Fitch Downgrades JPM To A+, Watch Negative

Update: now S&P is also one month behind Egan Jones: JPMorgan Chase & Co. Outlook to Negative From Stable by S&P. Only NRSRO in pristinely good standing is Moodys, and then the $2.1 billion margin call will be complete.

So it begins, even as it explains why the Dimon announcement was on Thursday - why to give the rating agencies the benefit of the Friday 5 o'clock bomb of course:

• JPMorgan Cut by Fitch to A+/F1; L-T IDR on Watch Negative

What was the one notch collateral call again? And when is the Morgan Stanley 3 notch cut coming? Ah yes:

So... another $2.1 billion just got Corzined? Little by little, these are adding up.

 

In Much-Anticipated Move, China Cuts Reserve Requirement Ratio, Joins Reflation Race

After sell-side analysts had been begging for it, pardon, predicting it for months, the PBOC finally succumbed and joined every other bank in an attempt to reflate, even as pockets of inflation are still prevalent across the country, although the recent disappointing economic data was just too much. Overnight, the Chinese central bank announced it was cutting the Reserve Requirement Ratio by 50 bps, from 20.5% to 20.0%, effective May 18. The move is expected to free up "an estimated 400 billion yuan ($63.5 billion) for lending to head-off the risk of a sudden slowdown in the world's second-largest economy" as estimated by Reuters. "The central bank should have cut RRR after Q1 data. It has missed the best timing," Dong Xian'an, chief economist at Peking First Advisory in Beijing, told Reuters. "A cut today will have a much discounted impact. So the Chinese economy will become more vulnerable to global weakness and the slowing Chinese economy will in turn have a bigger negative impact on global recovery. Uncertainties in the global and Chinese economy are rising," he said. The irony, of course, is that the cut, by being long overdue, will simply accentuate the perception that China is on one hand seeing a crash in its housing market and a rapid contraction int he economy, while still having to scramble with high food prices (recall the near record spike in Sooy prices two weeks ago). In the end, the PBOC had hoped that it would be the Fed that would cut first and China could enjoy the "benefits" of global "growth", and the adverse effects of second hand inflation. Instead, Bernanke has delayed far too long. When he does rejoin the race to ease, that is when China will realize just how short-sighted its easing decision was. In the meantime, the world's soon to be largest gold demand power just got a rude reminder that even more inflation is coming.

New Level Of Stock Market Quote Insanity

We knew something was different about today. The following graphic neatly captures it. It shows the 15 minute average percentage of quotes considered excessive each minute (over 500 quotes per second per stock) between January 2010 and 11-May-2012 (plotted as thick red line). Note how this line was persistently high the entire day relative to trading days in the past. This probably explains the crazy high quote rates and prices shown in the charts below.

 

The JPMorgan "2 billion" derivative loss/No Greek coalition/poor numbers from China/

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 1 hour ago

Good morning Ladies and Gentlemen: Gold closed down by $11.50 to $1583.60.  Silver fell 29 cents to $28.85 in the aftermath of the JPMorgan revelation  of a 2 billion USA derivative loss. I will spend most of the time highlighting various concerns on this story as this no doubt will be a game changer. The only other real development on Friday was the Pasok party failing to form a coalition

Why Corporate Balance Sheets Just Don't Matter In The New ZIRP Normal

By now everyone knows that Chesapeake is a slow motion trainwreck: whether it is internal management issues, which eventually will culminate with the long overdue termination of the company's head (something the company had much control over and could avoid, but didn't, and should result in the sacking of the entire board for gross negligence), or plunging gas prices (something it had far less control over, but could have hedged properly, yet didn't), what is absolutely certain is that the firm's cash flow just isn't what it used to be. In fact, according to some, it is quite, quite negative. What, however, people do not know is that under ZIRP, when every basis point of debt return over 0% is praised, and an epic scramble ensues among hedge for any yielding paper no matter how worthless, the balance sheets of companies just do not matter. In other words, for companies that have massive leverage, high interest rates, negative cash flow, which all were corporate death knells as recently as 2008, the capitalization structure is completely irrelevant. We said this a month ago when we cautioned, precisely about Chesapeake, that "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds and other unsecured debt come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned." Sure enough, we were again proven right: Chesapeake just announced, following today's epic drubbing, that it is refinancing its secured debt facility (with its numerous restrictive covenants) with $3 billion in brand new Libor+7.00% unsecured paper (courtesy of Goldman and Jefferies). In doing so, CHK just got at least a one year reprieve.

How Long Before Massive Government Debt Buildup Triggers Another Financial Shock?

From 1981 to 2007, the amount of debt required to produce $1 of GDP growth crept higher, and it ranged from a low of 3 cents in 2000 to a high of $2.25 in 1991.  In only eight of those years did it take more than $1 of debt to produce $1 of GDP growth—1982, 1986, 1990 to 1993, 2002, and 2003.  On average, it took 79 cents of debt to produce $1 of GDP growth.  In other words, the increase in GDP was nearly 1.3 times the increase in debt. Along came the Great Recession.  Since 2009, the traditional relationship between debt and GDP growth has been turned upside down.  Each $1 increase in GDP has been accompanied by, on average, a $2.50 increase in debt.  Before the recession, an increase in debt generally generated a greater increase in GDP, but now it takes an enormous increase in debt to eke out a small increase in GDP.  At some point, the amount of debt required to generate even modest GDP growth will suffocate the economy and trigger another financial shock.

