- BofA Drops Plan for $5 Debit Fee, Spokesman Says
As we detailed 11 months ago, LCH.Clearnet now stands at the fulcrum of today's price action in Europe as the critical 450bps spread to Bunds on European sovereign debt - which will trigger considerable rises in margin requirements - is being aggressively defended thanks to the ECB's SMP. What is evident (and troublesome) is the confluence of the rally in Bunds (as Greece implodes) and unhedgeable risks in ITA bonds which means relatively aggressive buying in ITA bonds is doing little to improve spreads. With all eyes now on the spread (which stood at a measly +150bps when the LCH.Clearnet margin rules were set) as opposed to price, buying Bunds is perhaps the easiest and most liquid way to put pressure on the Italian bond market.
A question has been raised as to if the clients of MF Global are insured on their losses as a client of a bank or securities firm would be under FDIC or SIPC? The answer is maybe. While there is no regulatory insurance agency to cover the losses of MF Global clients, the CME itself has a guarantee fund for losses. This fund is financed by the other Primary Clearing members. So all FCMs bear some burden of MF Global’s indiscretions. We believe it amounts to a $4BB Clearing Member “error Account” The answer depends on legal questions and accounting details: For example, are the segregated funds of a Clearing member’s clients guaranteed if those funds were lost due to fraudulent actions by that clearing member? In other words, do the other Clearing Members at CME have to pony up the lost money if MF Global lost it fraudulently as opposed to though market events and poor in-house risk management. If MF Global is found to be in violation of some CME rules, fraud, delinquency or otherwise, we believe CME’s other Clearing Members will put their collective political collateral into finding a way to not pay the money lost.
When sharing our perspective last night on why the alleged MF Global crime of commingling client capital with the firm's deficiency capital we asked, "What happens next? Why customers at all other brokerages, all other exchanges, afraid that their money will suffer the same fate as MF, even if they transact with perfect solvent clearers and agents, will proceed to pull their money, as they know they have nobody to trust but their own prudent and forward looking actions. Which in turn will start the kind of liquidity drain that killed not only Lehman, but froze money markets, and with that brought the complete capital markets to a standstill, only to be thawed after the Fed pledged multiples of the US GDP to rescue Wall Street in October of 2008." Sure enough, here it comes. "Reports of short falls of client money ... if true would be a disaster for all the smaller brokers and banks as nobody will trust them anymore," one London trader said. Reuters continues "MF Global filed for bankruptcy protection on Monday, putting a sudden end to Corzine's drive to transform the more than 200-year old MF Global into a mini Goldman by taking on more risky bets on euro zone sovereign debt. In Australia, trading in grain futures and options was suspended by bourse operator ASX Ltd , prompting concerns about the integrity of the country's agricultural futures market. "We're sitting out here with risk that we can't cover," said Jonathan Barratt, head of Sydney-based Commodity Broking Services. MF Global was one of the largest participants in the country's agricultural futures market. And it is all only going to get worse as the liquidity outflow avalanche is realized, following the market's most recent distraction with Europe.
Just two for now, but something tells us this is quite representative of the overall industry:
- Third Point Offshore Fund, Ltd.: October Net Return +0.8%
- Absolute Return Capital (ARC) – Bain Capital, LLC : October Net Return +0.7%
Looks like that 50% haircut may be insufficient. Who was the guy on CNBC was was buying Greek bonds a few days back on the "bailout"? And now, back to your regularly scheduled fiat ponzi system collapse.
Jim Sinclair’s Commentary
China to discuss financial crisis with Russia, Central Asian nations Tuesday, November 1, 2:57 AM
BEIJING — Premier Wen Jiabao will discuss the global economic crisis and his vision for the Shanghai Cooperation Organization when he meets next week with his counterparts from the regional grouping, seen by Beijing as a vehicle for extending Chinese influence in Central Asia.
Wen and the other prime ministers of the six member countries would issue a statement on the world financial problems at the SCO meeting Nov. 7 in St. Petersburg, Vice Foreign Minister Cheng Guoping told reporters.
He said the organization, which also includes Russia and the Central Asian countries of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, would discuss greater economic integration and strengthening the SCO’s institutions.
The meeting should “inject vitality into regional development, stability and prosperity,” Cheng said.
The SCO took its present form in 2001 with the initial goals of addressing religious extremism and border security in Central Asia, but has grown into a bloc aimed at challenging U.S. influence in the region.
Its meetings also include the leaders of its dialogue partners and observer members, including Pakistan, Afghanistan, Iran, and Mongolia.
Cheng didn’t say what specific proposals Wen would make, although China has sought to promote the use of its currency in regional trade and has been a keen participant in SCO anti-terrorism exercises.
Futures drop on Greek referendum, Asian growth
Social unrest throughout Europe (Greece, Spain, Italy, etc) will be the wild card not easily placated by financial bailouts.
Headline: Futures drop on Greek referendum, Asian growth
NEW YORK (Reuters) – Stock index futures tumbled on Tuesday as the deal to rescue Greece and prevent a wider sovereign debt crisis faced a new hurdle and as Asian economic data reignited fears of a slowdown in global growth.
Greek Premier George Papandreou said he will put Greece’s bailout deal through a referendum, throwing the long-awaited deal into disarray and sending European stocks down 3.5 percent. The region’s bank shares fell 6 percent.
U.S. bank shares were expected to follow European lenders lower. The Financial Select Sector SPDR fell 2.3 percent in light premarket trading.
"The market did not see this Greek referendum coming, which is potentially a killer and could knock the wheels off the bus of the whole (European rescue) plan," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
Here we go. Watch the Chinese control the finance world.
