The Brown Stinky Stuff is Splattering Off the Fan Blades and Landing on That Shiny New Building on the West Side Highway.Submitted by Reggie Middleton on 06/10/2010 07:40 -0500
Isn't it funny how some of your biggest home runs are from positions that nearly EVERYBODY says will never work? GS was one of the most contrarian of contrarian moves and proves once again that math, truly forensic research and an objective perspective will continuously best the crowd following, “Goldman is too connected” huffing, “This is the best company on the Street” touting, Buffet position worshiping, momo chasing, “I just do what everybody else in the industry does” crowd.
JPM JPMCC 2010-C1 CMBS offering more sound than originally thought.
RealtyTrac Reports Foreclosure Activity Over 300,000 For 15th Straight Month As REOs Set New Monthly RecordSubmitted by Tyler Durden on 06/09/2010 23:28 -0500
Michael Pento's expectation of a major double dip in housing is starting to come through. RealtyTrac reported that even as foreclosure filings declined marginally, by 3% in May, to 322,920 (1% higher YoY), bank repossessions (REOs) hit a record monthly high for the second month in a row, with 93,777 properties repossessed by lenders. It appears banks are finally starting to pick up backlogged housing currently in foreclosure. And as this REOed inventory goes back on the market, the so-called shadow inventory will tide will wash over the markets and flood existing artificially propped up supply levels, pushing prices much further down. James J. Saccacio, CEO of RealtyTrac confirmed this observation: "The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months. Defaults and scheduled auctions combined increased by 28 percent from 2007 to 2008 and another 32 percent from 2008 to 2009 — creating a build-up of delayed bank repossessions. Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed.” This is precisely the event that CNBC's Diana Olick was warning about a month ago. Housing is about to take fresh new turn lower.
Transatlantic Financial Risk Inverts: European Bank Default Risk Greater Than American For First TimeSubmitted by Tyler Durden on 06/09/2010 20:30 -0500
One of the oddest phenomena over the past two years has been the relative outperformance of European bank CDS compared to their transatlantic counterparts. Well, this peculiar relationship has now ended. European banks are finally, on average, riskier than American ones. Investors have finally realized that "regulatory capitalization" in Europe is an even more ephemeral concept than in the US. Furthermore as JPM pointed out yesterday, not only do European banks use more leverage, but the "the larger size of Europe’s banks argue against using simple GDP weights to assess potential risks to global markets. Due to a buyer’s strike over the last month, European banks now have 3.5x as much debt to issue than U.S. banks over the remainder of the year." Also, as we have been pointing out every single day for the past week, European banks, or at least those that have excess liquidity, have been storing more and more of their euros with the Central Bank, instead of lending it out. Add to this the relentless rise in EUR Libor, and this trade should have been a no-brainer for months.
IG is at its widest (on-the-run adjusted) since 5/28/09 today (and we note that the last time IG was here, HY was over 1000bps) - but different portfolios make the comps a little tricky. Across the broad universe of credit, 5Y was pretty much unch on aggregate as 3Y underperformed with APC, RIG, and HAL the worst performers on a DV01-adjusted basis (along with UAL and CONTI). No clear ratings-related theme today as cohorts were very mixed as we saw bond volumes low once again but underperforming where we did see them (smells like Monty Python's Holy Grail - investors bringing out the dead as markets show any appetite for risk). FINLs and Energy were the worst performing sectors by far today with Utilities and Capital Goods the best performers. One day to go til the greatest sporting event in the world (aside from my eldest daughter's U10 Soccer matches) and we have started to prepare ourselves - bets placed (in my home country of course or that would be illegal) and Fantasy Squad selected. Ennngggeeerrrrlaaannnddd.
During his testimony before the House Budget Committee, when asked about the recent move in the price of gold to a fresh all time high, the Princetonian, who usually has an answer for everything, was stumped: "the signal that gold is sending is in some ways very different from what other asset prices are sending" he said, adding that "the spread between nominal and inflation-indexed bonds, the break even, remains quite low, suggesting that markets expect about 2 percent inflation over the next 10 years." The fact that TIPS are linked to the most manipulated indicator in the government's arsenal the CPI, was not mentioned. But back to gold, Ben Shalom concluded "gold is out there doing something different from the rest of the commodity group." Yes, Ben - it is indicating that your policy of endless fiat dilution is about to come to a forced end. But don't take our word for us. Here is a report from Credit Suisse which explains not only why the firm sees gold rising promptly to $1,360 but possibly going much higher - and this is from a bank whose very existence is contingent on gold prices staying sufficiently low for some marginal credibility in fiat to still remain.
Some reality to go with your reported fiction?
Update: ok, the 10,000 people that just hit the server didn't help.
