POSTS: FRIDAY 06-04-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA
SOVEREIGN DEBT & CREDIT CRISIS - PIIGS
Crunch & Shanghai Shakeout Gary Dorsch
|On May 6th, Greece’s 2-year CDS rate
surged to a record 1,195-basis points, and triggered the historic
“flash crash” on Wall Street, - an intra-day, 1,000-point meltdown in
the Dow Jones Industrials, climaxed by a shocking 700-point drop, in
less than 20-minutes, to below the psychological 10,000-level. Since
the mainstream media was unfamiliar with the movements of the Greek
CDS market, it peddled a story, that a computer glitch caused the
This Map Will
Help You Figure Out If The Euro Is Going To Blow Up BI
Sovereign Debt Crisis: No Place to Hide?
the debt-to-GDP ratio approaches 100 percent, the effort to reduce it by
cutting government spending, raising taxes, or both actually raises the
Greek Debtor Sets Himself On Fire Inside Athens Bank BI
Crunch & Shanghai Shakeout Gary Dorsch
|With the ECB pledging to buy Greek bonds, yields on its two-year
note plunged in the blink of an eye, from an intra-day high of 24%,
to 7.5-percent. Since May 10th, the ECB has effectively locked
Greece’s two-year yield between 7% and 9.5-percent. However, the
cost of insuring Greek debt is still hovering around 850-bps today,
very high by historical standards. CDS traders reckon that at some
point, Athens might grow tired of trying to pay-off an
insurmountable mountain of debt, and will demand a restructuring, -
a haircut of 50% or more for its creditors.
Greece Needs `Orderly' Public Debt Restructuring
SPAIN / PORTUGAL
CENTRAL & EASTERN EUROPE
Plans Steps to Rein in 'Worse' Deficit
betting on Britain going bust
A small band of hedge funds is now building up a series of sizeable bets on
sell bailed-out banks to save AAA rating'
Britain adopts an industrial policy FT
England: 'Inflation not the way out of debt'
Japan Bond Yields Drop as Kan Takes Power WSJ
Crunch & Shanghai Shakeout Gary Dorsch
|Since May 10th, the EU’s “shock and awe” effect has worn-off.
The EuroStoxx-600 Index briefly fell to new lows on May 25th, and
the Athens stock index fell to within 5% of its March 2009 lows. The
Euro failed to gain any traction, and is still sliding lower along a
slippery slope towards $1.20 versus US-dollar. While the “Big-Bang”
bailout has subdued the threat of a Greek debt default, the next
lethal phase of the European debt crisis is starting to materialize,
- a frightful situation where European banks become unwilling to
lend money to the private sector.
There are latent fears that a Euro-zone “credit
crunch,” is looming on the horizon which could put the $14-trillion
Euro-zone economy, into a deep freeze. On May 31st, the ECB warned
that Euro zone banks could face a new wave of loan losses - up to
€195-billion of losses over the next 18-months. Euro-zone banks
would need to raise additional capital in order to cover expected
losses of €90-billion this year and €105-billion in 2011, on top of
€238-billion in bad debts already written off. Banks have already
begun hoarding a record amount of cash at the ECB, opting for the
safety of the central bank, rather than risk more profitable lending
in the private sector.
Euro-zone banks are finding it very difficult to
find buyers for their debt in the capital markets. Bond issuance has
slumped to $2.6-billion in May, down from $82-billion in January.
Also, indicative of a potential credit crunch in the offing, the
credit default swap rate for the Euro-zone’s top-50 junk bond index,
measuring lesser credit worthy companies, jumped as high as $625,000
on May 25th, from around $460,000 four weeks ago. Each upward surge
in Euro-zone junk bond CDS rates has ignited a sell-off in the
EuroStoxx-600 Index. Conversely, each decline in CDS junk bond rates
has lifted the fortunes of the Euro-zone stock market.
The Euro-zone is a major player on the world
economic stage, accounting for roughly 22% of the world’s economic
output. The Euro-zone buys 20% of China’s exports, and 15% of Latin
America’s, and nearly a quarter of S&P-500 multinational income is
earned by US-affiliates located in Europe. Given the increasing
synchronization of the world’s economy, any sharp downturn in the
Euro-zone economy, precipitated by a lending freeze, could undermine
global commodity and stock markets.
Got Gold- Head Of IMF Policy-Steering Committee Says Fund Needs $320 Billion To
Be "Properly Resourced" ZH
hawkish Fed ponders raising rates
Fed officials said it may soon be time to begin raising interest rates
Dealers Agree Fed Rate Increase Won’t Come Soon
the next great bubble
Fitch downgrades Connecticut's GO bonds to "AA" – EarthTimes
Spill could mean dark times for Sunshine State – MarketWatch
Expected 'terrible problem' for municipal debt – Bloomberg
San Carlos considers outsourcing police duties
Scheme to Bar City Bankruptcies.
Global Bank-Capital Pact Advances WSJ
|International regulators aremoving toward a pact that would require
multinational banks to raise vast sums to cushion against losses, but the
rules are likely to take effect later than expected.
