core
European default risk is about to surge on risk transfer fears. This
morning German CDS just hit a record. Yesterday, and on
is
about to be monkeyhammered. Sure enough, Belgium is the worst
performed of all European sovereigns, +18 on the day and soaring and
threatens to go offerless as we type on imminent Dexia nationalization
fears. And there's your alpha for the day.
It's over. There is no coming back from this.
In what is certainly a clear sign of the apocalypse, at least for
Wall Streeters, there is now speculation that the holiest of holys,
none other than Golman Sachs, may be planning to no bonuses this year
following a third quarter which now everyone expects will be the worst
for the company in recent history (which is to be expected with the
firm's prop trading operation several crippled, although still
marginally operational in various other guises). According to
The Australian:
"Goldman Sachs is planning to slash bonuses to almost zero amid
growing expectations that the Wall Street bank is about to slide into
the red for only the second time in its history. The market meltdown
that began in August has hammered the revenues of all the big global
investment banks. Analysts have been slashing their forecasts for
Goldman's third-quarter results, due on October 18, with most now
expecting it to report a loss." And don't tell Morgan Stanley this
but... "
Morgan Stanley, its closest rival, could also
fall into the red." This means no mas dinero at Times Square-o either.
Yet this is nothing compared to the media reaction when mainstream
journalism figures out just how many partners and MDs at both Goldman
and MS are underwater on loans they have taken out from the company
itself in exchange for unvested stock struck at prices anywhere between
50 and 100% higher. Oops.
The Fermentation committee will be heard on where the market has been and where it is headed. The Chairman has the floor.
Everyone hoping that the last quarter of the year would start on an
optimistic note was disappointed following not just the continuation of
last week's manipulations now that hedge funds have their marching
orders from their LPs, who are certainly seeking to redeem tens if not
hundreds of billions in capital, but also from Bill Gross' monthly
letter who in "Six Pac(k)in'" writes that
"there are no double-digit investment returns anywhere in sight for owners of financial assets.
Bonds, stocks and real estate are in fact overvalued because of near
zero percent interest rates and a developed world growth rate closer to 0
than the 3 – 4% historical norms.
There is only a New Normal economy at best and a global recession at worst to look forward to in future years." And pontificating on a theme started many months ago by Zero Hedge with observations on the
relative contribution to income from labor and capital (a modern day warning to Marxists), Gross warns that "both labor
and capital
suffer as a deleveraging household sector in the throes of a jobless
recovery refuses – if only through fear and consumptive exhaustion – to
play their historic role in the capitalistic system. This “labor trap”
phenomenon – in which consumers stop spending out of fear of
unemployment or perhaps negative real wages, shrinking home prices or an
overall loss of faith in the American Dream – is what markets or
“capital” should now begin to recognize" His conclusion: "A modern day,
Budweiser-drinking Karl Marx might have put it this way: “Laborers of
the world, unite – you have only your six-packs to lose.” He might also
have added, “Investors/policymakers of the world wake up – you’re
killing the proletariat goose that lays your golden eggs." More or less
reminds us of the warning above the gates of hell in Dante's Inferno...
Two months ago
we said core
European default risk is about to surge on risk transfer fears. This
morning German CDS just hit a record. Yesterday, and on
Friday, we said
Belgium CDS is
about to be monkeyhammered. Sure enough, Belgium is the worst
performed of all European sovereigns, +18 on the day and soaring and
threatens to go offerless as we type on imminent Dexia nationalization
fears. And there's your alpha for the day.
