default

Meanwhile In Argentina...

Dear Buenos Aires: we have three words of advice - "hide yo' catamarans" (before Paul Singer comes and collects them all once you default again in what the market now deems is inevitable to occur in the next few weeks). 5Y CDS on Argentina just reverse-Baumgartnered to over 3000bps (49/53% upfront) and short-dated CDS imply a 60% probability of default (assuming a 25% recovery).

Guest Post: The Nearly-Free University

The key to understanding higher education in the U.S. is to grasp that it is at heart just another debt-dependent neofeudal cartel. In other words, it is just like sickcare and the national defense complex. The most implacable enemy of innovation is monopoly. If you're protected from real competition, then you have no incentive or need to innovate. That is the essence of cartel-capitalism and the neofeudal model. In the case of the higher education cartel, the Federal funding is both cash grants and loans issued to newly minted debt-serfs. Student loans cannot be discharged in bankruptcy like other debt; these loans have ballooned to about $1 trillion. This is the essence of the neofeudal model: a protected Elite parasitically extracts wealth from the debt-serfs below. Should the debt-serfs resist, the State steps in to coerce compliance. The problem with protected cartels (neofeudal fiefdoms) is that they are unsustainable.

DTCC Provides Update On Status Of Flooded Securities Vault

As has been widely reported previously, while the NY Fed's deep underground gold vault remained dry during the Sandy flooding in downtown NY, one institution which got badly hurt was the DTCC, aka Cede & Co (profiled here in July of 2009 in " The Biggest Financial Company You Have Never Heard Of"), which is the entity serving as custodian of virtually every electronically traded security in the modern marketplace (equity, debt, derivative, synthetic, in fact anything which is not a physical asset in itself and is not in the hands, or safe, of the rightful owner). We put the emphasis on electronically, because DTCC is also the actual custodian of all physical proof of stock ownership, such as certificates, bond deeds, and the like. It is the largely irrelevant latter (because it has been several decades since anyone actually demanded a physical copy of the stock certificates backing their shares of company XYZ) that the DTCC got in trouble for when its securities vault got flooded, and in the process destroyed countless physical stock certificates. Note we did not use the word electronic because those are there and accounted for in numerous back up data sites, with full designation and attribution. In other words anyone who made a mountain out of this particular mole hill sadly has no idea how modern markets operate, since all that the DTCC needs to do to remedy the flooding damage is to notify transfer agents of this natural disaster, and then have duplicate stock certificates printed at a cost of 1 cent for every thousands or so print outs. Which is more or less what the DTCC also just said in its press release.

Bernanke Laments Lack Of Housing Bubble, Demands More From Tapped Out Households

Moments ago Ben Bernanke released a speech titled "Challenges in Housing and Mortgage Markets" in which he said that while the US housing revival faces significant obstacles, the Fed will do everything it can to back the "housing recovery" (supposedly on top of the $40 billion in MBS it monetizes each month, and/or QEternity+1?). He then goes on to say that tight lenders may be thwarting the recovery, and is concerned about high unemployment, things that should be prevented as housing is a "powerful headwind to the recovery." In other words - the same canned gibberish he has been showering upon those stupid and naive enough to listen and/or believe him, because once the current downtrend in the market is confirmed to be a long-term decline, the 4th dead cat bounce in housing will end. But perhaps what is most amusing is that the Fed is now accusing none other than the US household for not doing their patriotic duty to reflate the peak bubble. To wit: "The Federal Reserve will continue to do what we can to support the housing recovery, both through our monetary policy and our regulatory and supervisory actions. But, as I have discussed, not all of the responsibility lies with the government; households, the financial services industry, and those in the nonprofit sector must play their part as well." So "get to work, Mr. Household: Benny and the Inkjets, not to mention Chuck Schumer's careers rest on your bubble-reflation skills."

House Republicans Find Corzine Guilty Of MF Global Collapse, Missing Funds; Democrats Refuse To Endorse Findings

It appears that these days not even the Corzining of client money can happen without it being split across furiously polarized party lines. As it turns out hours ago, the Committee on House Financial Services released an advance glimpse into a report to be released in its entirety tomorrow, which puts the blame for the collapse of not only MF Global, but also the disappearance of millions in client money, right where it belongs: the firm's then CEO Jon Corzine. Yet that Corzine corzined millions, leaving clients scrambling in bankruptcy court in an attempt to recover what should have been segregated money from the very beginning, and also just happened to blow up one of the 21 Fed-anointed Primary Dealers, is not surprising: this has been long known by everyone. Those who need a refresher are urged to recall the Honorable's testimony before the House... or maybe not: after all it is not as if Corzine himself could recall a whole lot. Where it gets interesting is that the former Democratic governor, and senator, not to mention primary bundler for president Obama, is, in the eyes of the members of the committee, innocent: All the democrats on the Investigations Subcommittee refused to sign off on the findings, meaning that to them, Corzine is completely innocent. That this is purely a political move is glaringly obvious. It is also abhorrent, because as long as political ideology gets in the way of pursuing and imposing justice, the Banana States of America will remain just that.

