Friday, October 21, 2011

French Regulator Urges Banks To Write Down Greek Debt To Realistic Levels

Slowly even those staunchest critics of reality, namely undercapitalized and insolvent French banks, are coming to grips with the truth that they are going to see massive losses on their tens of billions of French debt exposure. The FT reports that the French stock market regulator has told French banks to apply realistic assumptions to their Greek debt haircuts. Because through today, French banks only used the 21% agreed upon haircut at the July 21 (and even that number is likely greatly overstated). So where are Greek bonds trading now? Oh about 30 cents on the dollar (70% haircut) , which means at the end of the day French banks will see about three time more losses on Greek holdings than provisioned. And the market, which is not all that stupid, knows this and has been punishing French banks. This is precisely what regulators are trying to avoid. The problem, as is well known courtesy of daily fruitless discussions between Sarkozy and Merkel, is that "French banks have more cross-border exposure to Greece than any other country, mainly through subsidiaries owned by Crédit Agricole and Société Générale. BNP Paribas holds the most Greek sovereign bonds among private sector investors, with €4bn of exposure...French banks argued that limiting themselves to 21 per cent was justified because trading in Greek government debt was so subdued, making market prices unreliable." Uh, what? Those billions in Greek bond volumes, where the 1 year yields 184% in dozens of daily trades, are "subdued" and "unreliable?" Why not just buy the bonds then and take advantage of the illiquid arb then? What's that? Crickets? Oh ok. In the meantime, what is certain is that after the ECB, France is the country most exposed to a Greek admission of reality (even truncated, assuming a 60% haircut which is still generous). Which of course confirms, once again, our thesis that the only source of EURUSD stability in the past two weeks have been French banks liquidating assets, and using the feedback loop of rising asset prices from FX EUR repatriation to sell even more to a willing market.

Guest Notes From The Sales Desk - Can Brazil Get Its Groove Back?

From my recent conversations with emerging market portfolio managers, it is becoming quite clear that the enthusiasm investors had placed in Brazil as a domestic growth story earlier in the year is running thin. Buy why is the bloom coming off the rose? Some of the things portfolio managers are saying range from an experienced small-cap Latam buyer who said, “Inflation, Mantega going Don Quixote fighting wars that nobody creates other than themselves with high inflation. There is just no visibility,” to a large global fund manager who said, “I am in Brazil this week, it’s slowing down here for sure...” Banco Fator head of equity research Lika Takahashi made some very insightful comments this morning on this topic. In her view, there are couple of factors. First off, valuations in Brazil remain high. Especially considering that it’s likely the global slowdown coupled with high inflation domestically will crimp margins going forward, something she believes is not fully priced in yet.

Bernanke – “I’ve abandoned the dual mandate!”
Bruce Krasting
10/21/2011 - 10:29
An anti Bernanke rant this AM. 
Phoenix Capital...
10/21/2011 - 13:21
While our conversation primarily focused on the restaurant industry, the points and principles Chef Richard lives would serve as an example for any businessperson. His success is the product of hard... 

Guest Post: If The US Goes, Won't The Rest Of The World Be Even Worse?

Today was one of those days when the PT lifestyle was... less than glamorous. It took nearly 24-hours of travel dealing with weather delays, in-flight diversions, and mind-numbing airline incompetency... but I've finally arrived to Mongolia. As I write this, it's a balmy -7 Celsius (19F) outside. Despite the terrible weather, I'm excited to spend the next several days here sniffing around a few private placements and hopefully having some killer barbecue. More on Mongolia next week, let's move on to this week's questions. First, Jennifer asks, "Simon, you've been writing a lot lately about the prospect of social unrest in the developed world, including the US. You suggest that international diversification is a great way to protect against this threat. But if there's social unrest in the US, won't there be total chaos everywhere else?" Not by a long shot. I'll explain--

RANsquawk Weekly Wrap - Stocks, Bonds, FX – 21/10/11


Friday Afternoon Humor From JP Morgan

Because one is born every minute (even if one is ineligible for a mortgage with JPM).

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In The News Today

Dear CIGAs,

Please check out the following presentation on the case for Juniors. This is a subject we all need to review in depth.
Click here to view the presentation in PDF format…

Jim Sinclair’s Commentary

This is the birthing of a third political party that will launch major attacks politically against the Bankster’s international establishment.
This is not a phenomenon to dismiss in any way. It is a game changer just like Arab Spring, but the pressing question is to what?
What would a government of 99%ers look like and do? Hyper inflate of course.

Australian riot police break up ‘Occupy Melbourne’ protest; up to 20 arrested
By Associated Press, Published: October 20
MELBOURNE, Australia — Riot police in Australia’s second-largest city broke up a demonstration linked to the “Occupy Wall Street” movement Friday, after a group of around 100 people protesting corporate greed defied an order to vacate a plaza.
Between 15 and 20 members of the “Occupy Melbourne” group were arrested and around 20 people, including two police officers, suffered minor injuries in the scuffle, Victoria state Police Assistant Commissioner Stephen Fontana said. Several demonstrators screamed and cried as police dragged and carried them away from the city square, where protesters had been camped out for nearly a week.
The so-called “Occupy” movement began last month in New York, where people frustrated with America’s stubbornly limp economy have been camped out on Wall Street to protest corporate greed and social inequality. Since then, thousands of people have joined similar protests across the globe, including several cities in Australia. Most of the protests have been peaceful — with the exception of a rally in Rome that turned violent last week when protesters smashed bank windows, hurled bottles and set cars on fire.
Around 100 “Occupy” activists in Melbourne had been camped out in the square without incident since Oct. 15, many spending each night there in tents. But the Melbourne City Council finally said it had had enough, and warned protesters to leave by Friday morning or face trespassing charges.
Most activists ignored the eviction order, linking arms and forming a human chain while shouting, “This is a peaceful protest!”

