A very disturbing precedent, for the already frayed domestic financial system, was set in Greece over the past few days, where as the linked story from On-News.gr explains, an unemplyed Greek woman who owed a little over 26,000 euros to two banks, Eurobank and National, received a full debt discharge on her outstanding loans. As the blog logical concludes, this decision will probably be adhered to in thousands of similar cases. Furthermore, it should be noted the woman had a perfect payment record for 18 years, and only fell behind when she lost her job. Imagine the sheer panic that would ensue if a comparable legal decision vis-a-vis ordinary consumer debt were to occur in the US - that would be a supreme court resolution for the ages. In the meantime in Greece, a one-two punch arrives: deposits being drained and moved overseas, and bad loans being outright erased from the balance sheet by court order. At least both sides of the balance sheet are declining so there will be no way for banks to fudge their capitalization and make it seem that loan writedowns are actually a beneficial thing for book equity.
Two days ago we posted the first episode in the must watch four part "Meltdown" series from Al Jazeera looking at the key events that brought the world to the edge 3 years ago. With the final quarter of the year upon us, and with massive redemption requests hitting deeply underwater hedge funds, not to mention with a macro and micro economic global financial environment that is the worst it has been since the fall of 2008, we once again stand on the verge of yet another Great Financial Crisis. And although our politicians and leaders refuse to learn from the past, we are confident our readers are far more intelligent. Which is why here is the next part in the Meltdown Series: "A Great Financial Tsunami." Because while insanity may be doing the same thing over and over expeting a different result, sheer idiocy is constantly refusing to learn from the past, and expecting a present which "is different this time."
Presenting some deeply philosophical observations from the man who has been wrong about pretty much everything, and to whom the jarring return of reality and its relentless destruction of the ivory towers he has carefully erected his entire career, can only be described as "surreal." No Jim - it's not surreal. It is all too real. The only surreal thing will be the response when GSAM's LP get their year end performance statement.
This Bloomberg article about German utilities giving away power got me thinking what our world would look like if the trillions in bailout money had instead been spent to build alternative energy infrastructure. From Bloomberg: “The 15 mile-per-hour winds that buffeted northern Germany on July 24 caused the nation’s 21,600 windmills to generate so much power that utilities such as EON AG and RWE AG (RWE) had to pay consumers to take it off the grid.” “You’re looking at a future where on a sunny day in Germany , you’ll have negative prices,” Bloomberg New Energy Finance chief solar analyst Jenny Chase said about power rates in wholesale trading. “And a lot of the other markets are heading the same way.” I will use only simple round numbers and calculations to make my point.
When we reported that Bank of America will be the first bank to institute debit card fees we made the following less than insightful observation: "The problem is that the bulk of depositor clients will simply walk away from Bank of America (which had $1,038 billion in deposits as of June 30), and any other institutions that piggy back on this, and from a game theory perspective, everyone has to do it, or nobody will do it." Well, Citigroup, which had no other choice, has just decided to follow in BofA's footsteps, which i) proves there is indeed a collusive move of desperation by the bank cartel, which in a normal country would see at least a statement from Eric Rip Van Holder, and ii) our thesis about America's impatience with petty theft - they are more than ok with grand scale larson such as that by the Fed via shadow inflation and currency devaluation, but when it comes to paying up an additional $5/month, well, just look at Netflix, which instituted a $6/month price hike two months ago... and is now fighting for survival. As for the exemption requirements, they will likely be the same as Bank of Countrywide Lynch's: either have a mortgage with the TBTF behemoth, or have $20k in a deposit account - both which will likely not be much of a help to 90%+ of the bank clients. The biggest problem is that suddenly at risk are $1.9 trillion in deposits - $1 trillion at BofA, $866 billion at Citi. While the financial crisis did little to dent the banks' deposit buffer, it will be highly ironic if it is an act of the banks themselves that begins the great bank run that resets it all...
One of the sterling performers in the hedge fund arena so far has just gone negative in several of his hedge funds for the year after another painful month. And if one of the best is unch, what can the rest say? Remember when we said 25% of the hedge fund space may be "redeemed"? We were being very optimistic...
Because we can always do with a Saturday afternoon laugh at Cramer's expense...
While the drop in speculative interest in various currencies made news last week, it is the turn of precious metals to be the key focus in this week's summary of the CFTC's Commitment of Traders report. As the chart below demonstrates, as of Thursday September 27, both gold and silver saw a massive plunge in the net long non-commercial interest (the cleanest proxy of how speculators are positioned in gold and silver). This is not surprising, following last Friday's CME hike in gold and silver margins, and this week's follow through action by the Shanghai Gold Exchange. The drop of 22,278 and 7,113 contracts, in gold and silver, to 127,801 and 15,425 contracts, respectively, brings the net total exposure to the lowest it has been since the fear of deflation was the only thing on everyone's mind in March of 2009. What is perplexing is that the net spec interest in silver is about half where it was on December 31, 2010 even with silver unchanged on the year, while only 56% of the long spec gold contracts from the beginning of the year remain even as gold is still up 15% YTD!