Fed's Central Bank Swaps Increase By $5.4 Billion To $6.6 Billion Zero Hedge
FINANCIAL REGULATION BILL
Dallas Fed's Fisher Rages Against TBTF, Says Only Way To Remove Systemic Risk Is
Shrinking The Megabanks ZH
Rating Firms to Hold Off Downgrades WSJ
Ratings Offensive- Zero Hedge
The European Commission is proposing that an already-planned central
European Union regulatory body — the European Security Markets Authority —
should take on oversight of the existing rating agencies when it is due to
begin work in January 2011. Will this be enough?
co-operation and international liquidity in the financial crisis of 2008-9
RESIDENTIAL REAL ESTATE - PHASE II
Rent vs. Buy WSJ
More Important Than Europe And The Jobs Report- Fresh Signs That Housing Is
ALREADY Double Dipping BI (and
Demand In Freefall. Housing Industry Unraveling
May's Payrolls Report Is a Private Affair WSJ
Investors hold fire ahead of US employment data FT
expected to show increase of 513,00 jobs
Payrolls Probably Rose for Fifth Straight Month, Led by U.S. Census Jobs
European Stocks Rally for Fifth Day on Speculation U.S. Employment Rising
Dead Cat Bounce In Progress; Key Resistance Reached Zero Hedge
|All eyes are on the NFP number coming out tomorrow. I personally
believe that the number will match or beat expectations. HOWEVER the jury
it out regarding the relevance of a number propped up by a birth-death
model and census hiring. This week Citi Financial announced it was closing
multiple branches and HP is going to reorganize 6,000 jobs and terminate
an additional 3,000. Jobless claims are also not really painting that
cheerful a picture, and neither did ADP earlier today. That's right even
HP is still not done cutting jobs even though the stock is still up almost
100% from last March's lows and I am sure analysts are trampling each
other to upgrade the price target. My macro view is that the global
economy is imbalanced and too many jobs in the US are services which only
thrive when the stock market is booming and the wealthy spends lavishly
(do you seriously need a massage and a beer brought by someone you tip $20
every time you get a haircut?). Since we no longer have the possibility to
run our economy on credit, we have reached the tipping point where we need
real jobs to support growth otherwise without a strong middle class
spending will drop and to make matters worse people will rely on asset
sales to support whatever spending they still engage in as the political
capital to use federal funds to maintain the economy afloat vanishes.
Today's Jobs Data Better Be Awesome, Because The Stimulus Is Dying BI
Jobless claims in US decreased by 10,000 to 453,000 – Bloomberg
Exposes Fraud by Census Bureau...
GOVERNMENT BACKSTOP INSURANCE
Superfast Traders Get New Edge WSJ
The SEC's HFT Panel Zero Hedge
|Yesterday's SEC panel discussion on HFT was largely uncovered by the
media, as it was for the most part a one-sided, lobbying effort of the HFT
industry to make it seem that all is good with the market and to make it
explicit that "once in a lifetime" events like the May 6th 1,000 point
crash don't really occur and what was experienced (and will be again quite
soon) was a statistical impossibility. Tell that to all those who got
stopped out by the market's arbitrary 60% cut off for DK'ed trades and
lost millions. For a good, clean, simplistic perspective on HFT, we
present this most recent summary piece by the Daily Finance's Peter Cohan,
you need to know about HFT." As Cohan summarizes it, "All this
so-called liquidity, which generally makes it possible for buyers and
sellers to meet, suddenly disappeared because the high-frequency traders'
books became too imbalanced. So the HFTs stopped trading, the
liquidity dried up and the market plunged." For more sophisticated
readers who wish to dig between the lines of naive explanations of
industry participants whose primary goal is to escape scapegoating in this
time of regulatory upheaval, here is the link to the SEC panel on HFT,
which among other industry participants, includes Themis Trading's Sal
Arnuk, arguably one of the most objective voices of caution when it comes
to broken market structure. In the attached clip, Sal's prepared remarks
3 minutes into the video.
And for those short on time, here is
Sal's summary of events from his point of view, as posted on the
Themis Trading blog.
I thought I’d give you a rundown of Panel II, which I was on, and I’ll
try to do it objectively as well. The panel included myself, Kevin Cronin
of Invesco, Dave Cushing of Wellington, Michael Goldstein of Babson
College, Richard Gorelick of RGM, Mark Grier of Prudential, Terrency
Henderschott of UC of Berkeley, Stephen Schuler of Getco, and Jeff Wecker
I know 14 investors watched on live web TV instead of Buffet on CNBC, so
this is for all the other 94 million who didn’t. Here goes:
Sal: It’s like with ticket brokers; high frequency related firms and
brokers, and they seem to get all the best seats to the Springsteen
concerts. The overwhelming majority of us have to put in that code thingy
on the website, complete a form in 2 minutes, and get seats in Section
3,467, Row YYZ, Seats 86, 87, 88, 89, and inexplicably 7. PS The world is
Kevin: We are real investors, examining companies, etc. We don’t own
stocks for 6 seconds, and we don’t have funds named Enhanced Institutional
Elephant Order Neutralizer, like Rich does.
David: HFT has lowered my costs a lot. The market order is evil.
Michael: Chicago is not near New York. It takes an order 4 milliseconds to
travel to Plymouth. The markets may be too fast. There should be one
auction a day where Big Papi decides the prices.
Richard: We have this trading algo that picks off Kevin’s orders. What’s
the problem? Anyone can get the public tools to do this; just call the
exchanges with your credit card in hand.
Mark: These kids are all playing video games and need to go study history
and cut this crap out (Mark was a big picture voice of calm and reason on
our panel; sorry for poking fun at him, but what the hey anyway).
Terrence: Nasdaq gave me some data to study. I studied it. The markets are
Stephen: If Sal shows his face in Chi-town, Me and Coach Ditka are gonna
take him for a ride.
Jeff: Lime has no conflicts of interest, unlike G and G, and we give small
guys the speed they need to play along side the G and G big boys.
Bwaaaaahaaaaahaaaaaaaa. HAHAHAHAHAHAHAHA. Did I just say that? I just
listened to myself. Scratch that.
MISC MACRO ECONOMIC MATTERS
VIDEO TO WATCH