Tuesday, November 15, 2011

Presenting Deutsche Bank's Pitchbook To The ECB To Go "All In"

Say you are the CEO of Deutsche Bank (whoever that may be these days following Ackermann's stunner of an announcement yesterday), and you have so much dirty laundry that if the market so much as looks at you funny, you know very well it is game over the second you have to engage in reactionary damage control. After all your assets are 84% if not more, of total German GDP and there is no way that you can be bailed out by one country alone, even if that country is the only one that is not a complete Banana republic. So what do you do? Why you tell your bankers to write the best, most persuasive pitch book they can come up with, addressed to none other than Goldman Sachs alum and ECB head, Mario Draghi, and you tell him the truth: "Europe has hit its Tipping Point" and it is now or never. In other words, in 51 slides, your task is to convince the ECB that unless they terminally break away with their traditional stance of not monetizing, not only they, but the entire European status quo will cease existing. And that's precisely what you do. Behold: "The Tipping Point - Time To Call The ECB" - Deutsche Bank's definitive attempt to encapsulate the Mutual Assured Destruction that we are "certainly" all going to suffer, unless the ECB prints, and prints, and prints. The bottom line, you would tell Draghi, is "do nothing, and pull the cord now; or do something, risk hyperinflation which may or may not come, but at least extend and pretend for a few years." And one wonders why Crude is about to pass $100...

Equity and Credit Disconnected (Again) As We Approach 3pm Rumor-Time

Investment grade and high yield credit spreads are wider on the day (with investment grade underperforming so far) but the divergence between a somewhat well-synced equity and credit market yesterday and today's ramp in stocks is remarkable. We suspect this is the hangover from print-print-print expectations playing out in a more USD-based numeraire stock market but the underperformance of HYG once again suggests hedgers are more active in credit and less exuberant than equity players. Broad risk markets are supportive of ES up here as CONTEXT remains in sync helped by Oil (which is odd given the divergent drop in the Energy sector earlier this afternoon - CVX/RIG leak) and TSY 2s10s30s mostly.

Interview On Nightly News

Admin at Jim Rogers Blog - 11 minutes ago
Alex Jones interviewing Jim Rogers (while exercising on a bike) in Nightly News, InfoWars. *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.* 

Gold marking time - rangebound trade continues

Trader Dan at Trader Dan's Market Views - 1 hour ago
Gold has been held in check below $1800 with the bulls unable or unwilling to commit enough firepower to run the shorts out of their defensive line erected at that level. Bears on the other hand cannot get anything going to the downside either as buyers are surfacing on dips in price. The result is more of the same - rangebound trade. Sometimes there is not much worth commenting on concerning market action and today is one of those days. Uncertainty over European financial woes is keeping a firm bid in gold with Euro-gold above the 1300 euro level. 

Legal Stealing

Dave in Denver at The Golden Truth - 2 hours ago
One of my themes is that the business and political elite are stealing money from the middle class and nothing is being done about it by the people voted in office who are in charge of enforcing Rule of Law. Obama was elected overwhelmingly on his promise to clean up DC and restore some semblance of Constitutional-based justice in this country. He has failed miserably. In fact, I see no evidence that he's even made *any* attempt to honor his campaign promises. And the corruption and theft is becoming more open and egregious now that the crooks are the same ones who are supposed t... more » 

Fannie, Freddie execs score $100 million payday

Eric De Groot at Eric De Groot - 2 hours ago
If only all our failures could be this lucrative. Headline: Fannie, Freddie execs score $100 million payday NEW YORK (CNNMoney) -- Mortgage finance giants Fannie Mae and Freddie Mac received the biggest federal bailout of the financial crisis. And nearly $100 million of those tax dollars went to lucrative pay packages for top executives, filings show. The top five executives at Fannie Mae... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

The ECB Will Monetize, Problems Will Be Postponed

Admin at Marc Faber Blog - 3 hours ago
Sooner or later, the europeans, especially the ECB will have to monetize and problems will be postponed for a while. - *in Bloomberg * *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

D-Wave Flush Underway

Eric De Groot at Eric De Groot - 3 hours ago
When asked about gold, Armstrong responded, “Basically what you are doing is you are building a sideways type of base. Eventually gold is going to take off to the upside, but largely when people begin to see the Emperor has no clothes and we’re getting close to that. I would only give it a few more months.” The D-wave flush is underway. Capital uses it to reposition into the secular up... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

EURO GOVT-Italian yields rise; relief at new govt fades

Eric De Groot at Eric De Groot - 5 hours ago

The wolf pack will continue pressuring Italian bond yields because it understands that austerity within an economy dominated by the public sector and saddled with massive debts is a bad combination. Smart money is looking directly at Germany and France while headlines obsess about the periphery of the sovereign debt crisis. Headline: EURO GOVT-Italian yields rise; relief at new govt fades *... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Revisiting The "Biggest Ever Headfake" Out Of Europe

About a month ago we suggested that the EUR weakness was perhaps a major headfake as liquidity runs and repatriation flows would sustain a stronger-than-expected EUR (especially relative to the USD). Well, today Deutsche Bank's Macro strategist points out that French balance of payments data was hugely revealing about this potential source of strength. While we note that EURUSD remains hugely disconnected from its empirical relationship with sovereign spreads (GDP-weighted), swap-spreads, financial-to-corporate risk differentials, and equity prices - it seems the the typically negative investment abroad (outflows) has now seen 4 months of inflows (too long a period to be simply noise) and with considerable size also. While DB's analysis offers little guidance on when this period of repatriation will be over - we suspect there is more support to come than many expect - even as everything points to a weaker EUR. Perhaps most interestingly, DB notes one broad conclusion is that the EUR is probably the worst instrument to express negative EUR area views, with both periphery bonds and equities purer gauges of stress.

