default

Picking up where he left off in his prior Bloomberg interview earlier this week, the author of the "Gloom, Boom and Doom Report" continues his bashing of the governments of all developed and overleveraged nations, which he claims will sooner or later default on their obligations. This could be the most scathing critique of the fiat-money system to date, which is the primary cause for the facility with which governments have accumulated untenable debt loads. Sure enough, CNBC was not too happy with his assessment.

And you thought the $23 trillion in backstops for the financial system was bad, you ain't seen nothing yet. Earlier today, the Depository Trust & Clearing Corporation, best known for its Cede & Co. partnership nominee which is the holder of virtually every single physical stock certificate in the known universe, and accounts for over $2 quadrillion in stock transactions per year, announced that "the Federal Reserve Board had approved its application to establish a DTCC subsidiary that is a member of the Federal Reserve System to operate the Trade Information Warehouse (Warehouse) for over the-counter (OTC) credit derivatives." With this approval the DTCC is now the de facto legally accepted global repository for over-the-counter credit derivative transactions. Simply said, the Federal Reserve is now the guarantor behind all CDS transactions that clear via DTCC, which would be pretty much all of them (sorry CME, you lose). The total bottom line in terms of gross notional? 2.3 million contracts with a gross notional value of $25.5 trillion. When the next AIG implodes, and the CDS market is once again facing annihilation in the face, who will be on the hook? You dear taxpayer, that's who.

Whether or not large nations actually go bankrupt, one thing is clear . . . Larry Summers, Ben Bernanke, Tim Geithner and their foreign counterparts have failed ...

The fire in the sovereign periphery is slowly moving to the core. Today, US CDS, on which we have been constructive since it hit 20 bps in September, as unprecedentedly cheap insurance, are trading 55/60, or almost 200% "higher." This is the most 5 year US protection has cost since the market lows in March. We anticipate at least another 15-20 bps of widening in US risk absent some dramatic and miraculous improvement in Europe, as existing shorts are forced to cover en masse. As for the "sure buy" out there, it doesn't get any better than German CDS.

Contagion is here. Portugal and Greece default risks are now racing whose CDS can hit 500 first... Then 1,000... Forget the bond vigilantes: the sovereign default vigilantes just called Almunia's bluff. At last check SovX was flirting with the record century mark, Greece was almost back to record wides with some bids of 410 bps floating around, while Portugal, which is today's whipping boy, exploded to 215 bps. We eagerly await to see which other country will join the CDS ballet. Almunia is now openly waging a two-front war, which will soon become multi. The last time this happened to a European, the results were not that good.

It appears that in the 11th hour, Europe is still unable to decide just what the proper approach to rescuing Greece is. The Sunday Times has just released information that a plan to be published by Brussels on Tuesday, titled "Urgent measures to be taken by May 15, 2010" will demand dramatic Greek austerity measures, such as cutting "average nominal wages, including in
central government, local governments, state agencies and other public
institutions" and proposes new luxury goods and self-employed taxes. Yet the kicker is that "Richer eurozone countries such as Germany and France would be expected to bail
out Greece in the worst-case scenario, to prevent a disastrous crash in the
value of the single currency" - not very surprisingly, this is precisely the Plan B that Almunia yesterday swore up and down that the EU was not, repeat not, considering. Moral Hazard has indeed gone global. Yet even with this bureaucratic memorandum on the table, it seems certain that the EU will not actually act before Greek deterioration escalates out of control. Here are the near term catalysts that will likely make the cost of inactivity very high.

We mean, if you simply had to pick....

Greek CDS hits another all time record at 342.50 bps. Greece is now trading nearly 5 times as risky as the entire universe of investment grade US corporates. In other news, Greek Prime Minister Papanderou repeats for the third time (and fourth, and fifth) that the country will not, repeat not, repeat not, repeat not, repeat not, need a bail out from the EU, and will not (etc) drop the euro or leave the eurozone. If only anyone believed the man. Anyway, where is that damn ESH0 ramp job when you need one? The best way to send a signal that all is good in the world is for Liberty 33 to trade a quadrillion e-mini's with itself.

On December 24, the Senate passed a vote by a razor thin margin (with not a vote to spare) to raise the Federal debt ceiling from $12,104 billion to $12,394 billion. The actual debt ceiling increase took effect on December 28. And as the chart below shows, the Treasury's cash flow projections were spot on: 3 days later, and the debt subject to limit surged to $12,254, a jump of over $200 billion in 2 days, and a whopping $150 billion over the old debt ceiling. Three days is all the buffer the administration's reckless spending spree has afforded this country to avoid bankruptcy. Had one more Democratic vote dissented from the stopgap measure, the US would now be in technical default. There is just $140 billion left before the revised debt ceiling is breached. We hope for the country's sake that Bill refunding in January is massive, because as we already pointed out, on January 7th we expect another ~$130 of new Treasuries to be announced for auction by January 15th. And then there are two more weeks in January... Which is why the Treasury better be using that TARP money to pay down all it can, because if the general population understands how close this nation was to the fiscal brink, many more answers may be demanded out of the ruling party as to how it could allow things to get so out of hand.

Yesterday CCU surprised the bond world by upsizing its $750 million bond offering, which Zero Hedge highlighted previously as an indication of the top-tick exuberance in the bond market, to $2.5 billion. And according to preliminary rumors it may very well have been the top, with Thomson Reuters' IFR service saying that "counsel for certain lenders has delivered a letter asserting that the transaction and the UOP was an event of default under the CCU Credit Agreement." This is not good for CCU, which had hoped it had sufficiently placated dissident bondholders when it dramatically changed the use of proceeds of the upsized transaction.

Greece 5 Year CDS up 28 to 269 bps. The all time high for the country was on January 20 at 292 bps, which was before Bernanke decided to have US taxpayers bailout the world.

Update: S&P just slashed the banks which Citigroup Crameresquely tells its clients to Buy, Buy, Buy.

Just because every credit collapse mushroom cloud has a silver lining. The Obama miracle recovery captured in one simple, easy to remember song.

Oh great ...

The "CRE-fail" news of the day comes from Chicago where Crains reports that Tishman Speyer has just defaulted on a major mezzanine loan, part of a $1.4 billion package of loans, in which the Federal Reserve is the the main lender via its Maiden Lane I program. Tishman-Speyer, whose 11 Chicago CRE holdings can be seen here, has allegedly defaulted on a mezz loan supporting 6 major commercial properties. The properties, 5.7 million sq. feet in total, represent roughly half of the CRE company's 12.2 million sq. feet of Chicago real estate. And while Tishman has enough of a real estate empire that this won't make a huge impact in the near term, what is notable about the portfolio is that the Fed itself is the holder of the mortgages, which it acquired as part of the Bear Stearns bailout and currently are part of the $26.4 billion in Maiden Lane I Assets. Even as this portfolio has been impaired by over $3.5 billion since inception, we fully expect the fully transparent Fed to have a public announcement as to just how much more value in ML 1 will be lost as a result of this default.

"We would not be surprised to see more sovereign debtors make unilateral announcement of debt moratoriums and/or restructurings, perhaps including even oil rich Venezuela. We notice in that regard that Venezuela’s lider maximo, Hugo Chavez, is preparing to nationalize the few remaining private banks of that nation, usually a good indicator of an approaching sovereign debt default."