Demand For EFSF Paper Collapses As World Wakes Up To Post Bailout Hangover
by Zero Hedge - October 31st, 2011 12:41 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
It just goes from bad to worse for Europe, which had been hoping to issue €5 billion in 15 year bonds to finance part of the Irish bail out via the EFSF. Instead, once seeing the orderbook, or lack thereof, Europe ended up slashing the notional by 40% and the maturity by 33%, to a €3 billion issue due 10 years from now. And that is hardly the end of the concessions. As the FT reports, “The bond from the European Financial Stability Facility will only target €3bn, instead of €5bn, and will be in 10-year bonds rather than a 15-year maturity because of worries over demand. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity. Banks hired to manage the deal are Barclays Capital, Crédit Agricole and JPMorgan.” Do you see what happens Larry, when China walks? But so we have this straight, Europe plans to fund a total of €1 trillion in EFSF passthrough securities…. yet it can’t raise €5 billion? Just…. Priceless.
One banker said: “There is so much uncertainty over the EFSF that it will be much harder to sell than it was earlier in the year, when we saw massive demand from European funds and Asian accounts. Japan and China bought in big size earlier in the year. We are not sure we are going to see that type of demand this week.”
Bankers said the bond, which is expected to price on Wednesday, may struggle to attract interest in spite of Klaus Regling, thead of the EFSF, launching a charm offensive in Asia last week to encourage interest.
Already delayed from last week, EFSF officials decided to price this week because market conditions could deteriorate if they held off any longer.
The bond is expected to price at yields of about 3.30 per cent, and about 130 basis points over Germany, the European market benchmark. This is a big mark-up since the middle of September, when existing 10-year EFSF bonds were trading around 2.60 per cent and only 70bp over Germany.
China makes good on its threat to not be perceived as the dumb money any more:
…
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DiggBob, At His Bearish Best, On “Fudge, Fantasy And Fiction” – “My Target For The S&P Remains 800/900″
by Zero Hedge - October 31st, 2011 12:29 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
And now for some good old fashioned Bob Janjuah, albeit with proper grammar (damn you Nomura proper English sylesheet… damn you to hell): “No change. Deeply bearish with respect to global growth, and on a secular basis I am very strongly risk-off – my 2012 target for the low in the S&P500 remains 800/900, with the risk of an “undershoot? to the 700s. See my last note for details/targets. I would highlight only my view that the global policy making community, based their “actions? over the last month, are doing a wonderful job in meeting my 2012 “target?. Namely that, in 2012, the current set of developed markets (DM) policymakers will be exposed as “emperors with no clothes on?, and their policy choices over the last few years will be seen as the central problem, rather than as some mystical bazooka solution which can somehow reconcile the chasm between a lack of growth and productivity on the one hand, and the enormous debt and debt servicing costs and unsustainable entitlement culture costs that we face in the DM world on the other.” And for the shorter-term: “The implication therefore is that in 2011, the October equity lows MAY NOT be the lows for the year. So based on what I can see now, and with a S&P500 1310 “stop loss” as mentioned above, I am now looking for another major risk-off phase between now and year end, with a December target for the S&P500 back down in the 1100s for sure, and possibly even the low 1000s.” In other words, Bob as we love him best: nearing his all time bearish zenith… Or nadir, depends on one’s perspective.
Full note:
Fudge, Fantasy and Fiction
I always ask readers to refer back to previous notes – regular readers will know that I write on an “on-going narrative” basis. The same applies here, with a link to my last note Bob’s World: Still Overreacting? Below I want to update some of the key messages from this previous piece:
Secular Message
No change. Deeply bearish with respect to global growth, and on a secular basis I am very strongly risk-off – my 2012 target for the low in the S&P500 remains 800/900, with the risk of an “undershoot” to the 700s. See my last note for details/targets. I…
Crude Oil and Oil stocks about to pull a trick on “long investors?”
by Chart School - October 31st, 2011 12:24 pm
Courtesy of Chris Kimble.
CLICK ON CHART TO ENLARGE
The Dollar decline/Euro rally of late has helped push Crude Oil and Oil stocks up against what could be very important resistance. Due to the situation in the Euro right now, this resistance should be respected more than normal!
Aggressive investors could get “Treated” pretty well by shorting Crude oil and oil stocks at resistance, with a stop above these key lines.
