by Zero Hedge - November 27th, 2011 11:49 pm
Submitted by Tyler Durden.
Back in August when Bloomberg first scoured the depraved depths of the almost-30,000 pages of FOIA-released Fed documentation surrounding the biggest ever bailout in history, the sheer volume of the loans, ultra-low cost of funds, and lying-through-their-teeth nature of the bank CEOs was enough for some vindication of tin-foil-hat-wearing fringe blogs. In this month’s Bloomberg Markets magazine, much of this is rehashed but the truly incredible part – though not entirely shocking to us – is the magnitude of the profits that the banks amassed directly as a result of these ‘secret’ bailouts. Almost a quarter of their entire income was generated during this period from bailout-related sub-market funds. Over $13bn profit was ‘appropriated’ during the crisis with Citi and BofA among the largest profiteers.
For those with the stomach for what is the highest form of crony capitalism writ large and explained in its clearest and most egregious manner yet, the article also has an interactive chart of the banks’ profit-gains direct from the Fed’s bailouts during this period. Dean Baker’s quote from the article perhaps sums up our perspective at the time and now:
“banks were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter – getting loans at below-market rates during a financial crisis — is quite a gift.”
Another notable perspective was:
“Banks don’t give lines of credit to corporations for free, why should all these government guarantees and liquidity facilities be for free?”
Perhaps the growing awareness of this secret bailout and huge profiteering by the banks will bring a renewed focus on the words and deeds that spew from the banks and we note that Sentor Kaufman (of the defeated Brown-Kaufman proposal) unequivocally states…
“we’re absolutely, totally, 100 percent not prepared for another financial crisis.”
…when they come begging for QEnnn and further direct assistance (claiming M.A.D.) as the European crisis highlights the deleveraging that still faces the global financial system and the balance sheet ‘holes’ that will need to be filled.
by ilene - November 27th, 2011 10:59 pm
Courtesy of John Rubino.
The people buying bonds issued by Italy and Spain are clearly looking past the dysfunctional balance sheets and focusing on Germany’s reluctance to let a major PIIGS country default. So an Italian bond, in the mind of the market, becomes a German bond.
But this sword cuts both ways. If European debts are tossed into one big communal pot with everyone responsible for everyone else, then buying a German bond is the same thing as buying an Italian bond — since German taxpayers are ultimately on the hook for both. Viewed that way, lending money to Germany for ten years at 2% is hardly risk-free.
Which is why the failure of Germany’s most recent bond auction is so interesting:
German Bonds Fall Prey to Contagion
Nov. 26 (Bloomberg) — European bonds slumped after Germany failed to draw bids for 35 percent of the offered amount at an auction of 10-year bunds, stoking concern the region’s debt crisis is infecting even the safest sovereign securities.
Thirty-year German bonds slid, with yields rising the most since the week through Sept. 3, 2010, amid concern Germany will need to offer greater financial support to its euro-area peers. “Non-residential investors are increasingly troubled by events,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “It was ignited by the 10- year bund auction result showing further credit dilution, and hasn’t been helped by the outcome of Italian sales.”
Thirty-year German bond yields rose 21 basis points to 2.83 percent at 4:54 p.m. London time yesterday, from 2.61 percent the week earlier.
Total bids at the auction of German securities due in January 2022 amounted to 3.889 billion euros ($5.15 billion), out of a maximum target for the sale of 6 billion euros, sparking concern that the turmoil emanating from Greece’s debt crisis now risks engulfing the region’s biggest economy.
And last week was just the warmup for next week’s deluge of new borrowing:
Italy Leads Busy Week of Euro-Zone Bond Sales
FRANKFURT—Italy, Belgium, Spain and France all plan to sell bonds next week, a big test for a region still reeling from unexpectedly weak demand for debt from its German core.
Given the surge in bond-market yields in recent weeks, all four countries are expected to pay considerably more for cash than they did at their previous auctions. Just how
by Zero Hedge - November 27th, 2011 10:58 pm
Submitted by Tyler Durden.
As the hopes of an IMF bazooka fades, Market News is reporting that the ever-ready-to-print-a-story European newspaper Die Welt says Germany and the other 5 AAA-rated nations of Europe are discussing jointly issuing ‘Elite’ bonds. We assume the borrowings could be used to fund the less-well-rated nations and avoid a true Euro-bond joint-and-several issuance which Merkel and other have been so opposed to. For now, it is clear that the ‘Have’s and the ‘Have-Not’s are becoming increasingly divided and this – much like our earlier discussion of the recap section of the EFSF draft – seems to be further from a fiscally united Europe and any inevitable endgame. We wonder what will happen when Austria gets downgraded? It certainly seems that the much-ridiculed ratings agencies are now playing an even more important role and we can only assume that the recent disappintments in the better-rated sovereign auctions were ‘transient’ and ‘temporary’.
