Credit Suisse The Sequel: "Probability Of The Largest Disorderly Default Loss In History On March 20 Has Increased"

A week ago we presented an excerpt from Credit Suisse's most excellent piece "The Flaw" - merely the latest in one of the best overviews of the neverending Greek soap opera by William Porter. Yet every soap opera eventually ends. Although when it comes to Nielsen ratings, the denouement is usually a whimper. In the case of Greece, it will be anything but. Yet listening to the daily cacafony of din from Europe's leaders, who are likely more clueless than the average reader as to what is really going on, one may be left with the impression that there is a simple solution to the problem, and Greece may be "saved... in hours." It can't. In fact, as of today, Porter's s conclusion is: "we are left with a sense that the probability of delivering the largest default loss in history in a disorderly way on or before 20 March has increased relative to doing so in an orderly way."

Completed ECB Bond Exchange Is "Biggest Screwing Of Our Lives"

A well-known bond expert just blasted the following summary of today's "market positive" and supposedly just completed ECB bond swap: "THE EQUITY MARKETS MAY RALLY ON THIS NEWS BECAUSE THEY ARE FOCUSED ON A DEAL GETTING DONE BUT ANYONE IN FIXED INCOME SHOULD NOW CONSIDER RETCHING UNDER THEIR DESKS AS WE ALL JUST TOOK ONE OF THE BIGGEST SCREWINGS OF OUR LIVES THAT MAY WELL NOT BE A SINGULAR EVENT."

 

The Farce-Hole Gets Deeper: Obama's "Robo-Settlement For Votes" Cost To Taxpayers: $40 Billion

Plunging deeper into the farce-hole, the FT reports tonight that Obama's foreclosure settlement with the banks over their improper seizure of tax-paying US citizens' homes will in fact be subsidized by those very same US taxpayers. It is a hidden clause (that has not been made public yet) that allows the banks to count future loan modifications under the $30bn (taxpayer funded) HAMP initiative towards their $35bn agreement to restructure obligations under the new settlement. As the FT goes on to note, BofA will be able to use future mods made under HAMP towards the $7.6bn in borrower assistance it is committed to provide - which means, in a (as TARP inspector general Neil Barofsky describes) 'scandalous' turn of events the bank will receive payments for averting a borrower default and be reimbursed by the taxpayer for the principal write-down. We have much stronger words for how we are feeling about this but Barofsky sums it up calmly "It turns the notion that this is about justice and accountability on its head". Are the Big Five banks truly beyond the law?






Obama Says "Everybody Underestimated It" -- These Contrarians Didn't
http://www.shtfplan.com/marc-faber/obama-says-everybody-underestimated-it-the...

The Day Of Reckoning For Global Total Debt
http://www.mybudget360.com/day-of-reckoning-for-global-total-debt-total-credi...

Debt Saturation Ensures Much Higher Gold And Silver
http://goldsilver.com/news/john-embry-debt-saturation-ensures-much-higher-gol...

2012 Price Predictions for Gold and Silver
http://realmoneytracker.com/blog/2012/02/2012-price-predictions-for-gold-and-...

Obama Wants Cheaper Pennies and Nickels
http://finance.yahoo.com/news/obama-wants-cheaper-pennies-nickels-101600840.html

New American Dream is Renting to Get Rich
http://www.reuters.com/article/2012/02/15/us-housing-americandream-idUSTRE81E...

Poor America
http://www.youtube.com/watch?v=suJCvkazrTc
http://theeconomiccollapseblog.com/archives/many-of-you-will-not-believe-some...

The Greek Experiment: Wir Kinder der Hölle

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Standard of Livings Continue To Decline

Eric De Groot at Eric De Groot - 2 hours ago

The proof of standard of livings resides in plain sight, yet few Americans recognize it. Was Green Day’s song America Idiot (2004) onto something? It would appear so on the surface. The response of denial, however, is a typical behavior when an individual or group is confronted with a problem they believe is insurmountable. American Idiot: Headline: Social Security Is Failing Even Faster... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] more »

 

 

