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On The Bright Side...
From Peter Tchir of TF Market Advisors
On the bright side...
EFSF is targeting having some real documentation sometime in the next month or so. The IMF is looking at some options to be able to set up short term credit lines more quickly. Think anyone there wishes they had something implemented already? There is no way the EFSF gets anything new up and running in a short timeframe. From the documents they released this week, they aren't particlarly close to any details, let alone details that the market will accept. They need details, and then they will need to spend time convincing the market that their plan works. The IMF could do something more quickly. It would break a lot of their rules, but if this crisis has been consistent about one thing, it is that breaking rules designed to protect the system is okay so long as it is to "protect the system"
Another bright spot is that the LCH will likely go back to original requirements, because although margin requirements are prudent and designed to protect the system, the standards can be lowered if necessary to protect the system.
On another bright note, with 2 or 3 government changes in the Eurozone now (I can't remember what happened in Slovakia) we only have about 14 more to go. I do have to admit that I was watching Bloomberg TV yesterday, and the reporters all commented on how stocks were moving in response to Berlusconi's resignation, but they all seemed skeptical that it was really a good thing for the market - I have to give them credit for that.
The Spanish 10 year bond hasn't breached 6% yet, it is only at 5.77% so contagion isn't an issue.
I read a report that the French banks are the biggest foreign holders of Italian sovereign debt, so that too is positive, since Merkozy have experience dealing with sovereign debt problems where France is the biggest loser.
On an actual happy note, someone at JEF must be jumping up and down with joy that not only did they address a lot of the concerns with disclosure, they actually dramatically reduced the risk on the books. I doubt it will be a pleasant day for financials (until the ECB buys, IMF announces, and LCH retracts), but at least JEF shouldn't have to be fighting for actual survival.
Now for some slightly less positive things:
Intesa reported it had 63 billion euro of Italian government bonds on its books. Assuming the average maturity is 2 years, that would be an unrealized loss of 6 billion Euro now that the 2 year bond is yielding 7% and trading at 91.5% of par. At these prices banks don't want to sell as it erodes their capital, so they are now in bailout begging mode. If banks as a whole own a trillion of Italian government bonds (of the 1.6 trillion), they have unmarked losses approaching 100 billion, most of that in the past 3 days. The ECB, which probably owns longer dated Italian bonds, is probably sitting on a mark to market loss on Italian bonds of 10 billion? That is separate from their Greek losses. And that is just on outright exposure, not all their "collateralized" funding agreements with weak and destitute banks.
I think I am going to have to learn what an SDR is. I really don't like having to learn new things, but I honestly don't really know anything about SDR's. In spite of the fact that I would bet most people calling for using SDR's also have no clue what they are, we will see proposals to use them. I think the US politicians should speed up their debt ceiling discussions because we may be having some IMF drawdowns soon. Though maybe SDR's don't count against the debt ceiling because no one knows what they are or ever thought they would have mainstream use?
Speaking of the debt ceiling, looks like Fannie Mae needs another 8 billion? That is the gift that just keeps on giving. Though, in an effort to be positive, I guess you could argue that coughing up $8 billion for Fannie is stimulus for housing?
Dexia, the bank that was "nationalized" but still has CDS that trades very wide, announced losses of 6.3 billion euro after the nationalization. 2.3 billion eur of losses were on Greek debt. They have declined to say how much financing they are receiving from the ECB (The ECB has shifted from lender of last resort to bottomless garbage pit). Great thing that the taxpayers are picking up the tab for that one. On the bright side, Belgium bond yields didn't move much. I wonder if there is some risk of Belgium backing away from the bailout? Just seems strange that CDS is so well bid, and Belgium debt is hanging in okay. Dexia did take the time to blame the rating agencies for their woes. Yes, Dexia would have been fine without those pesky rating agencies reacting and causing their cost of funds to go up. The scary thing is that they may actually believe that is why they had to be nationalized.
One final positive, it is only 5 hours until noon, when Europe closes and we can resume the rally based on anything that sounds remotely positive.
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I`m going long in the Europe close, NOT!!, maybe,..
This is all right hand stuff folks. What is the left upto?
The Spanish 10 year bond hasn't breached 6% yet, it is only at 5.77% so contagion isn't an issue.
How can this be? Spain is in much worse shape than Italy on every metric?
In any case, it's right around the corner.
Or is that around the coroner?
ORI
Paying Attention
Spain is in much worse shape than Italy on every metric?
