Archives for May 2012

Guest Post: Uncle Sam Admits Monitoring You For These 377 Words

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Simon Black from Sovereign Man

Uncle Sam Admits Monitoring You For These 377 Words

One of breakout standup routines from the late, great George Carlin was his 1972 monologue “Seven Words You Can Never Say on Television.” In the presence of polite company, I shall not repeat them… but rest assured, the routine is still hilarious to this day.

I wish I could say the same about the Department of Homeland Security… I wish I could say this is all a big joke… that the government’s “377 words you can never use online” is just some stupid comedy routine.

But it’s not. And you just can’t make this stuff.

After vigorous resistance, the Department of Homeland Security was finally forced into releasing it’s 2011 Analyst’s Desktop Binder. It’s a manual of sorts, teaching all the storm troopers who monitor our Internet activity all day which key words to look for.

Facebook, a.k.a. the US government’s domestic intelligence center, is the primary target for this monitoring… though it’s become clear so many times before that various departments, including the NSA and FBI, are monitoring online activity ranging from search terms to emails.

Domestic spying is typically denied in public and swept under the rug. After all, it’s legality has always been questionable… if not entirely Unconstitutional.

Yet month after month it seems, there is new legislation introduced to deprive Internet users of their privacy and make the open collection of data a natural part of the online landscape.

Homeland Security’s key word ‘hotlist’ is really no surprise… they’re just the ones to get caught.

So now we know, at least, what these goons are looking for. Sort of.

According to the manual, DHS breaks down its monitoring into a whopping 14 categories ranging from Health to Fire to Terrorism. It’s a testament to how bloated the department’s scope has become.

Afterwards there is a list of 377 of key terms to monitor, most of which are completely innocuous. Exercise. Cloud. Leak. Sick. Organization. Pork. Bridge. Smart. Tucson. Target. China. Social media.

Curiously, in its ‘Critical Information Requirements’, the manual decrees that analysts should also catalog items which may “reflect adversely on DHS and response activities.”

Absolutely unreal. Big Brother is not just watching. He’s digging, searching, reading, monitoring, archiving, and judging too.

Have you hit your breaking point yet?

= Complete list of DHS monitoring keywords =

Department of Homeland Security (DHS)
Federal Emergency Management Agency (FEMA)
Coast Guard (USCG)
Customs and Border Protection (CBP)
Border Patrol
Secret Service (USSS)
National Operations Center (NOC)
Homeland Defense
Immigration Customs Enforcement (ICE)
Agent
Task Force
Central Intelligence Agency (CIA)
Fusion Center
Drug Enforcement Agency (DEA)
Secure Border Initiative (SBI)
Federal Bureau of Investigation (FBI)
Alcohol Tobacco and Firearms (ATF)
U.S. Citizenship and Immigration Services (CIS)
Federal Air Marshal Service (FAMS)
Transportation Security Administration (TSA)
Air Marshal
Federal Aviation Administration (FAA)
National Guard
Red Cross
United Nations (UN)
Assassination
Attack
Domestic security
Drill
Exercise
Cops
Law enforcement
Authorities
Disaster assistance
Disaster management
DNDO (Domestic Nuclear Detection Office)
National preparedness
Mitigation
Prevention
Response
Recovery
Dirty bomb
Domestic nuclear detection
Emergency management
Emergency response
First responder
Homeland security
Maritime domain awareness (MDA)
National preparedness initiative
Militia Shooting
Shots fired
Evacuation
Deaths
Hostage
Explosion (explosive)
Police
Disaster medical assistance team (DMAT)
Organized crime
Gangs
National security
State of emergency
Security
Breach
Threat
Standoff
SWAT
Screening
Lockdown
Bomb (squad or threat)
Crash
Looting
Riot
Emergency
Landing
Pipe bomb
Incident
Facility
Hazmat
Nuclear
Chemical spill
Suspicious package/device
Toxic
National laboratory
Nuclear facility
Nuclear threat
Cloud
Plume
Radiation
Radioactive
Leak
Biological infection (or event)
Chemical
Chemical burn
Biological
Epidemic
Hazardous
Hazardous material incident
Industrial spill
Infection
Powder (white)
Gas
Spillover
Anthrax
Blister agent
Chemical agent
Exposure
Burn
Nerve agent
Ricin
Sarin
North Korea
Outbreak
Contamination
Exposure
Virus
Evacuation
Bacteria
Recall
Ebola
Food Poisoning
Foot and Mouth (FMD)
H5N1
Avian
Flu
Salmonella
Small Pox
Plague
Human to human
Human to Animal
Influenza
Center for Disease Control (CDC)
Drug Administration (FDA)
Public Health
Toxic Agro
Terror Tuberculosis (TB)
Agriculture
Listeria
Symptoms
Mutation
Resistant
Antiviral
Wave
Pandemic
Infection
Water/air borne
Sick
Swine
Pork
Strain
Quarantine
H1N1
Vaccine
Tamiflu
Norvo Virus
Epidemic
World Health Organization (WHO) (and components)
Viral Hemorrhagic Fever
E. Coli
Infrastructure security
Airport
CIKR (Critical Infrastructure & Key Resources)
AMTRAK
Collapse
Computer infrastructure
Communications infrastructure
Telecommunications
Critical infrastructure
National infrastructure
Metro
WMATA
Airplane (and derivatives)
Chemical fire
Subway
BART
MARTA
Port Authority
NBIC (National Biosurveillance Integration Center)
Transportation security
Grid
Power
Smart
Body scanner
Electric
Failure or outage
Black out
Brown out
Port
Dock
Bridge
Cancelled
Delays
Service disruption
Power lines
Drug cartel
Violence
Gang
Drug
Narcotics
Cocaine
Marijuana
Heroin
Border
Mexico
Cartel
Southwest
Juarez
Sinaloa
Tijuana
Torreon
Yuma
Tucson
Decapitated
U.S. Consulate
Consular
El Paso
Fort Hancock
San Diego
Ciudad Juarez
Nogales
Sonora
Colombia
Mara salvatrucha
MS13 or MS-13
Drug war
Mexican army
Methamphetamine
Cartel de Golfo
Gulf Cartel
La Familia
Reynosa
Nuevo Leon
Narcos
Narco banners (Spanish equivalents)
Los Zetas
Shootout
Execution
Gunfight
Trafficking
Kidnap
Calderon
Reyosa
Bust
Tamaulipas
Meth Lab
Drug trade
Illegal immigrants
Smuggling (smugglers)
Matamoros
Michoacana
Guzman
Arellano-Felix
Beltran-Leyva
Barrio Azteca
Artistic Assassins
Mexicles
New Federation
Terrorism
Al Qaeda (all spellings)
Terror
Attack
Iraq
Afghanistan
Iran
Pakistan
Agro
Environmental terrorist
Eco terrorism
Conventional weapon
Target
Weapons grade
Dirty bomb
Enriched
Nuclear
Chemical weapon
Biological weapon
Ammonium nitrate
Improvised explosive device
IED (Improvised Explosive Device)
Abu Sayyaf
Hamas
FARC (Armed Revolutionary Forces Colombia)
IRA (Irish Republican Army)
ETA (Euskadi ta Askatasuna)
Basque Separatists
Hezbollah
Tamil Tigers
PLF (Palestine Liberation Front)
PLO (Palestine Liberation Organization
Car bomb
Jihad
Taliban
Weapons cache
Suicide bomber
Suicide attack
Suspicious substance
AQAP (AL Qaeda Arabian Peninsula)
AQIM (Al Qaeda in the Islamic Maghreb)
TTP (Tehrik-i-Taliban Pakistan)
Yemen
Pirates
Extremism
Somalia
Nigeria
Radicals
Al-Shabaab
Home grown
Plot
Nationalist
Recruitment
Fundamentalism
Islamist
Emergency
Hurricane
Tornado
Twister
Tsunami
Earthquake
Tremor
Flood
Storm
Crest
Temblor
Extreme weather
Forest fire
Brush fire
Ice
Stranded/Stuck
Help
Hail
Wildfire
Tsunami Warning Center
Magnitude
Avalanche
Typhoon
Shelter-in-place
Disaster
Snow
Blizzard
Sleet
Mud slide or Mudslide
Erosion
Power outage
Brown out
Warning
Watch
Lightening
Aid
Relief
Closure
Interstate
Burst
Emergency Broadcast System
Cyber security
Botnet
DDOS (dedicated denial of service)
Denial of service
Malware
Virus
Trojan
Keylogger
Cyber Command
2600
Spammer
Phishing
Rootkit
Phreaking
Cain and abel
Brute forcing
Mysql injection
Cyber attack
Cyber terror
Hacker
China
Conficker
Worm
Scammers
Social media

Busting The "Core" European Myth

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Everyone knows that Europe is divided into the Periphery (aka the PIIGS), and the Core (aka the countries that are supposed to be safe). What everyone also knows, is that the core, naively represented by Germany and France, supposedly has homogeneous distribution of economic growth and prospects. That all changed last year, when France moved from being a AAA-rated country, to a fallen superduper angel following the Moody’s downgrade to AA+. Yet nowhere is the glaring divergence between these two formerly comparable economies than in the two articles cited below, both from the same publication, and both from today.