TIC: Net Foreign LT Secs Purchases $1.6B In Dec

Eric De Groot at Eric De Groot - 3 hours ago

As China steadily decreased its long-term US Treasury holdings, Japan and United Kingdom have increased them. The chart below illustrates the interconnectedness of the three major holders. Chart: Major Foreigner Holders of US Treasury Securities: The Three Horsemen Headline: TIC: Net Foreign LT Secs Purchases $1.6B In Dec Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--China sold U.S.... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

$6 Trillion In US Bonds Seized In Zurich, Said To Pose "Severe Threats To International Financial Stability"

Back in the summer of 2009, a peculiar story circulated when two Japanese individuals were arrested trying to smuggle $134 billion in US bonds into Switzerland from Italy. The story quickly died down after it was subsequently reported that the bonds were merely fake bearer bonds. Nobody heard much about it since then. Until today, when out of the blue we get a new story which blows that one out of the water. According to Bloomberg, "Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt." From here the story just gets weirder: "The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said. The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. Officials for the embassy didn’t have an immediate comment." ...And weirder: "The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police." ...And really, really weird: "The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement." Ok great, however one thing we don't get is just how can $6 trillion in glaringly fake bombs be a "threat to international financial stability."

Why Were The Trillions In Fake Bonds Held In Chicago Fed Crates?

While there is precious little in terms of detail coming out of the latest and literally greatest "fake" bond story in history, the BBC has been kind enough to release the pictures of the boxes that the supposedly fake bonds were contained in. While we reserve judgment on the authenticity of the bonds, what we wonder is whether the boxes were also fake. Because while we can understand why someone would counterfeit the Treasury paper itself, what we don't get is why someone would go the extra effort to also create a "fake" compartment in which to store it. In this case a compartment that is property of the "CHICAGO FEDERAL RESERVE SYSTEM." Perhaps Fed uberdove and Chicago Fed President Charles Evans will be kind enough to explain why Versailles Treaty Chicago Fed crates are floating around in Europe (and filled with $6 trillion in supposedly fake bearer bonds)?

Buba's Jens Weidmann Voted Against ECB's Decision To Undermine The Sovereign Bond Market

And just a little bit more on yesterday's story of the day, which a few recent journalist grads took as positive having absolutely no clue about the very basics of a simple restructuring process, and in turn fed it to the 18 year old math Ph.Ds who program FX trading algos that ran away with it in the form of a 150 pip gain, when in reality it was all negative. As the WSJ reports, the only sane person in Europe, did get it: Bundesbank's Jens Weidmann "voted against the proposal, according to a person familiar with the matter." As we expected. Why? Go back to our story on subordination and what it means as the ECB creates an ever more junior class of bond holders. For those who hate long sentences, the WSJ gets it right this time: "The move could rankle investors and turn them away from the peripheral euro zone bond market, blunting the impact of a possible approval of a Greek aid deal and plentiful cash from the ECB." Of course, those who don't react to idiot headlines, and every upticks courtesy of algobots, knew that long ago. But in this stupid market, it takes hours, if not days, for the progressively dumber investor base to comprehend what is going on.

AAPLs To AAPLs: Not All iEarnings Are Created Equal

While we have long-argued that the discussion over the use of Apple's cash pile is somewhat circular (lower cash equals higher risk, less ability to withstand any shock, and investor perception growth/value shift) in its 'value' for the company, Bloomberg's always-sharp Jonathan Weil has a slightly different tack on the mega-firm's accounting conventions and why it may not be so cheap. As he points out, analysts (and talking heads) persistently argue that the firm's value is cheap at 14.3x T12M earnings (in line with the S&P) in spite of far higher growth (revenues and earnings). Competitive threats are often cited, future uncertainty of the consumer comes up, and the use of the cash argument we already mentioned but as Weil highlights, it seems that Apple's less than conservative accounting methods (that they lobbied for and heaven forbid Obama would re-consider a tax-the-rich opportunity) with regard to booking the revenues of bundled products more quickly than it used to (which caused, for instance, 2009 revenue to jump 44%). So while there may indeed have been record demand for the i-everythings, record 'blow-out' earnings is as likely a symptom of accounting inflation as unpaid mortgage cash being put to work. It seems the market realizes this and so the next time we are told to 'buy-the-dip as Apple is cheap', remember there is a reason for that 'cheapness' - that, as Jonathan so eloquently points out "not all iEarnings are created equal" as economic and accounting realities diverge once again.

