Just as the bottom was about to fall from the market, here comes the ECB cavalry with its tactical ultra short-term bailout in the form of several billion in Italian BTP purchases. Since this is nothing but a liquidity injection which does nothing to resolve deep, structural and solvency problems, we give this latest intervention attempt about half an hour in halflife. And once the market processes the news from the FT that the EU bank on naked CDS shorting will become permanent, look for everyone short sovereigns to unwind synthetic positions and to rotate shorts into cash bonds. Good luck ECB.
Because The Financial Short Ban Was Not Enough, Europe To Proceed With CDS Short Selling Ban Imminently, Accelerate Terminal UnwindSubmitted by Tyler Durden on 10/18/2011 09:49 -0400
Just because Europe did not learn any lessons with the financial shorting ban which made everything much worse, here comes this...
- EU LAW TO BAN NAKED SOVEREIGN CREDIT DEFAULT SWAPS WITH COUNTRY OPT-OUT IF RISK TO SOVEREIGN DEBT MARKET -- EU SOURCES
- EU SAID TO BE CLOSE TO DEAL FOR CURBS ON NAKED SOVEREIGN CDS
- NAKED SOV. CDS DISCUSSIONS PART OF TALKS ON SHORT-SELLING LAW
- SCHAEUBLE SAYS COSTS OF NAKED SHORT SELLING OUTWEIGH BENEFITS
This means that cash Sovereign bonds are about to go bye bye as the only recourse will be to short the living daylights in good old-fashioned govvies. And so we move one step closer to the final unwind courtesy of idiot European bureaucrats who are handing free money on a silver platter to the skeptics...
Below we refresh the very simple correlation chart showing the EURUSD and the spread between French OATs and German Bunds, a spread which has soared to all time wides now that France is once again the target of vigilantes on fears of an imminent French downgrade. According to this alone, the EURUSD us now about 1300 pips rich, an ES-implied level of just about 1,000. We expect reality to rear its ugly head very soon.
Peter Tchir follows up on our original post from July 21 which predicted precisely what would happen in Europe three months in advance: "I expect we will see a "grand plan" soon. It will have a massive headline number. It will have all sorts of bells and whistles. It will have caveats. The headline program will sound huge. The fact that most of it is self-referencing, writing insurance on yourself, etc., won't even be important. It will be the conditions that are attached. It won't be carte blanche, recipients will have to meet set criteria to receive help. It will be phased in. It won't be all available at the first stage. This is because Germany finally realizes, that if it commits the money carte blanche and takes leveraged exposure, it is no longer in charge. The recipients are in charge. Germany gets in. France is still somewhat clueless, but Germany finally gets that the Grand Plan is the Grand Disaster for Germany."
Today at 8 pm is the latest installment in the Republican presidential debate drama this time, appropriately enough, straight out of Sin City. Here is what else to look forward to from DC.
Following concerns that China will be unable to funnel liquidity into its slowing economy due to latent inflation, the last thing the world needed was to learn that inflation, in this case Producer Prices, was still running at a blistering pace in the US. Alas, that is precisely what it got after September PPI printed up 0.8% from the month before (following the unchanged print in August) and 6.9% YoY. The number was above even the highest expectation from Wall Street strategists (consensus was 0.2%). And while PPI ex food and energy was up just 0.2%, try telling that to those 99% of the population whose income is barely sufficient to buy the, you guessed it, food and energy, which rose by 0.6% and 2.3% respectively. The biggest concern is the immediate impact on margins: producers’ rising costs likely to lead to further margin shrinkage “as firms choose to absorb increasing costs rather than pass them along to consumers,” says Bloomberg economist Joseph Brusuelas. Don't expect much respite in the CPI report to follow shortly.
