Germany "Raises" €55.5 Billion, or 1% Of Its Debt/GDP Ratio, Thanks To Derivative "Accounting Error"As usual, the most surreal news of the day, perhaps week, is saved for Friday night, when we learn that Germany has magically raised over a quarter of its total EFSF obligation of €211 billion by way of what is essentially magic. The Telegraph reports that "Germany is €55bn richer than it previously thought because of an accounting error at state-owned bank Hypo Real Estate Holding. The mistake at "bad bank" FMS Wertmanagement, happened because collateral for derivatives wasn't netted between the asset and liability side, an FMS spokesman said. As a result, FMS will only contribute about €161bn to Germany's debt this year, down from €216.5bn in 2010." Another way of representing the error is that it is equal to a ridiculous 1% of the country's debt to GDP ratio. "Germany's 2010 debt-to-GDP ratio also drops, to 83.2% from the previous 84.2%, a finance ministry spokesman said." In other words, the modern world, best characterized by the imploding fiat ponzi, has discovered a way to raise capital (electronic, naturally) courtesy of CDS bookmarking errors. And now, we have seen it all.
FX markets have pretty much trodden water for the last 24 hours with admittedly a small USD bullish bias providing little ammo for any correlation-driven risk-asset moves today. Credit markets did wonder gently up and down but ES was like a Parkinson's patient off his meds as it noisily whipped up and down in a small range generally tracking credit. Into the close HY and ES surged (on nothing except perhaps the EUR futures CoT data) as MF Global's stock price dived but HY managed to hold and close at its highs while ES pulled back modestly. IG didn't play into the late day exuberance and we suspect the HY shift is more index arb as intrinsics actually widened on the day and the index remains cheap. HY is still 'cheap' as a risk asset relative to equities which might explain some of the grab here into the close but with a weekend of uncertainty ahead, why not wait til Monday to add risk? Copper managed to rally from pre-open today as did oil marginally but Silver and Gold were unimpressive as they held gains (much as DXY was holding its losses on the week).
Presented without commentary:
Larry Summers, source"The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending." -
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