CIGA Luis Ahlborn Sequeira
China advocates Europe borrow in renminbi By David Marsh, MarketWatch
BEIJING (MarketWatch) — In the wake of last week’s new deal on European debt, China is serving up a steely reminder to Europe: you may have to start borrowing in renminbi to gain a sympathetic hearing from the world’s largest creditor.
Already officially enshrined by U.S. Secretary of State Hillary Clinton as bankers to the world’s biggest debtor the Americans, the Chinese have no wish to become, too, a last-ditch lender to the Europeans. The idea of renminbi borrowing has been put forward by Beijing advisers and officials as a way of lowering Chinese foreign-exchange risks caused by further exposure to Europe — and also of using the Europeans’ latest discomfiture to advance China’s international monetary-policy agenda.
If this happened, it might pave the way for the U.S. Treasury eventually to issue renminbi-denominated paper — a momentous moment in world monetary history .
China wants Europe to solve its own problems
Oops. How quickly the confidence of change fades when reality remains unaltered. China smart enough to distance itself from a savior role that must come from within. A savior must demand one currency, one debt, and plenty of devaluation.
Headline: China wants Europe to solve its own problems
LONDON: China has stressed it will not be a ”saviour” to Europe as the Chinese President, Hu Jintao, embarks on an official visit to the continent that will take in Thursday’s crucial Group of 20 summit in Cannes.
The warning came as the European Commission President, Jose Manuel Barroso, and the European Council President, Herman Van Rompuy, urged G20 leaders to use the meeting to address Europe’s debt crisis, saying measures proposed last week were not enough by themselves.
The French President, Nicolas Sarkozy, has said Beijing has a ”major role to play” in proposals to expand the European Financial Stability Facility to €1 trillion ($1.32 trillion), possibly through a special investment vehicle that would attract sovereign wealth funds.
Advertisement: Story continues below However, Mr Sarkozy came under fire from opposition leaders for seeking China’s help.
Jim Sinclair’s Commentary
Credit-Default Swap Risk Bomb Is Wired to Explode: Mark Buchanan 2011-10-30 23:00:00.1 GMT
By Mark Buchanan
The European sovereign debt crisis stands as the latest in a long line of similar crises. Argentina in 2001. Russia in 1998. Mexico in 1994. The list goes back into history. Debt crises are about as natural as earthquakes, but this time there is something different — and possibly more dangerous.
The European nations are linked in a network of debts, as Bill Marsh recently illustrated in the New York Times with a beautiful piece of graphic art. Greece and Italy are prominent; Ireland, Portugal and Spain lurk ominously nearby. France and Germany seem exposed, too, as does the U.S.
The image is like a complex wiring diagram for a ticking debt bomb. Yet what it shows may be less important than what it leaves out: a largely invisible network of ties among institutions around the world, which could ultimately cause global financial chaos.
This hidden network has been created by institutions that buy and sell unregulated credit-default swaps. These are essentially insurance contracts on bonds; in the event of a default on the bond, the seller of the swap promises to pay the buyer the bond’s value.
Credit-default swaps are mostly arranged “over-the-counter,” not traded on any exchange or recorded by any central information repository. This explains why Marsh’s map couldn’t show the links they create.
Last week, the government announced the economy (gross domestic product, GDP) grew at a 2.5% rate. The mainstream media (MSM) hailed this as some significant turnaround. Businessweek.com reported, “Buoyed by a resurgent consumer and strong business investment, the economy expanded at an annual rate of 2.5 percent in the July-September quarter, the government said Thursday. The expansion, the strongest quarterly growth in a year, came as a relief after anemic growth in the first half of the year and weeks of wild stock market shifts.” (Click here for the complete Businessweek.com story.) Where did this so-called growth come from? My bet is most of it came via money printing by the Fed, credit card use and inflation that is mistakenly reported as growth.
Economist John Williams of Shadowstats.com says the 2.5% GDP growth rate story is a sham. In his latest report, he says the economy is not growing but “sinking anew.” Williams criticized the government numbers the day they came out last week by saying, “. . .the widely-followed gross domestic product (GDP) nonetheless remains the most-heavily-biased, the most-heavily-guessed-at, the most-heavily politicized and the most-worthless major indicator of domestic business activity. Today’s numbers out of the Bureau of Economic Analysis are outright nonsense. Consider that latest numbers showed that the level of inflation-adjusted third-quarter 2011 GDP broke above the pre-recession high of fourth-quarter 2007: a full recovery. That is absurd. No other major economic indicator, including payrolls, real (inflation-adjusted) retail sales, industrial production, trade deficit or housing starts is showing that.” (Click here to go to the Shadowstats.com home page.)
There are many other signs the economy is not getting better. The latest data from both Consumer Sentiment and Consumer Confidence surveys have recently plunged right along with home prices. Business week.com reported last week, “The New York-based Conference Board’s household sentiment index slumped to 39.8 in October, the lowest level since March 2009 and less than the most pessimistic forecast in a Bloomberg News survey, the group’s data showed today. Property values in 20 cities were little changed in August from the prior month and down 3.8 percent from 2010, according to S&P/Case-Shiller. “The outlook continues to deteriorate,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. “It’s not good for confidence when people see their main asset, their homes, decline in value. Our best-case scenario is we’ll muddle through.” (Click here to read the complete article.)
To top it off, a nationwide survey of bankers last month revealed that most expect home prices will not recover until the year 2020! CNBC covered the story and said, “The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21 percent of respondents said they would. The findings, which authors called “a decidedly pessimistic outlook,” are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011. In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.” (Click here for the complete CNBC story.) So, don’t hold your breath for the so-called recovery story becoming reality anytime soon.