In the meantime, for those who remember what happened to Romania in 1989, get ready to for a Bucharest rerun in Cairo. CL is very cheap here as the march to the presidential palace begins.
What are the chances of another banking crisis, this time emanating from Europe? Let me count the ways, but not using Goldman's math of course.
- In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion (WSJ)
- The FT just a few months behind Zero hedge: Fed passes China in Treasury holdings (FT)
- Cyclone Yasi Nears Coast of Australia Packing Winds Stronger Than Katrina (Bloomberg)
- China's Wen vows to control inflation in new year (Reuters)
- Germany Rules Out Bond Buybacks by Bailout Fund, Official Says (Bloomberg)
- Bank of Japan's Kamezaki Says Economic Slowdown Is Temporary (Bloomberg)
- Florida governor may stall Obama healthcare law (Reuters)
- Much of nation's recent growth may have been a mirage (WaPo)
They call it "Doctor Copper" because copper pricing is a pretty good indicator of economic health. It's more of a demand metal than gold or silver and hard to fake and there aren't any silly ETFs stockpiling it although China has socked away a full-year's supply, which has given copper a very false sense of demand...
After all, if the Fed DOES announce such a program, then we are undoubtedly heading into outright trade wars, tariffs, and even MORE currency intervention.True, Bernanke has ultimately got his sights set on destroying the US Dollar. But with global tensions growing, he’s got to walk a fine line between saving Wall Street and pissing off the US’s biggest creditor (and the only country that still owns more US debt than the Fed).
- Russia Makes Major Headway with South Stream Pipeline
- Pakistani Supply Route Blockade Puts ISAF Forces at Risk
- US Drones Kill Five German Nationals, Amid Europe-Wide Terror Alert
- Bosnian Elections See Moderate Gains, but Little Hope for Change
- Nigeria Attacks May Show Dangerous Rift in MEND
- UK Diplomats Targeted in Yemen Attack
In plain terms, WWIII is already being staged in the currency markets. Predicting exactly how this will all play out is impossible, but the clear result is that market volatility will be increasing and we are absolutely guaranteed heading for a Crash.
Consider that the currency markets trade over $4 trillion in market volume per day. To put that number in perspective, the entire world stock market is about $36 trillion in market capitalization.
Will The Unwind Of One GDP's Worth Of Impaired Foreign Loans Cause The Swiss Franc To Surge And Trash The Swiss Economy?Submitted by Tyler Durden on 07/07/2010 14:13 -0500
The UBS Private Wealth Management team seems to think so. In a report titled "Franc loans might become a threat for Switzerland" the UBS economists analyze the impact of the surging EURCHF (last at 1.33, not to mention the USDCHF which is quickly going to parity), combined with the over $500 billion in Swiss franc loans lent abroad to banks and non-banks, that "The franc's rapid appreciation remains painful for foreign borrowers, as the amount of their franc-denominated debt has increased remarkably in their local currencies. The franc would receive further support if borrowers were to switch their loans into local currencies at some point in the future, as they would have to unwind their franc short positions." In other words, should a positive feedback loop be activated, the already dramatic squeeze in the covering of CHF positions will accelerate dramatically, likely pushing the CHF far beyond parity and causing major pain for both the local Swiss manufacturing industry and offshore lenders who join the unwind party late. Quote UBS: "At some point, franc borrowers might realize that the franc might stay strong for longer, which could induce them to switch their loans. While the franc is affected by many factors, should the borrowers of franc loans at some point decide to switch their loans into local currencies, it could support the franc further, as the borrowers have to unwind their franc short positions. We therefore conclude that the large amount of outstanding Swiss franc loans to foreign countries remains a threat for the Swiss economy."
A recap and look at things to come from the ever optimistic Dane, Goldman's Erik Nielsen.
Credit default swaps are soaring against China ...
