Europeans Betting Millions That Facebook Will Plunge Another 30% By December
by Zero Hedge - May 24th, 2012 12:39 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
While US banks have been busy refocusing their “creative financial products”-time over the past two months, instead defending against allegations of muppetism, or explaining how hedging is really betting it all on red, and then doubling down (just because the casino supposedly has the bank’s back), Europe has been busy coming up with new and creative ways of betting on the demise of FaceBook. While official shorting of the most overhyped and overvalued company in history only became a reality for most investors today, Europe’s banks have a head start courtesy of “innovated” structured products created by UBS, Commerzbank and Julius Baer. As Bloomberg explains, “the most actively traded structured products tied to Facebook since its IPO have been so-called put warrants, whose buyers profit if the shares drop below a pre-defined level, in some cases as low as $22, data compiled by Bloomberg show. UBS AG (UBSN), Commerzbank AG (CBK) and Julius Baer Group Ltd. (BAER) are among lenders that listed 1,504 warrants and certificates in Europe linked to shares of the social networking site that were offered at $38….“There has been strong demand on the put side, with the ratio between puts and calls at around 70/30” with “some people expressing deep downside views,” Heiko Geiger, the head of public distribution for Germany and Austria at Bank Vontobel AG in Frankfurt, said in an interview yesterday.”
The Facebook strange attractor: magic number 22. With a $ sign. From Bloomberg:
Bank Vontobel’s best-selling Facebook-linked product is a put warrant that will reward investors if the shares are below $22, the so-called strike price, in December, said Geiger. Put warrants give investors a cash payment depending on how far a stock falls below a set level.
Julius Baer sold the securities with the largest trading volumes, two put warrants with strikes of $35 and $30 on the Scoach exchange in Zurich. Investors traded 402,000 contracts yesterday valued at $335,780 of the former and 603,000 warrants for $322,620 of the latter, data compiled by Bloomberg show.
Zurich-based structured products distributor EFG Financial Products AG added Facebook shares to a basket of 10 social media companies that are tracked by a certificate that has traded on Scoach since last month, it said in an e-mailed statement.
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DiggFacebooking The Chinese Wall: A Step-By-Step Guide On How To Build An Unassailable Case Against Muppet Manipulators!!!
by Zero Hedge - May 24th, 2012 12:12 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Reggie Middleton.
I will be taking the gloves off and going over this gangster style on Lauren Lyster’s Capital Account Show on RT, tomorrow at 4:40pm. In the meantime, let’s lay some groundwork.
As those who follow me reguarly probably already know, BoomBust bests ALL of Wall Street’s sell side research. For evidence of such, reference “Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?“. For the quick story behind how we are able to do what the lay muppet may consider nigh impossible, reference my piece on the Practitioners Of Muppetology…
For those of you who may have not heard as of yet, Reuters Alistair Barr reported Facebook’s lead underwriters Morgan Stanley, JP Morgan, and Goldman Sachs, all cut their earnings forecasts – and did so in the middle of the IPO roadshow. This is a rarity and quite frankly an event that I don’t ever recall happening in the past. Adding fuel to the fire, this downgrade was disseminated only to a select few institutional clients, basically leaving the mom and pop crew (aka, MUPPETS) out to dry.
What makes this such class action fodder (see Why Shouldn’t Practitioners Of Muppetology Get Swallowed In A Facebook IPO Class Action Suit?) is that sell side analysts tend to have greater access to corporate management than regular investors or even the better equipped, more experienced guys such as myself. That being the case, the analysts of the actual underwriting companies have an even better position in regards to corporate management – arguably more so than any other financial entity. So, what happens when all of the underwriting companies suddenly downgrade their forecasts simultaneously?