Weaker economy, but they have much lower debt to GDP. Italy is one of the biggest bond markets in the world.
True Gene, but huge un-employment, especially in the Key "18-27" metric and the mother of all real estate bubbles. Spain's RE mess has tentacles into a lot of the EU.
Plus, and this is true from my research, Spain is hiding a lot of it's pain in South America. For better or worse, LARouche's folks have done an excellent job of dissecting Banco Santander, it's ties in Brazil (beach-head) and then onwards into SA in general.
Perhaps Debt/GDP is a tad mis-leading and so easily manipulated, ne?
ORI
ORI
Vigilantes. All about vigilantes, and the corporate media hounds. US, UK Europe all focused on Italy and for good reason. Huge debt, massively under-capitalized banks + batshit leadership. Having said that I do not doubt your research into Espana but it will be a side-show IMO.
'Perhaps Debt/GDP is a tad mis-leading and so easily manipulated, ne?'
We'll find out shortly.
Excellent points all Gene. But it's such a pattern.
As an example, Italy is failing in the Shadow of the Greek Shenannigans, right?
The connects are scary.
Check this out as an example:
http://www.gregpalast.com/lazy-ouzo-swilling-olive-pit-spitting-greeksor-how-goldman-sacked-greece/
ORI
Its not how much but who owns that debt, and whether you can print your way out if necessary.
Italy going back to the lira, probably wont be all that bad for the average italian.
Spain to the peseta, well.....
I believe he was being sarcastic about the Spanish bond.
awesome writing. Thanks :)
Seriously. "The gift that keeps on giving...!"
I, Quite Literally, sprayed my keyboard.
Oh ... I think they should rally about Merkozy getting pregnant today. We can expect cute twins really soon - Markie and Frankie
(excuse my english)
When all else fails leverage.
There is so little equity propping up the uneconomic crap its a wonder how we can collectively delude ourselves that real values arent being eroded.
And people wonder why we buy gold and silver.
'I doubt it will be a pleasant day for financials (until the ECB buys, IMF announces, and LCH retracts), but at least JEF shouldn't have to be fighting for actual survival.'
Yeah... a little early to say, no?
On the bright side, trading in Intessa and Unicredit does not seem to have been halted yet, despite their being the largest holders of Italian debt.
Tyler,
Did you get the new Call of Duty?
Is there a "shoot a banker in the face" bit? That could be soothing.
My goodness Peter, never heard this much ambivalence out of you. Burned on some shorts recently?
Naw, these problems are all "Level 1" debt..... We'll just off-load them to "Level 2", and everything will be ok again, bull market on!
Sarcasm off....
Just do what CNBS does...
-Post how much markets are "up" for the month and year with a perpetual scroll adorned with "positive colors"
-Conduct fluffy long-winded interviews with guests like the "Pinkberry" CEO and be sure to throw in many gratuitous video clips of pretty ice cream displays as well as light and "feel good" personal conversation.
-Completely ignore the bloodbath
-When all else fails, go to Phil "unions rock" LeBeau for the newest shiny red Detroit p.o.s. to distract the uber-AD/HD algo's and risk desks.
And even if the entire country of Greece is on fire, DO NOT show it on television because the last time we saw Greeks rioting it caused the flash crash.
Loving the recent hike in sarcasm.... keep it up TD!
Is it Schadenfreude-ly of me to be glad that someone of Peter's intellect, and experience is as cynical and depressed as I am?
Misery loves company...even while making money?
An SDR is the IMF's version of money...backed by absolutely nothing. You need more detail than that?
Yep, Peter, it's only a matter of time again, whether it is a few hours or days before the "system" regains control.
Machines + Central Banks + Govt. + Value investors + Momo's + Rumors = Always BTFD. Guranteed.
Great post.
Just like that, DOW futures are up 200 and in the green. WTF???
Algo's saw "union wins" and bmped north. Unfortunately it referenced the OH union bill and not the EU.
Peter,
Thanks to you, it seems that "on the bright side" is becoming phrase of the day. For ZH readers, that is.
It is funny that that the NYSE jumps up once Europe closes down, and then the rumors start. This has been happening for 6+ weeks.
This is a headline boom, nothing more, setting up for the lulz fall of 2012-2013 of epic proportions.
"The IMF could do something more quickly. It would break a lot of their rules, but if this crisis has been consistent about one thing, it is that breaking rules designed to protect the system is okay so long as it is to "protect the system""
I hear they have already etched their names in the desks in detention hall.
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