Transparency

There is broad disagreement among European banks on whether they should (and whether they will) choose to access the LTRO. We have discussed the top-down perspective and the very granular bank-by-bank perspective, and we end with a more bottoms-up perspective on the bank's own views of the LTRO. As SocGen notes, the investment banks (and certain Swedish banks) are very skeptical (and rightly so given the 'LTRO Stigma') while the Italian and Spanish are open to taking whatever they can, whenever they can (is that really a good sign?). Bank management must weigh the transparency they will face at the end of the quarter when sovereign bond holdings are exposed and just as SocGen points out, banks with considerably higher exposure (implicitly through the carry trade) may well face much more negative market action (even if Basel III doesn't handicap that risk). As with LTRO 1, the ECB will only reveal aggregate data, leaving the individual banks themselves to reveal their own take-up - we suspect the investment banks will make a point of highlighting that they did not take the funds, while the Portuguese, Italian, and Spanish banks will promote the benefits of their government-reach-around self-immolating ECB life-line.

A riddle, wrapped in a mystery, inside an enema.

While much of the focus has been on Paulson & Co., the hedge fund founded by billionaire John Paulson, cutting its stake in the SPDR Gold Trust by 15% in the fourth quarter, possibly of more importance is the fact that PIMCO, the Texas Teacher Retirement System and George Soros all increased their holdings of the biggest exchange-traded product backed by gold. Paulson cut his gold ETF bullion holdings by about 600 million dollars in Q4, a reduction that was likely driven by client redemption needs as he and his fund remain upbeat on gold – primarily due to inflation concerns.  Paulson’s reduction in SPDR was offset by other important buyers such as PIMCO, which oversees $1.36 trillion and is home to the world's biggest bond fund and significant institutional buying from the likes of the Texas Teacher Retirement System and billionaire investor George Soros. ‘Bond King’, Bill Gross recently wrote about gold as a “store of value” and PIMCO’s allocation to GLD may be ongoing as they seek to diversify their portfolios and hedge against inflation. Soros, who once suggested gold was or would be "the ultimate asset bubble," raised his stake in the SPDR Gold Trust (GLD), a gold-backed exchanged-traded fund, to 85,450 shares, up from 48,350 shares in the period. Soros, who had disclosed call and put options on the gold fund in the prior period, reported no such investments in the fourth quarter. Soros’ GLD position is worth a mere $13 million, however it suggests that he is not as bearish on gold as portrayed and that he sees further upside for gold.

You know there is a reason why Europe just came crawling with an advance handout looking for US assistance: Moody's just went apeshit on Europe.

• Austria: outlook on Aaa rating changed to negative
• France: outlook on Aaa rating changed to negative
• Italy: downgraded to A3 from A2, negative outlook
• Malta: downgraded to A3 from A2, negative outlook
• Portugal: downgraded to Ba3 from Ba2, negative outlook
• Slovakia: downgraded to A2 from A1, negative outlook
• Slovenia: downgraded to A2 from A1, negative outlook
• Spain: downgraded to A3 from A1, negative outlook
• United Kingdom: outlook on Aaa rating changed to negative

In other news, we wouldn't want to be the company that insured Moody's Milan offices.

Just over three years ago, Zero Hedge first pointed out some dramatically meaningless inconsistencies in one of the world's most important numbers (which also happens to be "self-reported" and without any checks and balances) - the London Interbank Offered Rate, better known as LIBOR, which is the reference rate of a rather large market. Following that, we made a stronger case that the Libor, should really be abbreviated to LiEbor in "On the Uselessness of Libor" from June 2009, which alleged that this number is essentially manipulated, potentially with malicious intent. That alone got us a very unhappy retort from the British Banker Association (BBA) which is the banker-owned entity set to "determine" what the daily Libor fixing is based on how banks themselves tell us their liquidity conditions are. Well, as has been getting more and more obvious over the past two years, our allegations were 100% correct, and have now manifested in a series of articles digging through the dirt, manipulation and outright crime behind this completely fabricated number. And yet this should be the most aggravated offence in the capital markets, because LIBOR just so happens is the primary driver in determining implicit risk as a reference rate for $350 trillion worth of financial products. That's right - that one little number, now thoroughly discredited, has downtstream effects on $350,000,000,000,000.00 worth of notional assets. That's a lot. And while we are confident that nobody will ever go to prison for LIBOR fraud, which has explicitly been leading investors and speculators alike to believe that risk is far lower than where it truly is, what one should ask if the LIBOR rate is manipulated, and with is the entire floating and interest rate derivative market, not to mention CDS which are also driven off a Libor benchmark, what is there to say about the minuscule in comparison global equity market? In other words, does anyone honestly think that with the entire fixed income market pushed around by individuals with ulterior motives, that stocks are ... safe for manipulation?