Risk averse trade was observed in early European trade following the
news over the weekend that Greece were to miss budget deficit targets
set by the Troika with the Asian markets closing sharply lower into the
beginning of the European session and consequently fixed income markets
being heavily supported. Focus remained on the banking sector following
reports that consultations are underway regarding the nationalisation
of Belgian bank Dexia with further comments from ECB’s Noyer on the
dependence of French banks on USD funding. At the Equity open Dexia
opened down 12% with the French banks underperforming heavily, however
as the session progressed risk sentiment did begin to creep back into
the markets with the Euro-area manufacturing PMI’s generally being
higher than expected. This was allied with the ECB’s Securities Market
Programmed rumoured to be buying in the Spanish and Italian curves with
significant tightening observed in both countries 10-year government
bond yield spread over Bunds. Looking forward in the North American
session focus will be on the Eurogroup meeting due to start at 1600BST
where discussions on EFSF leveraging will be on the agenda. In terms of
data there will be the ISM manufacturing report for September and the
start of Operation Twist, alongside the latest Outright Treasury Coupon
Purchases.
Nomura Bob is back with another hotly anticipated if, unfortunately,
grammatically flawless, market strategy piece. Short and sweet, Bob as
usual cuts right to the point. "My secular view remains bearish. In or
within a year from now I expect global equities to be 25% to 30% lower.
My S&P500 target for the low in 2012 remains 800/900,
and I think an 'undershoot' into the 700s is entirely possible.
In this bearish outcome I would expect 10-year bund yields at 1% to
1.25%, 10 year UST yields at 1.25% to 1.5%, and 10-year gilts below 2%.
The USD should do well, credit and commodities should not....On a
secular basis, investors should remain cautious, and focus on strong
balance sheets and strong/robust business models. I expect the next
year to be about capital and job preservation. Any counter-trend rally
should be tradable but short lived - it should be viewed
opportunistically."
Tired of all the trite meaningless propaganda from Economic PhDs who
crawl out of the woodwork every time there is a downtick in gold,
proclaiming in big bold letters that the Gold "bubble" has burst, only
to crawl right back in when gold soars $100/oz in the days following
their latest terminally wrong proclamation? Or, alterantively, wondering
what will happen to gold from this point on? Then the following report
from Nomura is for you. As Saeed Amen analyzes: "In this article we
explain why the price of gold has fallen in recent weeks.
Notably,
price action during Asian hours has become very bearish, which had not
been the case in previous unwinds earlier in the year. In
addition, it is likely that losses in risky assets such as equities
helped precipitate unwinding of very heavily extended long gold
positions. However,
the key reasons for being bullish gold
remain; namely, a very low interest rate environment and the potential
for long-term demand from Asia. Also,
the potential for
gold’s status as a safe-haven hedge to tail risks arising from various
uncertainties due to the European debt crisis is likely to be enhanced,
especially now that short-term speculative positioning is relatively
light. Also on a short-term basis, we have begun to see some reversal in
gold back upwards during Asian hours, after the unwind." Overall,
informative but nothing new to regular readers: gold liquidations on
market plunge (confirming ironically that gold is now among the most
liquid types of investments in the market) as had been predicted
months ago, and the same long-term fundamentals for the metal once the current stock downturn shakes out all the weak hands.
- German conservative MP says "Greece is bankrupt" (Reuters)
- Eurogroup to discuss EFSF leveraging, Greek reforms (Reuters)
- Europe Aims to Dodge ‘Scapegoat’ Label (BBG)
- UK Treasury Fears Effects of a Euro Break-up (FT)
- Dollar Beating All Assets in September Undermines S&P Downgrade (BBG)
- Japan Tankan Sentiment Below Pre-Quake Level on Global Slump (BBG)
- Osborne Reaches for Middle Ground (FT)
- Hong Kong Banks Face Higher Credit Risks in Midterm, KPMG Says (BBG)
- Greece to Miss Deficit Targets Despite Austerity (Reuters)
- US Congress Presses China on Currency (FT)
Just when you thought the latest round of liquidity improvement
rumors out of the ECB (such as the resumption of a 12 month refinancing
operation from last week) would buy the European financial system some
time (not like many did, but for the sake of sentence construction
bear with us), here comes reality confirming that it took about 4 days
before liquidity got hopelessly snarled up again. As of Friday, the ECB
Deposit Facility usage soared to a
fresh 2011 high of €200 billion,
beating the previous high of €198 billion set on September 12. Once
again banks are scared of keeping excess cash with each other (as
confirmed by the nearly 50th consecutive increased in LIBOR) and instead
have dumped a 2011 high amount with the ECB. And the flip side, or
looking at the ECB's Marginal Lending Facility, which does just as it
says, shows that €1.4 billion in cash was loaned out from the ECB to
"needy" banks - the highest since the €3.4 billion lent out September
14.