A month ago, Sarkozy was pissed that Merkel had dared to take the initiative over him and to ban naked CDS trading. Being a stubborn reactionary, this action only prolonged his inevitable decision to do the same (because politicians, being the wise Ph.D's they are, realize fully all the nuances of screwing around with the financial ecosystem). However, looking at this week's DTCC data, we have a feeling he may accelerate his decision to join the CDS-ban team. With a total of 456 million in net notional derisking, France was the top entity in which protection was sought in the past week. In a very quiet week, where the 5th most active name did not even make it past the $100 mm threshold, France was more than double the number two sovereign - Mexico (we are unclear if this is some sort of contrarian move to the Yuan reval, which Goldman was pitching as MXN positive, which means traders likely hedged by loading up on Mexican CDS). But what is probably most notable, is the sudden and dramatic appearance of China in the top 3rd position. Welcome China! And after tonight's surprise PMI miss and the resulting market drubbing, we are confident within a week or two, China will promptly become a mainstay of the top 3, and will quickly rise to the top position, where it rightfully belongs. We are also confident those perennial Eastern European underdogs, Romania and Bulgaria will shyly make an entrance in the top 10 next week.
Several weeks ago we urged readers to consider CDS of Greek neighbors Bulgaria and Romania. Even as spreads of the two countries have widened materially over the last 10 days, especially following last week's news in which a Romanian court found pension cuts critical for IMF loan procurement unconstitutional, there appears to be much more pain to come. In a report from Moody's, the rating agency confirms our worries, in a piece titled "Continued deterioration of loan quality pressures Bulgarian banks." In the report, analyst Elena Panayiotou notes: "Last Wednesday, the Bulgarian National Bank released figures for problem loans at Bulgarian banks, showing a tripling in the percentage of bad and restructured loans to 11.4% of total loans at the end of May 2010, compared with 3.66% a year earlier and 10.7% in April. This is credit negative for Bulgarian banks, as the recent increase in problem loans will further impact the banks’ net profitability, given the requirements to set aside higher provisions for such loans." Since the Bulgarian currency is pegged to the Euro courtesy of the IMF's currency board, the country is effectively as powerless to inflate its way out of troubled bank balance sheets as its eurozone members. With Bulgarian CDS at 360, and with the country about to experience the double whammy of the collapsing Greek economy, and deteriorating asset value, we firmly believe a fair target this spread is at least half of where Greek 5 Year protection trades.
- Asian stocks fluctuate; Japanese banks decline on Mizuho's share-sale plan.
- Caribbean storms strengthen, may head for oil spill.
- China sets the exchange rate for the yuan at its highest in five years.
- China shares fall on concerns Agricultural Bank of China’s IPO might depress market.
- China, as part of fuel efficiency measure, to shut down small thermal power units totaling 10 million kilowatts in capacity this year.
- Consumer spending in US probably little changed in May as incomes rose: Survey.
- Dubai port operator DP World cancels plans for London stock listing until at next year.
- Group of 20 Nations agree on higher bank capital to avert financial crisis.
- Romania said it would raise taxes to shore up state finances.
Parliamentary pensions, a lavish Bastille Day garden party and ministers’ Cuban cigars are to be sacrificed in the name of economic recovery as the French government seeks to show that ministers are sharing the pain of their austerity drive.
Crisis In Romania: Constitutional Court Votes Pension Cuts Unconstitutional, IMF Loan In Jeopardy, Presidential Palace Stormed, CDS Blows OutSubmitted by Tyler Durden on 06/25/2010 16:02 -0500
Several days after the Romanian parliament passed a law to cut pensions by 15% in order to qualify for a critical $20 billion IMF loan, the Romanian Supreme Court found this law was not only unconstitutional, but unappealable (along the lines of what our own SCOTUS will do once the Fed's transparency appeal gets to the very top, resulting in confirmation once and for all that American laws are only made for the benefit of the Federal Reserve). The decision was reached hours after dozens of Romanian citizens stormed the presidential palace "to get an audience with President Traian Basescu." As a result of the Constitutional Court's decision, the IMF loan "may now be delayed, and this will be a big blow to the government of Prime Minister Emil Boc, the BBC's Nick Thorpe reports." Also as a result, Romanian (and by association, neighboring Bulgaria) CDS blew up today and closed +30 to 410 for Dracula's host country, and +20 to 360 bps for the country that served as the reverse engineering center of the former Communist Bloc.