Federal Reserve Board Chairman Ben Bernanke will testify at House Budget Committee (Chairman Paul Ryan, R-WI) full committee hearing on "The State of the U.S. Economy." The highlight of today's hearing will be watching Bernanke face his nemesis runner up, Paul Ryan, who will surely grill Blackhawk Ben with questions that are far more intelligent than the press corps could come up with during the last FOMC canned remark presentation. Watch the full testimony live at C-Span after the jump.

In the past, when discussing the goalseeking C-grade excel jockeys at the Congressional Budget Office (or CBO), we have not been technically full of reverence. After all when one uses a phrase such as this one: "What do the NAR, Consumer Confidence and CBO forecasts have in common? If you said, "they are all completely worthless" you are absolutely correct", it may be too late to worry about burned bridges. We do have our reasons: as we pointed out last year, following the whole US downgrade fiasco when the Treasury highlighted the CBO's sterling work in presenting a US future so bright, Timmy "TurboTax" G had to wear shades, we said "according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion." As we know now they were off only by a modest $17.5 trillion on that debt forecast. Yet we never attributed to malice and bias and outright corruption, what simple stupidity and gross incompetence could easily explain. Until today that is, when following a WSJ article, we are left wondering just how deep does the CBO stench truly go and whether its employees are far more corrupt than merely stupid?

Earlier today, the New York Fed was kind enough to voluntarily disclose the finacial holdings and assets of one former Goldman Sachs employee, and current FRBNY president Bill Dudley. Bill Dudley is also known as the gentleman to have received, when he was stil head of the PPT, aka the Fed's Open Markets Group, a waiver signed by one Tim Geithner on September 19, 2008, allowing him to keep not only his investment in AIG, which was "de minimis" at $1,200, but also in General Electric, which was not de minimis at $106,830. And while his modest holdings of AIG likely did not impact Dudley's protocol of bailing out the failed insurer, his interest in GE, and thus its then fully held subsidiary NBC Universal, parent of such comedy channels as CNBC, could potentially have been a source of conflict. Which is why the Fed has disclosed the full holdings of Dudley as of the 2008 year, in which we find that the bulk of Dudley's net worth was held by JPMorgan Chase Deferred Income Benefit Award (over $1MM) and JPM Chase Deferred Compensation ($500,001-$1,000,000). Was Mr. Dudley also completely conflict free vis-a-vis the bulk of his holdings, and their custodian, and did the New York's Fed largesse to bail out JPM among many others, have anything to do with this particular heretofore unknown detail? Of course not. After all, Jon Corzine is a free man. In other news, anyone who needs urgent access to the discount window or a $1 trillion overnight loan at 0.001% interest, should just call the Fed's 24/7 hotline: 877-52-FRBNY.

Metaphors have an uncanny ability to capture the essence of complex situations. Here is one dam metaphor that distills and explains the entire global financial system in 2012. The way to visualize the current situation is to imagine a dam holding back rising storm waters. The dam is the regulatory system, the rule of law, trust in the transparency and fairness of the system and the machinery of perception management. All of these work to keep risk, fraud and excesses of speculation and leverage from unleashing a destructive wave of financial instability on the real economy below. As legitimate regulation and transparency have been replaced with simulacra and manipulated data, the dam's internal strength has been seriously weakened.

Both the ECB and the Fed are accepting poorer and poorer sludge and collateral to back various liquidity schemes.

Unconstitutional ... in any language.

After Wikipedia and Wikileaks shone light on science, history and politics, Wikirating may bring open source financial transparency to the web. Attempting to iron out structural problems of traditional rating procedures, Wikirating is open source, fully transparent and retrieves its results from participants input. Initiated by Austrian mathematics Dorian Credé and and finance whiz Erwan Salembier, ratings are derived from weighted user input. They stress to point out that their model will improve with rising user input who also have a say in improving the formulae used.

Markets have become far less volatile than last year, but many investors remain focused on the Credit Markets for signs and cues as to the next move.  With so many people looking to moves in credit markets and trying to determine how successful an auction has been, we thought it would make sense to go through some examples of how credit trades.  At one extreme you have a real market like for the E-mini S&P futures.  That trades from Sunday at 6pm EST until Friday at 4:15 EST.  It is virtually continuous and at any given time you can see the bids and offers of the entire market.  Then you have credit trading, which has almost nothing in common with ES futures and their incredible liquidity and transparency.

The markets follow the money. 

All you need to read.