Jim Sinclair’s Commentary

QE to infinity as there is no other functional option.

Fed’s Tarullo backs more MBS purchases
By Greg Robb
Oct. 20, 2011, 6:00 p.m. EDT

WASHINGTON (MarketWatch) — Federal Reserve Board Gov. Daniel Tarullo on Thursday backed another large-scale purchase program of agency-backed, mortgage-backed securities to support the economy. In a speech at Columbia University in New York, Tarullo said that the purchases could help the housing market, which is “central to the slow pace of the recovery.” The Fed has already purchased $1.25 trillion of agency MBS in 2008 and 2009 as part of its $2.3 trillion of asset purchases, or quantitative easing. Tarullo said that a proposal to allow underwater homeowners to refinance their mortgages would increase the effect of an MBS purchase plan. In an interview with The Wall Street Journal published Thursday, Boston Federal Reserve Bank President Eric Rosengren also said the Fed should consider more MBS. Tarullo added that he disagreed with some Fed officials who believe the central bank has done all it can to help the economy. “If we take account of the unusual nature of the current shortfall in fashioning policy responses, there is much that government policy — including monetary policy — can still do,” he said. 

Jim Sinclair’s Commentary

Here is the latest from Martin Armstrong.
Click here to view the PDF…

Jim Sinclair’s Commentary

Although consequences have not been the highlight of the recent past, this is serious business.

GAO Finds Serious Conflicts at the Fed
October 19, 2011
WASHINGTON, Oct. 19 – A new audit of the Federal Reserve released today detailed widespread conflicts of interest involving directors of its regional banks.
“The most powerful entity in the United States is riddled with conflicts of interest,” Sen. Bernie Sanders (I-Vt.) said after reviewing the Government Accountability Office report. The study required by a Sanders Amendment to last year’s Wall Street reform law examined Fed practices never before subjected to such independent, expert scrutiny.
The GAO detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves.  “Clearly it is unacceptable for so few people to wield so much unchecked power,” Sanders said. “Not only do they run the banks, they run the institutions that regulate the banks.”
Sanders said he will work with leading economists to develop legislation to restructure the Fed and bar the banking industry from picking Fed directors. “This is exactly the kind of outrageous behavior by the big banks and Wall Street that is infuriating so many Americans,” Sanders said.
The corporate affiliations of Fed directors from such banking and industry giants as General Electric, JP Morgan Chase, and Lehman Brothers pose “reputational risks” to the Federal Reserve System, the report said. Giving the banking industry the power to both elect and serve as Fed directors creates “an appearance of a conflict of interest,” the report added.
The 108-page report found that at least 18 specific current and former Fed board members were affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis.




Jim’s Mailbox

Dear James,

It looks like the South African Mining stocks are ready to skyrocket:

Kind regards,
CIGA Willem

Dear Jim,

In the following article, Fed officials are quoted making statements that open wide the door to more Quantitative Easing through “large-scale purchases of additional mortgage-backed securities.”

Sincerely yours,

CIGA Richard B.

Fed official says more bond purchases may be needed
Federal Reserve’s Tarullo says Fed should considers buying mortgage bonds again to boost growth
Martin Crutsinger, AP Economics Writer,
On Thursday, October 20, 2011

WASHINGTON (AP) — A voting member of the Federal Reserve’s policy-making committee on Thursday called for the central bank to consider buying mortgage bonds again as a way to spur economic growth.
Daniel Tarullo, a Fed governor, said Thursday that another round of purchases of mortgage-backed securities by the Fed could help the economy by further lowering interest rates, including mortgage rates.
Such a move would be an aggressive step by the central bank to provide support to the economy and boost the depressed housing market.
“I believe we should move back up toward the top of the list of options the large-scale purchases of additional mortgage-backed securities,” Tarullo said in his speech at Columbia University in New York. He noted that was something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009.




Jim’s Mailbox

German Bund sale undersubscribed as risky assets rise  

Centralized governments, also known as debt junkies, are having trouble getting their fix. Short term trend changes US Treasuries and US Dollar confirm it.
U.S. Dollar ETF clip_image001
U.S. Treasury Bond ETF clip_image002

The wolfpack, already wreacking havoc in Europe, will turn on the world’s reserve currency when all the easy prey have been culled without drastic, preemptive monetary changes. Unfortunately, history says don’t count it. Central planners will be using their own verison of the broken arrow call when it happens.

Headline: UPDATE 1-German Bund sale undersubscribed as risky assets rise
By Kirsten Donovan
LONDON Wed Oct 19, 2011 7:11am EDT

Oct 19 (Reuters) – Germany saw poor demand for its 10-year bonds at an auction on Wednesday as a modest pick up in equities hit appetite for safe-haven debt and low yields failed to lure investors.
It was the second weak result in a row for Germany, with a 30-year bond sale last week also technically uncovered despite chunky cash inflows from coupon and redemption payments.
Shares and the euro were higher, and German Bund futures lower, before the sale on optimism policymakers will take major steps at a weekend summit to resolve the euro zone debt crisis.

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