ratings

Back in January, an article by Reuters' head financial blogger on the topic of the Greek bond restructuring, which effectively said that Greeks have all the leverage, prompted us to pen Subordination 101 (one of the year's most read posts on Zero Hedge), in which we patiently explained why his proposed blanket generalization was completely wrong, and why litigation arbitrage in covenant heavy UK-law bonds would be precisely the way to go into the Greek restructuring. 4 months later, those who listened to us made a 135% annualized return by getting taken out in Greek UK-law bonds at par, whereas those who listened to Reuters made, well nothing. What is amusing, is that such examples of pseudo-contrarian sophistry for the sake of making a statement, any statement, or better known in the media world as generating  "page views", no matter how ungrounded in financial fact, especially from recent Loeb award winners, is nothing new. To wit, we go back to May 29, 2008 where courtesy of the same author, in collaboration with another self-proclaimed Twitter pundit, we read "Defending Libor" in which the now Reutersian and his shoulder-chipped UK-based academic sidekick decide that, no Carrick Mollenkamp and Mark Whitehouse's then stunning and quite incendiary discoveries on Liebor are actually quite irrelevant, and are, to use the parlance of our times, a tempest in a teapot. His conclusion: "What the WSJ has done is come up with a marginally interesting intellectual conundrum: why is there a disconnect between CDS premia, on the one hand, and Libor spreads, on the other? But the way that the WSJ is reporting its findings they seem to think they’re uncovering a major scandal. They’re not." Actually, in retrospect, they are.

Three weeks ago, before Lieborgate broke and the world finally understood what so many had been warning about for so long, we noted something else: that not only was LIBOR manipulated and fudged daily between 2005 and 2008, but as the chart in the attached post shows, it has been gamed every single day in 2012 as well. More importantly, we noted something else - the transition at the top of the British Bankers Association: the organization responsible for compiling LIBOR submissions from member banks, and reporting what the daily Libor fixing is. Because in the second week of June, the BBA's new head became... the former head of lobbying for none other than Morgan Stanley, Anthony Browne, a firm which itself was just caught red-handed manipulating rating agency "independent ratings" to benefit its bottom line (and which itself miraculous was downgraded by less than what the market expected in order to allow it to avoid several billion in collateral calls). And what did Anthony do at Morgan Stanley until June 12: he was head of Government relations for Morgan Stanley for Europe, Middle East and Africa and was previously an economic and business adviser to London Mayor Boris Johnson.  That's right - "head of government relations" for a rather prominent TBTF bank, being put in charge of daily Libor fixing. But everyone is shocked, shocked, that gambling has been going on here for years.

Libor Manipulation Is Only One of MANY Types of Fraud Committed by the Big Banks

Local Governments Which Entered Into Interest Rate Swaps Got Scalped

• The next Enron: JPMorgan at centre of power market probe (FT)
• Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others (NYT)
• Ex-JPMorgan Trader Feldstein Biggest Winner Betting Against Bank (Bloomberg)
• Finland Firm On Collateral As Spain Aid Terms Discussed (Bloomberg)
• Heatwave threatens US grain harvest (FT)
• Wall Street Is Still Giving to President (WSJ)
• Greenberg Suit Against U.S. Over AIG To Proceed In Court (Bloomberg)
• Crisis forces "dismal science" to get real (Reuters)
• Hope continues to be as a strategy: Asia Stocks Rise On Expectation Of Monetary Policy Easing (Bloomberg)

With Europe, the BBA, and virtually everyone shocked, shocked, that the global bank cabal schemed and colluded for years to manipulate interest rates, so far only America appears relatively blase, and totally ignorant, about the issue. Perhaps it is because the first bank exposed in the manipulation scheme so far is European, perhaps because it is just tired of all the endless crime coming out of the criminal complex known as Wall Street. It is unclear. Then again, America will soon have its own manipulation scandals to deal with: and if it is not the US BBA member banks, all of whom were just as guilty as Barclays, and the only question is which bank will be the sacrificial scapegoat whose CEO will have to demonstratively depart (to warmer, non-extradition climes), it will be the following story from Bloomberg which will likely pick up much more steam over the next weeks and months, detailing how the bank which just barely avoided a triple notch downgrade (wink wink) has had previous dealings with the very same rating agencies seeking to, picture this, artificially inflate ratings! So to summarize: Fed manipulates capital markets, HFT manipulates bid ask spreads, "self-policing" CDS pricing market groups fudge the prices on trillions in Credit Default Swaps, bank cabals collude and manipulate short-term interest rates, and now banks are confirmed to have manipulated the ratings on tens of billions of bonds using monetary incentives and threats. Is there anything in this "market" that was fair over the past several decades, and was actual price discovery ever actually possible? Because by now it should be very clear going forward all the things that actually make a free and fair market are forever gone, and that without endless fraud and manipulation by all the market participants who realize that anyone defecting the ponzi group means immediate and terminal losses for all, and all those calls for an S&P 400 would actually prove to be overly optimistic.

• The Real Victor in Brussels Was Merkel (FT)
• German Dominance in Doubt after Summit Defeat (Spiegel)
• Euro defeat for Merkel? Only time will tell (Reuters)
• The Twilight Zone has nothing on Europe: European Banks Bolster Capital With Shunned Bonds (Bloomberg)
• Krugman is baaaaaack and demands even more debt: Europe’s Great Illusion (NYT)
• Republicans See Way to Repeal Obamacare (FT)
• Hollande Ready to Tackle Public Finances (FT)
• China’s Manufacturing Growth Weakens as New Orders Drop (Bloomberg)
• Protesters March in Hong Kong as Leung Vows to Fight Poverty (Bloomberg)

While we are still collecting various public polling results showing popular sentiment in the aftermath of the Supreme Court's surprising Obamacare ruling last week, the first results out of Rasmussen show that if Judge John Roberts' goal was to somehow restory credibility in the supreme judicial entity, following his alleged flip flopping on the ACA, whereby he passed the Individual Mandate in a format never intended by the Obama administration, he has failed. From Rasmussen: "A week ago, 36% said the court was doing a good or an excellent job. That’s down to 33% today. However, the big change is a rise in negative perceptions. Today, 28% say the Supreme Court is doing a poor job. That’s up 11 points over the past week."