Goldman Reports Massive $0.84 Loss Per Share, Prop Trading Loss Of $2.5 Billion, Comp Accrual Of $358,713 Per EmployeeSubmitted by Tyler Durden on 10/18/2011 07:39 -0400
Topline bloodbath Summary: Net revenues in Investment Banking were $781 million, 33% lower than the third quarter of 2010 and 46% lower than the second quarter of 2011. Net revenues in Financial Advisory were $523 million, up slightly from the third quarter of 2010. Net revenues in the firm’s Underwriting business were $258 million, 61% lower than the third quarter of 2010. Net revenues in both equity underwriting and debt underwriting were significantly lower than the third quarter of 2010, reflecting a significant decline in industry-wide activity. The firm’s investment banking transaction backlog increased compared with the end of the second quarter of 2011. Net revenues in Institutional Client Services were $4.06 billion, 13% lower than the third quarter of 2010 and 16% higher than the second quarter of 2011. Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.73 billion, 36% lower than the third quarter of 2010. And so on. As for the number everyone in #OWS is looking for, "The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $1.58 billion for the third quarter of 2011, a 59% decline compared with the third quarter of 2010. The ratio of compensation and benefits to net revenues for the first nine mo nths of 2011 was 44.0%. Total staff levels decreased 4% compared with the end of the second quarter of 2011." In a nutshell: for the first time in probably since the Lehman crisis, Goldman reported a massive loss in its prop trading division of $2.5 billion, and also based on LTM accured comp benefits and the total staff at period end of 34,200, average compensation amounted to $358,713/employee.
The September PPI, TICS and speeches from Fed officials
We are still waiting to see the final form of the "Grand Plan" and what novel ways the EFSF guarantees will be applied to save the day. At the risk of sounding incredibly stupid, I have this feeling that Europe didn't actually work on any details until this past week, and Germany is suddenly realizing how bad the details are for them. Is it possible that some politicians got so caught in the moment of "saving Europe" and "fighting the speculators" that they kept promising more and more, without thinking whether they could or should deliver? You would like to think they didn't, but since none of the politicians are detail oriented, most of their contacts at investment banks are high level, former bankers, rather than traders, it is quite possible they didn't realize what they had agreed to. If some new EFSF is created, all of the future bargaining power in Europe will be shifted from France and Germany to PIIS. (it is a shame Ireland wasn't named Shamrock, it would make the acronym so much better).
In yet another episode of accounting gimmickry Groundhog Dayness, Bank of America reported a massively wonderful EPS number of $0.56, which obviously is more than 100% better than the expectation of $0.21.... Until one actually reads the press releases and finds that this number is nowhere near comparable to an apples to apples comparison. To wit: the reported net income number was $6.2 billion, which includes, "among other things, $4.5 billion (pretax) in positive fair value adjustments on structured liabilities, a pretax gain of $3.6 billion from the sale of shares of China Construction Bank (CCB), $1.7 billion pretax gain in trading Debit Valuation Adjustments (DVA), and a pretax loss of $2.2 billion related to private equity and strategic investments, excluding CCB. The fair value adjustment on structured liabilities reflects the widening of the company’s credit spreads and does not impact regulatory capital ratios." So netting out the CCB gain and the strategic investment loss leaves us looking at the two items entirely affected by the blow up in the company itself manifested by its soaring spreads: the $4.5 billion in structured liabilities adjustment and the DVA which add to $6.2 billion, which is.... what the company reported as its EPS! In other words, Bank of America had $0.00 EPS excluding for the accounting BS that is provisioning for buying "CDS on yourself." And since both of these adjustments flow through the P&L, the reported revenue of $28.45 billion (much better than the expected $25.92 billion) had to be adjusted $6.2 billion lower, and confirms that absent this most blatant accounting gimmick, the revenue was a huge miss. Yet despite a plunge in the company's NIM, a $1.7 billion reserve release, and a substantial plunge in BAC's provisioning for Rep & Warranties from $14 billion in Q2 to $0.3 billion in Q3, something which will again haunt BAC, Bank of America increased its staffing from 40.4 thousand to $42.1 thousand sequentially. Alas, that trends will not persist.