Friday, November 11, 2011

"Sold To You": European Banks Quietly Dumping €300 Billion In Italian Debt

While the market is ripping today on absolutely nothing (earlier we noted the rotation of muppet X with muppet Y - this changes nothing but who cares), BTPs are soaring, and confusion is prevalent, one thing is certain: we now know who is not buying Italian bonds. As IFR reports, "European banks are planning to dump more of the €300bn they own in Italian government debt, as they seek to pre-empt a worsening of the region’s debt crisis and avoid crippling writedowns – a move that could scupper the European Central Bank’s efforts to bring down soaring yields. Still reeling from heavy losses on money they lent to Greece, lenders are keen not to make the same mistake twice.Then, under the pressure of governments and a hope that credit default swaps would protect them against heavy losses, they held on until it was too late to sell." And for our European readers who may be wondering who the dumb money will be as this tsellnami unleashes, we have one word: you. "With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe’s largest bank say now is the time to accelerate disposals. Many are also reversing long-standing policies of buying into new Italian bond issues, denying Rome an important base of support." And there you have your explanation for today's action - yet another headfake to get the idiot money foaming at the mouths while the insolvent banks quietly dump everything, sending the EURUSD once again higher as EUR repatriation resumes, this time with feeling.



MF Global Liquidation - Everyone Gone!

UPDATED: Full Statement added
Headlines via Bloomberg for now:

Europe Warns EFSF Will Not Reach €1 Trillion, EFSF Yields Remain At Record Wides

With the buying frenzy resuming on the lack of "headlines" out of Europe, it bears reminding that while risk on and off will be the theme of the day for a while, the entire Eurozone rescue, with the ECB refusing to participate directly, continues to be predicated on the EFSF and its ability to purchase the hundreds of billions of bonds rolling in the next 12 months from PIIGS, but mostly Italy, and now France. Which is why we are surprised that the news that the EFSF has now officially been "haircut" has not been quite noted. As Reuters reports, "political turmoil in Italy and Greece is complicating efforts to increase the firepower of the euro zone's bailout vehicle to 1 trillion euros, an official at the European Financial Stability Facility said on Friday. Euro zone countries had hoped to increase the EFSF's lending capacity by December, combining bond insurance with investment vehicles. But after the government in Athens fell and bond markets pushed Rome to the brink of a bailout that the euro zone cannot afford to give, the Luxembourg-based EFSF thinks it may be more realistic to aim for less leverage." In other words: kiss the full capacity bailout goodbye. And as the chart below shows, kiss any hope that the EFSF will be able to participate meaningfully in any European "renaissance" - while BTPs and OATs have seen some modest tightening on this "risk on" day, the yield on the EFSF has done absolutely nothing and remaind glued to record wides.

EURUSD - Just Your Normal 2 Day, 650 Pip Roundtrip

Given the hoped-for money printing and European sovereign bond monetization from the ECB would tend to reduce the value of the EUR, today's belief that a new government in Greece and Italy will somehow fix all that ills this vast economic region seems to have won. The EURUSD pair has performed a miraculous 650 pip roundtrip in the last two days as Bund yields rise, EFSF spreads deteriorate, and European funding remains blatantly stressed. Perhaps it is Ben's willingness to print vs Stark's that is playing out (among many other things) in this battle to the bottom.

Consumer sentiment rises on better outlook in November

Eric De Groot at Eric De Groot - 15 minutes ago
Hopium is a contrarian indicator sold hard by headlines. Consumer expectation's strong negative correlation to gold, -0.74, suggests that this rally in confidence will setup not only another decline but also gold’s next advance. In other words, the higher confidence rises over the short-term within a financial crisis, either private or sovereign, the greater gold rises over the intermediate-... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Sincere Gratitude and Respect to our Veterans

Trader Dan at Trader Dan's Market Views - 1 hour ago
Thank you for your Service, Dedication, Sacrifice, Honor and Commitment to our Nation and its Freedom 

