The second sequential ban of short selling in Europe, which was
supposed to expire at the end of the month, has just been extended. At
this point we are certain Europe will not allow shorting of financial
stocks. Ever. Or at least until the Eurozone implodes... Which will be
far sooner than 'ever.'
- ITALY MARKET REGULATOR CONSOB EXTENDS SHORT-SELLING BAN - BBG
- SPAIN'S CNMV REGULATOR EXTENDS SHORT-SELLING BAN - BBG
Next to join the part: France.
It was just
yesterday
that we, as it happens prophetically, said that "we fear the hedge fund
space, which at last check was approaching $2 trillion in AUM,
will collapse by 25% after the new year when the full carnage of the redemption requests is made public...we
certainly had no idea just how pervasive the decimation within the
hedge funds ranks was until we saw the mid-September results. We
really, really hope the collusive short squeeze-cum-month end rally
works out for the hedge fund community, because it really will be "or
else." Well, as of today it is nearing "or else" for the world's
largest hedge fund Man Group, which is down, yup,
25%
today on, you guessed it, redemptions. There is, however, good news for
all hedge fund managers reading us today: you will know whether or not
you are in business next year, by this friday. As Dow Jones reports,
"Friday marks a deadline for investors in many hedge funds with
monthly and quarterly liquidity to say they want their capital back."
In other words the pain is over, as 25% of hedge fund managers will
hear their death sentence in 48 hours and the painful expectation of
the inevitable ends.
Either
the YesMen have infiltrated Italy's biggest, and most undercapitalied,
bank, or the stress of constant, repeated lying and prevarication has
finally gotten to the very people who know their livelihoods hang by a
thread, and the second the great ponzi is unwound their jobs, careers,
and entire way of life will be gone. Such as the head of UniCredit
global securities
Attila Szalay-Berzeviczy,
and former Chairman of the Hungarian stock exchange, who has written
an unbelievable oped in the Hungarian portal Index.hu which, frankly,
make
Alessio "BBC Trader" Rastani's provocative speech seem like a bedtime story. Only this time one can't scapegoat Szalay-Berzeviczy
"naivete" on inexperience or the desire to gain public prominence. If
someone knows the truth, it is the guy at the top of UniCredit, which
we expect to promptly trade limit down once we hit print. Among the
stunning allegations (stunning in that an actual banker dares to tell
the truth) are the following: "
the euro is “practically dead” and Europe faces a financial earthquake from a Greek default"... “
The euro is beyond rescue”... “
The
only remaining question is how many days the hopeless rearguard action
of European governments and the European Central Bank can keep up
Greece’s spirits.”...."
A Greek default will trigger an immediate “magnitude 10” earthquake across Europe."..."
Holders of Greek government bonds will have to write off their entire investment, the
southern European nation will stop paying salaries and pensions and
automated teller machines in the country will empty “within minutes.” In other words: welcome to the Apocalypse...
Those who follow the repo market are well aware that something is
quite odd with the 5 Year point on the repo curve. While most other
bonds trade normal, the 5 Year OTR trades special. And not just
special: really special (see chart below) at -225 bps, a number which
has soared in the past 4 days, when it was just 0.00% on September 22.
And while we will not discuss what is happening in the repo market in
this post (judging by this fact, nothing good), it did help with
today's brand spanking new record low yield 5 Year bond auction, which
courtesy of the repo skew and certainly courtesy of Operation Twist,
just priced at an all time low 1.015%, well inside of the 1.03% When
Issued, and printed at a 3.04 Bid To Cover, substantially above the
recent average 2.76, not to mention a surge in Indirect Bidding to the
tune of 46%, well above the average. So even though the 5 Year auction
was a stunning success, sending the 5 Year to under 1%, what it
telegraphs is that there is something very messed up in shadow banking,
where both money markets and repo are getting gutted courtesy of
Europe. We expect ongoing such risk transfer from shadow into sovereign
debt: a development which as we discussed previously is very bad.
The risk faced by those who are analyzing macro trends is sounding
like a broken record. For those younger readers who have no idea what
that means, imagine an MP3 song that will stick on and endlessly repeat a
random segment of the song you are listening to until you give your
device a sharp knock on the side. That's what a broken record sounded
like. The world economy is on the ropes and it won't ever recover. At
least not to anything resembling its recent past. Neither the gleeful
housing bubble nor the free-flowing credit that enabled that side
bubble to emerge will return. The resources simply do not exist to
repeat that final orgy of consumption. A new reality is upon us and -
while fortunately more and more people are choosing to face our
predicament rather than pretend the current risks and challenges do not
really exist - the absolute numbers are still small and for the most
part don't inlcude any of our political leaders.
3-month
USD Libor has not dropped day-to-day since July 25th - a 46 day streak
- and while the individual rates indicated by LI(E)BOR are 'around'
37-43bps currently, someone (or more than one) is willing to overpay
(by over 200%) as the Fed's USD swap line usage (or
non-EURO tender operations)
remains $500mm at a rate of 109bps (vs 107bps the previous week).
Perhaps it is time for a certain French bank CEO (who enjoys all the
media exposure when telling naive gullible mom and pops just how stable
his balance sheet is) to sell some more non-performing assets? Or CSFB
to explain how their rate has been flat for 11 days in a row now?
Earlier
today Bank of America released a presentation and a conference call in
which the firm's head of China equity strategy David Cui spoke about
the dreaded "China Hard Landing" or the event that would kill all
decoupling dreams for ever and ever, and probably lead to a world
depression. It seems that the latest down move in the market is being
partially attributed to just this notification finally making the rounds
as can be seen in the note below: "BofAML’s David Cui is the Markets’
#1 rated China
Strategist according to the 2011 Institutional Investor All-China
Survey. While he is not responsible for our China GDP forecast, he sees
significant Chinese specific financial market risks that could trigger
lower than expected Chinese growth. He sees that those financial
market risks as having increased considerably. He will expand on this
on the call, but he sees these financial stresses as having a very high
probability of triggering lower than expected growth. That lower
growth could well be sub 7%, and therefore by Chinese market standards
would be termed a “hard landing”, clearly a HUGE issue for all global
markets." Granted this is not news to those who have been following the
Chinese situation (as fringe blogs have been for over a year), but the
market does tend to have a habit of being about 12-18 months behind
the curve. Here is what Bank of America had to say...
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