Earlier today, in the very appropriate context of Greg Smith, we lamented the resent disappearance of everyone's favorite FX strategist, Thomas "9 out of 9" Stolper. Speak of the squid - here he is, this time advising clients they just got Stolpered out on short GBP/NOK with a 2.2% loss in 3 weeks.
Stop us when this confession from Greg Smith, a now former executive director and head of the Goldman's United States equity derivatives business in Europe, the Middle East and Africa, sounds exactly like everything we have said about the firm over the past 3+ years (and why we just can't wait for the next trading "recommendation" from Tom Stolper). "Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it."
In one of his most vociferous speeches (which is saying something for the eloquent Englishman), UKIP's Nigel Farage takes his peers in the European Parliament to task on their "determined yet delusional" attempt to keep the Euro propped up (as they desperately avoid using the 'D'-word - default). Citing many of the shocking statistics we have ever-so-quietly posted (such as 50% youth unemployment in Greece, the sovereign bond litigation against the Greek government, and the German FINMIN saying a third bailout for Greece is possible), he conjures images of the stuff-upper-lip English ignoring the carnage around them as they enjoy dinner. Striking at the heart of the problem, Farage notes that what is being done is not to save Greece (in fact it will 'crucify' them - as is already evident in their GGB2 pricing) but to save the "failing Euro project" and he ends with a critical lesson for the outspoken political leaders that surround him and their unequivocal statements
Andy Borowitz provides the one retort to Greg Smith that only free taxpayer money and trillions in bailouts can buy. In other news, we fully expect Mr. Smith to enact a voluntary refund of the 12 years worth of compensation and bonuses earned while working at Goldman any minute now. Or maybe epiphanies on Goldman "culture" following more than a decade of employment comes without compensation clawbacks?
By now everyone and their dog knows Treasuries are on the move. The move, however, is sizable as 10Y yields break above their 200DMA for the first time in almost five months. This is the second largest two-day jump in yields in 16 months as the market wonders whether this is the breakout where 's##t gets real' or a test of resistance at the October 2011 spike highs. Only AAPL time will tell.
The Fed Chairman, who is too busy to tweet at the moment, has just released his pre-recorded speech on Community Banking. In its we find the following pearl: "Despite some recent signs of improvement, the recovery has been frustratingly slow, constraining opportunities for profitable lending." Wait, hold on, yesterday the same Chairman told an eager headline scanning robotic world that economic growth was upgraded from "modest" to "moderate" - so which is it? Or will the Fed merely feed the HFT robots whatever cherry picked keywords are needed to nudge the market in the appropriate direction as required? Oh wait, we forgot... Election year. Carry on.
A company whose value is dependent on the continued success of two key products, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500). Little to add here.
As of this morning the Federal Reserve is officially on twitter and can be followed at @federalreserve. This is truly great news as it means that the US debt will have to be limited to at most 140 zeroes! Then again, after yesterday who cares about the Fed?Where is uber-boss Jamie Dimon's twitter account?
In what can only be seen as raising the rhetoric bar on the timing, scale, and seriousness of the Iran 'situation', Kommersant is reporting that "Tehran has one last chance" as US Secretary of State Clinton asks her Russian counterpart Sergei Lavrov to relay the message to Iranian leaders. If this 'last chance' is wasted an attack will happen in months as diplomats noted that the probability of an Israel/US attack on Iran is now a specific 'when' instead of an indefinite 'if'. The sentiment is best summarized by a quote from inside the meeting "The invasion will happen before year’s end. The Israelis are de facto blackmailing Obama. They’ve put him in this interesting position – either he supports the war or loses the support of the Jewish lobby". Russian diplomats, as Russia Today points out, criticized the 'last chance' rhetoric as unprofessional suggesting "those tempted to use military force should restrain themselves - a war will not solve any problems, but create a million new ones."