"No Continent For Young Assets" - Charting The Root Of Europe's Problems: Record Old Asset Age

It is no secret to those who follow the daily nuances of global monetary policy that the primary reason for Europe's deplorable fate has little to do with liquidity, and everything to do with an ever diminishing base of money-good assets, which in turn is a solvency problem when run through the cash flow statement and balance sheet. Need an explanation for the ever declining collateral thresholds by the ECB? There it is: assets in Europe are generating ever lower returns, which means that an ever lower inverse LTV has to be applied to them by monetary authorities in order for the asset holder to get some return. And with trillions in incremental cash needs, before all is said and done, the ECB (and various regional central banks, as was discussed last week), will be forced to accept virtually anything that is not nailed down as collateral for 100 cents on par (not amortized) value. Yet while observing the symptom is simple, the diagnosis is much more difficult. In other words, why is Europe's asset base getting progressively worse. Courtesy of Goldman we may have found the answer. As the following chart shows, the average age of assets in years in Europe, has just hit a record high. The implications of this are substantial, and explain so very much about the core problem at the heart of the European quandary.

Greek Bailout Or Deliverance?

Bailout somehow seems too nice of a word.  It implies working together, giving a helping hand, making a real effort to help someone out.  As we read the headlines coming out of Greece for the past 2 weeks, all we can think of is, how do you say “squeal like a pig” in German. The market is happy because it looks like PSI will go through and that in theory will be enough to convince the Troika to send money to Greece, so long as they live by the latest austerity package.  That all seems fine, we guess, but looking beneath the headlines, it seems far worse than that.

Market Slowly Figures Out ECB Fake Out Is Euro And Greece Negative As Greek 1 Year Bonds Hit 639%

Yesterday, when the rumor (because it has not been confirmed by the ECB, and most certainly not by the Bundesbank) that the ECB would distribute its "gains" (i.e., personally fund the difference between cost basis and par on Greek bonds - incidentally, a development which BUBA president Jens Weidmann has said would only happen over his dead body) we urged readers  "to ignore the constant barrage of meaningless noise and flashing red headlines" as apparently nobody who trades the EURUSD has any clue what subordination means or has ever participated in any debt for equity transaction. Specifically, with regard to the idiotic EURUSD reaction we said: "Today [yesterday] is a great case in point of a tangential detour which does nothing to change the reality that Germany no longer wants Greece in the Eurozone (remember, oh, yesterday), and that the ECB is merely playing possum with PSI creditors who will block the deal with even greater vigor than before (anyone recall the FT story about the PSI deal being on the verge of collapse not due to the ECB but due to private creditors?) as the ECB's even bigger subordination will simply make the amount of hold outs even greater." We concluded by assuming that "algos will take the required 12-48 hours to figure out what just happened today." Well, the algos are still lost in idiot vacuum tube world, but at least the banks are starting to comprehend what the 'deal' really means and that the Nash Equilibrium is even worse than before. From Bloomberg: "A plan being considered by the European Central Bank to shield its Greek bond holdings from a restructuring may hurt the euro because it implies senior status for the ECB over other investors, UBS AG said. “There are at least two euro-negative dimensions, which will likely lead to euro weakness” as a result of the plan, Chris Walker, a foreign-exchange strategist at UBS in London, wrote in a research report today." Once again, we urge all FX traders to read our primer on subordination, and why and how it will define trading this year, as reactions such as the one yesterday confirm that the market is not only broken but also very stupid. Which is just as those in charge like it.

Greece Becomes Apple Of Discord Between Merkel And Schauble As Dissent Grows

One of the redeeming features of the failed experiment known as Europe, at least to date, was that while everyone else may bicker, squabble and posture, Germany, or the true core of the Eurozone kept a cohesive front, and at least pretended to have a unified view vis-a-vis daily events. This is no longer the case, as the approach as pertains not only a broke Greece but every other insolvent European country has now caused a schism at the very top, and created a rift between Angela Merkel (whose political position was dealt a huge blow today with the resignation of German President Wulff) and Finance Minister Wolfgang Schauble. Goldman explains.

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