The winners:

Volkswagen’s German workers win 4.3% pay rise

May 31, 2012 07:46 CET

 

HANNOVER, Germany — Volkswagen agreed with the IG Metall union to raise wages for German workers by 4.3 percent over 13 months, echoing a pay contract signed by the union for the country’s industry-wide engineering staff.

 

The pay rise for 97,000 VW production workers and 5,000 employees at the company’s financial services division will take effect June 1, VW said in a statement on Thursday.

 

The new pay accord also includes provisions to hire 3,000 temporary workers and take on an additional 175 trainees a year.

 

“This is a very good and acceptable compromise,” IG Metall chief negotiator Hartmut Meine said on Thursday at a press conference in Hanover.

 

VW’s new in-house wage deal, signed after all-night negotiations, reflects a salary agreement reached between IG Metall and employers on May 19 for 3.6 million engineering workers across Germany, affecting staff at companies including Daimler and BMW.

 

Workers will earn a decent pay increase,” Martin Rosik, VW’s chief negotiator said at the press conference.

And the losers:

PSA seeks job cuts, pay freeze at French plant, unions say

May 31, 2012 08:58 CET

 

PARIS — PSA/Peugeot-Citroen has asked workers at its Sevelnord plant in northern France to agree to a pay freeze, hundreds of job cuts and other concessions, or face possible closure, officials at two unions said.

 

The company is opening talks on plans to reduce the threatened plant’s 2,700-strong workforce, freeze salaries for at least three years, reduce leave and impose more flexible hours, CGT and CGC union representatives said.

 

PSA declined to comment on plans for Sevelnord. Its ultimatum, if confirmed, echoes tactics successfully employed to win concessions from workers at Fiat’s Pomigliano factory near Naples, Italy, and General Motors’ Vauxhall plant in Ellesmere Port, north-west England.

 

“This amounts to industrial blackmail,” said Ludovic Bouvier of the CGT, PSA’s biggest union. “They want us to set an example that workers in the rest of the group’s factories will eventually have to follow.”

Q.E.D.

But if people are finally waking up from their “core” cognitive dissonance, just wait until we actually have to split the atom, or in this case Germany, into its constitent West and East parts, as the second law of thermodynamics confirms that it is far more powerful than any central planner.

Busting The “Core” European Myth

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Everyone knows that Europe is divided into the Periphery (aka the PIIGS), and the Core (aka the countries that are supposed to be safe). What everyone also knows, is that the core, naively represented by Germany and France, supposedly has homogeneous distribution of economic growth and prospects. That all changed last year, when France moved from being a AAA-rated country, to a fallen superduper angel following the Moody’s downgrade to AA+. Yet nowhere is the glaring divergence between these two formerly comparable economies than in the two articles cited below, both from the same publication, and both from today.

The winners:

Volkswagen’s German workers win 4.3% pay rise

May 31, 2012 07:46 CET

 

HANNOVER, Germany — Volkswagen agreed with the IG Metall union to raise wages for German workers by 4.3 percent over 13 months, echoing a pay contract signed by the union for the country’s industry-wide engineering staff.

 

The pay rise for 97,000 VW production workers and 5,000 employees at the company’s financial services division will take effect June 1, VW said in a statement on Thursday.

 

The new pay accord also includes provisions to hire 3,000 temporary workers and take on an additional 175 trainees a year.

 

“This is a very good and acceptable compromise,” IG Metall chief negotiator Hartmut Meine said on Thursday at a press conference in Hanover.

 

VW’s new in-house wage deal, signed after all-night negotiations, reflects a salary agreement reached between IG Metall and employers on May 19 for 3.6 million engineering workers across Germany, affecting staff at companies including Daimler and BMW.

 

Workers will earn a decent pay increase,” Martin Rosik, VW’s chief negotiator said at the press conference.

And the losers:

PSA seeks job cuts, pay freeze at French plant, unions say

May 31, 2012 08:58 CET

 

PARIS — PSA/Peugeot-Citroen has asked workers at its Sevelnord plant in northern France to agree to a pay freeze, hundreds of job cuts and other concessions, or face possible closure, officials at two unions said.

 

The company is opening talks on plans to reduce the threatened plant’s 2,700-strong workforce, freeze salaries for at least three years, reduce leave and impose more flexible hours, CGT and CGC union representatives said.

 

PSA declined to comment on plans for Sevelnord. Its ultimatum, if confirmed, echoes tactics successfully employed to win concessions from workers at Fiat’s Pomigliano factory near Naples, Italy, and General Motors’ Vauxhall plant in Ellesmere Port, north-west England.

 

“This amounts to industrial blackmail,” said Ludovic Bouvier of the CGT, PSA’s biggest union. “They want us to set an example that workers in the rest of the group’s factories will eventually have to follow.”

Q.E.D.

But if people are finally waking up from their “core” cognitive dissonance, just wait until we actually have to split the atom, or in this case Germany, into its constitent West and East parts, as the second law of thermodynamics confirms that it is far more powerful than any central planner.

Market Fails To Zucker In Gullible Traders With End Of Day Stop Hunt

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Well, they sold in May but did they go away? If today is any guide, they did as the swings across asset classes intraday were very reminiscent of ‘death rattles’ with trading scenarios becoming more and more binary and more and more extreme. Into the US macro data this morning risk assets in general were behaving in a synchronized manner. As the dismal data hit, it got wild with gold and stocks gapping down and Treasury yields crashing lower (10Y 1.53 handle!) only to be saved around the European close by chatter of IMF aid for Spain (funded by the selling of unicorn tears) at which stocks erupted (and while bonds, the USD, and Gold also reacted – they were far more muted). The afternoon was quiet until stocks had a mind of their own and went on a stop-hunt up to yesterday’s late day highs (and that magical 1315 level) – pulling well away from any other asset-class reality – only to fail dismally, ending with an abrupt tumble back to sanity (just slightly in the red for the day) grabbing VWAP into the close.

The signals were everywhere that risk was not ‘on’ no matter how hard stocks tried with high-yield credit (most notably the ETFs) surging and purging ending with a terrible dive (after popping up to VWAP after our earlier note) on heavy volume. Financials outperformed on the day – though late day gave some back – ending the month down dramatically (MS/JPM -22%).

Gold remains the winner on the week (though down 0.6% – which still beats USD’s 0.8% gain effect) as Copper and Silver have recoupled around -2.5% on the week and WTI is just terrible -4.75% at $86.50. FX markets were quiet this afternoon but EURUSD remained near its worst levels and JPY continues to strengthen. Treasuries bounced off record low yields but 10Y and 30Y remained around 17bps lower on the week.

VIX broke above 25 and below 23 to end unch at around 24%. Heading to tomorrow’s NFP (and today’s month-end) seemed to make many nervous and the swings were extreme in many assets but at the end of the day stocks remain notably rich relative to credit (and TSY’s) view of the world and even more so relative to broad-risk assets.

Stocks (blue) tried and failed again to pull away from Gold and USD reality and Treasuries even less sanguine…

 

As we noted earlier, HYG whipsawed – and stocks tried to pull away from credit but failed again…

and here is HYG vs SPY more clearly…

HYG’s destruction did not appear to be an arb trade (here against HY18 – the CDS index)…

 

The month of May was ugly for financials leaving Citi and JPM unch YTD and MS still -11% (and fo course BofA +32% – makes perfect sense)…

Commodities starting to increase dispersion (though Copper and Silver seem like buddies again) with gold holding in for now…

especially relative to the USD’s strength (bold green)…

Broadly speaking, equity markets remain rich relative to capital structure (vol, rates, and credit) and also to risk-assets in general (TSYs, FX, commodities, spreads, and PMs) as is seen in the upper left and right charts respectively. Lower left shows that VIX popped then leaked back to credit/equity fair-value before jumping again into the close and the disconnection between stocks and risk-assets is highlighted by the drop off in correlation (lower right) between the markets – as we assume front-running the front-runners into month-end with NFP tomorrow left a few more nervous than normal…

 

and for those wondering why Facebook surged today – between the volume – which was huge and the fact that we ripped and stopped perfectly at Tueasday’s closing VWAP – we suspect it was algos enabling a broad-based selling into some multi-day VWAP into month-end – coincidence?

Charts: Bloomberg and Capital Context

 

Bonus Chart: Via Bloomberg’s Chart of the Day today – the 200-day correlation between Commodities and MSCI World Stocks is nearing record highs once again and as is clear – the world appears to have become more and more interconnected (hhmm, central banks footprints)…

 

And Bonus 2: those hoping to sucker in gullible traders may be out of a job: yesterday saw the 14th consecutive week of equity fund outflows as the redemptions accelerate ever more, with the weekly outflow the second highest in 2012 to date. Year to date $53 billion has been pulled from domestic equity mutual funds. For the same period in 2011? $4 billion.

Guest Post: Facebook & the Bubble Mentality

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by John Aziz of Azizonomics

Facebook & the Bubble Mentality

So Facebook keeps falling, and is now floating around the $27 mark.  We’re a third of the way down to my IPO valuation of FB as worth roughly $2-4 a share (or 5-10 times earnings), although I wouldn’t be surprised for the market to stabilise at a higher price (at least until the next earnings figures come out and reveal — shock horror — that Facebook is terrible at making money).

