The Entire Global Economy is at The Mercy of Tiny Greece?
Even the squid has a bad day once in a while.
In the pre-dawn darkness of a chilly LA morning, my day started off with a chuckle. A friend in the reforestation business sent me an email detailing the US Department of Agriculture’s new ‘Christmas Tree’ tax that was approved yesterday. I thought it was a joke. It wasn’t. One can only laugh at the absurdity of the government getting involved in such a matter. But it’s happening more and more. You see, the United States is on a one-way collision course with its financial judgment day; the country long ago passed the historical point of no return– the point at which it has to start borrowing money simply to pay interest on the money it has already borrowed. After this, the next mind-boggling category of taxes that will be introduced are ‘social taxes’. In other words, you get taxed on what everyone else is doing… like an anti-terrorism security tax, or better yet, national healthcare where you pay for other people to go to the doctor. During the Tokugawa period in feudal Japan, they called this ‘honto mononari’. Village peasants were taxed by the local daimyo on the basis of the entire village’s rice yield for that season. Even if you didn’t grow a single grain, you still paid. Perhaps the most heinous forms of taxes to come, though, are asset taxes. And at roughly $5 trillion in total value, individual retirement accounts (IRAs) are the lowest hanging fruit that the federal government can grab.
The overnight futures ramp crew may have its work cut out. With a major unknown catalyst - the €5 billion Italian Bill auction - due to hit only after BTPs reopen around 3 am Eastern, the ramp will only occur only after 4 am if at all. On the other hand, we fully expect European insurers filled to the gills with collapsing European sovereign bonds to experience a very significant helping of gravity themselves as soon as the European market awakes. Either way, Bank of America may need to revise its solar-driven trading model.
Short Interest Plunges Just In Time To Eliminate Natural "Covering" Bid, YTD Equity Fund Outflows Hit $112 Billion
The just released short interest update from the NYSE tells us two things: as expected, the bulk of the rally from the early October lows was a function of short covering, as nearly 2 billion shares short were covered in the past month, a multi-year record, bringing short interest from equal to the March 2009 market lows at over 16 billion shares to just over 14 billion by the end of October, just as the S&P added almost 200 points. Indictively, it tells us that in this low liquidity and volume enrivonment, the covering (forced or otherwise) of each billion shares of stock on the NYSE is roughly equivalent to 100 S&P points. More importantly, now that the market has started its tumble, there are no weak hands left to cover and provide the natural bid buffer when the market goes bidless. Those who are short now, are short for good, and will likely cover far, far lower. Which leaves the only open question of what the EURUSD net shorts will do. However, with the EUR at one month lows, we are fiarly confident that any potential covering there is over, and only more shorts are being added.
Update Update: Yep, it's official: JEFFERSON COUNTY COMMISSION VOTES FOR RECORD MUNI BANKRUPTCY, commissioners vote 4 to 1 to screw over JP Morgan
Update: according to an update tweet, "Jeffco bankruptcy: Commissioners are now discussing the motion. They have not voted yet." Things are fluid. Stay tuned.
The bad news for JP Morgan just keep on coming. According to the Tweeter account of Birmingham News, "Jefferson County Commission makes motion to file bankruptcy." We translate this to mean that the "avoided bankruptcy" state has just metamorphosed into simple "bankruptcy" - granted one which will be the largest municipal bankruptcy in history. This means that JP Morgan is now on the Unsecured Creditor Committee of the two biggest bankruptcies of 2011: MF Global and JeffCo as well. And so the second major domino after Harrisburg is down. Many more coming.
The winner, by technical knockout is David Einhorn. The losers are the following: we hope they earn their 2 and 20 in other, more efficient and creative ways than merely chasing momentum...
Earlier we asked some simple questions regarding BlackRock's sovereign debt exposure. Multi-trillion asset manager BlackRock responds:
- BLACKROCK RESPONDS TO QUESTIONS ON ITALIAN DEBT HOLDINGS
- BLACKROCK COMFORTABLE WITH INTERMEDIATE ITALIAN BONDS
- BLACKROCK ENCOURAGED POLICY MAKERS ADDRESSING CHALLENGES
- BLACKROCK CHIEF INVESTMENT OFFICER RIEDER COMMENTS IN A NOTE
- BLACKROCK'S ROVELLI: ITALY SPREADS DON'T REFLECT FUNDAMENTALS
We are sure we will hear a lot more about leverage ratios for banks in the coming days. Some of it will be correct and some of it will be wrong. If a bank issued 100 million of equity and then went and used some of that money to buy 1 billion of old 10 year bunds versus shorting 1 billion of new 10 year bunds, what would be the leverage ratio? The accounting answer seems to be 20, though some say it is 10. So being long a bond and short a very similar bond has more leverage than being just long a bond? In other cases leverage will be massively understated. It does seem sad that the way financial institutions report their numbers are generally opaque and not consistent - even something like DVA seemed to be treated very differently at each and every institution.
4 statements later, countless promises, several Leucadia triple-downs, and one 2-page CUSIP statement later and... Jefferies is down 9.2%. Perhaps the market was not all that convinced that "Jefferies is fine" after all. Our spidey sense is tingling that yet another statement by Jefferies is imminent. Also, it may be time for Jefferies to bite the bullet and unload the other half of its sovereign flow book: that sure will teach the market to doubt management's good intentions. And never mind the spread on liquidation firesales: after all who cares about EPS on a day like today.
Rather worryingly, Bloomberg is reporting a Handelsblatt report (due tomorrow) that Mrs. Merkel is investigating ways to enable countries to leave the Euro.
Bank Exodus From Euro Zone Sovereign Debt Quickens
Jim Sinclair’s Commentary
The Hunt for the Treasure of the Bundesbank
Germany is in possession of 3,400 tons of gold, the second-largest gold reserves in the world. But where is the billion-dollar treasure stored? There has been wild speculation about this for years. Financial Times Deutschland went in search of clues. By Peter Vollmer
Financial Times Deutschland
Monday, November 7, 2011
Anyone who wants to lay his hands on the gold reserves of the Bundesbank — which are currently approximately 3,401 tons with a current market value of $196 billion — faces a problem: Where is the gold of the Bundesbank anyway?
This simple question has been the subject of wild speculation. Critical minds claim that the precious metal was largely in the United States, where it was deposited on the one hand during the Cold War as far away as possile from the "Iron Curtain," and on the other hand also as an ideological pledge of loyalty to the alliance of Germany to the United States.
Supercritical spirits even doubt that the Bundesbank has the gold at all.
Let’s take one thing at a time.
The big gold reserves of the Federal Republic — according to recent data from the the mining lobby World Gold Council the second largest in the world after the U.S., which holds with 8,133 tons, more than twice as much — date from the 1950s. With the economic miracle, West German exports boomed and many nations paid in gold.
Why should, for instance, within [the] euro zone some member's people have to work to 65, even longer, whereas in some other countries they are happily retiring at 55, languishing on the beach? This is unfair. The welfare system is good for any society to reduce the gap, to help those who happen to have disadvantages, to enjoy a good life, but a welfare society should not induce people not to work hard." - Jin Liqun, the supervising chairman of China's sovereign wealth fund, speaking to al-Jazeera television, November, 2011