Italy pushes through austerity

Eric De Groot at Eric De Groot - 2 hours ago
Italy with its €2.5 trillion debt burden has been encircled by the wolf pack. The wolf pack, knowing that ECB lacks the ability to support (buy) so much debt, has pushed Italian yields above 7% recently. Many view this development as an expansion of the Sovereign debt crisis. Management has been changed in response to the actions of the wolf pack. Cries of save the system have bellowed... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

The Pope Of Penn State

Dave in Denver at The Golden Truth - 3 hours ago
I really didn't want to go here but the more that comes out on this story the more I'm infuriated and it starts with Paterno. It's not clear to me why Paterno didn't call in the police the second the assistant went to him and told Paterno what he had seen. But the facts are starting to flow and it's becoming more clear to me that this smells just like the Ted Kennedy Chappaquiddick murder cover-up. This story is immersed with the same stench of moral hazard and corruption that permeates our whole system. I heard the story first reported on the local sports radio last Saturday, a ... more » 

The Missing Chapter - A Personal View of Russia - Twenty Years After & The Inflation Pulse Returns and Implications on the Fall Melt-Up of 2011

Admin at Marc Faber Blog - 4 hours ago
Marc Faber has just released his November 2011 market commentary on his website. This month report is entitled "The Strongest Principle of Economic Development Lies in Human Choices". There are 2 attachments to the monthly market commentary (MMC): The Missing Chapter - A Personal View of Russia - Twenty Years After by Eric Kraus, Managing Director of Anyatta Capital The Inflation Pulse Returns and Implications on the Fall Melt-Up of 2011 by Michael A. Gayed, Chief Investment Strategist at Pension Partners, LLC The first attachment can be accessed at "The Missing Ch... more » 

Greek Lender Of Last Resort - Iran?

A fascinating article by Reuters this morning really brings to bear the reality that Greece faces as lenders and trade creditors refuse to help (and why should they realistically) with energy needs. The harsh reality that Iran (yes that nuclearized Iran) is the main provider of Greek oil needs surely puts into perspective what seemingly unlikely events can occur when a person, corporation, country, gets desperate. Perhaps we should reflect the other way that while all the world's bankers and money-men refuse to lend Greece money, Iran has truly become the lender of last resort for Greek survival - as it strikes us that energy needs will/should trump a coupon payment any day.
The near paralysis of oil dealings with Greece, which has four refineries, shows how trade in Europe could stall due to a breakdown in trust caused by the euro zone debt crisis, which is threatening to spread to further countries.

"Companies like us cannot deal with them. There is too much risk. Maybe independent traders are more geared up for that," said a trader with a major international oil company.

"Our finance department just refuses to deal with them. Not that they didn't pay. It is just a precaution," said a trader with a major trading house.

$99 Oil For 11/11/11

Presented with little comment - except a reminder that:
"every $1 per barrel rise in oil decreases U.S. GDP by $100 billion per year and every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year."

Goldman Issues 1.40 Price Target On EURUSD

Time to sell the EURUSD with both hands and feet, not to mention with MF Global-type leverage: that uber-contrarian FX indicator, Goldman's Thomas Stolper, who has not had a notable call correct in the past 2 years, just came out with a long EURUSD call, calling for a 1.40 target and a 1.35 stop loss. Yes, this means Goldman is now selling EURUSD until 1.40 and will begin buying it at 1.35. As a reminder here is how Stolper's last EUR/$ recommendation ended.

IMF Warns Developed World May Fall Back Into Recession

The IMF has released the report it prepared for last week's futile G-20 session, which incidentally saw the IMF being shut out of bailing out the Eurozone: a development which was adverse at the time but now is largely irrelevant: after all Greece has a new parliament, if still no ink to print tax forms. So what did the IMF say? Here are some key soundbites.