The really stunning thing is that even after all these falls, FB is still trading at 86 times earnings. What the hell did Morgan Stanley think they were doing valuing an IPO without any viable profit model at over 100 times earnings? The answer is that this was an exit strategy. This IPO was about the people who got in early passing on a stick of dynamite to a greater fool which incidentally is precisely the same bubble mentality business model as bond investors who are currently buying negative-real-yielding treasuries at 1.6% hoping to pass them onto a greater fool at 0.5% (good luck with that).

This was achieved by convincing investors to ignore actual earnings and instead focus on projected future earnings. From Bloomberg:

Facebook, with a market capitalization of $79.1 billion, is trading at 29.5 times the company’s projected 2014 profit of $2.69 billion, data compiled by Bloomberg show.

Or much more simply, counting chickens before they hatch.

There’s an interesting comparison to the development of AAPL. Steve Jobs — who went on to do great things — was never fully in charge of AAPL until much later on. AAPL externally recruited CEOs with business experience, and Jobs was eventually thrust out of the company he founded, to continue his journey on his own. Failure is a really valuable lesson. Jobs was lucky to experience it and learn from it early before he ever got a chance to destroy AAPL.

FB isn’t really a bad business, and prospects would look much rosier if it were priced more realistically. It’s generating a profit — just a much smaller one than suggested by the IPO pricing. And management are being swept along by everyone else’s irrational euphoria. Zuckerberg can freely throw away a whole year’s earnings buying Instagram — an App whose functionality FB actually duplicated in-house almost certainly for a tiny fraction of the cash thrown at Instagram. And Zuckerberg — who controls a majority of the voting rights — isn’t going to get thrust out into the cold by shareholders. He can keep wildly throwing cash around so long as it keeps flowing into FB. The problem is, given the steep price falls, it looks like the river is running dry.

As I wrote before FB started falling:

The big money coming into Facebook just seems to be money from new investors — they raised eighteen times as much in their flotation yesterday as they did in a whole year of advertising revenue. For an established company with such huge market penetration, they’re veering dangerously close to Bernie Madoff’s business model.

That’s life. Bubbles get burst; the Madoff bubble, the securitisation bubble, the NASDAQ bubble, the housing bubble, the Facebook bubble, the treasury bubble. The trick is not getting swept up by the irrational euphoria. Better to miss a blow-out top than to end up holding a stick of dynamite.

What Does High Yield Credit Know That Stocks Don't?

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While stocks, gold, and the dollar are generally in sync, Treasuries appear modestly more bearish now (for stocks) but it is the high-yield bond ETFs that is making a few people nervous as they plunge on heavy volume (and well below their intrinsic value). Obviously no-one really knows what i going on at JPM, but fort some more color we note that IG9 10Y is trading wider once again offered at 169bps – so one wonders if the liquidity in HYG is allowing some unwinds (or more hedges to be laid out). Certainly stocks remain ignorant of it for now – though month-end may be impacting both.

SPY (green) versus HYG (red) with HYG’s intrinsic value (dark red)…

and on both our ETF-based (SPY Arbitrage model – based on SPY’s relationship to HYG-VXX-TLT) and cross-asset-class (CONTEXT model), stocks look a little rich once again…

 

Chart: Bloomberg

What Does High Yield Credit Know That Stocks Don’t?

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While stocks, gold, and the dollar are generally in sync, Treasuries appear modestly more bearish now (for stocks) but it is the high-yield bond ETFs that is making a few people nervous as they plunge on heavy volume (and well below their intrinsic value). Obviously no-one really knows what i going on at JPM, but fort some more color we note that IG9 10Y is trading wider once again offered at 169bps – so one wonders if the liquidity in HYG is allowing some unwinds (or more hedges to be laid out). Certainly stocks remain ignorant of it for now – though month-end may be impacting both.

SPY (green) versus HYG (red) with HYG’s intrinsic value (dark red)…

and on both our ETF-based (SPY Arbitrage model – based on SPY’s relationship to HYG-VXX-TLT) and cross-asset-class (CONTEXT model), stocks look a little rich once again…

 

Chart: Bloomberg

Goldman Slashes Treasury Yield Forecasts

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

If it appears like it was only yesterday that Goldman was advising clients to short the 10 Year Treasury, it is because it was… give or take a few months: From January: “Since the end of last August, we have argued that 10-yr US Treasury yields would not be able to sustain levels much below 2% in this cycle. Yields have traded in a tight range around an average 2% since September, including so far into 2012. We are now of the view that a break to the upside, to 2.25-2.50%, is likely and recommend going tactically short. Using Mar-12 futures contracts, which closed on Friday at 130-08, we would aim for a target of 126-00 and stops on a close above 132-00.” We added the following: “As a reminder, don’t do what Goldman says, do what it does, especially when one looks the firm’s Top 6 trades for 2012, of which 5 are losing money, and 2 have been stopped out less than a month into the year.” Sure enough, as we tabulated last night, those who had listened to this call, and also gone long stocks as Goldman urged on March 21, have lost nearly 30% in about 2 months. Those who listened to us and did the opposite, well, didn’t. Which is why the just released note from the very same Garzarelli who 4 months ago was so gung ho on shorting bonds, just cut his bond yield forecast for the entire world, US Treasurys included: “We now see 10-year US Treasuries ending this year at 2.00% (from 2.50% previously, and 30bp above current forwards), rising to 2.50% (previously 3.25%, and 60bp above the forwards) by December 2013. The corresponding numbers for German Bunds are 1.75% and 2.25%.” In other words, it is now that Doug Kass should have made his short bonds call: not when he did it, a month ago and got his face bathsalted right off. For those asking – yes: Goldman is now selling bonds to clients.

Here is the summary:

How does Goldman get there:

Reflecting an intensification of sovereign pressures in the Euro area, we are lowering our forecasts for the major government bond markets. We now see 10-year US Treasuries ending this year at 2.00% (from 2.50% previously, and 30bp above current forwards), rising to 2.50% (previously 3.25%, and 60bp above the forwards) by December 2013. The corresponding numbers for German Bunds are 1.75% and 2.25%.

 

A Recrudescence of EMU Risks

 

The month of May has seen a strong rally in interest rate markets in the developed economies, accompanied by a flattening in term structures. There have been two proximate drivers of the price action. The first is a modest decline in leading indicators of global  industrial activity, as captured by our GLI. This has been reflected in both cyclical stocks and rates.

 

The second, and more dominant, force has been a resurgence of market pressures in the Euro area sovereign space, tied to developments in Spain and Greece. In the former, investors concerns relate to the recapitalisation of commercial banks, and the impact this could have on borrowing requirements. In the latter, a political stalemate has raised the spectre of a break away from the common currency union, reinforcing ongoing portfolio allocations within EMU towards bonds of the highest credit standing.

 

Germany has been leading other major rate markets: 30- year Bund yields have fallen more than 60bp since the start of May to below 2% (corresponding to a total return over this period of 15%). To put this in perspective, they are on par with 30-year yields in Japan—where domestic inflation is running 200bp lower. Even at these depressed yield levels, the ‘call skew’ on July Bund options for delivery on June 22, that is, after the second Greek parliamentary elections) has continued to increase.

 

Formal statistical tests confirm that, in a departure from historical norms, since March 2012 the causation has run from German yields to those in the US.

 

The flipside of such extreme shifts in German yields has been a meaningful increase in long-term spreads of Italy and, in particular, Spain relative to the core countries of EMU. Demand for intermediate maturity bonds from these two issuers continues to be low, and almost entirely domestic—as we had long expected. Intra-EMU government rate differentials now embody an element of  currency risk. They are at levels far above what would be justified by relative economic fundamentals should concerns over the viability of EMU abate.

 

1. An Increasingly Bimodal World

 

When benchmarked against our central macroeconomic expectations, intermediate maturity yields in the main economies have reached levels that, on past norms, would lead us to recommend short positions.

 

Our Bond Sudoku framework, which provides us with an indication of how expected global macro factors should map into intermediate maturity government bond yields, suggests that German Bunds, US Treasuries and UK Gilts are now trading around 100bp too expensive relative to ‘fair value’, equivalent to a departure from the fitted value of well beyond one standard deviation.

 

We comment on the merits and limitations of Sudoku below, but the same conclusion is reached if we use alternative approaches tobond valuation.

 

The main issue we face at this juncture is that the distribution of possible macro scenarios, and hence that of expected government bond returns, is becoming progressively bimodal. Ahead of us, we think, lies a central macroeconomic scenario with quantifiable risks around it. Alongside this outcome, however, there is a much less probable but also much more harmful alternative, where depressed economic activity and uncertain institutional shifts in the Euro area interact. In this context, summary statistics such as mean and standard deviations could be deceptive.

 

2. Our Baseline Case: Gradual Progress Towards

 

Deeper Integration in the Euro area As we set out in a recent note (see The Euro area: 3 Greek Scenarios and Market Implications, May 28, 2012), our baseline case for Greece envisages: (i) a (painful) modification of the ‘troika’ program; (ii) continued ECB funding for local banks under Emergency Liquidity Assistance (ELA); and (iii) the rest of Euro area slowly and discontinuously progressing  towards deeper integration in the areas of financial and banking regulation and fiscal policy.

