Gold And Silver Surge On QE3 Expectation Rerack

Submitted by Tyler Durden on 03/11/2011 11:58 -0500

Who'd a thunk that BTFD works for commodities even better than it does for stocks. Desks now advising clients that QE3 is likely (whether or not due to this article is irrelevant) and the result is presented below.

 

 

$440 Billion Drop In Shadow And Conventional Banking System Liabilities In Q4 Gives Bernanke Carte Blanche For QE3

Submitted by Tyler Durden on 03/11/2011 09:59 -0500

When we last updated on the size of the shadow banking system, the financial "system" that is far more important to the economic prosperity of the US economy than the traditional liabilities held by conventional banks, we observed that after declining for 9 consecutive quarters, having hit a peak of $21 trillion in 2008, the shadow banking system had reached an inflection point and had posted a very modest increase at around $16 trillion in total liabilities in the third quarter of 2010. Well, following yesterday's Z.1 release, it seems the bulk of the data was revised, and it appears that not only was last quarter's upward pre-revision data a fluke, when in reality it was another decline of $191.7 billion, but the Q4 data further reinforced the negative trend, with shadow liabilities declining by an even greater $206.4 billion. The components responsible for the decline were ABS Issuers whose liabilities declined by $94 billion, securities loaned by funding corporations declining by $40 billion and lastly repos, which dropped by $79 billion. In other words, speculation that the Fed had achieved its goal of stimulating an organic reflation in the shadow banking system at which point it would be able to end QE and hand off releveraging over to the private sector were premature, and recent data confirms that the Fed has no choice now but to continue with its quantitative easing process, as it does more of the same: take capital from the public sector and proffer it to Primary Dealers in an attempt at ongoing asset reflation, which will, the theory goes, be matched by a comparable hike in liabilities. Botton line - Bernanke has once again failed to spark a "virtuous leveraging cycle" even with QE2, which after all is the fundamental goal of the Fed, far beyond even getting the Russell 2000 to 2000. Which means that the Fed will have no choice but to continue "printing" money, and monetizing bonds, as it (in conjunction with the Treasury of course) continues to be the only incremental source of leverage, and thus money, for the world's biggest economy.

As Greece Embarks On The Road To Hades, Here Is How To Trade The European Implosion

Submitted by Tyler Durden on 03/11/2011 14:16 -050

While a crippled Europe continues to gladly enjoy being in the shadow of Fed-driven revolutions and natural disasters, its time in the sun is coming to an end. Soon everyone will realize that just today, 2 Year Greek bonds traded at all time wides of over 17%. That's right - holders of Greek bonds for 2 years will be rewarded with a 17% gain if the country actually repays these at maturity. Alas, for those who are paying attention, this has a snowball's chance in Hades of happening. And speaking of Hades, Knight Capital's Alfredo Viegas has released a note explaining not only why Greece has just passed the Rubicon following the release of its disastrous budget deficit details earlier, but also advising those who care, how to be positioned to best profit from Greece's descent into Hades, which will be promptly followed by the rest of the Eurozone. His advice: short Spanish and Italian cash bonds (this trade will work just as well using horrible, evil CDS which no politician still understands and therefore continue to be the scapegoat for everything). 

 

 

 

 

Will The Japanese Earthquake Be The Straw That Breaks Europe's Back?

Submitted by Tyler Durden on 03/11/2011 09:01 -0500

Two months ago many were scratching their heads when Japan announced it was buying Eurozone bonds.  After all - why would Europe want to have a marginal buyer (or as the case may be seller) of its debt be the country that is known by all to be the most indebted entity in the world? Of course, it became promptly clear that it was not the Japanese government doing the buying, but mostly its financial companies, with an emphasis on its insurance and reinsurance companies. Fast forward to today when Japanese insurance companies are getting pummeled in local trading on concerns the payoffs to the decimated Japanese infrastructure will be unprecedented. So what will happen? Why a scramble for liquidity of course, just like we saw back in September 2008, when cash stricken companies sold all their liquid assets first, resulting in a toxic loop of self-fulfilling prophecy selling which almost tobbled the $25 trillion shadow banking system. And what will said Japanese insurance companies sell first? Why the very same Eurozone bonds they acquired with so much pomp and circumstance, by the minions of the insolvent Eurozone, back in January of course. Furthermore, now that Japan will have no choice but to launch a mini round of Quantitative Easing and flood the market with JGBs, there will be a dramatic spike in supply for sovereign paper, which of course means yields across the board will rise. Which begs the question: if an earthquake flips its wings in Japan, does the Eurozone go bankrupt, especially in the month when its most insolvent countries face billions in debt rollover requirements, tens of billions in maturity funding needs, even more in deficit funding requirements... and no cash?

 

 

Some Bad And Some Good News On That Radiation Leak

 

It's Official: Wisconsin Gov. Walker Signs Bill Taking Away Public Worker Collective Bargaining Rights.

Submitted by Tyler Durden on 03/11/2011 10:59 -0500

While the signature of Governor Walker to the Bill that had passed both the Senate and the Assembly, was inevitable, it is now also history. The first shot across the bow at America's unions is now official. What happens in Wisconsin next is anyone's guess. Probably nothing much. And any union member who may consider protesting today should carefully evaluate whether they should be doing so at the Senate building or on Wall Street/D.C. where the root of America's insolvency, and all of its financial problems stems from.