"Nothing has changed and absolutely nothing has been accomplished. There is no “solution” to the crisis that will not result in massive pain, confusion and wealth decimation. The reason is patently obvious. At least half the continent is completely and helplessly bankrupt. There are only two outcomes to the entire situation. Either the sovereign debts are written off aggressively and the banking system declared insolvent and restructured or the ECB decides to turn on those printing presses to the tune of trillions and destroys the purchasing power of the union in Zimbabwe-like fashion. People will read this and think I am exaggerating . The phrase “it takes 5 minutes” keeps running through my head because all it takes is a small amount of time to see the situation for what it is. I am not that smart. This is obvious. The scary thing is that it is abundantly clear that the vast majority of U.S. investors have not bothered to take the 5 minutes necessary to understand how extreme and binary the outcomes to all this is. Their clients will suffer massively in the months and years ahead as a result of their laziness and lack of macro curiosity. " - Mike Krieger
Remember when even the worst of all trading desks on Wall Street, that of Bank of America could do no wrong and disclosed a trading quarter of pure perfection? Yeah, that's over. The bank, which just jolted shareholders with news of material common dilution, in the form of $2.5 billion in new equity capital to be raised, has released its trading days data for Q3. Per the 10-Q: "During the three months ended September 30, 2011, positive trading-related revenue was recorded for 69 percent (44 days) of the trading days of which 47 percent (30 days) were daily trading gains of over $25 million, nine percent (six days) of the trading days had losses greater than $25 million, three percent (two days) of trading days had losses greater than $100 million and the largest loss was $119 million." On the flip side, BAC had not one $100MM+ trading win. In other words, BAC posted losses on a whopping 31% of the trading days (compared to 0% two quarters ago), something that indicates a very violent return to normalcy: after all if banks, with ZIRP, legal frontrunning, profit from default risk surges, and POMO are unable to make money 100% of the time, who else, besides all the day traders on twitter and the fine men and women on Fast Money of course, will post flawless trading records in the future?
Sponsored Post by Lear Capital
FREE Video! EndOfTheDollar.com
Are Fed Actions about to crash the dollar and gut your savings and retirement accounts?
Amid average volume, ES managed to rally an impressive 45pts off overnight lows to close just shy of the 200DMA on what was mixed (at best) macro data in the US and seemingly more chaos in Europe (does anyone know for sure whether there will be a confidence vote?). High beta and most-shorted stocks dramatically outperformed the broad equity markets as 4% swing days have become so de-rigeur nowadays! Financials went from major loser soon after the open to middle of the pack by the close with only a very late day disconnect between HY credit and stocks (HY outperformed after the bell) of any note as we leaked higher all day long. Heavy new issuance in IG credit saw secondary bond trading pretty balanced from a net-buying/selling perspective - even as TSY yields rose significantly. TSYs saw 2s10s30s rise notably but combined with FX carry crosses, oil, gold, and the dollar - risk asset drivers in general were far less excited than stocks by the close. Commodities lifted further after Europe's close as the USD weakened more leaving gold and oil up around 1.5% on the day.
And to think it was less than two months ago that Warren Buffett took a bath to provide the bank with capital it had "absolutely no need for" but was happy to take it anyway. Well, it turns out the firm is preparing to raise just a "little" more capital. From the just released 10Q: "During the third quarter, global economic uncertainty and volatility continued as described more fully in the Executive Summary – Third Quarter 2011 Economic and Business Environment discussion on page 7. Concerns over these and other issues contributed to a widening of credit spreads for many financial institutions, including the Corporation, resulting in lowering of market values of debt and preferred stock issued by financial institutions. The uncertainty in the market evidenced by, among other things, volatility in credit spread movements, makes it economically advantageous at this time to consider retirement of issued junior subordinated debt and preferred stock. As a result of these matters, we intend to explore the issuance of common stock and senior notes in exchange for shares of preferred stock and, subject to any required amendments to the applicable governing documents, certain trust preferred capital debt securities (Trust Securities) issued by unconsolidated trust companies, in privately negotiated transactions. If we pursue the exchange of Trust Securities, we would immediately use the purchased Trust Securities to retire a corresponding amount of our junior subordinated debt that we previously issued to the unconsolidated trust companies. These transactions would increase Tier 1 common capital and, on an after-tax basis, reduce the combined level of interest expense and dividends paid on the combined junior subordinated debt and preferred stock....We will not issue more than 400 million shares of common stock or $3 billion in new senior notes in connection with these exchanges."
When it comes to the almighty corporation, employees are naturally expendable. Sure enough AMD is all too aware of this, per AP: "Advanced Micro Devices says it is cutting 10 percent of its workforce amid weak PC market. The chip-maker made the announcement Thursday after the market closed. Advanced Micro Devices Inc. says the cuts should help the company save $10 million in the fourth quarter and $118 million next year. The layoffs are expected to be finished by the end of the first quarter of 2012." From the company's 10K: "As of December 25, 2010, we had approximately 11,100 employees." Of course, in Banana America, this means tomorrow's NFP number will be a massive beat.
While Athens' political parties are recreating a mediocre episode of gossip girl, with accusations of blackmail this, and traitor that, and somehow everyone (not only in Greece but in Europe) has gotten their period at the same time, G-Pap is currently holding his second address to Parliament (view here) in which he is seriously rambling like a deranged lunatic but where he just had the following eerily most anti-prescient statement ever:
- PAPANDREOU SAYS `NOT ATTACHED TO ANY POST'
Below is an artist's rendering of the post in question.
