Barclays

Last night's release of DTCC CDS data came and went with little furor. Despite the protestations of various mainstream media reporters last week that they had been 'told' that JPM had unwound 65-75% of their IG9 disaster last week, their is nothing in the actual reported data from the CDS repository to suggest any 'epic' unwind or change in actual risk transfer occurred. We hate to say we told you so but the spike in activity was very likely associated with the CDS roll as all those Weinstein-wannabes unwound their index-arb positions (sold back their index protection and bought back their single-name protection) as opposed to face the illiquidity cliff of holding through the roll. The last few weeks have seen index net notionals drop for IG9 - which fits with the index-arbitrage unwind - but little to no change in the tranched risk (which is the more appropriate to track JPM's exposure) suggesting that JPM remains the 'diligent shareholder-friendly' holder of its tail-risk hedge just as Dimon said they would.

Just because ZIRP is so 2009 (and will be until the end of central planning as the Fed can not afford to hike rates ever again), the ECB is now contemplating something far more drastic: charging depositors for the privilege of holding money. Enter NIRP, aka Negative Interest Rate Policy.

We can finally close the case on the massive Libor manipulation issue that we first brough to the world's attention back in January 2009 when we penned: "This Makes No Sense: Libor By Bank." As of minutes ago, Barclays is the first bank to admit it has engaged in gross manipulation of the key benchmark rate that sets the cost of capital for $350 trillion in interest-rate sensitive products. As the CFTC notes, as it produly announces an epic wristslap of $200 million for Barclays Bank: "The Order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005." Surely this massive fine will teach them to never do it again, until tomorrow at least, when the British Banker Association once again finds 3 month USD liEbor to be... unchanged. In other news, who would have thought that the fringe "conspiracy" brigade was right all along once again.

Between macro-economic 'religious' experiences, regulatory uncertainty, and legislative gyrations, the world appears to be a very different place now than before 2008. It seems that from the 'Lehman' moment (some might call it an 'epiphany' moment), and later the US downgrade, markets realized that the impossible was possible and while every long-only manager will try to convince you that nothing has changed, these four charts (via Barclays) will go a long way to proving that everything has changed. Whether it is policy uncertainty, the frequency of 'fat-tailed' events, market illiquidity, or the domination of correlated 'macro' risk over idiosyncratic diversification; trading (or investing) has profoundly changed since 2008.

As we discussed earlier, markets remain mired in their addiction to liquidity and the global macro-picture seems synchronized to this central bank largesse with an inability to function without at least the hope of more QE around the world. Nowhere is this more clear than in the extreme high levels of correlation across global risk assets. Barclays notes that the correlation between global equities, the USD, emerging market FX, high-grade credit, and commodities remains near cyclical highs and rising. Furthermore, 'safe haven' correlations are at record levels relative to risk assets (especially US Treasuries) and they remain tactically biased to fade any rally here as the correlations have driven an 'extreme valuation gap' between 'safe haven' and risky assets - which creates a strong potential for 'spasmodic relief rallies'.

Here we come:

• MOODY'S CUTS 4 FIRMS BY 1 NOTCH
• MOODY'S CUTS 10 FIRMS' RATINGS BY 2 NOTCHES
• MOODY'S CUTS 1 FIRM BY 3 NOTCHES
• MORGAN STANLEY L-T SR DEBT CUT TO Baa1 FROM A2 BY MOODY'S
• MOODY'S CUTS MORGAN STANLEY 2 LEVELS, HAD SEEN UP TO 3
• MORGAN STANLEY OUTLOOK NEGATIVE BY MOODY'S
• MORGAN STANLEY S-T RATING CUT TO P-2 FROM P-1 BY MOODY'S
• BANK OF AMERICA L-T SR DEBT CUT TO Baa2 BY MOODY'S;OUTLOOK NEG

So the reason for the delay were last minute negotiations, most certainly involving extensive monetary explanations, by Morgan Stanley's Gorman (potentially with Moody's investor Warren Buffett on the call) to get only a two notch downgrade. And Wall Street wins again.

"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.

Even as Moody is now about a week late on its Spanish bank downgrade where the banks are rated higher than the sovereign (which obviously is kept in check to prevent yields on bonds from soaring even more), here comes the next wholesale bank downgrade:

• Moody's expected to announce ratings downgrade for UK banks this evening - Sky Sources
• Exclusive: Big news - I'm told Moody's will announce downgrades of some of world's biggest banks, incl in UK, after US mkts close tonight. - Sky's Mark Kleinman

Looks like that fabricated 2 notch Margin Stanley downgrade (because 3 notches just won't do - those 4 months of Gorman-led "negotiations" made that painfully clear) is about to strike. The real question is: What Would Egan Who Do?

Is a fiscal union possible? Is it possible to credibly remove risk from the market and enforce budgetary and deficit targets? As Barclays notes, it appears that, given the apparently deepening divide among euro area politicians, any credible solution will be difficult to attain.

Gold took a tumble for the first time in 7 sessions in Asia as Antonis Samaras, leader of the Greece's New Democracy Party (pro-bailout) was victorious.  Today, Samaras plans to form a coalition with other parties backing the bailout – meaning that Greece’s future in the euro is secure – for now.  Gold’s dip in Asia was thought to be due to profit taking and increased risk appetite after the Greek election. However, this increase in risk appetite has been quite short lived with Spanish and Italian 10 year bonds again coming under pressure resulting in record Spanish yields over 7.13% and Italian 10 year over 6% again. Initial gains in equity markets have subsided and the lessening of risk appetite is seeing gold supported. Greece’s exit from the Eurozone is no longer a short term risk however it remains a real risk as does the risk of financial contagion in the Eurozone due to insolvent banks in Spain, Italy and France.

Just read.

It remains tough to handicap the results of this weekend's events - most notably Greek elections (though Egypt could be the blacker swan of the two). It seems New Domocracy has a slight edge on SYRIZA at the bookies in Europe but the most likely event remains that no single party would have a sufficient majority to forma government and coalition talks will be required. Barclays expanded decision tree is 'everything you wanted to know about European uncertainties but were afraid to ask' and along with our earlier note of what to expect from asset class returns in the various scenarios provides the key guide to positioning into and beyond the weekend.

The announcement by the UK Treasury and BoE to take co-ordinated steps to boost credit and with the central bank re-activating its emergency liquidity facility has resulted in a sharp move higher in UK fixed income futures. GBP swaps are now pricing in a cut of 25bps in the base rate by the end of this year and following on from Goldman Sachs, analysts at Barclays and BNP Paribas are now calling for an increase in QE next month. The new measures have seen the likes of Lloyds Banking Group (+4.3%) and RBS (+7.0%) outperform the more moderate gains observed in their European counterparts. Meanwhile in Europe the focus remains on the possibility of co-ordinated action from the major central banks. However, it would seem more realistic that any new measures will likely come after the Greek election results are known and once ministers have conducted their G20 meetings. Given that there is an EU level conference call this afternoon scheduled for 1500BST the likelihood of rumours seem high but as the wires have indicated already these conversations are purely based upon co-ordination ahead of the meeting which is usual practice. The yields in Spain and Italy have been a lot calmer so far with the 10yr in Spain at 6.88%, off the uncomfortable test of 7% seen yesterday.

Tony Robbins warned about the risk of dollar devaluation and spoke about the opportunities in gold

As Predicted Last Year, The French and the Greeks Are In A Race For The Biggest Bank Run! Each stock showcased has led the drop as well...