Thursday, November 10, 2011

Jim Grant: "The ECB Is Now Implementing The MF Global Trade"
To print or not to print: the choice of whether to open the European Pandora's box, which as we suggested two months ago is an interesting but ultimately moot thought experiment, has suddenly become the only talking point for TV pundits desperate for eyeballs and suckers to buy their books, who are now experts not only on monetary policy but European monetary policy. And while 99% of these empty chatterboxes should be promptly muted, one person whose opinion we value in any regard is that of Jim Grant. Earlier today, with Bloomberg TV's Deirdre Bolton, he discussed not only the expected ECB response to the ever worsening contagion (while the ECB bought Italian bonds in the open market, and potentially primary against its charter, it is prohibited from buying French bonds which is why the OAT-Bund spread closed at record wides), but all the other developments in the insolvent continent. Here are some of the key sounbdbites, and, of course, the full clip.

The Irishman Is Back, And Shares His Views On Wall Street: "Total Fucking Chaos"

About a year ago, a rather outspoken Irishman told the world what he thinks about what then seemed like a groundbreaking event (and is now a daily occurence): the Irish bailout. A year later, the Financial News has caught up with the same gentleman, and we are delighted to share his latest somewhat politically incorrect thoughts on all aspects Wall Street, with our readers. The language in the video may resemble that encountered at a trading desk a little too vividly - you have been warned.

Progress in Italy, Greece on debt sends stocks up

Eric De Groot at Eric De Groot - 2 hours ago
Yeah right. The sharp and forceful decline through the August low illustrates the insignificance of today’s debt progress in Italy. The wolf pack, currently circling their prey, has yet strike for the kill. This is not over by any means. 3X Italian Treas Bond ETN Headline: Progress in Italy, Greece on debt sends stocks up NEW YORK (AP) -- Signs of progress in Europe's debt crisis and an... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Tommy Turkey and Sides are getting more expensive

Trader Dan at Trader Dan's Market Views - 5 hours ago
The Wall Street Journal is reporting that the cost of an annual Thanksgiving turkey dinner for 10 has risen this year to $49.20; a $5.73 increase over the cost of the same dinner last year ($43.47). That is an increase of a bit over 13%. No worries however - keep moving; nothing to see here. Our illustrious lords that "cook" the official inflation numbers will no doubt be able to deal with this by substituting quail or cornish hens for Tommy and Timmy turkey.

12 Hour Gold Chart

Trader Dan at Trader Dan's Market Views - 5 hours ago
Gold ran into selling pressure today as both safe havens, the bond market and the gold market, were taken lower after the equity markets reacted to a supposed improvement in the US unemployment claims. Personally this number is a very poor indicator to base trading decisions upon but the equity markets are almost desperate to find some good news somewhere. They even seized on Berlusconi appointing an interim government rather than holding elections further down the road. That was viewed to be friendly for stocks. Heck, it had people buying the Euro today?! Go figure. Strangely enou... more » 

Fed Opens New FX Swap Line With Bank Of Japan; Second After ECB

Today, for the first time in months, the New York Fed disclosed that in addition to its outstanding $1.9 billion in swap lines with the ECB, it had opened for the first time since the swap line reopening, two new USD liquidity lines with the Bank of Japan, a 7 day and an 83 day one, for 1.1%, or just modestly more than what the 7 Day Drawn line with the ECB costs. The combined is for $102 million which brings up two questions: how much longer will the BBA pretend its LIBOR quotations are even remotely useful: after all today, according to the daily bank matrix, the most expensive 3 Month unsecured USD loan in the interbank market was 0.575% (courtesy of Credit Agricole). Yet the BOJ had to borrow from the ECB at double that? Amusing. And also, just what the hell is the BOJ doing: after all in the past week the bank supposedly bought over $200 billion worth of dollars (and sold Yen) in order to weaken its currency. Where did all this money go if the bank was forced to serve as a conduit for a meager $102 million. We are sure the explanations will be fast and furious, and none of them will be right.

HYG, JNK, HY17, And Missing The Trees For The Forest

The inter-relationships between various credit market and equity market instruments is a regular part of what we discuss, and most importantly, using these potential dislocations to our advantage. The last few weeks have been awash with notes where we have pointed to divergences and convergences both within credit as well as across credit and equity - most recently today's credit-equity divergence. Peter Tchir, of TF Market Advisors, takes a deeper dive to address some of the reasons for the dislocations and why following the relationships we so vociferously highlight can be highly profitable.

Credit Closes at Lows As Equity Ends At Highs

Investment grade and high yield credit spread markets, which typically trade very closely coupled with equities, followed the path of the European session and completely negatively diverged from stocks today. IG and HY credit closed very close to its wides of the day while the S&P managed to limp up on average volume to close near the day's highs - after stagnating around VWAP for much of the afternoon. Into the close, we saw a similar pattern to yesterday as hedgers jumped in to credit and HYG (the high-yield ETF) dropped significantly and IG credit (a cheap hedge) lost ground. ES tracked risk markets (outside of credit) almost perfectly all day long - something we haven't seen in a few days - as today appeared very much a wait-and-see day with Europe's modest outperformance enough to quench sellers in equity positions for today at least. Commodities (ex-Oil) were largely unchanged as the dollar ended modestly lower as EURUSD oscillated on Merkel rumors and correlation trades. TSYs rallied off what was an awful 30Y auction but ended the day higher in yield and steeper in curve.

No Truth Coming From Mortgage Bankers Ass.
11/10/2011 - 15:29
You can't handle it.  