In an update of our post from a week ago, the ECB has increased its margin calls on European banks by EUR162 million this week to another record high of over EUR17.3 billion. While our pointing out of this huge jump from 'average' historical margin calls last week was met with - it's temporary/transitory due to temporary/transitory ineligibility of defaulted (and since undefaulted) Greek bonds (which given the rise this week has now been proven incorrect) or the more prosaic "don't worry, be happy", we remain concerned at both the velocity and now sustained size of these margin calls (as clearly collateral quality has dropped rapidly and remained weak). This is concerning since it would appear we had a good week for collateral (risk assets) in general, so we can only imagine what garbage is clogging the ECB's balance sheet. The side-effect of this appears to be (as we pointed out here) that Gold (the banks' remaining quality collateral) is being sold to cover these margin calls just as it was in September 2011 (though lease rates have not squeezed as much this time). We can only imagine the size of these margin calls should we happen to have a week where AAPL stock drops or BTPs don't rally (broad collateral actually loses value), but that seems impossible anyway.
Greece just defaulted. Again. No surprise - the country has been in default half the time since 1820. Curiously, Greece is also the first recorded sovereign defaulted as Art Cashin notes in his piece today. He also reminds us that the UK's plans to return the 100 Year bond are nothing new. In fact, the Consol, or the UK perpetual, was around in the 1700's. Things did not work out very well back then...
And how can it not be? As Banco de Espana just released earlier today, Spanish banks have borrowed a record €152 billion in February, a €19 billion increase from January. At least we now know what the capital shortfall was in Spain since pre-LTRO days, when total borrowings were €98 billion: "LTRO is for carry trade purposes"... right. So thank you European tax payers, and the 'bad bank' hedge fund formerly known as the ECB - you just bought Spain a few more months, however with your actions you guaranteed that nobody will change any part of their destructive behavior, and merely enable even more solvency crises in the future, which will be band-aided with even more trillions in free money, and so on, until the global central banks need to show their expansion not on a weekly but millisecond basis. And oh yes, this explains why Blackrock is tripping over itself this morning recommending Spanish bonds, which "may offer opportunities for long-term investors" - perhaps the same profit opportunity that the ECB had on its Greek bond holdings purchased at 80 cents of par and collapsed at about 20.
Because every former employee confession has an equal and opposite reaction from "toxic and destructive" firms. And what a better way to test the PR disaster damage control skills of the firm's new global head of corporate communications: former Treasury aide and Geithner lackey Jake Siewert. In other news, Goldman is now promptly adding perpetual non-disparagement clauses to all employee contracts. Retroactively, if possible.
Going into the US open, European equity markets have carried across some risk appetite from last night’s Wall Street news that 15 out of 19 major US banks had passed the Fed’s stress test scenarios. This risk appetite is evident in Europe today with financials outperforming all other sectors, currently up over 2%. Data released so far today has been relatively uneventful, with Eurozone CPI coming in alongside expectations and Industrial Production just below the expected reading for January. Taking a look at the energy complex, WTI and Brent crude futures are seen on a slight downwards trajectory so far in session following some overnight comments from China, highlighting the imbalance in the Chinese property market, dampening future demand for oil. Looking ahead in the session, the DOE crude oil inventories will shed further light on the current standing of US energy inventories.
- Euro zone formally approves 2nd Greek bailout: statement (Reuters)
- In a First, Europeans Act to Suspend Aid to Hungary Unless It Cuts Deficit (NYT)
- UK Chancellor Looks at 100-Year Gilt (FT) - What? No Consols?
- Hilsenrath: Fed's Outlook a Tad Sunnier - (WSJ)
- Banks Shored Up By Stress Test Success (FT)
- U.S. dangles secret data for Russia missile shield approval (Reuters)
- Wen Warns of Second China Cultural Revolution Without Reform (Bloomberg)
- Wen Says Yuan May Be Near Equilibrium as Gains Stall (Bloomberg)
- Merkel Says Europe Is ‘Good Way’ Up Mountain, Not Over It (Bloomberg)