In David Kostin's latest weekly chart book, in addition to the plethora of useful charts (if materially incorrect when it comes to fund flow data - never before have we seen such as disconnect between Lipper/AMG and ICI flow data, allowing one to pick and chose which data set to use depending on their point), and market statistics, the Goldman head strategist observes a rather curious psychological schism, notably as pertains to investor sentiment regarding the financial powderkeg known as Europe. Namely that while US investors just need to read a Euro-negative headline to sell everything, in Europe Goldman's clients are largely oblivious of any and all adverse developments. To wit: "Our meetings with clients in Europe and the US during the past two weeks showed investors in continental Europe to be more composed about the direction and pace of policy decisions. US and UK investors are far more anxious about potential policy solutions and the cumulative impact of a drawn out resolution." We wish we could recreate the European nonchalance, in no small part predicated by the general mindset of a socialist backstop to another global collapse, which in case of failure, will simply mean the activation of US-based FX swap lines, and thus America would have to bail out Europe once again like it did back in 2008. In retrospect we can see why nobody in Europe is too worried. Also, perhaps Goldman should do a better job at distributing the report by its own Alan Brazil saying Europe is doomed...
Another Blow For America's Banks (And Bank Of America) After California Kills Robosigning SettlementSubmitted by Tyler Durden on 10/01/2011 08:22 -0400
Anyone exiting the third quarter with a Bank of America (or Wells, or JPMorgan, or Citi) short on their books will be delighted to learn that the "other" mortgage fraud scandal, not the putback litigation which is sure to cost Bank of America billions in incremental legal fees now that that particular settlement appears to be challenged and banks even across the Atlantic are joining in the legal free for all, but the "Linda Green" robosigning affair, which various conflicted attorneys general had held a tenuous grasp over with a settlement in process, has just blown out wide into the open once again, after California joined New York AG Schneiderman in pulling out of the talks, and leaving Iowa Atty. Gen. Tom Miller with a completely lost cause. We expect all other states to promptly follow New York and California's examples. The net impact is quite adverse for all mortgage lenders, as this development will merely snarl the traditional foreclosure process for even longer, and while beneficial to borrowers, it will put even less cash into the depleted coffers of the banks that so desperately need it. Since few if any will actively pursue distressed, or any, housing sales, it will not only hinder further balance sheet repair of the banking sector, but will keep a lid on any potential housing market improvement, which as BCG indicated a few days ago, is the most critical missing link to any economic recovery. Without it the hands of the Fed chairman are tied even more, and leave him (and the middle class) with just one, nuclear as it may be, option.
On September 29, 2011, beginning at 14:08:25, quote rates from one stock, AMD, accounted for nearly half of all equity quotes. The pattern of data is similar to what we found in Dell a month earlier. There were 6 seconds that each had over 20,000 AMD quotes. We are having trouble finding the appropriate superlative to describe the level of lunacy that generated this event, and the incompetence of regulators to allow it to continue. And continue it does: both in frequency and magnitude. Soon 20,000 quotes/second per stock will be the new normal. This problem will only continue to grow until one day, when there is real market impacting news, there simply won't be enough bandwidth or computing power to process legitimate equity prices. And everyone will wonder what happened. The last time this occurred was May 6, 2010.
We are going to hear several carefully fashioned talking points concerning the economic collapse over the course of the final quarter of 2011, especially in light of the dismal end of the stimulus driven bull market that sustained public optimism since the derivatives implosion in 2008. Let’s not forget, three years ago mainstream economists and the Obama administration were calling for a near full recovery by 2011. Obviously this never materialized, and so, the game has to shift to a new dynamic to keep us all guessing. The deflationary boogieman will be resurrected to frighten taxpayers into taking on even more debt in order to feed the fiat machine, but this is going to meet extraordinary resistance. If you think the protests on Wall Street today are gaining momentum, just wait until Helicopter Ben announces QE3! The next logical step in the progression of banker planning is the call for “Globally Coordinated Action”; global initiatives tying numerous countries together in a unified effort to whitewash the crisis and solidify their real purpose of economic centralization.
Sean Corrigan of Diapason Commodities shows, in his wonderfully loquacious way, the massive disruptions in domestic money holdings involved since 'Irrational Exuberance', noting the underlying message that, given that they hold a higher fraction of the stuff than has traditionally been the case, if you want to 'mobilize' the money in existence now, it is the willingness to do so of Non-financial BUSINESSES (both corporate and non-corporate) that needs to be encouraged, a finding which further supports our oft-expressed contention that it is not the level of interest rates or currency parities, but the extreme degree of regime uncertainty which is the enervating factor and that this last is as much to blame for the current, sub-par recovery as it was in the FDR/Morgenthau/Eccles 1930s.
The clock has been turned back to 1989 and the stock market briefly cheered the temporal transformation, although credit markets have remained far less sanguine. With Europe on everyone's collective mind, rumors of an expanded European Financial Stability Fund (EFSF) acting akin to the early version of U.S. TARP had many hoping that a true resolution had finally been found. Of course, the first plan (the one sold to Congress) for TARP was to act as a resurrected Resolution Trust Corporation (RTC), so the markets are reaching back to the late 1980's for guidance on how to "successfully" contain banking contagion.