We apologize for the extended downtime. European server hosts responsible for the crash will be promptly punished when their sovereign CDS shortly catch up with BP's defaults risk (+108 now to 368bps, 27% implied default probability for 5 Y). We are comforted by the fact that Ben Bernanke sees no future crash for Zero Hedge servers, ever again.
The week's biggest (sovereign) CDS movers have been released, and we have some new entrants in the most endangered species list. While by now nobody will be surprised that the UK is a consistent top 2 player (coming in this week with $319 million in net notional derisking, this making it the 8th week or so the country has made the top 3), only behind Italy and its $452 million in net notional, and just in front of last week's #1 Brazil, the presence of the United States at #4 should be a little unsettling. It has been months since the US appeared in the top 5. And just like in the long gold case, the same types of existential questions once again arise when the interest in US CDS picks up: who gets to pay off your contracts in the case of an event of default? Elsewhere, the presence of Korea and Turkey (or Australia) in the top 10 should not come as too surprising. On the other end, short covering was violent in CDS of Spain, Hungary and Portugal - Europe's newest lepers. Is the CDS community concerned the EU can actually pull out a rabbit out of the hat that actually works for once? Hardly. The top 10 reriskers also saw the inclusion of France and long-forgotten insolvent Greece.
Something interesting just happened.
Simply copying the US style of Central Bank Crisis mitigation is a bad idea, particularly since I believe the US has not mitigated the problem at all, but simply kicked a soda can down the road until it gained the unstoppable momentum of a dumpster. Now, the ECB is actually trying to kick that dumpster, and appears to be stubbing its toe!
A team at Goldman, decidedly different team from the one which this morning said the EUR could drop to a 1.16 level shortly, looks at recent fund flow data and notes that with the US now perceived as a safe haven to the rest of the world, particularly Europe, a fact which implicitly is a huge benefit to the treasury supply onslaught as buyers for USTs no matter the yield or maturity, are easily found in this environment of insecurity. No surprise there: it is almost as if Europe's problems were engineered, courtesy of a EURUSD which was kept too high, for too long, by too many market participants. Goldman's conclusion is that the dollar is not the fundamental safe haven it is portrayed to be, but is, once again, merely the best of the worst. As Goldman's Robin Brooks highlights: "non-Treasury portfolio inflows are still falling short of covering the monthly trade deficit, in contrast to before the crisis when they were more than enough. This is consistent with our often repeated view that the BBoP (broad basic balance) for the US remains weak and is why – even in the face of strong foreign inflows into Treasuries – we remain cautious about the USD outlook." The primary reason for the increasingly strong bid for gold is explained by Brooks' observation: while unwinds in existing FX carry pairs continue to implicitly benefit the dollar, when it comes to allocating capital to a safe haven, the only recourse continue to be gold. And as FX is fickle, all it takes is one massive short covering spree to invert the balance of power once again in the direction of the EUR: all that would be needed is a wholesale realization that the consolidated US balance sheet is in far worse shape than that of Europe, and for the herd to shift from one side of the boat to the other.Yet should more volatility come into FX markets, gold would benefit even more.
In Chapter 3 of this continuing examination of our collective insanity, we begin to unfold the dynamics of the public lie, our often unconscious defense of the public lie, setting up our personal psychic firewalls, the Stockholm syndrome and the dynamics of the family when dealing with the addicted/abuser, Mother Nature’s nose candy, how we can break the conditioning and then reinforce the changed behavior.
The market opened under pressure Friday morning on the back of weaker-than-expected jobs numbers. Some estimates called for as many as 600,000 new jobs created, but that number was not even on the radar when the reflation reality-check of 431,000 was released. This caused most asset classes to sell off, precious metals included. The only thing that fared well was the US bond market. As we've said before, a deflationary selloff should occur before the much vaunted inflationary scenario can rear its head: a massive puke of all assets to cover margin calls, liquidations of profitable trades to cover losers, etc. Gold should not be spared.
On one hand you have the EURUSD telling you things are horrible and getting worse, on the other you have Goldman's Erik Nielsen. Here is the latest hilarious confirmation that Goldman managing directors are just plain clueless when the ponzi pulls a Madoff: "I don’t get the FX market these days. While I understand the technical and position-based arguments for the FX levels, on fundamentals, I don’t know why the Euro has remained overvalued for so long. That said, the triggers for moves are amazing: On Thursday, markets basically ignored the man with the world’s single biggest portfolio, Chinese central bank governor Zhou Xiaochuan, when he expressed full trust in Europe’s ability to deal with its debt crisis, while going into a virtual panic sending EUR/USD below 1.20 for the first time since March 2006 when the wire services botched the simple job of translating French PM Fillon’s statement on the FX. But here is the most fundamental of questions: How can one be bearish on both the Euro and on Euro-zone growth? Beats me – I assume you know which camp I am in."