fannie-Freddie Plan, Sweden FSA, Trader Suspects, CDO Lawsuit: Compliance (Bloomberg)
• Bank of England’s Bean Says Greek Deal Doesn’t End Disorderly Outcome Risk (Bloomberg)
• Greece Second Bailout Plan an ‘Important Step,’ Treasury’s Brainard Says (Bloomberg)
• Shanghai Eases Home Purchase Restrictions (Bloomberg)

January's hopium catchphrase of the month was that Europe's recession would be "technical" which is simply a euphemism for our Fed's beloved word - "transitory." Based on the just released Euroarea PMI, we can scratch this Euro-accented "transitory" addition to the lexicon, because contrary to expectations that the Euroarea composite PMI would show expansion at 50.5, instead it came out at 49.7 - the manufacturing PMI was 49.0 on Exp of 49.4, while the Services PMI was 49.4, on hopes of expansion at 50.6, which as Reuters notes suggests that firms are still cutting prices to drum up business and reducing workforces to cut costs. This was accompanied by a overnight contraction in China, where the flash manufacturing PMI rose modestly from 48.8, but was again in contraction at 49.7. We would not be surprised if this is merely the sacrifice the weakest lamb in the pack in an attempt to get crude prices lower. So far this has failed to dent WTI much if at all following rapidly escalating Iran tensions. What is curious is that Germany and France continue to do far better than the rest of the Eurozone - just as America has decoupled from Europe, so apparently have Germany and France. This too is surely "sustainable."

With the hopes and dreams of every long-only manager and beta-chaser now resting on the broad shoulders of nominal-wealth-creators at the European Central Bank and its LTRO 2 offering, today's news from Reuters that 'powerful members of the ECB's council are privately hoping demand will fall well short of the EUR1tn that many expect' confirms their hope that it will be the last. Critically, as we have discussed before, markets are becoming used to the pump and will expect endless LTRO (especially given the moves in bank stock prices - while credit has underperformed significantly in the last week or two) and central bank sources tell Reuters 'they are worried that banks will become too reliant on ECB funds'. This is exactly the unintended consequence we warned about as the banks will become less incentivized to lend and create credit to drive the real economy (even as the nominal economy - or equity market) surges. The implicitly hawkish stance increasingly being taken by the ECB as Weidmann warns of the 'too generous' supply of cheap/free-money should prompt concerns that the ECB will close the liquidity spigot sooner than consensus hopes and as is evident from last April/May's tightening and the exuberant expectations priced into stocks for more printing, perhaps credit's recent weakness signals that asset prices are overdone here (especially as there is no sign of credit creation in the real economy and ECB reserves continue to rise).

The day dawns with a deal for Greece that is full of smoke and mirrors; lies and deceptions. It is a deal pretty much as expected and, as I have said before, now the realities are going to be confronted. Europe has spun the agreement and the Euro has rallied some and the S&P futures are up but the next few weeks, I am afraid, will hold some serious disappointments. The page turns today because now we are about to confront not what is told to us but the actuality of what has been presented to us and just what will happen as a result.

• Spiegel: Stop the 130-billion bank transfer! (Spiegel)
• Greece Wins Bailout as Europe Chooses Aid Over Default (Bloomberg)
• Greek pro-bailout parties at all-time low, poll shows (Reuters)
• Eurozone agrees €130bn Greek bail-out (FT)
• Top Banks in EU Rush for Safety (WSJ)
• Medvedev Adviser Says Kudrin Would Be Better Prime Minister (Bloomberg)
• US and Mexico in landmark oil deal (FT)
• McCain calls for US to support Syria rebels (FT)
• Coal Shipments to India Overtaking China on Fuel Shortage (Bloomberg)
• Gillard Shrugs Off Ousting Threat (WSJ)

Those who have been correct about the crisis in recent years question whether a new Greek government will stick to the deeply unpopular program after elections due in April and believe Athens could again fall behind in implementation, prompting lenders to pull the plug once the eurozone has stronger financial firewalls in place. The much used phrase "kicking the can down the road" underestimates the risks being created by European and international policy makers. Some have rightly warned that we will likely soon run out of road. Rather than "kicking the can down the road" what politicians in Europe, in the U.S. and internationally are actually doing is "kicking a giant beer keg down the road".  The giant beer keg is the continual resort to cheap money in the form of ultra loose monetary policies, QE1, QE2, QE3 etc, money printing and electronic money creation on a scale never seen before in history. The road is our modern international financial and monetary system. The risk is that attempting to kick the giant beer keg down the road will lead to many broken feet and a destroyed road.  A European, US, Japanese and increasingly global debt crisis will not be solved by creating more debt and making taxpayers pay odious debts incurred through massively irresponsible lending practices of international banks. The likelihood of continuing massive liquidity injections by the ECB next week and in the coming weeks will help keep the opportunity cost of holding bullion the lowest it has ever been and likely contribute to higher bullion prices especially in euro terms in the coming months.