Such integration encompasses all the main ‘desiderata’ we have written about in previous research. These include the EFSF helping Spain out under a Memorandum of Understanding specific to bank recapitalisations (i.e., not a full macroeconomic adjustment program); a common Euro area wide bank resolution authority regime and, eventually, a merger of deposit insurance schemes; a political agreement to reach a mutualisation of legacy debt subject to conditionality and collateral. These are admittedly ‘end game’ solutions, which can be implemented over the space of several quarters, rather than weeks. But markets would be reassured by theanchoring of medium-term expectations around a policy objective shared by all member countries.

 

In this world, the very large insurance premium priced into German Bunds and US Treasuries since last summer should gradually dissipate as Europe slowly becomes more integrated and resilient to events in Greece, allowing bond yields to realign themselves to their macro underpinnings.

 

Within this central case we would expect peripheral spread curves to remain relatively steep, underpinned by the ECB’s ‘term liquidity on demand’ policy. Both the level and slope of intra-EMU spreads would interact primarily with shifts in the growth outlook.  An exercise of mapping spreads to fundamentals predicated on the baseline scenario would see 10-year differentials with Germany  head towards 250-300bp for Italy (currently 465bp) and 300-350bp for Spain (currently 530bp) on a 6- to 12-month horizon.

 

It is conceivable that more positive developments could take place. We have, for example, discussed the merits of the European Debt Redemption Fund, which we outline again in the Focus section. Any hint of the Euro area moving in these directions would  result in a sharper rise in German yields towards their macro equilibrium, and a compression of German swap spreads to 20bp-25bp from 50bp currently), with 10-year Italian bonds trading around 150bp-200bp over mid-swaps.

 

3. And a Darker Mode

 

But there is also an alternative scenario, in which a withdrawal or expulsion of Greece from the single currency could result in a hit to the Euro area’s aggregate GDP of around 2%, assuming robust policy responses. Failing those, the risk of a broader collapse of EMU could be material, and the contraction in economic activity approach double digits. It is this sort of ‘rare event’ risk that has led to a decline in traded volumes over the past months, a build-up of cash balances and a ‘flight-tosafety’.

 

Arguably, high credit quality government bonds incorporate a greater chance of bad outcomes occurring than other assets. The 3-month rate in 10-years’ time in Germany is now priced at 2.0%, at the ECB’s area-wide inflation rate target. The corresponding number in the US is 2.3%, approaching levels seen after the collapse of Lehman Brothers, and in the UK is 3.0%.

 

Nevertheless, in a world where the demand for creditriskless fixed income assets outstrips supply (the latest IMF Financial Stability Report provides a comprehensive overview), high rated government securities could be in greater favour than we have so far assumed.

Which all leads to…

Our Forecast Changes Reflect a More Gradual Adjustment

 

Drawing on these observations, we are lowering our major markets’ interest rate forecasts to reflect a more gradual adjustment of intermediate nominal yields towards values consistent with their macro underpinnings.

 

  • We now see nominal 10-year US Treasuries ending this year at 2.00% (from 2.50% previously) and then gradually rising to 2.50% by December 2013 (previously 3.25%), approaching our Sudoku measure of ‘fair value’ from below. At the time of writing, with spot yields at 1.6%, our end-2012 forecasts are 30p above the forwards, and those for end-2013 are 60bp above the forwards.
  • The corresponding numbers for German 10-year Bund yields are 1.75% in December 2012 (previously 2.25%), 40bp above the forwards; and 2.25% (previously 3.00%) in December 2013, 70bp above the forwards.
  • We forecast 10-year UK Gilts at 2.00% in December 2012 (previously 2.75%), 25bp above the forwards; and 2.75% (previously  3.50%) in December 2013, 75bp above the forwards.
  • Lastly, we see JGBs at 1.00% in December 2012 (previously 1.25%), broadly in line with the forwards, and 1.30% in December 2013 (previously 1.70%), or 20bp above the forwards.
  • Along similar lines, we are also lowering the forecast for 10-year rates on the bonds of Canada, Australia, Switzerland and Sweden, as summarised in the Table below.
  • We see two main reasons why bond yields should increase over the forecast horizon:
  • First and foremost, we expect a relaxation of strains in the Euro area, consistent with the baseline case sketched out above. As  already mentioned, however, it may take more time for flight-to-safety flows to reverse given the damage to investors’ confidence experienced over the past year.
  • Second, we are forecasting a sequential improvement in nominal GDP growth in the advanced economies. Our present forecasts envisage a quarterly annualised expansion from 2.75%-3.00% in the first half of this year to 4.75%-5.00% between 2012Q4 and end-2013. Although we do not expect any of the major central banks to adjust policy rates upwards over this horizon, markets may start discounting changes over 2014-16.

And so on.

Bottom line: take whatever Goldman say, and flip it.

Santelli On Capital Flight And Bond Contagion

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While it will be no surprise to any ZH reader (with our attention to Swiss 2Y rates) the world is undergoing a massive capital flight to safety. Rick Santelli gave this topic his special treatment today, pointing out that “capital is detouring – to avoid risk”, and outlining just how big a ‘crash’ lower in yields we have seen among many of the supposedly safest sovereigns as money floods to safe-havens (including UK, US, Japan, Germany, and Holland). What is most important is that Rick outlines why we should care – when all around are yawning on about how cheap ‘dividend’ stocks must be given low interest rates – since it changes the nature of capital (the life-blood of our markets) from risk-taking to absolute safety-seeking – as he points out that “it isn’t necessarily about our own economy’s numbers, it isn’t even about who we export to; it’s the fact that if capital continues to get somewhat impaired, you’ll have more data points as investors not only rethink about their capital but everybody rethinks everything in the capital structure that makes business go round.”

 

 

10Y Yields across many majors (and Spain)…

Chart: Bloomberg

BiTCHeS BReW…

Courtesy of ZeroHedge. View original post here.

Submitted by williambanzai7.

QUEEN OF AUSTERITY

Merkel is playing her part
Austerity Queen has no heart
A Greek execution
Is her cold solution
She’s ripping the EU apart

The Limerick King

 

.
IMF WARNING
.
IMF SHOES

Try on the IMF shoes
That way the Kleptos can’t lose
They’ll make you a slave
From cradle to grave
Or would you prefer their new screws?

The Limerick King

.
IMF AD

The Four Greek Election Scenarios

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

With any possible majority likely to be quite weak, and about two weeks to go, the outcome of this second election remains highly uncertain. While we’re happy to leave the ever-changing chances of all the possible government combinations to the Greek political commentators (or media pollsters asking 1000 people), we think that the chances of a pro-bailout majority in parliament – at least for a short while – are slightly less than even at best. Morgan Stanley recently opined on the four possibilities with all centered on Syriza’s actions.

Thomson-Reuters’ interactive poll tracker here

How Do The Greek Polls Work?

The 300-seat parliament is elected every four years. The so-called reinforced proportional system gives the first party a higher share of parliamentary seats than its actual share of votes. For the first time, the May 6 election saw the application of a recent amendment to the electoral law, such that 50 seats in parliament (rather than 40 as before) were allocated to the first party (centre-right New Democracy, ND). Another 12 seats were allocated on a national level (the so-called statewide deputies), while the remaining 238 seats were filled in eight single and 48 multi-member constituencies. To participate in the allocation of seats, or enter parliament, a political party had to receive at least 3% of the valid votes cast nationwide. The election in June will follow the same mechanism.

And What Are The Possible Outcomes:

  1. SYRIZA forms a government with other far-left parties. While probably the most negative, as it would increase the probability of a Greek exit in the near term, we think that such a scenario is unlikely – given that relations between SYRIZA and other far-left parties appear poor, and that the numbers to form a government don’t seem to be there, based on current polls.
  2. SYRIZA joins a centrist government and drops its demands. This would be a more positive outcome, even though we suspect that investors would doubt that such a coalition could last for quite a while. We believe that such a scenario is highly unlikely, because SYRIZA’s popularity and support depend on its anti-bailout stance.
  3. Technocratic government. This could be a workable solution for little while, and a positive one in the near term – given that compliance with the Troika’s demands could be restored – but we suspect that investors might stay sceptical, as in this case too the longevity of such an arrangement will depend on SYRIZA’s support. As such, we think that it’s just a little more likely than the previous two scenarios.
  4. ND and PASOK, perhaps with some support from one or two smaller parties, form a government. We think that chances are perhaps close to or a bit below 50% at this stage, and the dispersion of the various outcomes is quite wide. Yet, despite the still-low probability, we believe that this is the most likely and positive scenario and would ensure, at least for some time, that Greece attempts again to comply with the fiscal and reform programme and stay in the monetary union.

 

Regardless of the final outcome, the probabilities of which are likely to change wildly over the next few weeks, we believe it is likely that, just as with the previous election, there will be several iterations (maximum allowed is three of three days each) from various party leaders to form a government, and perhaps one final iteration from the Greek President of the Republic. Thus, uncertainty is likely to stay high until the end of June.

