Monday, October 31, 2011

G-Pap Demands Referendum To Rescue Plan, Seems Set To Throw In The Towel

It appears the Greek leader has had it, and is officially throwing in the towel, leaving his citizens to tell Europe to shove their perpetual bank rescue plan, via Bloomberg:
Naturally, with scenes like this from last week, don't expect a glowing Greek endorsement of abdicating national sovereignty to the European superstate. In fact, expect the opposite. And with that, preparations for a Greek exit from the Euro and Eurozone begin in earnest.

  • Citing U.S. law, State Department says it will not make a $60 million contribution in November to U.N. cultural agency UNESCO after its members voted to grant Palestinians full membership.



Asset Allocation: Gold, Real Estate, Stocks & Cash

Admin at Marc Faber Blog - 8 minutes ago
The best thing an individual investor can do right now is to hold 25 percent of his assets in equities, 25 percent in real estate, 25 percent in gold, and 25 percent in cash. If equities, real estate, or gold drop another 10 to 20 percent, put more cash in. - *in BullionVault* ETFs, SPDR Gold Trust ETF (GLD), SPDR S&P 500 ETF (SPY) *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Bank of Japan Intervention in Yen is doomed to Fail

Trader Dan at Trader Dan's Market Views - 13 minutes ago
The Bank of Japan stepped into the Forex markets overnight in an attempt to punish the impertinent speculators who have dared to nullify their former intervention efforts undertaken back earlier this year when the nation suffered the onslaught of the earthquake/tsunami. Note the previous intervention, which I might add was a VERY RARE example of COORDINATED CENTRAL BANK EFFORTS involving the BOJ, the ECB and the FED. If intervention is going to be effective, it will generally need to be coordinated, sustained and have an eventual fundamental backing. Without those factors, it alwa... more »



Here Come The "Unintended Consequences": Stock Futures Liquidity Dries Up Post MF Bankruptcy

Just like with Lehman, when it took 3 days for the full consequences of the bankruptcy to manifest themselves in the form of a complete freeze of money markets, so too now we are starting to see the same phenomenon following the blow up of one of the world's largest exchanges. The first observation comes courtesy of Dow Jones which informs us that the MF Bankruptcy has "devastated stock futures liquidity." Specifically, "MF Global's departure from the clearing scene has "devastated liquidity" in stock index futures, a long-time CME floor broker said. He estimated about a third of the pit population is missing. On a normal day, six or seven filling brokers stand on the top rail. That's down to three. In the rate futures markets, another veteran broker sees "marginal" impact because MF's business in Eurodollar and Treasurys is not as large as Newedge USA and Goldman Sachs. "Whatever the effect, it will be extremely short- term in nature because accounts will find new clearing firms and executing brokers quickly," the rate futures broker said." One can only hope the futures broker is right. In the meantime, the CME's margin drop in Dow related margins from last week probably could not have come at a better time.

Demand For EFSF Paper Collapses As World Wakes Up To Post Bailout Hangover

It just goes from bad to worse for Europe, which had been hoping to issue €5 billion in 15 year bonds to finance part of the Irish bail out via the EFSF. Instead, once seeing the orderbook, or lack thereof, Europe ended up slashing the notional by 40% and the maturity by 33%, to a €3 billion issue due 10 years from now. And that is hardly the end of the concessions. As the FT reports, "The bond from the European Financial Stability Facility will only target €3bn, instead of €5bn, and will be in 10-year bonds rather than a 15-year maturity because of worries over demand. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity. Banks hired to manage the deal are Barclays Capital, Crédit Agricole and JPMorgan." Do you see what happens Larry, when China walks? But so we have this straight, Europe plans to fund a total of €1 trillion in EFSF passthrough securities.... yet it can't raise €5 billion? Just.... Priceless.

Euro Bailout Halflife: 48 Hours

10Y US Treasuries have now successfully eradicated all the post-summit losses and are well on their way to last week's low yields as the reality (that we unendingly slammed into people's heads) appears to be hitting managers minds. 2s10s30s has also retraced the entire post-summit shift and the EUR is also getting very close to unch (from pre-summit). This leaves only ES (and credit to a lesser degree) as the odd man out having retraced only 50% of the post-summit euphoria.

Presenting The Bond That Blew Up MF Global

Reaching for yield (and prospectively capital appreciation) while shortening duration had become the new 'smart money' trade as we saw HY credit curves steepen earlier in the year (only to become the pain trade very quickly). The attraction of those incredible yields on short-dated sovereigns was an obvious place for momentum monkeys to chase and it seems that was the undoing of MF Global. The Dec 2012 Italian bonds (in which MF held 91% of its ITA exposure), as highlighted in today's Bloomberg Chart-of-the-day, appears to be the capital-sucking instrument of doom for the now-stricken MF. As if we need to remind readers, there is a reason why yields are high - there is no free lunch - and while some have already leaped to the defense of the bet-on-black Corzine risk management process with comments such as 'He was simply early and will be proved correct' should remember that only the central banks have bottomless non-mark-to-market pockets to withstand the vol. It also sets up a rather useful lesson for those pushing for EFSF leverage to buy risky sovereign debt - but given today's issue demand, perhaps that is moot.

Bob, At His Bearish Best, On "Fudge, Fantasy And Fiction" - "My Target For The S&P Remains 800/900"

And now for some good old fashioned Bob Janjuah, albeit with proper grammar (damn you Nomura proper English sylesheet... damn you to hell): "No change. Deeply bearish with respect to global growth, and on a secular basis I am very strongly risk-off – my 2012 target for the low in the S&P500 remains 800/900, with the risk of an "undershoot? to the 700s. See my last note for details/targets. I would highlight only my view that the global policy making community, based their "actions? over the last month, are doing a wonderful job in meeting my 2012 "target?. Namely that, in 2012, the current set of developed markets (DM) policymakers will be exposed as "emperors with no clothes on?, and their policy choices over the last few years will be seen as the central problem, rather than as some mystical bazooka solution which can somehow reconcile the chasm between a lack of growth and productivity on the one hand, and the enormous debt and debt servicing costs and unsustainable entitlement culture costs that we face in the DM world on the other." And for the shorter-term: "The implication therefore is that in 2011, the October equity lows MAY NOT be the lows for the year. So based on what I can see now, and with a S&P500 1310 “stop loss” as mentioned above, I am now looking for another major risk-off phase between now and year end, with a December target for the S&P500 back down in the 1100s for sure, and possibly even the low 1000s." In other words, Bob as we love him best: nearing his all time bearish zenith... Or nadir, depends on one's perspective.

ISDA Says 50% Greek Bond Haircut "Appears" Voluntary

Well, they are right: 50% and the gun next to your head does not go off, hence "voluntary" or push for fair treatment in bankruptcy, get exiled from the ponzi in perpetuity, and hope for a 0% recovery at best. Next steps: the upcoming 90% haircut, which make no mistake is coming once the 50% one is deemed insufficient, just like the 21% before it, will also be voluntary? Thank you ISDA for confirming whose interests you have truly at heart, and for forcing everyone to take a quick peek at the members on you determinations committee.

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