Futures Plunge As Fed Discloses New Stress Test: Fears US Banks Will Need To Raise Tens Of Billions In New Capital
It appears that the key news of the day was not the fluff about the IMF which as we said was total non-news, but adverse news from the Fed which just announced that it is launching its 2012 bank stess test which unlike previous iterations may actually demand capital raises from US banks. Reuters reports: "The U.S. Federal Reserve plans to stress test six large U.S. banks against a hypothetical market shock, including a deterioration of the European debt crisis. The Fed said it will publish the results next year of the tests for six banks with large trading operations. Those banks are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The Fed said its global market shock test for those banks will be generally based on price and rate movements that occurred in the second half of 2008, and also on "additional stresses related to the ongoing situation in Europe." The heightened stress test for those six banks are part of a larger supervisory test the Fed will conduct on 19 firms' capital plans. The Fed's review of those plans will determine whether the banks can raise dividends or repurchase stock. The banks must submit their capital plans by Jan. 19, 2012." Incidentally, this is a clever way for the Fed to wrap up all the loose ends regarding European exposure: considering each and every day news appears about one bank or another having excess exposure to Europe, it stock punished, this may be the best comprehensive package. The problem is that next steps will certainly involve tens of billions in capital raises demanded of the above six banks (and probably Jefferies) by the Fed. Not surprisingly, ES has collapsed on the news to just over 1180.
Mohamed El-Erian: US Economic Conditions Are "Terrifying", Recession Chances Are 50%
Something
tells us that Mohamed El-Erian is aware of the bulls' last bastion of
"growth" and "decoupling"- the dip in Initial Claims below 400K. Even
so, his appearance on Bloomberg TV was full of sound and fury, and some
quite memorable soundbites, starting with this one: "Let me
tell ou what I find most terrifying: we’re having this discussion about
a risk of recession at a time when unemployment is already too high,
at a time when a quarter of homeowners are underwater on their
mortgages, at a time when the fiscal deficit is 9%, a time when interest
rates are at zero. These are all conditions coming out of a recession, not going into a recession."
The Newport Beach dweller is spot on: the situation is getting worse
by the day, and the only option left is to do more of what has already
failed so many times, and which only makes non-dilutable transitory
monetary equivalents that much more attractive (with the mandatory
liquidation which may bring them to triple digits first of course).Why is the IMF Giving More Funds, When the G20 Won't?
11/22/2011 - 12:27
The United Banana Republic of America
The outright corruption and thievery at the highest levels of business and
Government have gotten to the point at which its hard to not think of our
country as little more than a glorified banana republic. I remember that I
had a friend in business school who's father was an ambassador to a Central
American country. My buddy told me that Central American high level
bureaucrats at official cocktail parties achieved honor, social status and
bragging rights based on the relative amount of U.S. aid that each guy
diverted into their own pocket. I get the feeling that the same thing
ha... more »
JPM to Buy MF Global's Stake in the London Metals Exchange
GroupOff - GRPN Back To IPO Price
As
of this moment, everyone who has bought and held GRPN stock since the
IPO price is at best flat, and almost certainly at a massive loss, as
only a few banks were allotted shares at the $20.00 offering price,
which were quickly flipped to subsequent greater fools. As of this moment, GRPN is back to the IPO price or precisely $20.00.