 

Source: Morgan Stanley

Spain Just Gave Us a Glimpse Into the True State of the EU Banking System

Courtesy of ZeroHedge. View original post here.

Submitted by Phoenix Capital Research.

 

The following is an excerpt from my most recent client letter.

 

In case you missed it, Spain just gave the entire world a glimpse of what’s happening “behind the scenes” in the financial system.

 

I am of course referring to the Bankia nationalization,  the largest bank nationalization in Spain’s history.

 

Bankia was formed in 2010 when the Spanish Government merged seven insolvent cajas  So it’s no surprise that Bankia was a trainwreck waiting to happen… at least to anyone with a working brain.

 

However, both the bank and the Spanish Government decided to maintain the charade that the bank was in great form right up until it collapsed (only one month ago Bankia was talking about paying its dividend).

 

On May 9th the Spanish Government stepped in to nationalize the bank. Its first step was to convert its (the Spanish Government’s) €4.5 billion worth of preferred shares to common shares, thereby taking a 45% stake in the bank.

 

Then Bankia announces €17 billion of new write-downs as well as €7 billion of mark-downs on investments, thereby rendering the bank insolvent. It also revised its 2011 results from a €309 million profit to a €3 billion LOSS.

 

The end result… Bankia just received a €19 billion Euro bailout, the largest in Spain’s history. That’s not the problem however. The REAL problem is that Spain itself is broke…

 

…so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.

 

Spain must somehow rustle up €20bn or more on the debt markets. This will push the budget deficit back into the danger zone, though Madrid will no doubt try to keep it off books – or seek backdoor funds from the ECB to cap borrowing costs. Nobody will be fooled…

 

The Centre for European Policy Studies in Brussels puts likely write-offs at €270bn. We could see Spain's public debt surge into triple digits in short order.

 

As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.

 

You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.

 

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100017477/spain-runs-out-of-money/

 

In addition to this, Spain’s regional governments are seeking bailouts:

           

            Spain's Catalonia seeks government help to pay debt

 

Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government because it is running out of options for refinancing debt this year, Catalan President Artur Mas said today.

 

"We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills," Mas told a group of reporters from foreign media.

 

A spokesman for the Catalan government later emphasised that Mas was referring to payments that must be met routinely each month and not a specific deadline this month.

 

The debt burden of Spain's 17 highly devolved regions, and rising bad loans at the country's banks, are both at the heart of the euro zone debt crisis because investors are concerned they could strain finances so much that Spain, the currency bloc's fourth biggest economy, will need an international bailout.

 

Catalonia, which represents one fifth of the Spanish economy, has more than 13 billion euros in debt to refinance this year, as well as its deficit.

 

All of the regions together have 36 billion euros ($45 billion) to refinance this year, as well as an authorised deficit of 15 billion euros.

 

Last year many of the regions financed debt by falling months or even years behind in payments to providers such as street cleaners and hospital equipment suppliers.

 

http://www.buenosairesherald.com/article/101796/spains-catalonia-seeks-government-help-to-pay-debt

 

Thus, Spain has illustrated the true nature of the EU Crisis in just one week. Specifically…

 

  1. Both governments and banks are lying about the real risks to their balance sheets (Bankia passed the EU’s stress tests).
  2. We have reached the point at which Governments can no longer bailout their own failing banks as the Governments themselves are bankrupt (see Catalonia and Spain as a whole).

 

To recap… Spain has only €5 billion left in its own bailout fund… at a time when its largest bank needs €19 billion (at the least)… and its regional government have begun asking for bailouts too.

 

Oh, and the Spanish banking system needs to write off another €270 billion…  if Spain cannot cobble together €19 billion, where on earth will it get the money needed to support its collapsing banking system which is on the verge of having to write down hundreds of billions of Euros?

 

This is the state of affairs in Europe: bankrupt nations trying to bailout bankrupt banks or looking for bailouts from funds that are backed by other bankrupt nations.

 

What could go wrong?

 

On that note, Spain will take down the EU, guaranteed. I’ve been warning about this for months and everything is unraveling exactly as I forecast. So if you’re not preparing for an end to the EU in its current form as well as a European banking collapse, you need to get moving.

 

I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

 

 

 

 

Student Debt Bubble Delinquencies Surge

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

By now, the bubble in student loans is becoming more widely understood. The absolute level continues to rise significantly and growth is accelerating with 8% YoY growth just reported, via the WSJ. Of course the reasons are anathema but attending college on the back of hope of a better-paying job when everyone else is also attending college in that hope (thanks to endless student-loan funding from your helpful government) seems to be self-defeating as the supply of supposedly better-qualified workers into a stagnant economy will do nothing but reduce higher-end wages further? Of course this is over-simplified but as the rest of the country delevers, pays down credit cards, or BKs, those that remain jobless heading to college for a way out are now struggling also – as is clear from WaPo this last weekend where dropout rates are increasingly dramatically. What is more worrisome is that while every other class of debt, according to the New York Fed’s data, is seeing delinquency rates dropping, Student Loans 90+ days delinquent surged in Q1 to 8.7% – near its peak crisis highs and remains above peak mortgage delinquency rates.

Student Loan Debt is growing while the rest of the household sector is delevering…

But pressures from repayments and the debt overhang causing dropout rates to soar

but even as the supposedly better-educated leave college, jobs are few and far between and delinquency rates are surging – even as every other form of household debt sees lower delinquency rates…

and from the NY Fed:

The New York Fed also released historical student loans figures, by quarter, dating back to the first quarter of 2003 as part of this quarter’s report. These data show that student loan debt has substantially increased since 2003, growing $663 billion. Outstanding student loan debt surpassed credit card debt as the second highest form of consumer debt in the second quarter of 2010.

 

Student loan debt continues to grow even as consumers reduce mortgage debt and credit card balances,” said Donghoon Lee, senior economist at the New York Fed. “It remains the only form of consumer debt to substantially increase since the peak of household debt in late 2008.”

 

Additionally, 90+ day delinquency rates for student loans steadily increased from 6.13 percent in the first quarter of 2003 to its current level of 8.69 percent. They remain higher than that of mortgages, auto loans and home equity lines of credit (HELOC).

Is it any wonder the youth are disillusioned as they become the new middle class, with little opportunity and instead of a mortgage, a huge student loan around their necks? Perhaps all those calling for a housing bottom should consider who the bottom of the rung first-time homeowner is and how much more debt they are starting with now before calling the ‘all-clear’.

The Inexplicable American Consumer Hits A Wall

Courtesy of ZeroHedge. View original post here.

Submitted by testosteronepit.

Wolf Richter   www.testosteronepit.com

The strongest and toughest creature out there, and maybe the smartest one, that no one has been able to subdue yet, the inexplicable American consumer has hit a wall. And it showed up in a prosaic but ugly 8-K filing by Visa.

Credit cards are a true anomaly in these crazy times of ours. The yield on 10-year treasury notes swooned to a new record low of 1.61%. Interest rates on savings accounts and most CDs are so close to zero that you can’t see the difference on your statements once you round to the nearest dollar. 30-year mortgages come with rates of under 4%. And yet, credit card interest rates are where they’ve always been: high. In many cases well into the double digits.

Consumers have struggled with them. Before the Great Recession, when credit was unlimited and easy, consumers charged the cost of improving their lifestyle to the future to make up for the long decline in real wages—that haven’t kept up with inflation since the wage peak of 2000. Read…. “Confiscate, Secretly and Unobserved.”

Then it all ended. Consumers defaulted on their credit cards or paid them down or off and cut them up, and the smart ones were able to roll their balances into a home-equity line of credit and then let it go into foreclosure, thus getting rid of debt in the Goldman Sachs kind of way, and overall credit card balances dropped. Transactions shifted to debit cards, which appeared to be the more prudent way, and banks pushed them because they could squeeze higher fees out of merchants. But declining credit card debt drove the Fed ragged; the last thing it wanted was for consumers to get out of debt. So it must note Visa’s 8-K with relief; consumers appear to be back on track to becoming life-long debt slaves whacked on a monthly basis by high-interest credit-card debt.

Visa’s aggregate payment volume was down 3% in the US for April and stagnated through May 28, compared to the same periods last year. Behind the aggregate, bad as it was, hid an astounding shift: credit card purchases actually jumped 8% in April and 10% through May 28; but debit card purchases dropped 12% in April and 8% in May.

Media pundits, in trying to explain away the shift, fingered new regulations—the infamous Durbin amendment—that decimated the debit-card fees Wells Fargo, Bank of America, JPMorgan Chase, Citi, and hundreds of other banks charged merchants. And so, the pundits explained, the industry responded to the loss of revenues with new pricing plans (Visa’s plan is currently causing some rumpled eyebrows at the Department of Justice), and consumers responded to these new pricing plans by plowing back into high-interest credit card debt. Here is one that made the rounds (American Banker):

The sluggish performance was driven by declines in debit-card purchases, which have taken a hit in recent months from new regulations governing how card networks such as Visa and MasterCard handle debit transactions.

