Tim Geithner outdoes himself this evening with three hypocritical, self-defecating-deceiving, and typically ignominious clips courtesy of his interview with Jeffrey Brown of PBS NewsHour. While we knew TurboTax was beyond him, the Treasury debacle-in-chief admits he doesn't understand how the debt limit has bubbled back up (seeing it as part of a partisan political agenda); admits that perhaps the NY Fed has a 'perception problem' with Jamie Dimon on the board; and his piece-de-resistance his cognitive dissonance erupts as he touts Obama's economic and jobs record: "look how well we are doing relative to any other major country". It seems the election cycle is well and truly upon us and revisionism and populism will once again trump sensibility and forthrightness.
“Public debt is an enemy for the country”
- From March 13: Fitch upgraded Greece's credit rating by one notch to B- following a successful debt swap finalised this week that erased some €100 billion from the country's crippling debt
- From May 17: Fitch Ratings-London-17 May 2012: Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B-'. The Short-term foreign currency IDR has also been downgraded to 'C' from 'B'. At the same time, the agency has revised the Country Ceiling to 'B-'. The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the 6 May parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF EUR173bn programme.
It would be laughable if it wasn't so... nevermind, it is laughable.
With CDX and credit indices being such a topic of conversation, we took a look at the 1 month changes as of May 12th. We selected U.S. and European Credit Indices that had NET position changes of $1 billion during that 4 week period. We also included some with smaller changes where it made sense to me as either part of “normal” roll flows or the now legendary “whale” trade. The overall reduction in HY and XOVER is interesting. Also, even in financials, the riskier sub index experienced a net decrease. I’m not sure what it means. Complacency? Increased volatility forcing smaller position sizes? JPM cutting HY short and shorting IG18 against IG9? The off-the-run data is a bit more interesting, especially in light of all the “whale” questions. IG9 tranche net actually increased in the period, though outright index dropped off. Is that a sign that it was hard to get out of tranches? IG9 with that special place in everyone’s heart, does seem strange. It looks like positions in European indices got reduced pretty dramatically. In any case, all these products need to be moved to an exchange. Look at the huge differential between the gross and the net? That would go down. Yes, banks would have to unwind offsetting trades, but who cares? Banks would have to post collateral, possibly on longs and shorts, but again who cares?
While the financial noose tightens....
The days have passed since January 13, 2010 when we first expressed opinion that Greece would default. Weeks and months have come and gone; Athens has been rescued by the Troika, private bondholders were forced into a Draconian swap as the Germans attempted to soothe their citizens and boatloads of money has been dumped into the Greek economy and into the Greek banks. The demands for “austerity measures” heaped upon the citizens and the economy of Greece has sent the marginally poor into the streets and into bread lines and caused a Depression in Greece based largely upon the imposition of the Troika’s demands that Greece must curtail the standard of living which was initially granted by Greece joining the European Union. Almost everyone has focused upon the sovereign debt, that it is no longer placed at the European banks and that it is resident at the European Central Bank which is protected by all of the nations in Europe. This is true, as far as it goes, but the summation does not go nearly far enough. The hit, when it comes, will require the ECB to be recapitalized, will be felt at the IMF where the United States will take 16% of the hit or around $16 billion which will be trumpeted in the Press by the Republicans and waved like a banner in the Press. The EIB will also take a hit and it may get downgraded but all of this just focuses upon the sovereign debt and is non-inclusive of the rest of the story or even of the truth of the sovereign debt. Greece has $90 billion in derivative contracts that will likely default and the losses will then have to be taken at the French, German and American banks. The number is approximately $1.3 trillion in total and all of it is going to default as Greece heads back to the Drachma.
Well, my hat is off to the global central planners for averting the next stage of the unfolding financial crisis for as long as they have. I guess there’s some solace in having had a nice break between the events of 2008/09 and today, which afforded us all the opportunity to attend to our various preparations and enjoy our lives.
Alas, all good things come to an end, and a crisis rooted in ‘too much debt’ with a nice undercurrent of ‘persistently high and rising energy costs’ was never going to be solved by providing cheap liquidity to the largest and most reckless financial institutions. And it has not.
At various stages in the last two years everyone from China, to Germany, to the Fed to the IMF, to Martians, to the Imperial Death Star has been fingered as the latest saviour of the status quo. And so far — in spite of a few multi-billion-dollar half-hearted efforts like the €440 billion EFSF — nobody has really shown up. Perhaps that’s because nobody thus far fancies funnelling the money down a black hole. After Greece comes Portugal, and Spain and Ireland and Italy, all of whom together have on the face of things at least €780 billion outstanding (which of course has been securitised and hypothecated up throughout the European financial system into a far larger amount of shadow liabilities, for a critical figure of at least €3 trillion) and no real viable route (other than perhaps fire sales of state property? Sell the Parthenon to Goldman Sachs?) to paying this back (austerity has just led to falling tax revenues, meaning even more money has had to be borrowed), not to mention the trillions owed by the now-jobless citizens of these countries, which is now also imperilled. What’s the incentive in throwing more time, effort, energy and resources into a solution that will likely ultimately prove as futile as the EFSF?