Given the rather weak near-term and long-term outlook for US coal demand, it’s not surprising that within such a capital-intensive business, a number of smaller coal producers were hit recently with bankruptcy rumors. Indeed, even large cap names like Arch Coal have seen an escalation of concern over debt levels. Accordingly, many have concluded that coal -- in an era of solar, wind, and natural gas -- has finally displaced itself due to its problematic extraction, distant transportation, and overall costs. Is coal finally going away as an energy source?

Not a chance.

Indeed, everything currently unfolding for coal in the United States is precisely what is not unfolding for coal globally. Prices to import natural gas to most countries via LNG remain sky-high, easily protecting coal’s cost advantage. And the demand for coal in the developing world remains gargantuan. Accordingly, just as with oil, lower US demand simply frees up supply to elsewhere in the world. The global coal juggernaut rolls onward.

In the past 24 hours, some readers have been surprised to learn that as Jeff Reeves of InvestorPlace states, total Q2 CNBC viewership as calculated by Nielsen, has tumbled to to the lowest it has been since Q3 2005. This merely confirms that the trendline in our periodic observations of CNBC traffic was more than merely seasonal or VIX-related: it has been one long secular decline, peaking in the quarter of Lehman's demise and down hill ever since.

There are now reports that the Reserve Bank of India (RBI) is likely to clamp down on gold bullion coin sales by banks as the rising bullion imports are adding pressure to the current account deficit and weakening the rupee.  

Western central banks and mints will not be clamping down on gold bullion coin sales in the near future as demand for gold and silver bullion coins fell in Q1 2012.

GS just did what it does best: pulled the rug from under its most troubled peer: "We are downgrading MS to Neutral and removing shares from the America’s Conviction List. Since being added to the Americas Conviction List on January 29, 2012, MS shares are down 27% vs. flat for the S&P 500. Over the past 12 months, MS shares are down 39% vs. the S&P 500 up 4%. When we added shares to the Conviction List, we noted that MS had addressed a number of legacy issues including (1) the conversion of the MUFG preferred stock to common to bolster common equity capital ratios, (2) elimination of the CIC preferred dividend, (3) removal of the MBIA relationship//hedge overhang, (4) write-down of legacy real estate assets, (5) elimination of non-core asset management businesses, and (6) near-completion of the  integration of Smith Barney and Morgan Stanley Wealth Management. While that all still holds true today and should be beneficial towards long-term “normalized” returns, we believe several capital market overhangs will reduce out-year earnings visibility and cap near-term outperformance. While too soon to tell how counterparties will react to a new capital market ratings distribution post-Moody’s, this cycle has proven that banks with the largest increase in funding spreads have generally lost fixed income trading market share. In addition, with a number of global macro uncertainties likely to weigh on capital markets activity for the foreseeable future, MS has outsized exposure here as well....we are lowering our 12-month price target for MS to $16 (from $20) based on 0.6X TBV (from 0.7x) to reflect challenged near-term earnings power."

Capitalism at its best: kick 'em while they're down.

• On the continuing fraud that is Liebor: Libor Guardians Said to Resist Changes to Broken Rate (Bloomberg)
• Bank bailout to spark firesale of corporate Spain (Reuters) with Goldman and China just waiting
• EU Could Rewrite Eurozone Budgets (FT) but it won't because Germany will just say Nein again
• Congress Said to Delay Automatic Budget Cuts Until March (Bloomberg)
• China Says June Trade Improving in Sign Slowdown Stabilizing (Bloomberg)
• Biggest U.S. Banks Curb Loans as Regional Firms Fill Gap (Bloomberg)
• New York Fed Sells $4bn in Mortgage Debt (FT)
• Julian Assange’s fall from the heavens (Reuters)
• Wheeler to Lead N.Z. Central Bank as Kiwi Hits Exports: Economy (Bloomberg)
• Japan Lower House Passes Sales Tax Bill as Vote Divides DPJ (Bloomberg)

The long anticipated downgrade of the recently bailed out Spanish banking sector has arrived. Moody's just brought the hammer down on 28 Spanish banks. Also apparently in Spain banks are now more stable than the country: "The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign's rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks' standalone ratings are now at or below Spain's Baa3 rating." Can Spain borrow from Santander then? They don't need the ECB.

• Merkel Backs Debt Sharing in Germany Amid Closer EU Push (Bloomberg)
• With a ruling as early as today, here are four health care questions the Supreme Court is asking (CBS)
• George Soros - Germany’s Reticence to Agree Threatens European Stability (FT)
• China Stocks Drop to Five-Month Low (Bloomberg)
• The New Republic of Porn (Bloomberg)
• That's a costly detached retina: Greek Lenders Postpone Mission to Athens (FT)
• Spain Asks for Aid as EU Fights Debt Crisis (FT)
• Wolfgang Münchau - Why Mario Monti Needs to Speak Truth to Power (FT)
• U.S. Banks Aren’t Nearly Ready for Coming European Crisis (Bloomberg)
• MPC Member Wants £50bn Easing (FT)
• India Boosts Foreign Debt Ceiling by $5 Billion to Defend Rupee (Bloomberg)