A mind-boggling non sequitur. Even the inexplicable American consumer can’t see the fees merchants are charged for credit and debit card transactions. When consumers whip out a card, they choose between borrowing at high interest rates (avoidable only by always paying off the entire statement balance) and having the amount taken out of a checking account in real time. But the fees that the merchant pays don’t show up in this decision process as they’re unknown to consumers and don’t impact them directly.

To account for such a drastic shift, a deeper, gloomier pattern emerges. The inexplicable American consumer, pushed to the max, with checking accounts dry and debit cards useless, is trying to hang on by the fingernails to a lifestyle that is edging out of reach. In grasping for it, they’re using every means they can, even high-interest credit-card debt which will haunt them for years to come. A return to this scheme is not exactly a bullish sign for the economy, though it’s good for the banks (until the inevitable write-offs start wreaking their havoc).

Tough as the American consumer may be, his or her other side, the American taxpayer, is about to be saddled with another multi-billion dollar bail-out of mortgage loan losses from a Federal Housing Authority (FHA) lending program that has been offering ultra-low down payments since 2009. Alas, it’s turning into a nightmare. Read…. FHA Sub-Prime Defaults At 9% In California.

And here is a hilarious and biting cartoon by Ben Garrison: "Welcome to Sh*t Creek.

IMF Begins Spain's Schrodinger Bail Out

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Wondering what prompted the most recent “month end mark up” ramp in stocks? Look no further than the IMF, which one month after failing miserably to procure a much needed targeted amount of European bailout funds as part of Lagarde’s whirlwind panhandling tour, hopes that markets are truly made up of idiots who have no idea how to use google and look up events that happened 4 weeks ago. So here it is: the Spanish bail out courtesy of the IMF. Well, not really. Because according to other headlines the IMF claims no plans are being drafted for a bailout. Why? Simple – if the IMF admits it is even considering a bailout, it will launch a bank run that will make the Bankia one seem like child’s play, as the cat will truly be out of the bag. So instead it has no choice, but to wink wink at markets telling them even though it has been locked out from additional funding by the US, UK, Canada and even China, it still has access to funding from… Spain.

From the WSJ:

The European department of the International Monetary Fund has started initial discussions on a contingency plan for a rescue loan to Spain in case the country fails to find the funds needed to bail out its third-largest bank by assets, Bankia, people involved in the handling of the Spanish crisis said.

 

Both the European Union and IMF want to avoid having to bail out Spain at all costs, the people said, but early planning is under way given that the country is struggling to raise a €10 billion ($12.4 billion) shortfall in funds to bail out Bankia.

 

The stakes are extremely high because a three-year rescue loan for Spain could be as much as €300 billion, one person said, although any bailout could involve smaller, shorter-term loans.

That’s ok IMF: let’s play your game. You are bailing out Spain’s banks? Fine. Here, as posted yesterday, is the list of banks that now officially, per Goldman, need a bailout:

Spain: Bankia Down, Who Is Next?

Bankia is done: at this point the only questions left are i) what will be the final bailout cost  ii) who will pay for these costs, and iii) whether the bank has enough beach towels to satisfy the onslaught of manic Spaniards desperate to hand over their €300 euros to the insolvent bank in exchange for some Spiderman-embossed linen. Oh, there is one more question: who is next.

Now, as we showed earlier today, in the aggregate the answer is simple: everyone. Because as JPM said “if a Spanish EU/IMF bailout package covered the government’s gross funding needs through the end of 2014, and included €75bn for bank recapitalisation, then it would amount to around €350bn.” At roughly a third of its GDP, this is, needless to say, more money than Spain can procure. But, in a very Stalinesque sense, where everyone is merely a statistic, that is essentially the same as saying no one.  It is also certainly not helpful to any Spanish readers who may be worried about their deposits (and investments) which in a world of total disinformation, will first be lost before the government advises caution and safety. So instead we go to Goldman Sachs which has conveniently constructed the following analysis, which replicated the loss provision calculation of Bankia, and applies it to the other listed banks. The result: in addition to the €19 billion in bail out costs for Bankia, Spain will need to spend at least another €25 in bailout funding for six other listed banks which include CaixaBank SA, Banco Santander, Banco Popular Espanol, BBVA, Banco Espanol de Credito SA, Bankinter SA.

So now we are not dealing with mere “statistics.”

The capital need breakdown is as follows: “Pro-forma capital gap assuming 9.5% CT1 hurdle rate, loss estimates comparable
to those outlined by BKIA and front-loaded in 1H12″


And in the grand scheme of things:

IMF Begins Spain’s Schrodinger Bail Out

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Wondering what prompted the most recent “month end mark up” ramp in stocks? Look no further than the IMF, which one month after failing miserably to procure a much needed targeted amount of European bailout funds as part of Lagarde’s whirlwind panhandling tour, hopes that markets are truly made up of idiots who have no idea how to use google and look up events that happened 4 weeks ago. So here it is: the Spanish bail out courtesy of the IMF. Well, not really. Because according to other headlines the IMF claims no plans are being drafted for a bailout. Why? Simple – if the IMF admits it is even considering a bailout, it will launch a bank run that will make the Bankia one seem like child’s play, as the cat will truly be out of the bag. So instead it has no choice, but to wink wink at markets telling them even though it has been locked out from additional funding by the US, UK, Canada and even China, it still has access to funding from… Spain.

From the WSJ:

The European department of the International Monetary Fund has started initial discussions on a contingency plan for a rescue loan to Spain in case the country fails to find the funds needed to bail out its third-largest bank by assets, Bankia, people involved in the handling of the Spanish crisis said.

 

Both the European Union and IMF want to avoid having to bail out Spain at all costs, the people said, but early planning is under way given that the country is struggling to raise a €10 billion ($12.4 billion) shortfall in funds to bail out Bankia.

 

The stakes are extremely high because a three-year rescue loan for Spain could be as much as €300 billion, one person said, although any bailout could involve smaller, shorter-term loans.

That’s ok IMF: let’s play your game. You are bailing out Spain’s banks? Fine. Here, as posted yesterday, is the list of banks that now officially, per Goldman, need a bailout:

Spain: Bankia Down, Who Is Next?

Bankia is done: at this point the only questions left are i) what will be the final bailout cost  ii) who will pay for these costs, and iii) whether the bank has enough beach towels to satisfy the onslaught of manic Spaniards desperate to hand over their €300 euros to the insolvent bank in exchange for some Spiderman-embossed linen. Oh, there is one more question: who is next.

Now, as we showed earlier today, in the aggregate the answer is simple: everyone. Because as JPM said “if a Spanish EU/IMF bailout package covered the government’s gross funding needs through the end of 2014, and included €75bn for bank recapitalisation, then it would amount to around €350bn.” At roughly a third of its GDP, this is, needless to say, more money than Spain can procure. But, in a very Stalinesque sense, where everyone is merely a statistic, that is essentially the same as saying no one.  It is also certainly not helpful to any Spanish readers who may be worried about their deposits (and investments) which in a world of total disinformation, will first be lost before the government advises caution and safety. So instead we go to Goldman Sachs which has conveniently constructed the following analysis, which replicated the loss provision calculation of Bankia, and applies it to the other listed banks. The result: in addition to the €19 billion in bail out costs for Bankia, Spain will need to spend at least another €25 in bailout funding for six other listed banks which include CaixaBank SA, Banco Santander, Banco Popular Espanol, BBVA, Banco Espanol de Credito SA, Bankinter SA.

So now we are not dealing with mere “statistics.”

The capital need breakdown is as follows: “Pro-forma capital gap assuming 9.5% CT1 hurdle rate, loss estimates comparable
to those outlined by BKIA and front-loaded in 1H12″


And in the grand scheme of things:

I Want To Work At The Goldman Sachs

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Three years of anti-Goldman bashing and exposing the company’s legal and illegal dirty laundry have clearly had an impact on society:

  • *COHN SAYS SUMMER PROGRAM APPLICATION POOL WAS BIGGEST EVER

The Borg zombification shall continue until everyone wants to work solely at “The Goldman Sachs”

And a gentle reminder (aside from the need to ‘take crack cocaine to get through the day’ why maybe, just maybe – all these wannabe masters of the universe, should take pause)…

Equities Underperform As Credit Roundtrips Ending Miserable May For Europe

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

It seemed the ‘but but but we’re oversold’ argument was holding up in early trading in Europe as EURUSD, sovereign bonds, corporate and financial credit, and stocks rallied out of the gate. It didn’t take long however for the technicals from CDS-Cash traders to wear off and Spain and Italy sovereign debt started to leak back wider. This accelerated pushing everything off the edge as European stocks and financials & investment grade credit fell to recent lows. Interestingly high-yield credit (XOVER) remains an outperformer. By the close, credit markets were pretty much unchanged from last night’s close having given back all the knee-jerk improvements on the day but equities remained lower – with a late day surge saving them from total chaos. EURUSD gave back all of its early gains to end the European day lower once again – though off its lows – even as Germany 2Y trades with 0.2bps of negative and Swiss 2Y rates plunge below -25bps. For the month, EMEA stocks were a disaster – Italy and Spain down 12 and 13% and the broad Euro-Stoxx -8.3% (-8.7% YTD).