Yeah, we had the same response as our readers when we saw that freak move in the EURUSD. Apparently, despite the fact that absolutely nothing has been resolved, Reuters just ran a headline that "Euro zone reaches deal on second Greek bailout package." And that is all it took for the EURUSD headline scanning algos to surge by 60 100 pips. That there nothing substantial in it, or that this is merely a rephrasing of the actual Bailout 2 announcement from before, is irrelevant. Here is what the actual Reuters report said.

The first details of the Greek bond deal are leaking out via Reuters, and we now learn the reason for the Greek bond sell off in recent days:

• UNDER GREEK DEBT SWAP, PRIVATE SECTOR WILL GET 3% COUPON ON BONDS FROM 2012-20, 3.75% COUPON FROM 2021 ONWARDS [2021... LOL]
• PRIVATE SECTOR WILL ALSO GET A GDP-LINKED ADDITIONAL PAYMENT, CAPPED AT 1 PCT OF THE OUTSTANDING AMOUNT OF NEW BONDS [If it appears that nobody gives a rat's ass about this bullet point, it's because it's true]
• GREEK BANK RECAPITALISATION NEEDS MAY NOW BE AS MUCH AS 50 BLN EUROS-DEBT SUSTAINABILITY ANALYSIS

Which in turn explains the sell off in pre-petition Greek junior triple subordinated bonds (i.e., those held by private unconnected investors, which are subordinated to the Troika's bailout loans, to the ECB's SMP purchases, to the Public Sector bonds and to UK-law bonds in that order). With the EFSF Bill "sweetener" amounting to about 15 cents (and likely less), the fact that bondholders will receive a 3% cash coupon, a cash on cash return based on Greek bonds of 2015 trading at just 20.7 cents on the euro, indicates that investors are expecting to collect 1 cash coupon payment, and at absolute best 2, before redefault, as buying a 2015 bond now at 20.7 of par, yields a full cash return of 21 (15+3+3), thus the third coupon payment is assured not to come. And since there is a substantial upside risk premium kicker to bond buyers, in reality the investing market is saying that Greece will last at best about a year following the debt exchange (if it ever even happens) before the country redefaults.

Update: And finally for some reality from Dutch fin min De Jager: "We Cannot Approve Second Programme For Greece Until Greece Has Met All Its Obligation"... And now we know who Germany's "+1" will be when Greece becomes Southern Goldman Bavaria: "De Jager Says He’s in Favor of a Permanent Troika in Athens"

We would love to share some witty comments and jovial banter on this latest set of soundbites by Europe's effete bureaucrati on occasion of the latest and greatest Greek bailout, however having already done so on at least 10 times in the past, we have run out of things to say in this particular context and frankly we are bored with this topic. Which is precisely the Eurogroup's intention. Presenting "soundbites du jour, Greece edition N+1".

Today's FinMin meeting in Brussels is supposed to be "the one", as Greece's fate is finally decided, and Belgian caterers are forced to apply to the EFSF for a bailout (or maybe China will roll them up?) as prospects for further local summits, meetings, shindigs, tete-a-tetes, teleconferences and what nots are severely curtailed. Maybe - maybe not. We will reserve judgment until the end of the day, because, as shocking as it may sound, Europe is not the best when it comes to making decisions on short notice. Or any decisions for that matter. Especially ones which leave Greece in the same predicament as before, and when the country will certainly need more bailouts down the road, because "cutting" debt down to only 129% of GDP does leave some things lacking. In the meantime, assuming everything goes according to status quo plan, here is a timeline and breakdown of events in the aftermath of today's meeting.

• Germany FinMin: More Talks Needed On 2nd Greece Bailout Plan (MarketNews)
• You stand up to the bankers, you win - Icelandic Anger Bringing Record Debt Relief in Best Crisis Recovery Story (Bloomberg)
• Iranian ships reach Syria, China warns of civil war (Reuters)
• Men's suit bubble pops? Zegna CEO Says China Sales Slowing (WSJ)
• German presidency row shakes Merkel's coalition (Reuters)
• Greece must default if it wants democracy (FT)
• Decision day for second Greek bailout despite financing gaps (Reuters)
• So true fair value is a 30% discount to "market" price? Board of Wynn Resorts Forcibly Buys Out Founder (WSJ)
• Spain Sinks Deeper Into Periphery on Debt Rise (Bloomberg)
• Walmart raises stake in China e-commerce group (FT)
• Iron Lady Merkel Bucks German Street on Greek Aid (Bloomberg)