Erste Group Reveals Stunner: Reports Billions In Previously Undisclosed Underwater Sovereign CDS; Who Is Next? And How Much More Is Out There?

Anyone looking at a heatmap of European markets today will see a sea of green punctuated by a very red island in the middle. The culprit: Austrian mega bank Erste, which issued an ad hoc and very unexpected press release, in which it warned that losses in its Hungarian and Romanian books would lead to a 14% hit, or €1.1 billion, to tangible book value, something that in itself is not a surprise to anyone (except the stress test). After all, since early 2010, most have known that due to Swiss Franc-based mortgage exposure, Hungary is next to follow in the PIIGS footsteps, and its collapse has so far been delayed due to lower overall public and private sector leverage. What was, however not only a surprise, but a shock, was that Erste disclosed some major losses on its €5.2 billion CDS portfolio, consisting of "EUR 2.4 billion related to financial institution exposures, and EUR 2.8 billion related sovereign exposures". Why is this a surprise? UK-based financial advisory Autonomous explains: "The fact that Erste had a sovereign CDS portfolio which was not marked-to-market has left many investors scratching their heads. As a reminder the EBA stress test data showed Erste to have zero sovereign CDS exposure within its sovereign mix compared to the €2.8bn it now appears to have ‘fessed up’ to (taking a cumulative €460m hit). They also have €2.4bn exposure to banks via writing of CDS. The bulk is non-PIIGS but banks spreads have moved in the same manner as sovereigns (albeit wider and more volatile)." And there you have it: the bogeyman that everyone has been warning about, yet nobody has seen, CDS written (as in sold) in bulk against other sovereigns and other banks which up until now were only mythical, as they, to quote the EBA (which had Dexia as its safest bank) simply did not exist. Oh, they exist all right, and what they do is create a toxic spiral of accentuating losses whenever the risk situation deteriorates, creating positive feedback loops of ever increasing losses until the next Dexia appears... and then the next... and the next. Expect the market to latch on to this dramatic revelation like a rabid pitbull once the hopium high from today's EURUSD short covering squeeze wears off.

 

 

Majority Oppose Obama Second Term In Latest Investors Business Daily Poll

Another poll, another blow (for Obama). While it is no surprise that the president's rating has tumbled to record lows over the past few weeks, courtesy of his inability to fix the unemployment problem, and to fix the bank loan situation (whether that is a function of lack of supply or demand is unclear, but it is broken dammit, the punchliners will say), according to the latest IBD/TIPP poll, "a majority of Americans now oppose giving President Obama a second term." And while this means that our chart which calculates how many jobs Obama will have to create by the end of his second mandate to get back to December 2007 unemployment will have to be scrapped, it still leaves the question open of which Republican is more qualified than Obama to preside over the Wall Street bribes collection agency. Oh and running the country every now and then.

 

 

How To Explain Greece To A Complete Idiot / Politician

Dexia passed summer bank stress tests with flying colors. A couple of months later it’s going bust. How can markets function without confidence in balance sheet accuracy? Or whether a government will even be around tomorrow? This is kind of a problem when sovereign debt is the cornerstone of the financial system… And yet, stock markets worldwide surged today on the news of a European ‘pledge’ to help banks. Do yourself a favor and stop watching their lips move. These ‘plans’ are nothing more than lies and misdirection. Just like our friend George, a Greek default has to happen.  Politicians can pretend whatever they want, but in the real world where we live, financial deadbeats have no other options.

Video Explanation Of The D(r)exia Bail Out

Confused who ends up footing the bill for D(r)exia's bailout? Don't be: courtesy of INETeconomics, we have this brief and succinct video explanation, which confirms, as if there was any doubt, that the final invoice will either land in the hands of Europe's involuntary taxpayer "rescue rangers" via the ECB, or its involuntary and very much levered taxpayer "rescue rangers", via the EFSF, assuming the now priced in 3.0 iteration ever takes off (and Slovakia does not slam the door on EFSF 2.0 tomorrow).