Notes From Underground: Bini Smash Resigns From ECB Executive Board … What’s It All About?

Dear CIGAs,

There is much in what Yra has outlined tonight.
My take is that the only thing that will actually move Euroland to act is a crisis of full blown proportion. The longer they wait playing their ancient games the closer the full blown crisis is.

Notes From Underground: Bini Smash Resigns From ECB Executive Board … What’s It All About?  
By Yra

The global markets were on the verge of a failed rally when a news story broke about the resignation of Bini Smaghi. In my mind this is a very significant event as it portends the beginning of a major deal on EFSF funding in the works. WHY? Two weeks ago it appeared that Mr. Berlusconi had castrated President Sarkozy by reneging on an agreement for Mr. Bini Smaghi to resign his ECB position once Mario Draghi assumed the Presidency of the ECB. If SMAGHI retained his seat it meant Italy would occupy two key positions in the ECB and France would have none. Sarkozy supported Draghi only on that basis that the Bini Smaghi seat would go to a Frenchman.
However, Berlusconi did not force the issue and the French were left without a seat on the key policy-making board. Sarkozy was furious and the criticism and pressure increased on the Italians and Berlusconi. Now, after all the acrimony and the pressure on Italian debt, Bini Smaghi is resigning and heading to Harvard. This is Europe and nothing is done without a quid pro quo: THERE HAS TO BE A PAYOFF.
Has a back room agreement been reached to greatly enhance the credit power of the EFSF? What has been promised to Germany to get movement on the increasing the firepower of the ECB as the lender of last resort? Many questions are left unanswered but if you look at the CHARTS the rally in the EURO and risk on indicators all turned when the Smaghi announcement became headline news.
This is an extended weekend because of Veteran’s Day in the U.S. with BOND and CURRENCY markets closed as it is a bank holiday. This is not a conspiratorial view but a tip of the hat to the realities of the home of Machiavelli. The pressure on EUROPE to resolve its current crisis is building as the world worries about contagion. Some plan is in motion so I urge that attention be paid to the risk-on paradigm.
***Jefferson County, Alabama declares bankruptcy. It is the largest municipal bankruptcy in U.S. history and is the result of its financial advisors putting it into a derivative contract that incurred great loses. The county tried to get inventive and used derivatives to fund a sewer project. In an effort to save money, the Wall Street-induced derivative plan blew up and cost the county an enormous amount of money. How many more of these funding plans exist and will Merdith Whitney be proven right? The problems in the U.S. are immense which is probably why the EURO is still higher on the year against the DOLLAR.



In The News Today

Jim Sinclair’s Commentary

It’s Thursday and already we have a bank failure.

Bank Closing Information  
November 10, 2011

These links contain useful information for the customers and vendors of these closed banks.
Community Bank of Rockmart, Rockmart, GA

Jim Sinclair’s Commentary

The latest from John Williams’

- September Trade Data Suggest Minimal Upside Contribution to Pending GDP Revision

- U.S. Fiscal Disaster Surpasses Any Problems Seen With Major Trading Partners

- Pending Special Commentaries


Jim’s Mailbox

Fannie Mae taps $7.8 billion from Treasury, loss widens

This is old news, but depth of the money pit continues to shock even the most jaded observer. The credit machine behind housing is broken. The slow, seemingly endless decay in home prices reflects it.
U.S. Median Home Price (MHP) And MHP to Gold Ratio

Headline: Fannie Mae taps $7.8 billion from Treasury, loss widens
(Reuters) – Fannie Mae, the biggest source of money for U.S. home loans, on Tuesday said it needed a further $7.8 billion in federal aid to stay afloat as a shaky housing market widened its third-quarter loss to $5.1 billion.
The government-controlled firm also attributed the deeper cash drain to losses on derivatives used to hedge its exposure to interest-rate swings and on expenses related to home loans made prior to the 2008 financial collapse. In the year-earlier quarter it had a loss of a $1.3 billion.
Fannie Mae has now drawn $112.6 billion in bailout funds from the Treasury Department since being seized by the government in 2008 as mortgage losses mounted, and it has returned $17.2 billion to taxpayers in the form of dividends.
“There is certainly a lot of pre-2009 loans that we need to work through and that is certainly driving the credit losses you saw in this quarter and over the last several years,” Fannie Mae Chief Financial Officer Susan McFarland told Reuters.

Jefferson County, Alabama, Votes to Declare Biggest Municipal Bankruptcy

Once the first domino of default falls, the contagion will spread on global, federal, state, and local scale. What politicians and economic planners will come to learn is that like cold not much can be done about it other than treating the symptoms.
Headline: Jefferson County, Alabama, Votes to Declare Biggest Municipal Bankruptcy
Jefferson County, Alabama, commissioners voted 4-1 to file the largest U.S. municipal bankruptcy after reaching an impasse over concessions with holders of $3.14 billion of bonds.
JPMorgan Chase & Co. (JPM), which arranged most of the debt to fund a sewer renovation, will likely take the biggest loss in the process, which begins with a hearing 10 a.m. local time tomorrow.
A provisional agreement with creditors that commissioners approved in September included $1.1 billion in concessions and called for sewer-rate increases of as much as 8.2 percent for the first three years. The county, which encompasses the state’s largest city, Birmingham, couldn’t get signed commitments from creditors, Commission PresidentDavid Carrington said today.
In addition, the 25-member legislative delegation for the county was unable to unite behind bills needed to implement the tentative settlement.
“We’ve reached that last resort,” said Commissioner Joe Knight. “We could continue and keep kicking this can down the road, but I think the people of Jefferson County have had enough.”

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