It is increasingly clear that Europe is bifurcating in many ways – High-grade and everyone else – and it appears the preparation is beginning.
From Market News:
FRANKFURT (MNI) – The German government and five other Eurozone member states with a triple A credit rating are considering issuing bonds together, German daily Die Welt reported Monday, citing unnamed highly placed EU officials.
The paper said that the money raised by the bonds would finance the debts not only of the six AAA-rated countries — Germany, France, Finland, the Netherlands, Luxembourg and Austria — but also help provide financial assistance, under strict conditions, for Italy and Spain.
The goal of the new bonds would be to stabilize the situation of the AAA countries and “erect a credible firewall that calms the financial markets,” the paper said.
The German Finance Agency would play a major role in the sale of the bonds, which would carry an interest rate of 2% to 2.5%, the paper said.
Since the bonds would not be “Eurobonds” jointly issued by all 17 Eurozone member states, they are being called “Elite bonds” or “Triple A bonds” for working purposes, Die Welt reported.
One more thought…Is Germany learning from its Chinese trade partners and looking to take on the vendor-financing mercantilist position among its European partners – if so, this would hardly help the imbalances that are among the causes of the problems we now stand in.
by Optrader - November 27th, 2011 10:47 pm
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Swing trading virtual portfolio
One trade virtual portfolio
by Zero Hedge - November 27th, 2011 10:29 pm
Submitted by Tyler Durden.
Well they bought the rumor and now comes the sell-the-news/rumor/denial part of the evening as Dow Jones cites an official that ‘No Discussion Within G-7 Of Reported Large Package For Italy”.
EUR lost 40pips and ES around 10pts as the latter compressed close to CONTEXT’s broad risk view of the world.
In the meantime – Some comments, via Bloomberg, from China not helping sentiment
*MOFCOM’S CHEN: EU RESCUE FUNDING STILL FACES SHORTFALL :MOCZ CH
*MOFCOM’S CHEN: CHINA OBSERVING QUIETLY EURO SITUATION :MOCZ CH
*MOFCOM’S CHEN: WORLD ECONOMY FACES DOWNWARD PRESSURE ON EU DEBT
by Zero Hedge - November 27th, 2011 9:30 pm
Submitted by Tyler Durden.
Goldman’s one stop summary of the past week and the week that comes.
The Week in Review
The past few days have been notable for the Euro zone crisis, which so far has engulfed mainly periphery countries, spreading to Germany – the core of the core – where a weak bond auction sent 10-year Bund yields 30 bps higher on the week (Figure 1). That said, the periphery also suffered, with Italian and Spanish 10-year yields closing the week at 7.3% and 6.7%, respectively. The sell-off there gathered pace after a meeting between Chancellor Merkel, President Sarkozy, and Prime Minister Monti on Thursday, which poured cold water on Germany embracing a greater role for the ECB in fighting the crisis and put the emphasis ahead on Treaty changes to improve fiscal surveillance and – in the case of persistent violators of budget targets – measures to discipline countries. Proposals for a Treaty change are being worked on in the run-up to the Dec. 9 EU summit, and a working dinner for EU leaders has been scheduled for Dec. 8 to discuss these.
With press reports (Reuters, Dow Jones) that Greece is seeking even greater haircuts from private bond holders, reports of disagreement among Euro zone governments over private sector involvement in the ESM, and S&P cutting the credit rating for Belgium, EUR/$ ended the week at 1.3240, down almost three big figures for the week and close to its lows in early October. However, our broad trade-weighted EUR index was down only 0.2% on the week. As such, the EUR/USD drop was very much in line with the sell-off in other high-beta FX and does not point to significant EUR underperformance. The stand-out trend for the week was USD strength, ironic given that the Super Committee failed to reach agreement on deficit reduction, with our trade-weighted USD index rising 1.8%. We see this rise very much as a symptom of risk reduction rather than genuine USD strength. The September TIC data illustrate this (Table 1), showing that – outside of foreign flows into US Treasuries (Column A), a symptom of risk reduction – private (i.e., non-official) foreign flows into US assets remain very weak (Column K), leaving the private basic balance (Column L) in very negative territory. This supports our continued view for broad USD…
by Zero Hedge - November 27th, 2011 9:07 pm
Submitted by South of Wall Street.