Goldman Market Summary: "Long-Only Buying Vs. Hedge Fund Selling"

Curious how the world's most important trading desk saw the action today? Here it is.

Treasury Yields Post Longest Consecutive Weekly Decline In 14 Years As Credit Tumbles

BTFD/STFR Deja-Vu - check. Credit underperforming - check. USD higher - check. Treasury Yields lower - check. Ask an equity guy how today was and you'll likely get a shrug of the shoulders (unless he owns JPM or CHK); ask a credit guy (if you can pull him away from the bar) and you'll get a very different response. Investment grade credit markets were crushed today on the back of pressure on JPM's hedge and unwind expectations - this was across pretty much all the indices that are out there (with over 90 names in the IG9 index also in the on-the-run IG18 index - the numbers simply reflect the series or portfolio that is being referred to). This was the worst week in IG credit of the year and lifted spreads to 4-month wides and at the same time (until late in the day) high-yield and high-beta credit did not follow suit (very unusual and very indicative of the dramatic positioning in the IG indices that JPM has basically blown up). Treasury yields have now fallen for the 8th week in a row - the longest streak since 1998! Away from pure equity and credit, risk assets remained wildly unimpressed by the incredible 8 sigma rip-fest this morning in stocks as commodities all close lower from yesterday day-session closes - though bounced to end around their European open levels on the day (except for underperforming Copper). The USD leaked higher all day with a small interruption thanks to CAD strength on their jobs data this morning (AUD, EUR, and GBP all close at the week's lows). A horrible end to an ugly week as S&P 500 e-mini futures ended very close to their 50DMA on above average volume though low average trade size (which we suspect was dominated by algos in the rip this morning). The losses JPM faces from today's index shifts are already large and with risk managers everywhere asking their traders if they hold any of that 'trash', we suspect more selling and unwinds are to come; and while JPM got all the press, Morgan Stanley is now down year-to-date.

Chesapeake Plays Chicken With Market, Plunges, Blinks, Plunges Some More

In the span of 30 minutes CHK managed to crush both longs and shorts in the name.

Odd One Out Getting Odder

Just in case you were wondering if there was any fall-out from the JPM/Iksil debacle. The investment grade credit indices are getting Corzined here from IG9 10Y to the latest and greatest IG18 5Y. Equity markets will not stand idly by as the investment grade credit market violently jerks wider.

Mike Krieger: "Six Months Left… Can They Do It?"

I have to hand it to the Central Planners.  They are good.  Really, really good.  Of course, they are battling a crippled opponent considering so much of America consists of lobotomized sheeple, but nevertheless to be able to steal so much from many people with such blatant and simplistic methods and not be widely discovered is an act of devious brilliance.  The reason I say this now is because ever since last fall TPTB have changed tactics and totally taken over the markets and with it shoved many people into what is best described as a trance.  The people know something is very wrong.  They know they are getting poorer; that life is getting harder, yet the television and the markets have cloaked a blanket of sedation upon their minds.

Deja Deja Deja Deja Deja Vu

Dump-'em, Pump-'em, Dump-'em - The New Normal 'buy-and-hold' model is stable this week. Equity market continued to follow the same path day-in and day-out this week as the distance between the 50DMA and Monday's morning gap becomes smaller and smaller.

SBSS 26. Who Is Running Scared?

from TruthNeverTold :

Q&A With The Doc: What Are the Risks of Mining Shares vs. Physical Metal?

from Silver Doctors:
Johnny writes:
I am stacking and i am coming close to my goal of physical.
I have gotten advice to go into mining shares with the rest of my investment money. The advice i have been given is to buy shares, because they tend to go 5 to 40x even higher then the physical metals do.
Do you recommend buying mining shares or just putting it all in physical metal?
I also get perplexed around what to do if shares do go parabolic…
Read More @ SilverDoctors.com

Quest for Confidence

from David Galland, Casey Research:

As my topic is rather large, let’s get straight into it.
The Big Question
For pretty much everyone, no matter where they are located in the economic strata, few if any questions are more germane to making plans for the future than whether the US and other major global economies are in recovery.
Getting the answer to that question right is of special importance to investors and businesses.
Stating the obvious, if the broader economy really is in recovery, then investors would be well served by investing in the equities of solid companies positioned to take advantage. Similarly, those very same solid companies would be rewarded by increasing their productive capacity through investments in the plants and people necessary to meeting growing demand.
On the same side of the ledger, bond investors would want to begin shorting up their durations or leaving the bubbly bond market altogether, in anticipation that the flood of funds into fixed income would reverse, sending rates higher (and bond prices lower).
Read More @ CaseyResearch.com