Greece Comes Up With Collateral Loophole, Has Enough Cash To Roll €5 Billion Bill Maturity

Over the past several days there had been concerns that even if Greece managed to roll its maturing €5 billion in Bills with a new Bill issuance (which it did earlier today), it would be unable to actually obtain cash for this worthless paper, through a repo with the European Central Bank. The reason being that last week the ECB allowed a temporary extension in Greek ELA collateral eligibility to expire, enacted on August 2, which in turn reduced the amount of repoable T-Bills from €7 billion to just €3.5 billion, in the process reducing the amount of cash Greece can obtain in half from the Bill roll. And while there had been lots of speculation and rumors that the ECB would, as in the case of Spain, either make a "mistake" or extend the collateral pool exemption once more, this did not occur. Instead, as we have just learned, the ECB has allowed Greek banks to use "asset-backed" securities to plug the collateral gap. Needless to say, one can only conceive just what unencumbered assets still can be found on Greek bank balance sheets (here is one artist's impression) but it was largely expected that in the race to debase its currency, the ECB would once again admit that when it comes to perpetuating the Ponzi, especially at a marginal cost of a token €3.5 billion, anything goes (just don't tell Germany). And so, Greece kicks the can once again.

Living In 'The Day Before'

Markets, you see, always live in this “day before” where the bend in the highway never comes, where the path is always straight and fixed and where it is generally thought that nothing of consequence will happen. Then some event takes place, something magical or wonderful or awful occurs and the world is turned on its axis and nothing is ever the same again. We are in danger, “clear and present danger” and the strategy of the “day before” is no longer appropriate. $400 billion has poured into bond funds this year, an all-time record, with yields at depressed levels indicating a quite real flight to safety. The United States lost thirty-six percent of its wealth during the American Financial Crisis and, people or institutions, the song rolls across the landscape, “We won’t get fooled again!”

Overnight Sentiment: Europe Stumbles Over Itself, Again

It wouldn't be the New Normal if the basket case that is Europe, and its amusingly named "Union", didn't somehow manage to trip over itself. This is precisely what happened last night at the European finance ministers meeting after IMF head Lagarde and pathological liar and chair of the Europe's mostly broke Finance Minister, Jean-Claude Juncker, openly disagreed with each other, an event even the FT called a "feud" after they proposed two alternative visions for Greece, one which envisioned the 120% debt/GDP debt target goal pushed forward to 2022 (for Juncker), and on the other hand, IMF, which has been humiliated enough with its horrible predictions, and which refuses to budge from its 2020 Greek target. Per the FT: "In a rare breach, Mr Juncker told a post-meeting press conference the target would be moved to 2022, prompting Ms Lagarde to insist the IMF was sticking to the original timeline. When Mr Juncker again insisted it would be moved – “I’m not joking,” he said – Ms Lagarde appeared exasperated, rolling her eyes and shaking her head. “In our view, the appropriate timetable is 120 per cent by 2020,” Ms Lagarde said. “We clearly have different views.” Officials will meet again November 20 in an effort to reach agreement, Mr Juncker said. Despite the delay, officials insisted Greece would not default on Thursday, when Athens must make a debt payment of about €5bn without the benefit of international aid." Nothing like total coordination and organization within a monetary union that may not exit if Greece does not make its November 16 bond payment, which it likely will, by issuing debt and forcing the ECB to accept it as eligible collateral so that Greece can roll the maturity. And concluding this hilarious incident was Juncker's statement this morning that there is "no real dispute" with the IMF. When it gets serious...

Daily US Opening News And Market Re-Cap: November 12

Another day another sell-off…with equity markets in Europe trending steadily lower after it was reported that the decision on Greek aid will not be taken during the Eurogroup meeting scheduled for November 12. Still, EU official said that there will be no Greek default on November 16th (EUR 4.1bln redemptions) and that this redemption is to be "factored in" decision on disbursement. Separately,  analysts at Fitch rating agency noted that while current Spain’s rating is appropriate, further action would more likely than not be to sub-investment grade. Moody’s also commented on the never-ending sovereign debt crisis today, stating that actions taken by the ECB only buying time for Euro region and that a decision on France will be communicated within a few weeks. As a result, bond and credit spreads widen further today, with SP/GE 10s spread at 450 level, which is of particular importance given that this is the level at which the LCH begins to review bonds for margin requirements. Deterioration in Italian paper was linked to next week’s supply. In turn, EUR/USD and GBP/USD trended lower, with the USD index up 0.12% at last check. Going forward, market participants will get to digest the release of the latest U. Michigan Survey (Nov P), as well as macro forecasts from Philadelphia Fed.

Frontrunning: November 12

  • Jefferies to be bought by Ian Cumming's Leucadia in an all-stock deal for $3.59 billion or about $17/share (WSJ)
  • FBI Scrutinized on Petraeus (WSJ)
  • Identity of second woman emerges in Petraeus' downfall (Reuters)
  • SEC staffers used government computers for personal use (Reuters)
  • Japan edges towards fifth recession in 15 years  (FT)
  • Europe Finance Chiefs Seek Greek Pact as Economy Gloom Grows (BBG)
  • Americans Say Europe Lesson Means Act Now as Austerity Will Fail (BBG) - of course it would be great if Europe had ever implemented austerity...
  • Greece battles to avert €5bn default  (FT)
  • You don't bail out the US government for nothing: No Individual Charges In Probe of J.P. Morgan (WSJ)
  • Israel Warns of Painful Response to Fire From Gaza, Syria (BBG)
  • Greece's far-right party goes on the offensive (Reuters)
  • Don’t fear fiscal cliff, says Democrat  (FT)
  • Apple Settles HTC Patent Suits Shifting From Jobs’ War (BBG)
  • Man Set on Fire in Argentina Over Debt (EFE)
  • Iraq cancels $4.2-billion weapons deal with Russia over corruption concerns (Globe and Mail)
  • An Honest Guy on Wall Street (Bloomberg)