Standard And Poors

AMZN - Profitless, but making it up in volume.   

Ahead of today's presidential and congressional elections, Goldman provides some brief thoughts on various election-night (and beyond) events. From a viewer's guide to the poll-closing times to a discussion of the apparent 'closeness' of the race and post-election market performance, they note that equity performance post 'tight' races has been better than in elections where the winner is more clear-cut. This election has a twist though in that it will be immediately followed by debate on the fiscal cliff, and thus resolution of the election will reduce, but not eliminate policy uncertainty.

SNB bond-buying is "exacerbating" the gap between borrowing costs for stable countries like Germany and the rest of the 17-nation euro zone.

Get those rotten tomatos ready

On January 30, a skeleton fell out of the closet in the Netherlands. Het Financiele Dagblad reported that Vestia, the biggest Public Housing Corporation in the Netherlands with 79 thousand rental units, had had a margin call of 1.6 billion euros on its interest rate derivative portfolio. Vestia had doubled its derivative contracts to 10 billion dollars (in notional value) in 2010 on a loan portfolio of 6 billion euros. They say they had arranged the extra “coverage” already for potential future loans.

The loan to cover the shortfall had secretly been provided by the fund guaranteeing Public Housing Corporations, the Warborgfonds, since September 2011. Recently Vestia was able to secure a replacement loan from the De NederlandseWaterschapsbank.

According to RTLZ, Vestia's Contract Support Annexes will have to be examined in detail to figure out exactly what the conditions are. The Interior Minister has been promised the results of this examination sometime in March.

Twenty Woningcorporaties are preparing to guarantee Vestia liquidity of another billion euros. They will demand strict conditions on this sum according to NRC. They want assurances that they will not have to contribute to the Centraal Fonds Volkshuisvesting (CNV) so-called reorganization support if any other corporations get into trouble.

It is not entirely clear how many Woningcorporaties have derivative contracts but newspaper Trouw estimates there to be 148 of them. A fall in interest rates of one percent would require 24 to seek additional funding, according to Interior Minister Spies in NOS news. Another 24 on the other hand have been rumoured to be able to withstand this scenario. RTLZ reports that 20 of them have already had margin calls on their derivative products.

It could all lead to a viscous spiral downwards in the sector according to NRC Handelsblad. In fact, four directors of other Woningcorporations anonymously state in Trouw that Public Housing corporations are too lax in offering guarantees to each other through the Waarborgfonds. If the government or the CNV intervenes, it could alarm bankers who will call in all outstanding Vestia loans (NRC). This is not likely according to Vestia mouthpiece Ronald Florisson because the corporation now has enough funding on hand thanks to the winding down of the derivative contracts. Florisson is “very thankful” for the arranged backstop.

Vestia has jacked up the rents for new renters by 9 percent. Several opposition parties are not amused and are going to protest in Parliament this week.

Director Eric Staal left Vestia with a rather unusual golden handshake of 3.5 million euros, allegedly to secure his pension requirements. He had earned 500 thousand euros a year, two or three times the norm for directors of public and semi-public institutions. However this is all being investigated. The PVV (Partij Voor de Vrijheid) is demanding the seizure Staal's Caribbean villa.

Vestia's Advisory Board has recently confirmed that the current director is being paid according to the “Balkenende norm” set by government for the sector. These semi-public servants are allowed to earn 130 percent of a Government Minister's salary, which was 187 340 euros in 2011, plus expenses of 7560 euros. Despite the fact that the salaries of these directors of semi-public institutions have to be published, there are regular scandals in which they have been found to receive much more.

Another noteworthy example of things coming unhinged in the Public Housing sector involves a management company working for one of the corporations. These companies stand between buyers and renters of Woningcorporatie properties and do investment and development work in the sector.

It was reported on 23 February that management concern Redema had had the Owners' Associations savings accounts put into bank accounts in its own name and went bankrupt. It will cost 'hundreds' of families at least 1.5 million dollars. Since more and more public housing is being sold off instead of rented, the whole phenomenon of Owners' Associations is relatively new for many people.

So there is lots of uncertainty in Public Housing these days. The entire Public Housing Corporation sector has loans (I don't believe they issue bonds) outstanding of around 85 billion euros, ultimately guaranteed by government. According to writer Peter Verhaar at nuzakelijk.nl, Standard and Poors rates the sector “extremely strong”. Verhuur argues that the problems are largely due to Public Housing having undergone a fake privatization.

Undertheradar's goal is to give an impression of the state of economics, finance and politics in the Netherlands and compare it to its partners in the eurozone.

The Case Shillers are shilling that the market is still weakening. But that's just not the Case.

Mario Draghi once again mistakes a Solvency issue for one of Liquidity

Bank of America now precisely at $5.00 following an after hours downgrade from A to A-. We note that BofA's CDS widened 10bps today while MER CDS widened 18bps and notably wider (we haven't seen runs post downgrade) and we wonder how this will impact the firm's huge derivative book which was recently moved to the Bank's higher rated, and deposit backed unit for its better rating support. In fact, following such a drastic action, it is quite likely that derivatives units across the board will see counterparties scrambling to demand a far greater cash cushion for fears of the same downgrade waterfalls that took down AIG and MF Global.

"We are all Greeks" - so begins one of the best reports on the unsustainability of the status quo, and on what "the new world order" will look like, created by SocGen's Veronique Riches-Flores. Her overarching observation: "No one can claim immunity from a Greek-style spiral" because "Our economies are mature, with weak potential GDP, especially post the financial crisis" and due to that old standby which everyone chooses so conveniently to forget, yet which is the biggest threat to the world's "welfare-state" stability, in existence since 1860 and which has been responsible for not only the longest period of peace in world history, but for the longest stealth plundering of middle-class wealth (there is indeed no such thing as a free lunch): "We are aging - we have no chance to see our future income improving substantially in the long run ; our savings capacities are shrinking and our health and pensions spending is increasing." That, in a nutshell, is it, no matter how many protracted essays one reads predicting the future (or war in Europe): the truth is there is increasingly less cash flow, coupled with increasingly more demands for cash.

This edifice blows apart once there are actually defaults and as importantly downgrades of the so called AAA debt structure.

Last chance ...

Hosed by Ben and Timmah, Bammy and Congress ...

Yesterday’s slide in the US stock markets further proof that the world’s financial markets are nothing more than a rigged casino where the house (Wall Street) holds by far the better odds in every game (currency markets, stock markets, derivative markets, commodity markets) it offers the mark (the retail investor).

Germany is openly saying what we all really know, Greece is probably !@#!$%. The problem is, how can Greece go down without pulling half the Euro zone with it? The Greek tragedy saga is much worse than the mainstream media is making it out to be. Reference my annotation on today's Bloomberg article...

Good to see that we have a perfectly normal, efficient and gapless market. Goldman deserves a golf clap for providing sublime hi-fi liquidity through the SLP. The chart below is not some crazy 5.0 + beta stock, it is the Standard and Poors 500 index, which, last time we checked, had about 500 5.0+ beta stocks (I jest for regulatory impact).