Wednesday, November 9, 2011

Political Consequences of Euro Crisis Are Spreading

The euro zone debt crisis could claim more political scalps across the euro zone, according to analysts.



Goldman Expects Another 10% Margin Hike For Italian Bonds

Goldman's Francesco Garzarelli has just released a follow up to the "next steps" piece from yesterday (which so far has been woefully wrong in predicting a ceiling to Italian spread). So perhaps this time Goldman will be a little more accurate, which for those who may be buying Italian bunds on the dead cat bounce, will not be a good thing. Here's why: " Should Italian BTPs trade above 450bp relative to AAA-rated EMU sovereigns over a period of time, the initial margin would increase by a further 10%. Currently, the initial margin for repo on Italian securities on LCH ranges between around 4% and 20%, increasing along the maturity structure." The take away from the above - another 10% margin hike is coming. As for those who bought Italian bonds from Goldman yesterday on hope that the bottom is in, better luck next time - as Goldman says "In the meantime, the higher priced Italian government bonds will continue to be sold, as commercial banks raise liquidity buffers as higher margin requirements are applied. On our central case, intermediate to long-end bonds should continue to be supported relative to AAA-rated securities by the ECB." Considering the 5s10s is most inverted since 1994, this is not a very controversial call.

And Now The Inventory Accumulation Miracle Is Over

Last week we pointed out that the export miracle leg-of-the-global-growth stool had been kicked out. Today , the second leg of the stool of main GDP drivers appears to be splintering as Wholesale Inventories dropped MoM for the first time since Dec10 (-0.1% vs +0.5% expectations). We patiently await LaVorgna's GDP downgrade...

Rates Will Stay Negative In Real Terms

Admin at Marc Faber Blog - 32 minutes ago
Marc Faber, editor of the Gloom Boom & Doom Report, believes the Fed will keep rates near zero even longer than 2013. In his November commentary, he points to the opinion of Chicago Federal Reserve Bank President Charles Evans, who wants the Fed to “commit itself to keep short-term rates at zero until the unemployment rate falls below 7 percent or the outlook for inflation over the medium term goes above 3 percent.” If Evans has his way, Dr. Faber extrapolates that rates could “stay at zero for five or even 10 years (and negative in real terms).” - *in* *Marc Faber ... more »


The World Is In Trouble

Admin at Jim Rogers Blog - 1 hour ago
We're certainly going to have more crises coming out of Europe and America; the world is in trouble. The world has been spending staggering amounts of money that it doesn't have for a few decades now, and it's all coming home to roost. - *in CNBC* *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.* 

Is Spain the Next Domino?

Eric De Groot at Eric De Groot - 1 hour ago

Is Spain the next domino? Yes. The wolf pack will wear down and cull the weaker prey with methodical precision. Sean Eagan characterizes the unfolding European debt crisis as four bites from the apple. Most investors would be surprised to know that we're already chewing the third bite. Shrewd investors have been accumulating gold because they know the fourth bite in form of distress in Italy and... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 


We repost this Monday article simply because it is now more topical than ever following today's 10-sigma cataclysm in Italian bonds, and again we ask: when will the market ask what Blackrock's gross or net Italian exposure is?

Art Cashin: "The Spinout May Begin", And Why Equities Just Got Punk'd By Bonds Once Again

The FoF Chairman speaks.

Presenting Today's 10-Sigma Move In BTP-Bund Spreads

UPDATE: and in case you thought it was just Italy, the contagion is truly rotten to the core as OATs crack over 17bps wider to Bunds - the largest single-day widening in history and over 8 standard deviations.
Presented with little comment as we note the record-breaking move in today's spread between BTPs and Bunds is almost unprecedented and at 10 standard deviations is likely to have risk managers tapping trader's shoulders across many trading rooms. 2s10s and 5s10s curve inversion and a CDS-Cash basis that is now widening once again after some early compression just adds to the running-at-the-cliff's-edge feeling.

1100 Vs 1250 And The Sentiment Couldn't Be More Different

When we were hitting 1100 the market was in deep fear mode.  Investors were on the verge of panic.  Default was on the tip of everyone's tongue.  Now at 1250, we are all waiting patiently for some positive announcements.  There is little (if any) fear out there. Up here, I would want to be much more credit, and even bond specific.  Italian 5 year bonds at 7.5% yield more than HYG (7.1%) and certainly have a lot more people trying to help them.  I'm not sure I would put that trade on, but it may crowd out some investment in the high yield space, especially as we see some defaults rise.  It is a credit pickers market here, not a broad asset class decision (particularly from the long side).

Italian Exposure By Bank

Previously we showed what the sovereign gross level exposure to Italy is. Now, it is time to get granular and show the data at a discrete level. Below are the banks most exposed to Italy. Don't forget that courtesy of our wonderful fractional reserve financial system, with everyone's asset being someone else's liability, the question then becomes who has most exposure to these banks, and then most exposure to banks that have exposure to these banks, and so forth.

65% Chance of Banking Crisis in November: Think Tank

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