Credit roundtripped – giving up its earlier gains (orange curves) but stocks (red curve) ended notably lower…

EMEA stocks were just ugly in May – with Spain and Italy missing out to Russia’s disaster

Sovereigns followed a similar path as credit today but ended higher in yield for Spain and Italy…

Charts: Bloomberg

Guest Post: Income Disparity Solution: Restore The Minimum Wage To 1969 Levels

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Charles Hugh Smith from Of Two Minds

Income Disparity Solution: Restore the Minimum Wage to 1969 Levels

If we want to lessen income disparity, the solution is easy: restore the minimum wage to levels considered reasonable 43 years ago in 1969.

There is much hand-wringing about the vast income disparity in the U.S. between the top 5% and the bottom 25%, and precious little offered as a solution. Once again we are told the problem is “complex” and thus by inference, insoluble.

Actually, it’s easily addressed with one simple act: restore the minimum wage to its 1969 level, and adjust it for the inflation that has been officially under-reported. If you go to the Bureau of Labor Statistics Inflation Calculator and plug in $1.60 (the minimum wage in 1969 when I started working summers in high school) and select the year 1969, you find that in 2012 dollars the minimum wage should be $10 per hour if it were to match the rate considered “reasonable” 43 years ago, when the nation was significantly less wealthy and much less productive.

The current Federal minimum wage is $7.25, though states can raise it at their discretion. State rates runs from $7.25 to $8.25, with Washington state the one outlier at $9.04/hour.

In 40 years of unparalleled wealth and income creation, the U.S. minimum wage has declined by roughly a third in real terms. “Official” measures of inflation have been gamed and massaged for decades to artificially lower the rate, for a variety of reasons: to mask the destructiveness to purchasing power of Federal Reserve policy, to lower the annual cost-of-living increases to Social Security recipients, and to generally make inept politicians look more competent than reality would allow.

The full extent of this gaming is open to debate, but let’s assume inflation has been under-reported by about 1% per year for the past two decades. That would suggest the minimum wage should be adjusted upward by about 20%, from $10 to $12/hour.

All those claiming such an increase will destroy the nation (or equivalent hyperbole) need to explain how the nation survived the prosperous 1960s paying the equivalent of $10-$12/hour in minimum wage. Exactly what has weakened the economy such that the lowest paid workers must bear the brunt of wage cuts?

To understand the modest scale of such an increase in the context of total household income and wealth, consider these charts. Let’s start by recalling that 38 Million Workers Made Less Than $10,000 in 2010– Equal to California’s Population. (Why the Middle Class Is Doomed April 17, 2012).

There are about 140 million jobs in the U.S., including part-time and temporary, and roughly 40 million workers earn less than $10,000 a year. This is the vast population earning minimum wage, and their earnings constitute a small share of total income.

 

 

The bottom 90% have seen their wages stagnate for 40 years, but the bottom layer earning minimum wage have seen their real earnings decline by roughly one-third (not counting entitlements they might qualify for as members of the “working poor.”)

 

 

In the good old days of more widely distributed incomes, the bottom 20% who generally earn minimum wage actually saw significant increases in income. That has reversed in the financialization era.

 

 

Those earning minimum wage hold a tiny sliver of the nation’s wealth.

 

 

Apologists for low wages claim we must “get competitive” with low-wage nations, as global wage arbitrage has cut wages everywhere. This claim overlooks the fact that the vast majority of minimum-wage positions are precisely the jobs that cannot be outsourced: cleaning offices, fast-food jobs, pizza delivery, agricultural work, and so on.

Other apologists claim that since these positions are “low productivity,” they “deserve” lower wages. If we as a nation reckoned them worthy of $10-$12/hour 40 years ago, then why are low-productivity jobs less deserving now?

Still other apologists claim that raising the minimum wage would 1) destroy small businesses and 2) trigger painful increases in food and other prices.

The only way the minimum wage can hurt small business is if some small businesses are allowed to cheat and pay illegally low wages as a way of lowering the cost of their service. If the law were uniformly and aggressively enforced, for “black market” and above-market wages alike, then those cheating their employees would slowly be eliminated from the economy via heavy fines.

Once everyone is paying $10-$12/hour, even for informal work, the “playing field” will be leveled at a higher scale.

Given the modest share of the national income earned by low-paid workers, claims that costs would skyrocket are groundless. Yes, costs would rise, but not by enough to impoverish the nation.

What all those decrying restoration of a reasonable minimum wage overlook is that the working poor will spend most of their increased wages, and that will actually aid the economy where it counts. Aren’t we tired yet of Federal Reserve policies that enable more skimming by the top 1% while giving nothing to the bottom 50%? The simple, straightforward way to correct the vast income imbalances is to restore the minimum wage to 1969 levels and adjust for under-reported inflation.

What about the wealthy? Shouldn’t they pay more than the rest of us? Well, actually, they already do, for the most part: the top 25% of taxpayers–34 million workers out of a workforce of 140 million–pay almost 90% of all Federal income taxes. But we’ll address that aspect of income disparity tomorrow.

A Day In The Life Of A Swiss National Bank Trader

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

It’s blood in the streets out there: nobody wants Euros because nobody knows if Greece will be in the EMU on Monday… Or Spain for that matter, which is now fresh out of towels. You just happen to have the position of an FX trader at the SNB and everyone wants your money. What do you do? What do you do?

Simple: the world is hitting your EUR bid harder and harder…

Don’t panic. Just turn around, and use all those EURs you just got stuffed with to buy Japanese Yen.

Rinse. Repeat.

Until the BOJ decides to return the favor of course.

Did we mention it is a central bank market out there?

h/t Alex

Bonds Now Beating Stocks Year-to-Date

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Presented with little comment – except to note the increasingly tight relationship between the price of the long bond and the USD as we see 30Y Treasuries up 4.40% YTD vs ES +3.7% YTD

 

Charts: Bloomberg

The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

 

Those that regularly follow me know that although I’m quite the mediocre short term trader, I have uncommon strengths that lie in the realm of medium to long term strategy and macro-fundamental valuation. Unfortunately, with the advent of free money and perpetually whirring inkjets splashing that Frankiln hue of green all over the place, the value of longer term strategy and analysis has taken a back seat to buy it today and flip it tomorrow wannabe mo-mo enthusiasts who do nothing more than chase leveraged beta with a 2/20 toll to those foolish enough to part with their lesser educated funds. It’s downright disheartening to hear so many lament that fundamental analysis doesn’t work. My dear friends, if fundamental analysis doesn’t work, then math doesn’t work! If math doesn’t work, exactly how is it you can measure whatever gains you have made while trading? Oh yeah, that’s right! Fundamental analysis doesn’t work until its time to positively value your operation, then all of a sudden math is the new sexy, right?

Listen up, math never, ever went out of style. The Fed and its cartel of global central planners, AKA central bankers, did an unprecedented job of pushing capitalism to the side for the benefit of the financial oligarchy, but truly implemented capitalism is like unto a force of nature that constantly fights to reassert itself, and like the actual forces of nature – it never gives up and ultimately, never loses.

So, all of you mo-mo trading, fair weather arithmeticians, I’m bringing sexy back!

Back in January of 2009, I warned on Spanish banks. Take note that that was nearly 3 years ago…

Final_BBVA_Report_Page_01

BBVA‘s valuation at… Register (for free) and download the full report Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-01-28 16:04:04 439.80 Kb

I also warned on the entire country a year later, which was still 2 years before the sell side truly got serious about the departure port of the Santa Maria, reference The Spain Pain Will Not Wane: Continuing the Contagion Saga.

Professional subscribers can now actually download the original Spanish Bond Haircut Model that we used to calculate loss scenarios – Spain maturity extension_010610 (The Man’s conflicted copy). Despite the fact I was probably the most realistically bearish out of the bunch, things have actually gotten materially worse since this model was constructed two years ago, hence it can use a refresh. Alas, it is still quite useful.

In the general subscriber document Spain public finances projections_033010, the first four (or 12) pages basically outline the gist of the Spanish problem today, to wit:

Spain_public_finances_projections_033010_Page_01Spain_public_finances_projections_033010_Page_01

Spain_public_finances_projections_033010_Page_02Spain_public_finances_projections_033010_Page_02

Spain_public_finances_projections_033010_Page_03Spain_public_finances_projections_033010_Page_03

Spain_public_finances_projections_033010_Page_04Spain_public_finances_projections_033010_Page_04

The stress caused by Spain breaking the central bank will bring to full fruition the theory behind our European Banking and Insurance research from the last few quarters.

CNBC reports Bank of Spain Says Ba
nks May Need More Capital
 where this was woefully evident over two yeas ago… File Icon Spanish Banking Macro Discussion Note

File Icon A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf

File Icon A Review of the Spanish Banks from a Sovereign Risk Perspective – professional

On that note, this entire week the MSM has been on Spanish kick – Spain Is Crying for Help; Is Berlin Really Listening?

Crisis is the watchword in Madrid. Take your pick – liquidity crisis, debt crisis, banking crisis, economic crisis, confidence crisis, investor crisis, jobless crisis.