LISTEN NOW – KWN Weekly Metals Wrap with Bill Haynes and Dan Norcini

from KingWorldNews:
The KWN Weekly Metals Wrap – We have added new segments to the KWN Weekly Metals Wrap covering gold, silver, trading and a plethora of other factors affecting the precious metals markets. I am giving King World News listeners globally access to what has long been my secret weapons in researching where gold and silver are headed directionally along with the COT Report. We Cover the Commitment of Traders Report in detail as well as a number of other factors which can influence the gold and silver market price action.
Listen Now @ KingWorldNews.com

Vladimir Putin Pulls Out Of G8 Summit

from Inquisitr.com:
Vladimir Putin recently took over the office of the Presidency in Russian for a second time (third term) and one of his first orders of business has been to cancel his upcoming trip to Camp David for the G8 summit.
The meeting would have been the first between President Obama and Putin while Vladimir was once again President of Russia. Putin had recently served as Prime Minister of the country before decided to run for President for a third term.
Instead Vladimir Putin will send former President and now Prime Minister Dmitry Medvedev in his place.
The announcement according to Putin was needed as he tries to “finalize cabinet appointments in the new government”, however anyone who has followed the Russian President’s speeches knows that he is very critical of President Obama which may have played a role in his decision.
Read More @ Inquisitr.com

Ex-Fed Governor Warsh again confirms gold price suppression

By Chris Powell, GATA:
When, in September 2009, as he denied GATA’s request for access to the Federal Reserve’s records involving gold, did Fed Governor Kevin M. Warsh really mean to acknowledge that the Fed has gold swap arrangements with foreign banks that must remain secret? Did Warsh, who left the Fed this year, not understand that, in acknowledging these gold swap arrangements, he was confirming the U.S. government’s long-running gold price suppression scheme?
Warsh’s letter from 2009 denying access to the Fed’s gold records is here:
Read More @ gata.org

Rick Rule – This Can Bring Down the Entire Financial System

from KingWorldNews:
Today King World News interviewed one of the wealthiest and most street-smart pros in the business, Rick Rule. Rule, told KWN there is a “mismatch of some amount of money in the $100 billion range between credit default swaps.” He also said this is similar to what “brought down Long Term Capital Management (LTCM).” Rule, who is now part of Sprott Asset Management, also discussed gold and the mining shares, but first, here is what he had to say about what is taking place: “Well, I think that frames a big issue. We’ve been asking our clients to consider the macro question, if the institutional risk-off trade is to the US dollar and US Treasuries, that suggests the institutional investors believe that this rally and recovery in the United States is real. That’s big news if it’s true.”
Rick Rule continues @ KingWorldNews.com

How Do Bank Runs Start?

by Bix Weir, Road to Roota:
How do bank runs start? Why do they happen so suddenly? What happens when a “too big to fail” bank actually fails?
These are the questions that will be asked in the days and weeks that follow. Jamie Dimon showed his cards yesterday when he said this… “I do want to remind you that none of this has anything to do with clients.” (Listen to the call here).
It took just a few days for “clients” of Lehman Brothers to head for the hills which ate up their tier one capital almost instantaneously. Leverage is great when you are winning but a real bitch when you are losing. It is clear to many that JP Morgan’s losses are just beginning to surface so how long will it take for their “clients” to head for the hills? Will JPM still be solvent next week? Who knows.
I do know one thing though. Every single holder of the “Big Silver Short” has gone belly up! It started with Drexel Burnham in the 1980′s then got passed to AIG then Bear Sterns and it now presides at JP Morgan.
If no one takes the torch from JPM we will see the end of Silver market manipulation very soon.
Have a restful weekend.

Banks prepare for the return of the drachma

by Douwe Miedema and Sarah White, Finance.Yahoo.com:
Banks are quietly readying themselves to start trading a new Greek currency. Some banks never erased the drachma from their systems after Greece adopted the euro more than a decade ago and would be ready at the flick of a switch if its debt problems forced it to bring back national banknotes and coins.
From the end of the Soviet Union – which spawned currencies such as the Estonian Kroon and the Kazakh Tenge – to the introduction of the euro, they have had plenty of practice in preparing their systems to cope with change.
Read More @ Finance.Yahoo.com

Washington Times Reporter Discusses Obama’s Forged Selective Service Registration

from BirtherReportDotCom :

Ben Davies – 3rd LTRO Coming & Fed to Power Up Swap Lines

from KingWorldNews:
With so much fear and uncertainty in markets around the world, today King World News reached out to Ben Davies, CEO of Hinde Capital. Davies told KWN that “Bank capital is scarce” and “the ECB will react with a 3rd LTRO as their is no alternative for them.” He also said, “the FED will power up the US dollar Swap lines.” Davies also discussed gold, but first, here is what he had to say about what is happening in Europe: “I would note we are in a deflationary spell. The European default process, I outlined over last few years, is about to become disorderly. The Greek risk escalates the disorderly default risk for others in the periphery. The ECB and IMF stand to lose most on the Greek default, hence the 5.2 billion euro disbursement, paid on 10th May.”
Ben Davies continues @ KingWorldNews.com




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