Gold at the upper end of its recent range

Trader Dan at Trader Dan's Market Views - 10 minutes ago

News out of Europe overnight that appeared to confirm thinking that the rescue fund being put together by the Europeans is going to proceed in a timely fashion cheered the hedge fund community which ran pell mell back into the risk trades. In the process, both gold and silver moved up towards the upper end of their recent ranges, the Dollar sank like a rock, the Euro soared and the US Treasury market was mauled with an avalanche of willing sellers. What a party it seems liquidity can provide! Then again, when all is said and done, there is nothing left for the monetary and politica... more » 

 

Today's Market Action Reflects The Latest Systemic Farce

Dave in Denver at The Golden Truth - 47 minutes ago

*Does anyone take the Merkel-Sarkozy dog and pony show seriously any more? Perception management is not a solution**.* (see link below for quote source) When I got onto my futures software yesterday and saw that the S&P 500 futures were up quite a bit I began to look for any credible news that might be the source of the ebullience. Of course, the partial "bailout" of Dexia was not good news, especially with regard to paper currencies, and the bond market is rewarding Belgium for its action with higher sovereign bond yields today (that's a negative, in case you were wondering). ... more » 

 

Peanut Butter Prices Are Rising By 24 to 40 Percent

Eric De Groot at Eric De Groot - 1 hour ago

It doesn't take much to turn demonstration into riot. Headline: Peanut Butter Prices Are Rising By 24 to 40 Percent You can now add peanut butter, a long-time recession staple food item, to the list of things that "the 99 percent" may no longer be able to afford. Thanks to droughts, the price of peanut butter has gone up from $450 a ton to $1,150 a ton in just one year and now peanut butter... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

11th Hour Decision Pushed To Milliseconds Before Midnight As Slovakia Fails To Reach EFSF Decision

Just out from Reuters:

• SLOVAK COALITION TALKS ON EFSF END WITH NO DEAL, TO CONTINUE TUESDAY MORNING - PARTY LEADER
• SLOVAK PM RADICOVA SAYS NO DEAL ON EFSF ON MONDAY, MORE TALKS 0700 GMT ON TUESDAY

It appears the euro likes to live very dangerously. Just bribe all the people involved already. Which, of course, is precisely what will likely happen, and a favorable last minute resolution (tomorrow is the deadline), will butcher any and all EUR shorts. Of course, if Slovak politicians actually have this thing called conscience and don't have this thing called Swiss bank accounts, then all bets are off.

Low Volume Meltup As EUR Jumps Most Since MAR09

In a splendid show of market wonderment, EURUSD managed a 350pip rally off Sunday night lows to pull off its biggest percentage gain since MAR09 at over 3.5 standard deviations. Correlations forced ES higher (breaking above its 50DMA intraday for the first time since late July) as every risk asset rode the FX carry train on 'new hope' that more debt will once again fix everything that is wrong with our debt-laden, risk-loving world. With TSYs closed and volumes 40% below average it seemed evident that the risk assets were beating to the same drum almost tick-for-tick as Oil broke $85, copper almost $340, and Gold $1670. European markets were relatively subdued until the US day session opened and then we were off to the races in equity and credit as Energy and Financials led the way (both up over 4% on the day).

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 10/10/11

Submitted by RANSquawk Video on 10/10/2011 - 12:27 ETC RANSquawk





David Kotok, Bond Girl on Michael Lewis' latest Vanity Fair ARTICLE -- a Meredith Whitney critique

Posted by: rcwhalen

Post date: 10/10/2011 - 12:19

Michael Lewis’ latest piece in Vanity Fair, “California and Bust,” begins with a lengthy defense of Meredith Whitney’s prediction that there would be a wave of defaults in the municipal bond market...

Germany should end the secrecy and bring its gold home

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