Spain, the ailing euro zone’s latest problem child, has them all. As the problems pile up, Prime Minister Mariano Rajoy’s five-month-old conservative administration feels like a government under siege.

Nervy top officials are reluctant to speak on the record for fear of slipping up. Policymakers contradict one another. Plans keep changing. Financial markets reel amid the uncertainty. The gloom in ministry corridors is palpable.

The latest gaffe: after weeks insisting that one of the country’s biggest banks, Bankia, did not need fresh funds, ministers dropped the bombshell last Friday that there was a 23-billion-euro hole in the accounts.

Damn! That’s one helluva rounding error, eh???

They have yet to explain clearly how they will find the money when they are already struggling to finance a spiralling national debt.

The effect of the Bankia news on fragile financial markets was devastating.

Spanish shares dived to 9-year lows, the euro sank and investors fled Spanish government debt, pushing the yield towards the 7 per cent level at which fellow eurozone members Ireland and Portugal were forced to seek national bailouts from Brussels.

To hear the government tell it, outsiders have got it all wrong: Spain has lived beyond its means for too long and is now going through a painful but necessary period of adjustment to shrink its state sector, cut spending and boost competitiveness.

All the right things are being done.

Rajoy’s government is serious, committed and enjoys a comfortable parliamentary majority.

Officials say foreigners don’t understand that Spain has boosted its exports more than any other European country in the past three years, that it has reformed its labour markets, cut its costs of production and come clean about the problems in its banks, which lent too enthusiastically to finance a huge property bubble that has now burst.

Now, ministers say, Madrid just needs time and some help and support from its European partners to get through the most acute phase of the crisis and give the reforms time to work.

As I said yesterday, there’s no way in hell the EU will be able to bail out its banking system –The Eurocalypse Has Arrived

Subscribers, be ready. When/if Spain cracks, these two short positions will explode:

Subscribers reference:

On the banking perspective:

Of course, in today’s environ of mega banks, mega marketing, mega investment returns, white hot IPOs, it may be hard for many to appreciate the words of an entrepreneurial investor and blogger. Then again, just remember that this also coming from the same man that called Bear Stearns, Lehman, GGP, CRE, RIM, housing, t
he entire Pan-European Debt crisis, etc. See Who is Reggie Middleton for more

 

The Economic Bloodstain From Spain’s Pain Will Cause European Tears To Rain

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

 

Those that regularly follow me know that although I’m quite the mediocre short term trader, I have uncommon strengths that lie in the realm of medium to long term strategy and macro-fundamental valuation. Unfortunately, with the advent of free money and perpetually whirring inkjets splashing that Frankiln hue of green all over the place, the value of longer term strategy and analysis has taken a back seat to buy it today and flip it tomorrow wannabe mo-mo enthusiasts who do nothing more than chase leveraged beta with a 2/20 toll to those foolish enough to part with their lesser educated funds. It’s downright disheartening to hear so many lament that fundamental analysis doesn’t work. My dear friends, if fundamental analysis doesn’t work, then math doesn’t work! If math doesn’t work, exactly how is it you can measure whatever gains you have made while trading? Oh yeah, that’s right! Fundamental analysis doesn’t work until its time to positively value your operation, then all of a sudden math is the new sexy, right?

Listen up, math never, ever went out of style. The Fed and its cartel of global central planners, AKA central bankers, did an unprecedented job of pushing capitalism to the side for the benefit of the financial oligarchy, but truly implemented capitalism is like unto a force of nature that constantly fights to reassert itself, and like the actual forces of nature – it never gives up and ultimately, never loses.

So, all of you mo-mo trading, fair weather arithmeticians, I’m bringing sexy back!

Back in January of 2009, I warned on Spanish banks. Take note that that was nearly 3 years ago…

Final_BBVA_Report_Page_01

BBVA‘s valuation at… Register (for free) and download the full report Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-01-28 16:04:04 439.80 Kb

I also warned on the entire country a year later, which was still 2 years before the sell side truly got serious about the departure port of the Santa Maria, reference The Spain Pain Will Not Wane: Continuing the Contagion Saga.

Professional subscribers can now actually download the original Spanish Bond Haircut Model that we used to calculate loss scenarios – Spain maturity extension_010610 (The Man’s conflicted copy). Despite the fact I was probably the most realistically bearish out of the bunch, things have actually gotten materially worse since this model was constructed two years ago, hence it can use a refresh. Alas, it is still quite useful.

In the general subscriber document Spain public finances projections_033010, the first four (or 12) pages basically outline the gist of the Spanish problem today, to wit:

Spain_public_finances_projections_033010_Page_01Spain_public_finances_projections_033010_Page_01

Spain_public_finances_projections_033010_Page_02Spain_public_finances_projections_033010_Page_02

Spain_public_finances_projections_033010_Page_03Spain_public_finances_projections_033010_Page_03

Spain_public_finances_projections_033010_Page_04Spain_public_finances_projections_033010_Page_04

The stress caused by Spain breaking the central bank will bring to full fruition the theory behind our European Banking and Insurance research from the last few quarters.

CNBC reports Bank of Spain Says Banks May Need More Capital where this was woefully evident over two yeas ago… File Icon Spanish Banking Macro Discussion Note

File Icon A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf

File Icon A Review of the Spanish Banks from a Sovereign Risk Perspective – professional

On that note, this entire week the MSM has been on Spanish kick – Spain Is Crying for Help; Is Berlin Really Listening?

Crisis is the watchword in Madrid. Take your pick – liquidity crisis, debt crisis, banking crisis, economic crisis, confidence crisis, investor crisis, jobless crisis.

Spain, the ailing euro zone’s latest problem child, has them all. As the problems pile up, Prime Minister Mariano Rajoy’s five-month-old conservative administration feels like a government under siege.

Nervy top officials are reluctant to speak on the record for fear of slipping up. Policymakers contradict one another. Plans keep changing. Financial markets reel amid the uncertainty. The gloom in ministry corridors is palpable.

The latest gaffe: after weeks insisting that one of the country’s biggest banks, Bankia, did not need fresh funds, ministers dropped the bombshell last Friday that there was a 23-billion-euro hole in the accounts.

Damn! That’s one helluva rounding error, eh???

They have yet to explain clearly how they will find the money when they are already struggling to finance a spiralling national debt.

The effect of the Bankia news on fragile financial markets was devastating.

Spanish shares dived to 9-year lows, the euro sank and investors fled Spanish government debt, pushing the yield towards the 7 per cent level at which fellow eurozone members Ireland and Portugal were forced to seek national bailouts from Brussels.

To hear the government tell it, outsiders have got it all wrong: Spain has lived beyond its means for too long and is now going through a painful but necessary period of adjustment to shrink its state sector, cut spending and boost competitiveness.

All the right things are being done.

Rajoy’s government is serious, committed and enjoys a comfortable parliamentary majority.

Officials say foreigners don’t understand that Spain has boosted its exports more than any other European country in the past three years, that it has reformed its labour markets, cut its costs of production and come clean about the problems in its banks, which lent too enthusiastically to finance a huge property bubble that has now burst.

Now, ministers say, Madrid just needs time and some help and support from its European partners to get through the most acute phase of the crisis and give the reforms time to work.

As I said yesterday, there’s no way in hell the EU will be able to bail out its banking system –The Eurocalypse Has Arrived

Subscribers, be ready. When/if Spain cracks, these two short positions will explode:

Subscribers reference:

On the banking perspective:

Of course, in today’s environ of mega banks, mega marketing, mega investment returns, white hot IPOs, it may be hard for many to appreciate the words of an entrepreneurial investor and blogger. Then again, just remember that this also coming from the same man that called Bear Stearns, Lehman, GGP, CRE, RIM, housing, the entire Pan-European Debt crisis, etc. See Who is Reggie Middleton for more

 

Spanish CDS Over 600bps Sends S&P Under 1300

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

There is little doubt what the world’s pivot security is for now – Spanish sovereign debt. 5Y Spanish CDS just broke above 600bps for the first time ever and S&P 500 e-mini futures reacted by breaking below 1300. Lots of moving parts in Europe’s sovereign markets – Spanish bonds were modestly bid today even as CDS was gapping wider – but if one steps back and looks at the basis (the spread between bonds and CDS) this makes sense as it had reached almost 100bps offering basis traders the opportunity to buy bonds and buy protection. We suspect few are outright shorting Spanish bonds here now and the marginal offer is a long-seller but with basis traders still active, do not focus entirely on bonds as evidence of anything until the basis contracts.

European Sovereign CDS…

 

European Sovereign CDS-Cash Basis…

note the bounce in Spain’s basis today (light blue line -red oval)

Finally recall what we warned, citing Citi, two weeks ago:

“Our impression is that markets will need to act as the proverbial ‘attack dog’, forcing the issue on the political agenda. We can’t escape the sense that it is probably politically easier to let the markets run loose for the time being to make it apparent that further intervention is needed. But 1000bp on Crossover is much closer than you imagine.” In other words, Citi just gave the green light for the bottom to fall from the market just so Europe’s increasingly impotent political elite does something, anything. Look for many more banks to sign off on the same letter.

We still have a way to go…

Facebook now at a $26 handle…9 days after reaching $45 on the IPO release…