Crunch time?
by Zero Hedge - October 31st, 2011 12:23 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Bruce Krasting.
Possibly the most significant consequence of the EU bailouts last week will be that the “solutions” to the problems in Europe will result in a global credit crunch. To me this outcome is a foregone conclusion. It’s already happening.
The agreements give the EU banks till June 2012 to recapitalize. There are only two possible outcomes. (A) Either the banks sell more common and preferred shares to the public, or (B) they improve their capital ratios by de-leveraging.
It’s simply not possible to sell more shares. The costs (in the form of dilution or 10+% Preferred dividends) make this option a dead end. So the banks will have to get smaller.
Some data points on this from Thompson Reuters Loan Pricing Report today:
The syndicated loan market is not falling apart. At least not yet. Other big lenders have stepped into the hole left by the EU banks. Spreads have widened a bit, they will get wider still. The question is whether credit will dry up in the months ahead. I think it will.
I’m convinced that zero interest rates are adding to the problem of liquidity in the US (and therefore globally). Every month money funds get smaller.…
ZeroHedge: MF Global Owes CNBC $845,397
by Insider Scoop - October 31st, 2011 11:54 am
Courtesy of Benzinga.
ZeroHedge found an interesting liability in MF Global’s (NYSE: MF) bankruptcy filing: The second largest unsecured creditor of the firm is CNBC, which MF Global owes $845,397.
It is unclear what the nature of this particular liability is, but it is likely related to advertising of some sort. MF’s largest creditors are J.P. Morgan (NYSE: JPM) to whom it owes $1.2 billion and Deutsche Bank (NYSE: DB) which it owes $1 billion.
Euro Bailout Halflife: 48 Hours
by Zero Hedge - October 31st, 2011 11:48 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
10Y US Treasuries have now successfully eradicated all the post-summit losses and are well on their way to last week’s low yields as the reality (that we unendingly slammed into people’s heads) appears to be hitting managers minds. 2s10s30s has also retraced the entire post-summit shift and the EUR is also getting very close to unch (from pre-summit). This leaves only ES (and credit to a lesser degree) as the odd man out having retraced only 50% of the post-summit euphoria.
The 10Y has recovered all its losses post-summit (as has also 10Y Bunds having already noted Spanish and Italian just keep losing ground). The TSY butterfly has lost its move post-summit entirely suggesting more downside in equities.
And credit and equity markets are back in sync with the late-day technical squeeze in HY from Friday eradicated now.
From a broad risk asset perspective, the intervention last night would have ‘normally’ suggested significant strength in ES (and other risk assets) but it seemed the risk-off sentiment was far greater than any correlation-driven strength and as the day has worn on, CONTEXT has leaked back (as risk assets in general have dropped back to sync with ES).
So – in summary – every asset class that was designed to benefit from the Euro Summit (rates, sovereign debt, & Italian banks for example) has given up its gains (France CDS widening significantly and EFSF deteriorating also) and the most shocked and still likely scarred (psychologically) equity and credit indices have room to drop here to catch up with that reality – whether the recession on/off switch is triggered or the ‘must-buy-to-avoid-career-risk’ trade is on.
Charts: Bloomberg
Eurozone Sovereign Debt Crisis Claims MF Global
by Insider Scoop - October 31st, 2011 11:45 am
Courtesy of Benzinga.
MF Global (NYSE: MF) filed for Chapter 11 bankruptcy protection on Monday morning after a potential acquisition by Interactive Brokers (NASDAQ: IBKR) fell through at around 5 a.m. EST. The embattled futures brokerage was sunk by proprietary positions in European sovereign debt. The firm posted a massive quarterly loss last week and had its credit ratings cut to junk status. MF Global’s CEO Jon Corzine, who is also a former Goldman Sachs (NYSE: GS) CEO and New Jersey Governor, had been trying to work out a transaction that would allow the firm to be saved, but it appears that MF’s large positions in European sovereign debt made a deal too risky on such short notice.
Just three weeks ago, Corzine made some ominous comments about the EU situation on CNBC. He told the network, "Bankers don’t change their attitude towards risk as quickly as other elements of our society, where they see demand for goods flowing out of their warehourse, boards of directors are cautious," he said. "It takes a while to see the regeneration of risk taking in a financial system after a financial crisis which is why people are so focused on the European banking crisis."
