There's that name again: BlackRock, the world's largest asset manager, and the firm that was forced to deny last Wednesday it is in any trouble courtesy of accumulating unknown amounts of Italian bonds (how about a nice little Cusip list there Rick Reider?), just made the news following a report in Reuters that the firm anticipates massive haircuts in 3 of the 5 PIIGS. From Reuters: "Debt restructuring in Greece, Portugal and Ireland with write-downs for private creditors of 75 percent to 80 percent are needed to help stop Europe's debt crisis turning into a global meltdown, said BlackRock, one of the world's largest asset managers. "Governments are falling, bond yields are zig-zagging by whole percentage points and markets around the world are locking up: the euro zone turmoil risks turning into a global crisis," BlackRock said in a research note on Monday." So, let's see: Greece, Portugal and Ireland... But not Italy of course? The country that has the second largest amount of debt in Europe is somehow excluded from a very conflicted BlackRock's "objective" analysis. Why is that? "BlackRock also said the European Central Bank should buy more bonds and that policymakers should provide more details on the rescue fund and implement fiscal discipline without hurting growth, according to the note." Is BlackRock betting the farm that the ECB will bail it out? That didn't work too well for MF... Seriously, Rick, some CUSIP level breakdown of your Italian exposure would be terrific. Even if it is at the "net" level. We can wait. So can the market.
Jim Sinclair’s Commentary
China’s Dagong May Cut U.S. Credit Rating Again If It Adopts QE3 Program
Policy makers will have to be both economically and politically cornered before another official QE(n) program is adopted, but another is inevitable. The public might talk austerity, but they will scream for help by any means as the sovereign debt crisis worsens not only in Europe but also the United States.
Headline: China’s Dagong May Cut U.S. Credit Rating Again If It Adopts QE3 Program
China’s Dagong Global Credit Rating Co. may cut the U.S.’s sovereign rating for the second time since August if the world’s biggest economy conducts more large- scale asset purchases.
Dagong, based in Beijing, lowered the U.S. sovereign rating one level to A on Aug. 3, on par with Russia and South Africa, after saying America’s decision to raise the debt ceiling will precipitate a national crisis. Investors have been speculating the U.S. will conduct a third-round of quantitative easing, or QE3, to boost an economy hurt by job losses.
“If the U.S. adopts more quantitative easing policies, we may downgrade or put it on the negative watch list,” Zhang Jun, general manager of Dagong’s marketing division, said by phone today. “We are closely monitoring it.” Guan Jianzhong, Dagong’s chairman, made similar comments in an interview with Al Jazeera television, Zhang confirmed. The Guardian newspaper reported Guan’s comments today.
The U.S. central bank purchased $2.3 trillion of debt to spur the economy in two earlier rounds of quantitative easing. Federal Reserve Vice Chairman Janet Yellen said Oct. 21 a third round might become warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil.
Europe could be in worst hour since WWII: Merkel CIGA Eric
Confidence in the exist leaders and the system they represent and support is crumbling. Large European banks are rushing to announce their reduced exposure to Italy, because they know confidence is failing. Revolving leadership is not helping confidence.
Depositors have a tendency to withdrawal their money as confidence declines. Banks simply do not have enough reserves to handle concentrated withdrawals. Bank runs despite today’s centralized insurance are not a relic of past days.
Headline: Europe could be in worst hour since WWII: Merkel
By Philip Pullella and Harry Papachristou
ROME/ATHENS (Reuters) – German Chancellor Angela Merkel said on Monday that Europe could be living through its toughest hour since World War Two as new leaders in Italy and Greece rushed to form governments and limit the damage from the euro zone debt crisis.
Financial markets on Monday took heart on relief that a key Italian bond auction drew decent demand from investors and hopes that new leaders in Greece and Italy would take decisive action to breathe new life into their sick economies.
"Europe is in one of its toughest, perhaps the toughest hour since World War Two," Merkel told her conservative party in Leipzig, saying she feared Europe would fail if the euro failed and vowing to do anything to stop this from happening.
Jim Sinclair’s Commentary
MF Global Brokerage Serves Examination Subpoena on Parent November 14, 2011, 10:27 AM EST
By Linda Sandler
(Updates with subpoena authority in second paragraph.)
Nov. 14 (Bloomberg) — The liquidator of broker-dealer MF Global Inc. served an examination subpoena on the company’s parent, according to a court filing.
Trustee James W. Giddens won a judge’s permission on Nov. 4 to subpoena directors and officers of the broker’s parent, MF Global Holdings Ltd., saying he needs to find out if fraud or misconduct led to its bankruptcy and what lawsuits he might bring. U.S. Bankruptcy Judge Martin Glenn denied a request by the parent to share the information gathered, saying Giddens must probe without interference management’s possible involvement in an alleged shortfall in its collateral for segregated accounts.
Commodity customers of the brokerage that used to be run by former Goldman Sachs Group Inc. co-chief executive Jon Corzine have a shortfall of about $593 million, according to a person with knowledge of regulatory probes into the failure of the New York-based firm.
The “around the clock” probe of MF Global’s cash movements is being conducted by the U.S. Justice Department, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the trustee’s staff in cooperation with the Securities Investor Protection Corp., Giddens said on his website last week.
The probe may uncover “patently illegal” actions, Bart Chilton, a CFTC commissioner, said at the time.