Risk Back On After Monti Says Can Form Government

Isn't trading this market fun? As readers will recall, one of the two reasons for why the market plunged overnight was speculation that Monti may have trouble forming a cabinet. As is to be expected, stocks are now surging because according to recent information, at least the Italian government unknown may be taken off the checklist, even if nothing can be said about his ability to actually pass required austerity, to chance the country's medieval labor laws, which are controlled by the shadow government regardless, or the fact that Italy has over $300 billion in debt to roll in the next year. From Reuters, "Italian Prime Minister designate Mario Monti will meet Italy's President on Wednesday morning to inform him that he will be able to form the country's next government, a statement from the presidential palace said on Tuesday." Now, the other and far bigger reason for the plunge in futures, it bears reminding, is that the Spanish bond auction was a failure with just 3.2 EUR of the 3.5 EUR sought, was raised. If only Goldman could wave its magic wand and fix this far bigger problem which is endemic to all of Europe as it seeks to raise over $2 trillion in the next 2-3 years. That, and the fact that Belgium, Spain, France, Austria and virtually everyone else execept for Germany (for now) closed at what are new all time high spreads.

Europe Gets It

The stock market seems to be the last group still buying into the Europe "gets it" argument. The credit markets now seem to be fully diverging from equities, and offer more opportunities here than stocks.  In credit, Europe is starting to look attractive versus the US.  Sovereign credit looks better than bank credit in Europe.  High Yield may not be bad here, but we think HYG/JNK definitely got ahead of themselves at these prices.

Goldman Stolpers Clients Again As EURUSD Breaches 1.3500, Squid Stopped Out On Friday EURUSD Trade Reco

Well, it didn't take one day... It took a whopping two days for our always contrarian call to do the opposite of what Goldman said on Friday, to materialize. As we said on Friday afternoon, "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." 48 hours later Goldman's clients lose big, Goldman's flow desk wins, and anyone who agreed with our traditional cynicism made several thousand pips assuming the proper use of MF type leverage.

Dividend Stocks: Less Of The Upside And More Of The Downside

While bubble-spotting among equity investing tilts is often futile, the ever-increasing call for investors to buy high-quality dividend-paying stocks has become as over-used a term as 'long-term investor', and 'buy-the-dips'. It seems the general belief is that a 3-5% dividend yield will provide 'protection' to cushion volatility as it offers income above Treasuries. Back in September we highlighted both the apples-to-unicorns comparison that is dividend yields to TSY yields and moreover, how risk (and ultimately capital loss) should play a critical part in the decision of asset allocation. Today we take a quick look at dividend stock performance over the last few years and find something intriguing - and not often mentioned - that dividend stock portfolios appear to significantly underperform in sell-offs and marginally underperform in rallies. So if you want a high beta crowded trade, admittedly with some carry, buy high quality dividend-paying stocks.

Guest Post: Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?

We all know some 3 trillion euros of debt in Europe is uncollectible. So why isn't anyone talking about the one and only solution, which is writing off all that debt? Since nobody knows how much bad debt there actually is in the Eurozone--care to guess on the market value of all those underwater mortgages in Spain or the true size of Italy's debts?--that 3 trillion is just a guess, but it's probably a reasonable starting point. Let's start with the most basic fact about all this uncollectible, impaired, bad debt: every euro of debt is somebody else's asset. Wipe out the debt and you wipe out the asset. That's why there's no willingness to accept the writedown of debt: somebody somewhere has to suck up 3 trillion euros of loss. Can we please dispense with the fantasy "solutions"? There is no way Europe is going to "grow its way out of this debt." How much of the eurozone's "growth" was the result of rampant malinvestment and risky borrowing? More than anyone dares admit. It won't take austerity to crash the euroland economy, all it will take is turning off the debt spigot...Life will go on if the banks are wiped out and closed, pension funds and insurance companies take losses, etc.  If those who made the bets for their own private gain aren't forced to absorb the risk, then we don't live in either capitalism or democracy; we live in a financial-fascist tyranny.

Guest Post: Regulators Are Encouraging Banks To Game Risk Models

loss-absorbing capital to levels specified by regulators. They’re doing this especially to hit the level of 9% core capital-as-a-percentage of risk-weighted assets that the regulators require as a response to the most recent stress tests. While actually selling loans and exposures would be one way to achieve this so-called “risk-weighted asset optimization”, it looks like many banks are actually just choosing to fiddle around with the internal, self-created risk models that both the current Basel II and the not-so-new-and-improved Basel III regulatory regimes allow them to use. Yes, these regulatory regimes allow the banks to decide, for themselves, how risky their loans are. Which of course then drives how much or how little loss-absorbing capital they must hold. Don’t worry, though, because the regulators approve the models on a yearly basis. And which banks have taken advantage of this so far?

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