Corzine added, "If we have another one and push this even further there are a lot of people that would argue that, not only in the U.S., not only in Japan, but now in Europe you are going to have one of these long drawn-out recovery periods as people avoid risk. That’s why it’s so important that there is a staunching of the risk in the banking systems here in Europe quickly."
Shares of MF Global have been halted on the New York Stock Exchange and are not trading on Monday. They closed last week at $1.20. The Chicago Mercantile Exchange said that it is no longer recognizing the firm as a guarantor for floor trading, and business is currently limited to MF customers liquidating their trading positions and getting their money out of the firm.
…
Massive Intervention in Yen; Japan Finance Minister Promises to “Intervene Until I’m Satisfied”; Race to Debase Back On; Will It Work?
by ilene - October 31st, 2011 11:35 am
Courtesy of Mish
The headlines on the Yen tonight are rather amusing.
Two hours ago Bloomberg reported Yen Climbs to Postwar Record Versus Dollar as Traders See No Intervention
About 40 minutes ago Bloomberg reported Yen Drops on Intervention; Aussie Weakens
About 10 minutes ago Bloomberg reported Yen Tumbles as Japan Sells Currency Third Time in 2011
The yen dropped as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened an export-led economic recovery.
“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Japanese Finance Minister Jun Azumi said to reporters today in Tokyo after the government intervened unilaterally. “I’ll continue to intervene until I am satisfied.”
The yen sank as much as 4 percent to 78.98 per dollar and traded at 78.19 as of 11:10 a.m. in Tokyo from 75.82 in New York Oct. 28.
I like to watch these headlines for a bit to see where they are going. Here is a chart of the action.
Yen 15 Minute Chart
Intervention Never Works
Japan has struck out twice this year on intervention efforts and numerous times before. Why should this time be any different?
Currency intervention never works. However, it may appear to work if by some lucky chance intervention came at the time the Yen was ready to reverse on its own accord.
The race to debase is back on.
The Dow Panic of 1907 and the 2008 Financial Crisis
by Chart School - October 31st, 2011 11:35 am
Courtesy of Doug Short.
Note from dshort: During the summer I posted a set of charts illustrating the dramatic market behavior during the Panic of 1907 and the Financial Crisis of 2008. A century separated these two momentous market episodes, and the underlying causes were quite different. However, the overall volatility and general patterns of decline and rally are remarkably similar. In response to a request, I’ve updated the charts through October 28.
The first chart is a nominal view of the two periods showing the percentage declines over time from their peaks in 1906 and 2007.
Now let’s adjust for inflation, which had a significant impact on the earlier period. During the first half of the 20th century, episodes of high inflation and deflation were commonplace. See this chart for an illustration of those early inflationary/deflationary cycles.
Was the 1907 low the historic bottom for the Dow? Unfortunately, no. The secular bottom occurred nearly 15 years later — a year after Germany signed an armistice with the Allies to mark the official end of World War One.
Both periods involved a financial crisis. The pre-Federal Reserve 1907 Bankers’ Panic was dampened by a bailout of the system by J. P. Morgan, who put up his own money, and persuaded other New York bankers to do likewise. The Federal Reserve has introduced a number of tactics to shore up the modern banking system. Naturally there are many differences between the two eras. But one inference we can make from the earlier period is that secular bear markets can last for very long periods of time.
In fact, when did the real Dow permanently regain the 1906 high? In September 1985 — a few months shy of 80…
The Time To Re-Re-Reban CDS Is Here As Italian Spreads Explode
by Zero Hedge - October 31st, 2011 11:33 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
The first three CDS ban attempts have failed. So has the coordinated ISDA attempt to make sovereign CDS a product with absolutely no functionality. The fourth time will be the charm though. The EFSF guarantees it! On the other hand, think of the massive EPS profit that Italy will post this quarter as a result of today’s CDS blow out courtesy of the DVA accounting gimmick. Surely Dick Bove will imminently upgrade it to Dodecatuple Turbo Buy.
ITALY 439/447 +38
SPAIN 333/341 +22
PORTUGAL 950/980 +5
IRELAND 675/705 +20
GREECE 53/56 +1
BELGIUM 265/275 +28
FRANCE 172/176 +14
AUSTRIA 139/144 +14.5
UK 81/85 +7
GERMANY 82/85 +7
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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