Citigroup

All you need to read.

• Europe’s $39T Pension Threat Grows as Economy Sputters (Bloomberg)
• Monti Warns of Italy Protests as He Meets Merkel (Bloomberg)
• Bernanke Doubling Down on Housing Bet Asks Government to Help: Mortgages (Bloomberg)
• Europe Banks Resist Draghi Bid to Avoid Crunch by Hoarding Cash (Bloomberg)
• Europe Fears Rising Greek Cost (WSJ)
• ECB’s Nowotny Sees Risk of Mild Recession in Euro Region (Bloomberg)
• Republican Senators Criticize Fed Recommendations on Housing (Bloomberg)
• Spanish Banks Try to Build Their Way Out of Home Glut (WSJ)
• Europe Stocks Fluctuate After German Auction (Bloomberg)

All you need to read.

While Ireland's bond performance is often held up as evidence that living-standard-crushing austerity can indeed lead to positive developments, Citgroup's chief economist William Buiter suggests, in a speech in Dublin today, that they should begin negotiating a new rescue package as soon as possible. Buiter, via The Irish Times, points to the fact that Ireland currently pays around 6% for its 'rescue-money' which could be refinanced (theoretically) at around 3% via the EFSF. He said Ireland was not like Greece but it was in very bad fiscal shape because of its bank guarantee (isn't that what Italy and Portugal are doing with the new Ponzi-bonds?). He said that clearly something had to be done about the "continuing massive sovereign funding gap" that Ireland had and which still existed after three and a half years of "fierce" fiscal austerity. While Merkel's comments today on central bank support as illusory and spending EU money appropriately, it would seem that Ireland remains in a strong negotiating position. We await the term 'referendum' to confirm the discussions have begun - and given the timing (the day before IMF-EU official's fifth review) we would expect to hear it soon.

Markets are quiet halfway through the European session as most are awaiting the outcome of the meeting between German Chancellor Merkel and French President Sarkozy in Berlin at 1230GMT. The meeting is likely to centre around Greece, as well as the PSI update that, according to the FT may see the holders of Greek bonds accept higher losses as the contentious negotiation over writing down Greece’s debt burden are due to be concluded soon. German Industrial Production figures for November came in roughly in line with expectations, with the German Economic Minister commenting that this measure is likely to remain subdued over the winter months. Data released from Switzerland today shows Retail sales performing much stronger than expected, showing strong consumer demand in Switzerland across November.

Now that the LTRO flop has been digested, one of the more curious explanations for the failure comes from Citi's Steven Englander, who suggests that, surprise, surprise, Italian banks were lying yesterday when they said that they were ready and willing to buy Italian debt with LTRO proceeds. To wit: " One dose of cold water were comments from the Italian Bank Association that EBA rules won’t permit Italian banks to buy sovereign debt – this is a complete reversal from reports yesterday that indicated that Italian bank collateral would benefit from government guarantees in going to the ECB and lead to incremental  Italian bank buying of sovereign debt." Gee: someone lying? NAR who could possibly conceive of that... And more to the point, Englander has an interesting observations on the market reaction to the upcoming French downgrade: "the S&P downgrade of euro zone sovereigns is hanging over the market but there is no definite timing – every day brings one rumor or another of an imminent moves. More concretely there is a chorus of French and euro zone officials managing expectations downward. S&P probably wants to manage the announcement so as to have the least market impact, but it is unclear whether that means doing it when most investors are inactive but liquidity is low or the opposite. At this point a French downgrade is no surprise. A one-step downgrade would be a positive surprise, but downgrading core-core Europe – Germany, the Netherlands, Finland – would still be a negative. Today’s LTRO may be a (reverse) template for the reaction to a downgrade: kneejerk selling followed by a rebound." Well, only one way to know for sure what happens post the downgrade - bring it on.

A few days ago, Citigroup announced it would lay off 4500 bankers around the world, although with nothing more definitive, the bank's employees likely thought that "out of sight means out of mind", especially with the holiday season days away. To their chagrin, our latest favorite website, the Department of Labor's "WARN" site, which usually well ahead of various HR offices will advise New York bank employees how many and which office are going to lay people off. Sure enough, here is Citigroup, with just disclosed plans to fire 413 people, with full breakdown by which offices are to be affected. If you are one of the several hundred to be laid off from the 388/390 Greenwich location, our condolences: fear not - the economy is getting better; after all last week initial claims for unemployment benefits literally tumbled meaning the re-depression is now over. You will be back working in the comfortable confines of infinitely rehypothecated fractional reserve banking in no time.

Citi's Steven Englander shares his outlook on what the key things to look out for, in the 8:30 am press conference, are. One variable in his forecast has already been presented: the cut was 25 bps not 50 bps. As he says: "By contrast, if they did 50bps and indicated that more aggressive measures might be forthcoming, the pendulum could swing to positive." In other words, the kneejerk jump in EURUSD following the ECB has been largely misguided for now, especially with forward EONIA rates jumping across the curve confirming that European liquidity is about to get far tigher all over again.