SEC Opens Investigation Into MF Global Insider Trading, Ignores Glaring Evidence Of Client Capital ComminglingSubmitted by Tyler Durden on 11/03/2011 15:57 -0400
After reading the following just released announcement from Bloomberg stating that "the U.S. SEC is reviewing trades in MF Global Holdings Ltd. convertible bonds to determine whether some investors sold the debt based on confidential information before the firm’s demise, two people with direct knowledge of the matter told Bloomberg’s Joshua Gallu and Shannon D.Harrington" we are quite stunned: how on earth will the SEC, which is the official depository of the dumbest and most corrupt people on earth, go about doing this? And what about what is an already confirmed act of gross fiduciary duty breach in the form of commingling client accounts: is that one too complicated for the SEC, so it has to proceed with this ridiculous diversion and pretend it is doing something when the biggest criminal is right there starting everyone, especially those from New Jersey, in the face?
As we have been claiming for months now, Italian banks will have no choice but to raise capital to prevent their undercapitalized status from stirring the insolvent bank vigilantes and making them into the next MF, or Lehman, or pick your favorite bankrupt bank metaphor. Today we get confirmation of this, after Reuters reported that Italy's UniCredit will proceed with a €4 to €7 billion capital raise. So far so good. Where it gets somewhat entertaining is the disclosure of who it is that will be "advising" UniCredit on its capital raise. Per Reuters, "Mediobanca and Bank of America-Merrill Lynch are advising Italy's UniCredit on a capital increase seen in a range of between 4 billion and 7 billion euros, although no formal mandate has been given yet to form a consortium for the operation, sources close to the matter said on Thursday. The sources said a decision on the size of the capital hike depended on a series of factors, including whether UniCredit would be allowed to calculate convertible notes worth some 3 billion euros as core capital." Did they just say Mediobanca and Bank of America advising another bank on... a capital raise? Uh, pardon our ignorance, but shouldn't Mediobanca and Bank of America be focusing on their own capitalization first before advising someone else? Does this mean that Bernie Madoff has somehow magically made his way to the Treasury Borrowing Advisory Committee and is now advising Tim Geithner on how to raise debt? Or that Jon Corzine is running for US Attorney General? Frankly, nothing would surprise us any more... Presenting the YTD performance of all three banks.
We noted, in September, that corporate bond downgrades were outpacing upgrades very notably and today we get the other side of that with Moody's noting that in Q3, Muni downgrades outweighed upgrades by the most since the financial crisis began. At 5.3 to 1, the third quarter of 2011 had the highest downgrade-to-upgrade ratio of any quarter for the U.S. public finance sector since the onset of the financial crisis in 2008.
"A rapid deterioration in credit metrics led to a higher-than-average 14 multi-notch downgrades."
That today democracy died in Greece is no surprise to anyone (see note from Greek reader below). What may be unexpected, however, is that despite expectations that any talk of a Referendum is over and done with, this is hardly the case. In essence, what G-Pap said in parliament today is that there will be no referendum if and only if there is an agreement from the main opposition party. Alas, as the following headlines from Reuters indicate, this now appears to be a non-starter.
- GREEK OPPOSITION LEADER ASKS PM TO RESIGN
- GREEK OPPOSITION LEADER SAYS PM MUST QUIT, ELECTIONS MUST BE HELD
But most importantly,
- GREEK OPPOSITION LEADER SAYS RESIGNATION IS A CONDITION FOR TALKS
And so back to square one, as G-Pap's bluffing blows up in his face and any agreement is now contingent on his departure, something he has said will not happen.
While attempting to assign news/rumor to each dip and rip in today's market is a waste, we note that while markets ended considerably higher (from both yesterday's close and intraday lows), there was some less-than-compelling evidence that traders remain unconvinced. Another referendum-on / referendum-off day saw equities very notably outperform credit markets, it was investment grade credit that outperformed as financial credit lagged the rest of the market. Combine that with the strength in gold and perhaps there was a little more safe-haven demand than a rip-snorting 40pt rally in ES would suggest. The EUR action dominated FX markets (as JPY stagnated) as vol was aggressively bid up around the open (much more so in macro protection than micro) but has ebbed lower as the day has worn on. US equities remain notably expensive relative to broad risk assets, especially noteworthy given the convergence to 'fair-value' overnight from an expensive close last night.
Final Tally - Outgoing Freddie CEO Gets $4 Million Bonus To Receive $21 Billion In Bailouts After Massive Q3 LossSubmitted by Tyler Durden on 11/03/2011 13:09 -0400
When last week we reported about the scandal of outgoing Freddie Mac CEO Ed Haldeman receiving at least $3.9 million as a reward for his two year tenure at the top of the insolvent and nationalized housing entity, we said: "As the chart below demonstrates, the total "draws" received under Haldeman's tenure amounts to $14.5 billion. This excludes the Q3 number which will be made clear next week. Something tells us with this abrupt departure, the number may be higher to quite higher than expected." As usual: when in doubt, be cynical, and be skeptical, and you will be right. Today, Freddie just reported that its Q3 draw, or required quarterly bailout amount from the Treasury, was $6 billion: the highest since Q1 2010, as a result of a massive loss of $4.4 billion. This means that during his tenure which ended just after the completin of Q3, Freddie has been "rewarded" with $20.5 billion in taxpayer capital merely to keep the zombie entity in operation! And for this, Ed gets $4 milliom. And this is why people in America are very, very pissed.