University Of Michigan Finds Hope Surges The Most Since June 2009

With the market enjoying a 30% below average volume rally this morning, as European debt spreads pull back to where they were 2 days ago, the University of Michigan survey of Consumer Confidence Sentiment rose to 64.2 from 60.9 beating expectations of 61.5. The bond-less equity market managed a short-lived rally in this wonderful news until a few realities hit home. Contextually, this number remains 25% below its average of the last 33years, the 3 month change in the outlook (or 'hope') sub-index jumped the most since June 2009, and 5Y inflation expectations are as low as they were Q1 2009 (and the second lowest print ever). As always, regarding the headline figure is often misleading as the reality of these surveys is often far more interesting and realistic under the surface.

Slovak PM Joins Calls For Eurozone Split

And there they go again with that word out of place. Just out of Reuters:
Expect Barroso and Van Stock Ramp to come out with denials and allegations of nuances lost in translation shortly.


Goldman Lists What To Expect In FX For The Remainder Of The Year

"We are all FX traders these days" - that is what we said yesterday, and unfortunately courtesy of record risk correlations to the EURUSD persisting, this is what will likely be the case until the end of the year and into 2012. As such, fundamentals go out of the window, and the only thing that matters is beta and the various FX pairs, with the EURUSD by far the most critical. Which brings us to what Goldman believes will be the key highlights in FX trading until the end of the year in 9 convenient bullets. As a word of caution: few have ever made money being across the table from Goldman; usually it is much wiser to be axed the same way Goldman's flow desk is position, i.e., doing the opposite of what the firm advises its clients.

Exhibit A: MF Global's Admission

It is not often that we see an official admission by a company to its regulators that oops, 'it just may have embezzled' hundreds of millions of dollars from its clients. Today, courtesy of the WSJ, we do, namely that of MF Global advising the SEC that it has "discovered a significant shortfall in its segregated funds account." Expect to see this revalation in countless investor lawsuits against the company. Also, expect to see all bonuses paid to MFG's employees the day before the company filed to be clawed back in the form of fraudulent conveyance lawsuits, so to any former MF workers: our advice is don't spend all that client money just yet. Incidentally, the primary SEC supervisor for MF Global is Michael Macchiaroli at - let's all take a minute to personally thank him for being on top of this whole bankruptcy like a hawk.

Merkozy's Frankenstein

Whatever the European experiment once was, it has morphed almost beyond recognition.  The policy responses have made the problem worse, not better, and it is becoming more complex.  The contagion is spreading because every policy is linking the countries more closely,  not in a controlled and thoughtful way but in a haphazard poorly thought out way. Making things more complex primarily in reaction to previous moves with limited understanding of what you are getting into is a recipe for disaster, and Europe has followed this policy for years now, it is a shame they don't see it before it is too late to fix.

Italy Or USA - Where Would You Put Your Money?

While at a glance this may seem like a straightforward question with a simple and obvious answer, troubled Italian bank UniCredit has released a ponderous article comparing and contrasting the two heavily indebted, politically challenged, and growth-retarded nations. Comparing debt-to-GDP ratios and trajectories, GDP growth, and unemployment (as well as funding needs), the answer actually becomes a little less obvious and boils down to the central bank (as does every trading decision in the world currently). Furthermore, their (admittedly biased) perspective leaves one wondering whether to invest in a country that hopes things will miraculously improve on its own, or in a country that has realized that reforms are needed and that has shown the willingness to take the painful steps in the right direction? Or c) none of the above.  

Guest Post: Austrian Central Bank Strikes Exotic Deal with PBoC While Entangled in Alleged Kickback Scandal

Austria's central bank, Oesterreichische Nationalbank (OeNB) delivers headlines ranging from opaque to criminal these days.
Market observers scratch their heads about a secretive agreement between the OeNB and the People's Bank of China (PBoC) that makes Austria the first non-Asian country permitted to engage in Renminbi investments with its Chinese counterpart as the intermediary. Further media inquiries were stonewalled.

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