If there is one thing Zero Hedge readers should be well aware of, it
is that the biggest Belgian bank (whose assets are 180% of Belgian GDP)
Dexia
is in trouble.
Potentially very big trouble. Sure enough, even those embarrassingly
late to the party "analysts" at Moody's have just figured it out:
"Moody's Investors Service has today placed on review for downgrade the
standalone bank financial strength ratings (BFSRs), the long-term
deposit and senior debt ratings and the short-term ratings of Dexia
Group's three main operating entities -- Dexia Bank Belgium (DBB), Dexia
Credit Local (DCL) and Dexia Banque Internationale à Luxembourg
(DBIL).
The review for downgrade of Dexia's three main
operating entities' BFSRs is driven by Moody's concerns about further
deterioration in the liquidity position of the group in light of the
worsening funding conditions in the wider market." Immediate
result: stock plunges up to 15% overnight. We are still confident the
outcome will be a full or partial nationalization, with all the ensuing
bells and whistles for the various trading securities.
On the policy front, a series of critical EFSF votes went through
last week without any hiccup, including the German, Finnish, and
Slovenian decisions. Though the clearing of these hurdles provided some
support to markets in the earlier part of the week, renewed Greek
headlines pushed risky assets lower. In FX, a similar pattern persisted
as in other asset classes, with most Dollar crosses matching the round
trip during the week, including in EM. Only a few currencies marked
notable new lows last week, in particular the Canadian Dollar.
Positioning has continued to move in favour of defensive currencies, in
particular the USD. The latest IMM report hints at very stretched short
positioning in currencies like the EUR, AUD, and CAD. The upcoming week
will provide more detail on both key subjects. Firstly, we will get the
latest round of PMIs, though regional US surveys and preliminary
readings in Europe suggest that macro data will continue to stabilise at
relatively low levels, as mentioned earlier. The second important issue
is the upcoming ECB meeting.
Dear Daily Readers (500-750).
I run this blog to help keep you informed and ahead of the herd.
I make Nothing for this service. (Not to mention the 4 hours a day labor 7 days a week).
In 2009 I had a loss of $60.00 running this blog. 2 months internet access. (I wouldn't need this as my phone has internet)
In 2010 $360.00 internet access + $150.00 computer repair/hard drive.(I only use the laptop for the blog).
In 2011 $360.00 internet access + $400.00 Cheap laptop + $100.00 replacement modem/router (old ones died).
Total -$1430.00
Donations from Tim, Hui, James, David and Shaun +$130.00 (Thank You your donations are greatly appreciated).
That leaves a loss of - $1300.00
Any help would be Greatly Appreciated.
Please consider making a small donation, to help cover some of the hard costs for running this blog.
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_t7GlZcmIaq67AA6rHUMIbAetUTmF7pg-76mAuIRPQHEvK7Jj5mLiyqyo4ErV9TaqCvP6xchCeRSBBODRYydgnRrOzj-MLhGvDME3KaS3TsX8FImRCTqJMIuAZa6XGZZQJ_nA=s0-d)
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tJVUyuihpADIhOqifhLPQRwqd4lTyx255CYme_GeSKzlws9oYVc9PoBw9HyWWCWdsBxR3hDTTCpm2PlV8qU3Sy2QrooVx4cCsyp9WnZVmYzgS56W_xGEWAl34Y2iD_ByzRdCY0=s0-d)
No comments:
Post a Comment