Good
morning Ladies and Gentlemen:
After a 3 week hiatus, the FDIC decided to best to place two banks into
the morgue:
Bank NameCityStateCERT #
Western National BankPhoenixAZ57917
Premier Community Bank of the Emerald CoastCrestviewFL58343
end.
Friday saw the stock market initially rally into triple digit gains by
the Dow but as the day wore on, selling commenced and finally the Dow
To put US household debt levels into a historical
perspective, in order for US households to return to their long-term
average for leverage ratios and their historic relationship to GDP
growth ...
Today it seemed that the market latched on to the idea of the Corzine
trade as being the new bazooka. banks would borrow lots of money from
the ECB to buy sovereign. It certainly seemed to be the case this
morning when 3 year and in PIIGS bonds rallied hard. There are several
flaws with this as a plan to save the euro. Banks can already buy
virtually unlimited amounts of Spitalian bonds. The repo market for
these remains orderly so they could finance themselves without the ECB.
Maybe the ECB terms are more favorable but the reality is banks could
already buy as much sovereign debt as they wanted. The issue is that
they already have more than they want. As banks use ECB funds to buy
more PIIGS bonds, private investors will be squeezed out. The banks
will have concentrated risk that private investors may not be
comfortable with. As banks rely on the ECB to fund themselves and to
put on disproportionately large positions who will lend to them? Who
will buy the shares? At first it may seem good, but they will be at the
mercy of the ECB and the politicians. With Greece the politicians have
already shown a willingness to try and dictate policy for banks. The
on again off again rumor of a financial transaction tax will come
back. MF didn't have unlimited central bank backing but it is a bit
strange to believe that the trade that brought them down will be the
salvation of Europe.
The
ever-eloquent populist-in-chief has just turned an important corner.
It seems that the clear class warfare escapades he has been engaging in
recently have backfired as, according to a
poll by Associated Press-GfK,
a majority of adults, 52 percent, said Obama should be voted out of office while 43 percent said he deserves another term. This confirms the report from the previous
Gallup poll, that our President heads into election year with a significant problem: "Heading into his re-election campaign,
the president faces a conflicted public. It
does not support his steering of the economy, the most dominant issue for Americans, or
his overhaul of health care,
one of his signature accomplishments..." While understandably the
party preferences bias for and against, it is the Independents that
must be the greater concern as "The president's standing among
independents is worse: Thirty-eight percent approve while 59 percent
disapprove." Given the fact that its-the-economy-stupid, we wonder just
how long the entirely independent and sacrosanct Federal Reserve will
remain on the sidelines, or is QE3 coming Jan 1st?
A roller-coaster week ended on a negative note as
equities and credit ended the day only modestly lower but having
sold off relatively decently from the highs just after the open.
Equities spurted out of the gate in the day session, not followed by
credit (or HYG) or broad risk assets (CONTEXT), only to revert quite
quickly and then push notably lower as the Fitch news broke. Equities
overshot to the downside relative to broad risk assets - though we note
that TSYs were bid all day long, ending the day at their lowest yield
and flattest curve levels. The afternoon then saw HYG (the high yield
bond ETF) pull higher and higher as equities and credit spreads
stagnated, with a weak close in stocks and strong high volume close in
HYG (well above VWAP) as credit flat-lined. Gold and Silver managed
solid gains on the day, extending the recovery but closing under the
psychologically important $1600 and $30 respectively. FX 'wiggled'
around today but ended with a small bearish USD bias by the close as
the pre-European close action dominated once again ( as we note the
$20bn in custodial bonds sold this week in more repatriation flows).
It
seems attention has shifted back from FX to bonds and stocks as the
week rolled on and that sentiment is less than positive despite some
technicals (from the forthcoming CDS roll) - even as HYG remains in a
world of its own. One final note of caution, implied
correlation is once again bearishly diverging from index vol (VIX) the
last two days suggesting dealers happy to buy systemic protection - in a
similar vein to credit.
It appears Moodys is not having server issues.
- BELGIUM'S CREDIT RATINGS CUT 2 LEVELS TO Aa3 BY MOODY'S
It
was only a matter of time before the bearish sentiment in the European
currency surpassed the previous record of -113,890 net non-commercial
short contracts. Sure enough, the CFTC's COT report just announced that
EUR shorts just soared by over 20% in the week ended December 13 to
-116,457. This is an all time record, which means that speculators have
never been more bearish on the European currency. Yet, the last time
we hit this level, the EURUSD was below 1.20. Now we are over 1.30. In
other words, the fair value of the EURUSD is about 1000 pips lower, and
has been kept artificially high only due to massive repatriation of
USD-denominated assets by French banks (as can be seen in the
weekly update in custodial Treasury holdings,
which just dropped by another $21 billion after
a drop of $13 billion the week before). This means that the spec
onslaught will sooner or later destroy the Maginot line of the French
banks, leading to a waterfall collapse in the EURUSD, which due to
another record high in implied correlation will send everything
plunging, or if somehow
there is a bazooka settlement, one
which may well include the dilution of European paper, the shock and awe
as shorts rush to cover will more than offset the natural drop in the
EUR, potentially sending it as high as the previous cycle high of 1.50.
If only briefly.
Why the abrupt Canadian volte-face? Canada has the world's
third-largest oil reserves, more than 170 billion barrels and is the
largest supplier of oil and natural gas to the U.S. The answer may lie
in Canada’s far north, in Alberta’s massive bitumen tar sands deposits,
a resource that Ottawa has been desperate to develop. Since 1997 some
of the world’s biggest energy producers have spent $120 billion in
developing Canada’s oil tar sands, which would be at risk if Ottawa
went green in sporting the Kyoto accords. According to the Canadian
Association of Petroleum Producers, more than 170 billion barrels of
oil sands reserves now are considered economically viable for recovery
using current technology. Current Canadian daily oil sands production
is 1.5 million barrels per day (bpd), but Canadian boosters are
optimistic that production can be ramped up to 3.7 million bpd by 2025.
So, what’s the problem? Extracting oil from tar sands is an
environmentally dirty process and the resultant fuel has a larger
carbon footprint than petroleum derived from traditional fossil fuels,
producing from 8 to 14 percent more CO2 emissions, depending on which
scientific study you read.
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