We expect once this is taken out for the one way Grouponzi Red Light
Special to fair value, somewhere around $0.00, to take a few month at
most.Heeeeeere's Jonnie (Corzine)
Corzine's permanent expatriation plans may have to be delayed as Corzine is called in to explain why he didn't leak news of MF Global's demise to Congress ahead of time so the 435 insider traders could profit on the outcome.- MF GLOBAL TRUSTEE LEARNED OF $1.2 BILLION SHORTFALL AT WEEKEND
- HOUSE PANEL WILL HOLD HEARING ON MF GLOBAL FAILURE ON DEC. 15
- CORZINE CALLED BY HOUSE FINANCIAL SERVICES OVERSIGHT PANEL
Is Jawboning All The Fed Has Left? Goldman's Take On The FOMC Minutes
It seems from our initial take on the minutes from the last FOMC meeting that there was a lot of talk about how to tell us mere plebeians what they are not capable of doing as opposed to actually doing anything. Maybe, given Bernanke's recent comments and subtle suggestions towards the need for fiscal policy, all the Fed has left is jawboning and their new policy of talking about potential policy. Goldman's rather less pessimistic perspective sees a communications policy aimed at explicit rate paths and they note the unusual inclusion of a 'risks and uncertainties' section - no longer then perhaps Bernanke's '100% sure' view of his actions.Charting The Futility Of ECB (Non) Sterilized Interventions
We
have vociferously discussed the secondary bond buying by the ECB,
specifically highlighting when a lack of intervention allows the
real-world risk appetite to sneak through. Bloomberg's Businessweek
ties a rather nice bow in the total futility of this effort as since
August 12th, the ECB has spent almost EUR 255bn on Italian, Spanish, and
French debt (with perhaps a sprinkling of Belgian, Austrian, and
Portuguese for good measure) and achieved nothing as every one of those
nations yields (or costs of funds) is now higher - some dramatically.Presenting The Swiss (Black) Loch Ness Monster
We would call the following just released chart of the Swiss monetary base a black swan, if not for two reasons: i) since this is precisely what Philipp Hildebrand demanded it is not unexpected and is in fact perfectly in line with a central banker's wet dreams, and ii) it looks far more like a Loch Ness monster. And while for the time being the monster is tame, thanks to what Kocherlakota said earlier, namely that "the old and familiar link between increased bank reserves and higher inflation has been broken," if ever the global economy were to actually improve, somewhat paradoxically, then the trillions in cash currently parked with banks the world over (assuming they are not secretly being used to plug trillions in capital shortfalls, to borrow, pun intended, an approach from MF global which commingled client capital; why should global banks not commingle central bank capital?), will immediately spill out into the street. What happens next will be amusing to quite amusing.
First Russian Newscaster Gives Obama The Finger, Next President Gets Heckled At Home
Things for Obama, whose ratings tumble to new record lows with each passing day, are just going from bad to worse...FOMC Minutes Leaked Early
While the FOMC Minutes have not yet been officially released by the Fed, it appears someone has broken the embargo. Here are the headlines.- A FEW FOMC MEMBERS BELIEVED OUTLOOK MAY WARRANT MORE EASING
- FED OFFICIALS AGREED TARGETING NOMINAL GDP NOT ADVISABLE
- A FEW FOMC MEMBERS FAVORED TIME PERIOD FOR INTEREST-RATE PLEDGE
- A FEW FOMC MEMBERS BELIEVED OUTLOOK MAY WARRANT MORE EASING
- A FEW FOMC MEMBERS FAVORED TIME PERIOD FOR INTEREST-RATE PLEDGE
- FED OFFICIALS BACKED IDEA OF OFFERING MORE DATA ON RATE PATH
- US RECOVERY SUBJECT TO SIGNIFICANT DOWNSIDE RISKS
$35 Billion In 5 Year Bonds Price Below 1% For First Time Ever
Following yesterday's record high 2 Year Bond Auction Bid To Cover, we now get another record, this time in the just completed $35 Billion 5 Year auction whose yield priced for the first time ever below 1%, or 0.937% specifically, well inside of the 0.95% WI at 1pm. And the Bid To Cover was no slouch either: at 3.15 this was the second highest BTC, runner up only to May's 3.20. The take down was distributed normally, with Directs, Indirects and PDs accountable for 9.6%, 45.3% and 45.1%, respecitvely, more or less in line with LTM average. Needless to say, when the world is imploding, the only safe fiat location remains US paper. As for the safety of fiat itself, when the world's biggest economic block and specifically its banking sector which had double the "assets" of America, needs daily rumors to stay afloat, we leave that to others.
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