The trouble is that this is playing chicken with an eighteen-wheeler.
Here are some of the things that David Einhorn likes and does not like, having just started his speech at the Ira Sohn Conference:
- Martin Marietta - stock plunges 10% and triggers circuit breaker.
- France - "a french default is not out of the question" - France not limit down yet. He says that a return to the Franc is not out of the question.
- Einhorn likes GJF.NO - "Norway is the only country which can finance itself."
- Einhorn likes Cairn Energy as it trades at discount to assets in just Britain and India.
- Says China is misunderstood and is not an investment opportunity: not enough money to feed the economy and banks aare becoming illquid; money is leaving the country
- Also does not like Japan for all the usual Kyle Bass and Andy Xie reasons. The Yen will continue strengthening.
- Einhorn likes AMZN, calls it "elephant in the room", but questions profit growth.
- Einhorn likes Dena Co, and Gree Inc in Japan
- Einhorn is short DKS
- Einhorn, who is long about $870MM AAPL as per last night's 13F, likes AAPL. Stunner.
Because it is one thing to predict the inevitable when one doesn't have a PhD in Economics, it is something totally different when it comes from the likes of Goldman Sachs (Huw Pill and Themistokis Fiotakis to be precise). In this case, that something is what happens at T+1, T being the inevitable (there's that word again) point where payments from the ECB to sustain the zombified Greek patient, all of which go to ECB funded entities anyway, stop. The biggest concern is that, as we suggested first thing this morning, the ECB is now engaged in a fatal game of chicken, whereby it is forcing Greeks to vote "Pro Bailout" (something that just dawned on the FT), in exchange for continued funding, because unlike last year when the threat of a referendum resulted in the termination of G-Pap, now there is no leader who can be sacrificed, and Europe has no real leverage over the people who have lost so much already, aside from threatening a full out bank system collapse. However, this could very well backfire as more and more Greeks pull their money out, not wanting to find out who blinks first as it would be their money that could be locked up in perpetuity, in essence making the ECB threat into a self-fulfilling prophecy. And as Goldman says, "If confidence is lost and a run on banks occurs, the implications are hard to assess." Well, as ZH warned yesterday, this is already starting. Again from the FT: "Athens-based bankers said withdrawals exceeded €1.2bn on Monday and Tuesday – 0.75 per cent of deposits – as President Karolos Papoulias failed in two final meetings with conservative, socialist and leftwing leaders to form a national unity government." Or double what was suggested yesterday...
Jamie Dimon Thumbs Nose at Law by Pretending that Big Speculative Bets are Hedges
Greece Sneezes, The Euro Dies of Pneumonia! A Step-by-Step Guide To Pan-Euro, Bank Busting ContagionSubmitted by Reggie Middleton on 05/16/2012 13:53 -0400
So nobody can say, "But no one could have seen this coming", I'm letting all know what's coming.
Update: not so fast: Bloomberg reports that the whale is still beached: JPMorgan Chase Still Employs Trader Bruno Iksil, Spokesman Says. So... pile into the IG9 trade still?
Yesterday we speculated that the final confirmation that JPM has unwound its disastrous skew trade will only came once Bruno Iksil joins all the other members of the CIO team in being involuntarily retired: "As for the question of how much additional P&L loss JPM has sustained from Friday through today is a different matter entirely, and we are confident the next announcement from JPM will come momentarily, coupled with the announcement that Bruno Iksil, the last remnant of the CIO desk, and now having completed his duty of unwinding the trade that brought so much pain for Jamie Dimon, has been retired." Sure enough, the NYT reports that Iksil is now history.
In one of the most fascinating psychological shifts, there has been a massive shift in the perspective of the Greek electorate since the election two weeks ago. Almost as if the size of the actual votes for Syriza, the far-left anti-bailout party, gave citizens 'permission' to be angry and vote angry. The latest opinion polls, as per Credit Suisse, show the center-right New Democracy party crashing from 108 seats to only 57 as Tsipras and his Syriza colleagues soar from 52 seats to a hugely dominant 128 seats. Is it any wonder the market is pricing GGBs at record lows and 'expecting' a Greek exit from the Euro as imminent given the rhetoric this party has vociferously discussed. On the bright side, the extreme right Golden Dawn party is seen losing some of its share. As UBS notes, "expressions of frustration in debtor countries have their analogue in creditor countries as well. No one is happy with the status quo." Still, how Europe's political leaders address voters' grievances will go a long way to determining the fate of the Eurozone and, quite possibly, the course of European history in the 21st century. Europe's politicians will undoubtedly prevaricate and deny. The troika will, with minor modifications, probably insist on 'staying the course'. Yet it seems to us that ignoring clear voter demands for change might well be Europe's worst choice.
What's $2 Billion for Ben Bernanke's Chosen Son?