This quote from CNBC’s website struck me as hilarious (in an end of the world sort of way).
Germany and France are exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries, aware that getting broad backing for the necessary treaty changes may not be possible, EU officials say.
The 12/9 Summit is the latest “solution date”. As though anyone thought a credible solution was in the works at this point, it is becoming clear that the Eurocrats have no idea what they are going to do. As this saga continues its important to note that modifying treaties, instituting absurd austerity plans, and leaking rumors of Chinese assistance only buys time.
Sovereign yields and botched auctions indicate that stress in credit is only building (Note: implosion is approaching). Markets could give Richard Koo’s Euro QE or some other coordinated program the benefit of the doubt as being credible. The only problem? Germany doesn’t have any interest. As we’ve progressed from Greece to Ireland to Portugal to Italy to Spain to France, Germany is going to hit the eject button before attempting to pull out of this nose dive.
Merkel Rejects Euro Bonds from Bloomberg
Euro bonds are “not needed and not appropriate,” Merkel ….. She said euro bonds would “level the difference” in euro-region interest rates. “It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.”
More work needs to be done? On what? Germany clearly has no interest in co-signing a loan for their fiscally inept neighbors, and looks as if they are focusing on saving themselves while participating in all the conference/summit song and dance.
The impact on financial institutions is clearly going reverberate globally (seen BAC trading lately?), but its about time the markets solve this situation by forcing the inevitable ‘licks’ to be taken. Haircuts, right downs, capital raises, defaults. These countries are going to start fending for themselves. That is the ‘answer’ and it is becoming clear.
by Zero Hedge - November 27th, 2011 8:27 pm
Submitted by Tyler Durden.
From Peter Tchir of TF Market Advisors
The EFSF released (source):
- EFSF Guideline on Primary Market Purchases
- EFSF Guideline on interventions in the secondary market
- EFSF Guideline on Precautionary Programmes
- Maximising the capacity of the EFSF
(capitalization and spelling direct from the EFSF).
If the crisis could be ended by the creation of acronyms and the use of the word “modality” then we are saved. The number of 3 and 4 letter acronyms is mind boggling, but let’s see what these proposals all mean.
In the preamble to each of the “Guideline” papers, the increased flexibility of roles of the EFSF are laid out
i) Act on the basis of a precautionary programme
ii) Finance recapitalization of financial institutions through loans to governments including in non-programme countries
iii) Intervene in the secondary markets on the basis of an ECB analysis that financial stability is at risk
So point i seems fine.
Point ii strikes me as disappointing. I certainly had the perception that the EFSF was going to be involved in the recapitalization of banks. Now they are going to lend money to countries that will use that money to recapitalize their banks. I suspect the rating agencies were very uncomfortable letting the EFSF take equity stakes and the Member States also probably wanted more direct control. I don’t really understand why the EFSF should be lending money to countries to recapitalize their banks. Shouldn’t they be able to do that themselves or use money from a general bond issue for that? In spite of all the talk about “more Europe” this would be a step back to national policies. It also makes it unlikely much gets done because the banks in each country will want to ensure they get the best terms. The fact that there was no specific “Guideline” sheet for the recapitalization process makes me believe that the EFSF and the rating agencies and the Member States couldn’t agree on anything and decided to include this loans to countries provision to calm markets. But that is all it is there for, to keep you the investor calm. The whole deal of the EFSF is to provide loans to Member States, so why differentiate ones that are meant for recapitalizing the banks? Because the market expected…
by Zero Hedge - November 27th, 2011 8:14 pm
Submitted by Tyler Durden.
Because if stocks like the prospect of imminent printing, or at least the latest daily rumor thereof, until Germany once again opens its mouth and refutes everything, gold should love it. Sure enough, the yellow metal has opened $20 higher and is back over $1700 again.
Incidentally for anyone still clamoring about a bubble in gold, the following often recycled chart by Don Coxe should put things into perspective.
by Zero Hedge - November 27th, 2011 7:36 pm
Submitted by Tyler Durden.
In case anyone was wondering why the EURUSD is back to levels from several hours ago and well off the ramp highs (with ES continuing to pretend nothing matters), it is due to Bank of France Governor Christian Noyer who speak the following bullet points at a forum in Tokyo:
- Crisis Has Worsened Significantly
- Market stress has intensified and Europe is in a “true financial crisis,”
In other words precisely what Zero Hedge readers have known all along, the same as this article from the FT which shows what we presented to readers last week. As for those who like listening to the French grovel here is you desert:
- Markets and some governments think the ECB should buy more govt debt
Because €1 trillion is never enough…