Jed Rakoff is well known to frequent readers of Zero Hedge: he is the judge who nearly brought down the SEC settlement with Bank of America over the whole bonus non-disclosure issue two years ago, and where Bank of America effectively acted under the duress of Hank Paulson and Ben Bernanke. Granted at the end of the day he sided with the status quo., but this may be his chance to redeem himself. Just out from Bloomberg:

• CITIGROUP'S $285 MILLION SEC SETTLEMENT QUESTIONED BY JUDGE
• CITIGROUP JUDGE ASKS PARTIES TO JUSTIFY FAIRNESS OF SETTLEMENT
• SEC CLAIMED CITIGROUP MISLED INVESTORS IN $1 BILLION CDO

With Bank of America getting taken to the woodshed, we can only hope that Paulson managed to sell all of his stock in the name, or otherwise just like Bruce Berkowitz is organizing a call to defend Bank of America on Wednesday, Bank of America would have to organize a call today to protect JP from his LPs. Alas, Bank of America is just the start of Paulson's problems. For a just as big problem we shift our attention to the next worst bank in America, Citigroup, which as the excerpt below demonstrates, was a bragging point in the firm's January 2011 letter. Alas, there is little to brag about these days. Which is why we wish to caution investors to be vary careful with liquidation-like selloffs in gold. Should D-Day strike at Paulson, the firm's multi-billion GLD "gold share class" will likely have to be sold very fast to preserve liquidity. When that happens we may see a 20-30% correction in gold in one day. This is just a theoretical warning, and we hope to have some sense of when, if at all, it would take place. But just something to keep in the backs of your heads...

With all eyes on Brussels, myopia has returned to markets particularly with regard to the serious fiscal and monetary challenges continuing in Washington. Another sign of silver’s move from the fringe of hard money advocates and more risk averse investors and savers to the mainstream is seen in Citigroup technical analysis of the silver market which was picked up by Bloomberg. Citigroup Global Markets Inc. have said that if silver follows similar patterns as seen in silver’s last bull market from 1971 to 1980 than silver could double to over $100 per ounce. “If the final rally in the last bull market repeated then we can expect $100 over the long term,” Tom Fitzpatrick and two other analysts wrote. “While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.” Most institutional players and Wall Street banks have been bearish on silver and have called the silver market wrong for years.

"The Justice Department is now contemplating whether to use the HUD audits as a basis for civil and criminal enforcement actions, the sources said. The False Claims Act allows the government to recover damages worth three times the actual harm plus additional penalties."

It appears rumors that Greece is set to restructure its debt are about to come true. According to Greek daily Ta Nea, reported by the Guardian, "the government was mulling "a velvet restructuring" that would include extending outstanding debt and a voluntary agreement with lenders to modify repayment terms." More: "Greece  is considering ways to restructure its debt – such as by extending the life of its loans – two national newspapers claimed on Friday, joining a flurry of recent reports on the prospect that Athens might be forced to default." Not surprising, this comes hot on the heels of continued lies about the stability and viability of the eurozone and the euro, which recently surged to nosebleed levels only to allow it to drop from the highest possible position when the realization that the dominoes are falling finally sets in. But never one to be bound by the confines of reality, where one is accountable and responsible for their actions¹ (1: except all millionaires and billionaires bailed out by the Bernanke Put), Greece is now calling in Interpol to put the blame for its latest and greatest bankruptcy on a Citigroup trader: "A London trader working for US bank Citigroup  is to be questioned by investigators over an email at the centre of an investigation by the Greek authorities into rumours that Athens could be forced to restructure its national debt as early as this weekend." So, it is a trader fault for pointing out the market's reaction to what is so glaringly obvious even a caveman finance minister from Athens will realize it, and not the fact that one needs to apply a new Excel #Ref! patch in order to express Greek debt to GDP. The lunacy. The lunacy.

And there was a time when people thought Obama was out to get the bankers...

Citi's head of FX, Steven Englander, has some contrarian observations on the fate of the US dollar, which a more nuanced read may even indicate a slightly conspiratorial bent, namely that in order to cut the surging global inflation dead in its tracks (alas, too late for the regimes of Tunisia and Egypt), the dollar will have to surge even more. To wit: "If the world’s inflation problem is primarily derived from rising commodity and food prices, it is very likely that a stronger USD will help mitigate this inflation quickly and efficiently. There is a well established relationship between USD strength and weaker commodity prices." Of course, with the Printing Dutchman at the helm, what hope is there for a sustainable strong USD thesis: "The problem is that there does not appear to be a market driver for USD strength." Yet this could very well be the contrarian trade going forward as the G-20 looks aghast at events in Africa and realizes that the "last case" scenario just seems that much more credible. If this happens and there a concerted effort to reincarnate the dollar, look for the EURUSD to plunge, and all USDXXX pairs to surge in the following days, especially as the carry funding shorts realize that they will once again, just like in late 2008, be the sacrificial lambs at the altar of "Kicking the can down the road one last time"-dom. Quote Englander: "During a similar high commodity price episode in mid-2008, we saw some evidence of high reserves growth, which is unusual when the private sector is buying dollars. Moreover, then as now, market macro investor positions appeared to be long commodities. While it would be unusual for reserve managers to buy USD for inflation stabilization reasons, as a quick solution to a major problem it may be more effective than most."