Risk Management

No Hints Of QE In Latest Bernanke Word Cloud

Addressing his perception of lessons learned from the financial crisis, Ben Bernanke is speaking this afternoon on poor risk management and shadow banking vulnerabilities - all of which remain obviously as we continue to draw attention to. However, more worrisome for the junkies is the total lack of QE3 chatter in his speech. While he does note the words 'collateral' and 'repo' the proximity of the words 'Shadow, Institutions, & Vulnerabilities' are awkwardly close.

Bernanke's Right Hand Dove, Janet Yellen, Hints At ZIRP Through Late 2015

Last week we had the Fed's hawks line up one after another telling us how no more QE would ever happen. We ignored them because they are simply the bad cops to the Fed's good cop doves. Sure enough, here comes Bernanke's right hand man, or in this case woman, hinting that one can forget everything the hawkish stance, and that ZIRP may last not until 2014 but 2015! Which, by the way, is to be expected: since ZIRP can never expire, it will always be rolled to T+3 years, as the short end will never be allowed to rise, until the Fed has enough FRNs in circulation to absorb the surge in rates without crushing the principal, as explained yesterday.

Frontrunning: April 3

  • China's Central Banker to Fed: Act Responsibly (WSJ)
  • Spain's debt to jump to 78 percent of GDP: De Guindos (Reuters)
  • Rajoy Needs All the Luck He Can Get (WSJ)
  • Spain Faces Risks in Budget Refit (WSJ)
  • Top JP Morgan banker resigns to fight abuse fine (Reuters)
  • Reinhart-Rogoff See No Quick U.S. Recovery Even as Data Improve (Bloomberg)
  • Program to help spur spending in domestic sector (China Daily)
  • Barnier hits out at lobbying ‘rearguard’ (FT)
  • U.S. CEOs' take-home pay climbs on stock awards (Reuters)

Frontrunning: March 28

  • Greece's Fringe Parties Surge Amid Bailout Ire (WSJ)
  • ECB fails to stem reduction in lending (FT)
  • More Twists for Spanish Banks (WSJ)
  • Banks use ECB cash to buy bonds, lend less to firms (IFR)
  • UK still long way off pre-crisis growth – King (Reuters)
  • Dublin confident of ECB deal to defer payment (FT)
  • Goldman's European derivatives revenue soars (Reuters)
  • Japan Faces Tax Battle as DPJ Finishes Plan on Sales Levy (Bloomberg)
  • Insurance Mandate Splits US Court (FT)

Morgan Stanley, Italy, Swaps And Misplaced Outrage

One of the big stories of the week was that Morgan Stanley “reduced” its exposures to Italy by $3.4 billion mostly by unwinding some swaps they had on with Italy. Morgan Stanley booked profit of $600 million on the unwind. The timing couldn’t have been worse coming on the heels of the “Darth Vader” resignation at Goldman Sachs, attracting more attention to profits on derivatives trades was the last thing the investment banks need. Much of the outrage seems misplaced though. In this case, don’t blame Morgan Stanley, blame Italy, and be very afraid of what else Italy has done.

Mark Fisher Accused By CFTC Of Pulling An MF Global, Depositing Customer Funds Into Non-Segregated Account

Mark Fisher is a staple contributor on CNBC. Or at least was. According to various headlines flashing across both Bloomberg and Reuters, it seems that his MBF Clearing Corp is the first victim of the CFTC expanding its MF Global inquiry, and Fisher's MBF Clearing Corp of performing just the same "vaporization" activity that MF Global engaged in and that boggle regulators' minds.

MBF CLEARING CORP SUED BY CFTC FOR FAILIING TO SEGREGATE FUNDS
CFTC ACCUSES MBF OF DEPOSITING CUSTOMER FUNDS INTO A NON-SEGREGATED ACCOUNT THAT ROUTINELY HELD BETWEEN $30-90 MLN
CFTC ALLEGES CUSTOMER ACCOUNTS WEREN'T PROPERLY SEGREGATED

Oops. In other news, JPM and Jon Corzine are both completely innocent of anything. But at least the CFTC can say it has done its duty of punishing transgressors and all is now well.

Moment of PSI Truth

Today is supposedly the day. The initial deadline for Greek PSI will occur later today (unless of course it is extended somehow - but will be released here) and while CAC activation (and hence eventual 90% participation) is the consensus most likely outcome for bonds under Greek law (but not for all bonds under English law) - which the market appears to be very comfortable with given overnight trading - there are still risks, as BofA notes, that a number of low risk but high impact events unfold with extremely negative connotations. Clarifying expectations and market implications, it does seem that while BofA is a little more sanguine than us on this initial deadline, that the market's complacency is extremely high.