Jim Sinclair’s Commentary
Please see the table and chart constructed and commented on by Mark Lundeen
"So, what is my point? It’s hard for me to find words to describe the monetary monstrosity we call “money”, so I made a table to help illustrate my point: (note that dollars values are in billions). No one on TV seems to think the following is important; as they are always fixed on the US dollar, euro exchange rate. BUT the Federal Reserve has now monetized more US T-debt than existed when Doctor Greenspan became its Chairman in 1987; this fact really bugs me."
By Greg Hunter’s USAWatchdog.com
I was a guest on the nationwide radio show Coast to Coast Am last week, and a listener commented that, at one point, “it sounded like” I said “death-ficits” when talking about the European debt crisis. The commenter chalked it up to a possible “Freudian slip?” Maybe it was, but it is certainly a good way to describe what is going on today in Europe and in the U.S. as well. Just about every financial problem the world is facing right now has something to do with too much debt. It seems everyone is running huge budget deficits. There is too much mortgage debt, too much local debt, too much state debt and too much national debt in just about every country on the planet. The debt is so large in many countries in Europe a sovereign default in just one of them could cause another financial meltdown, bigger than what the world experienced in 2008.
The “death-ficits” term sums up the dire situation pretty well, and I think renowned economist Martin Armstrong would agree. In a post last week, Armstrong said, “The Eurozone is severely destabilizing the global debt situation as Italy is now the world’s third largest bond issuer and one of the original six founders of the modern European project that created the Euro. . . . in the end game, the bankers exist based upon the confidence of the people in their sound management of their deposits. Bankers are finding it increasingly difficult to maintain that CONFIDENCE after the Greek haircut and now Italy is the THIRD LARGEST debt in the world that is TOO BIG to be bailed out even at a 50% off sale.” (Click here to read the complete Armstrong post.) Armstrong is predicting money will leave European banks and the Eurozone. I don’t see any way the world can avoid another crash and credit freeze. I hope I am wrong.
But, not everyone sees the dark clouds I see. In a Wall Street Journal poll last week, most economists were downright optimistic. The WSJ story said, “The 52 economists surveyed in November . . . put 1-in-4 odds that the U.S. will experience a recession in the next 12 months, down from a 1-in-3 chance they were seeing just two months ago, when concerns were at their highest level since the recent recession ended in June 2009. The economy has shown resilience since the summer, with numbers on consumer spending. . .” (Click here to read the complete WSJ story.)
Whether it's Chuck Schumer or another headline-hungry banker/politician/long-only-equity-strategist, the one note of constancy among global macro perspectives has been - China needs to re-value the Yuan. The "it's not fair" crowd or "everything will be fixed if we can just compete on equal terms" talking-heads may want to take a look at the BIS effective exchange rates. It is evidently clear that since 2005 the USA has been on a path of very considerable currency devaluation - down almost 16% while the Yuan has strengthened almost 38% based on the BIS effective exchange rates. The effective exchange rates (EER) provide a better indicator of the macroeconomic effects of exchange rates than any single bilateral rate and are described here. After this morning's comments from China, perhaps it is time for our Asian trade partners (or should we say vendor financiers) to raise the rhetoric that the US is the one not playing fair?
Just hitting the tape... and the EURUSD:
- MERKEL'S CDU VOTES TO ALLOW EXITS FROM EURO AREA
For the moment we appear to be in limbo, where stocks and other risk assets will rally no matter what? The view seems to be that if European sovereign debt improves, then risk will do well. There is little fear right now, as the assumption is that if sovereign debt does poorly, Germany will relent and the ECB will officially begin printing money (we say officially, because it is getting harder and harder to believe they are truly "sterilizing" their purchase in a true market neutral fashion). So that seems to be the idea out there, be long risk because if Europe improves, you will win, and if Europe gets worse, it will print, and you will win. That just doesn't make sense to us, as we think Germany is further from capitulating on printing than the market seems to have priced in.
On Friday, when we learned about Goldman's latest FX recommendation which said to "go long EUR/$ with a narrow stop at 1.35 for an initial target of 1.40 (currently at 1.3715)", we said: "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." Sure enough, 24 hours later, Goldman is under 100 pips from being stopped out: at last check the EURUSD just touched on 1.3596.
The United States is a country built upon the four C’s: Crude, Cars, Credit, and Consumption. They are intertwined and can’t exist without crude as the crucial ingredient. As the amount of crude available declines and the price rises, the other three C’s will breakdown. Our warped consumer driven economy collapses without the input of cheap plentiful oil. Those at the top levels of government realize this fact. It is not a coincidence that the War on Terror is the current cover story to keep our troops in the Middle East. It is not a coincidence the uncooperative rulers (Hussein, Gaddafi) of the countries with the 5th and 9th largest oil reserves on the planet have been dispatched. It is not a coincidence the saber rattling grows louder regarding the Iranian regime, as they sit atop 155 billion barrels of oil, the 4th largest reserves in the world. It should also be noted the troops leaving Iraq immediately began occupying Kuwait, owner of the 6th largest oil reserves on the planet. Oil under the South China Sea and in the arctic is being hotly pursued by the major world players. China and Russia are supporting Iran in their showdown with Israel and the U.S. As the world depletes the remaining oil, conflict and war are inevitable. The term Energy Independence will carry a different meaning than the one spouted by mindless politicians as the oil runs low.
After Warning Of Italy Woes Nearly Two Years Ago, No One Should Be Surprised As It Implodes Bringing The EU With It