Swap Spreads Just Hit A New Record Negative Low: Goldman's Explanation Why

Having detailed the "perverted nonsense" that is the collapsing and negative US swap spreads (here, here, here, and here) and noted money manager's concerns that the big question remains whether there is "something bigger brewing under the surface that so far hasn’t been pinpointed yet," it appears Goldman Sachs feels the need to 'explain' the anomaly in what appears an effort to calm fears about the broken money markets. Of course, we don’t have to figure out what the “market” is saying about a negative spread because it isn’t saying anything other than “something” is wrong and even Goldman admits this signals funding and balance sheet strains are worsening since August.

Global Stocks Fall For 5th Day On Disturbing Chinese Inflation Data; Renewed Rate Hike Fears; Copper At 6 Year Low

The ongoing failure of China to achieve any stabilization in its economy, after already cutting interest rates six times in the past year, and the prospect of a U.S. interest rate hike in December, had made markets increasingly jittery and worried which is not only why the S&P 500 Index had its biggest drop in a month, but thanks to the soaring dollar emerging market stocks are falling for a fourth day - led by China - bringing their decline in that period to almost 4 percent, and the global stock index down for a 5th consecutive day.

Frontrunning: November 6

  • Dollar at three-month high as payrolls paralysis sets in (Reuters)
  • 5 Things to Watch in the October Jobs Report (WSJ)
  • China to Lift Ban on IPOs (WSJ)
  • ArcelorMittal Is Latest Victim of China's Steel-Export Glut (BBG)
  • 'Hope to see you again': China warship to U.S. destroyer after South China Sea patrol (Reuters)
  • Giants Tighten Grip on Internet Economy (WSJ)
  • Questions Surround Valeant CEO Pearson (WSJ)

Frontrunning: November 4

  • Euro zone growth weak in October, China services rally (Reuters)
  • Stocks Rise With European Bonds on Stimulus Outlook; Euro Falls (BBG)
  • VW Sinks Deeper Into Crisis as Scandal Spreads to More Cars (BBG)
  • Republicans ask IRS to audit Clinton charity's finances (Reuters)
  • PBOC Inadvertently Boosts Stocks With Dated Zhou Comments (BBG)
  • As China’s Economy Slows, Consumers Pick Up Some of the Slack (WSJ)
  • Plane crashes in South Sudan, witnesses say dozens killed (Reuters)

Wholesale Money Markets Are "Perverted" - US Swap Spreads Hit Record Lows

At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread, as Bloomberg notes, what Fabozzi's bible of swap-pricing calls a "perversion" is now the rule all the way from 30Y to 2Y maturities. As one analyst notes, historical interpretations of this have been destroyed and if the flip to negative spreads persists, it would signal that its roots are in a combination of regulators’ efforts to head off another financial crisis, massive corporate issuance (which we are seeing), China selling pressure (and its impact on repo markets) and "broken" wholesale money-markets.

Frontrunning: October 15

  • China economic growth seen slowing despite policy easing (Reuters)
  • FBI, Justice Department Investigating Daily Fantasy Sports Business Model (WSJ)
  • Obama to slow pace of withdrawal of U.S. troops from Afghanistan (Reuters)
  • Corporate America's Epic Debt Binge Leaves $119 Billion Hangover (BBG)
  • Islamic State battles insurgents as Syria army prepares assault (Reuters)
  • Why Hillary Clinton Can’t Win by Going After the NRA (BBG)

The First Crack: Deutsche Bank Preannounces Massive Loss, May Cut Dividend

Deutsche Bank warned it expects to record a third-quarter loss of $7 billion, tied to a huge write-down in its corporate-banking-and-securities segment.  The bank said the charges are driven by the impact of expected higher regulatory capital requirements and its disposal of Postbank. It also said it will consider reducing or eliminating its common dividend for fiscal 2015.


As A Shocking $100 Billion In Glencore Debt Emerges, The Next Lehman Has Arrived

And now the real shocker: there is over US$100bn in gross financial exposure to Glencore. From BofA: "We estimate the financial system's exposure to Glencore at over US$100bn, and believe a significant majority is unsecured. The group's strong reputation meant that the buildup of these exposures went largely without comment. However, the recent widening in GLEN debt spreads indicates the exposure is now coming into investor focus."

Frontrunning: October 7

  • How Iranian general plotted out Syrian assault in Moscow (Reuters)
  • China FX reserves post record quarterly fall as cenbank steps up yuan support (Reuters)
  • MSF calls for independent inquiry into U.S. attack on Afghan hospital (Reuters)
  • Yen Advances as Bank of Japan Refrains From Adding to Stimulus (Reuters)
  • Abu Dhabi Said to Explore Asset Sales After Slump in Oil Price (BBG)
  • U.S. Oil Approaching $50 Boosts Stocks as Emerging Markets Surge (BBG)

Gold: "The More Ridiculous The System Gets, The More Valuable It Becomes"

This system is pure insanity, as are its prices... it wouldn’t bother us if the price of gold went negative, just like propane in Alberta (after all, we're not trading paper currency for gold, just to trade it back for more paper currency if the 'price' goes up). The idea behind buying gold is to swap paper money for something real. Banks can rig its 'price' all they want; gold’s true value comes from its function as a long-term form of savings and a hedge against a broken financial system. And the more ridiculous the system gets, the more valuable it becomes.

Did The Bank Of England Rig Emergency Liquidity Auctions During Crisis?

In yet another indication that manipulation may well be unspoken (or perhaps even spoken) policy at the BOE, new details regarding the UK Serious Fraud Office's investigation into emergency liquidity auctions conducted during the crisis suggest the central bank may have played a direct role in rigging the bids.