As per Reuters:
The change in Morgan Stanley’s estimates came on the heels of a May 9 Facebook filing of an amended prospectus with the U.S. Securities and Exchange Commission, in which…
The GEURO: “The Only Winners Are Foreign Banks”
by Zero Hedge - May 24th, 2012 12:09 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
In a brief though detailed clip, Stratfor’s VP Peter Zeihan discusses the risk of contagion from Greece and the ‘creative’ – if not self-centered – suggestions for a solution to these problems. Earlier in the week we described Deutsche’s suggestion of a dual currency – the GEURO – and that is where Zeihan focuses, noting that “The Greek economy is as deliciously non-competitive as the German economy is hyper-competitive” – this mismatch is the core of the crisis. The GEURO (trading as gEUR.QQ on the pink sheets) plan doesn’t address this mismatch but extends it just a little longer while bailout funds will continue to funneled through Athens to the country’s lenders (read European banks) but private capital would be unlikely to flow and without outside capital, they would be unlikely to stimulate the growth they need to regain any kind of solid footing. Greek debt levels to GDP would rise (not fall) under the plan as EUR debts would remain but GEURO incomes (devalued) would be the source of GDP – making a long-term recovery even less likely. The only winners – simple: foreign banks who have exposure to Greece. The Stratfor VP goes on to note that the vast bulk of Greek debt is held by the ECB, IMF, and the Greeks (Greek banks) adding that private losses would not be catastrophic in the event of another Greek default – though we point out that it is the contagion effects (as we have so critically established in the past) that makes the Greek imbroglio so important to watch.
The gEUR.QQ: “The Only Winners Are Foreign Banks”
by Zero Hedge - May 24th, 2012 12:09 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
In a brief though detailed clip, Stratfor’s VP Peter Zeihan discusses the risk of contagion from Greece and the ‘creative’ – if not self-centered – suggestions for a solution to these problems. Earlier in the week we described Deutsche’s suggestion of a dual currency – the GEURO – and that is where Zeihan focuses, noting that “The Greek economy is as deliciously non-competitive as the German economy is hyper-competitive” – this mismatch is the core of the crisis. The GEURO (trading as gEUR.QQ on the pink sheets) plan doesn’t address this mismatch but extends it just a little longer while bailout funds will continue to funneled through Athens to the country’s lenders (read European banks) but private capital would be unlikely to flow and without outside capital, they would be unlikely to stimulate the growth they need to regain any kind of solid footing. Greek debt levels to GDP would rise (not fall) under the plan as EUR debts would remain but GEURO incomes (devalued) would be the source of GDP – making a long-term recovery even less likely. The only winners – simple: foreign banks who have exposure to Greece. The Stratfor VP goes on to note that the vast bulk of Greek debt is held by the ECB, IMF, and the Greeks (Greek banks) adding that private losses would not be catastrophic in the event of another Greek default – though we point out that it is the contagion effects (as we have so critically established in the past) that makes the Greek imbroglio so important to watch.
Frontline On MF Global’s Six Billion Dollar Bet
by Zero Hedge - May 24th, 2012 11:53 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
UPDATE: Since this post crashed the video servers when it went up last night, we are reposting it again for our readers’ convenience.
While the sur-realities of just what Corzine and the rest of the MF Global ‘traders’ did has been extensively discussed here and elsewhere, PBS’ Frontline provides the most succinct (and relatively in-depth) documentary on just what occurred from how the corrupt CEO lobbied regulators who had the power to stop his risky bets to the endgame realization of the missing customer money. A narrative, not just of “a bet that went bad”, but “a Wall Street morality tale“. Must watch!
The story of Jon Corzine, the former head of Goldman Sachs and political power broker, who took over MF Global in the spring of 2010 with oversize ambition and a passion for risk. But after a massive bet on European debt turned sour, the firm lay in ruins, with more than a billion dollars of customer funds missing.
Chapter 1: Six Million Dollar Bet – The Power of Jon Corzine
Chapter 2: Six Million Dollar Bet – The Final Days Of MF Global
Here Is What The Real Fear Index Is Saying
by Zero Hedge - May 24th, 2012 11:48 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
With so many talking heads claiming the 8% drop in stocks and VIX’s jump back above 20% as a sure-fire indication that the market is in chaos and needs Fed help stat, we remind readers that VIX reflects a contemporaneous premium for up/down movements in the future offering little insight into downside risk per se and more reflective of a regime shift in market volatility – i.e. a rising VIX means market participants expect the markets to move around more (up and/or down).
While looking at the difference between VIX (forward volatility) and current realized volatility can offer insight into participant’s concerns (or the difference between out-of-the-money volatility vs at-the-money volatility – or skew), there is a cleaner (and smoother – less spike and decay-like) way of judging the level of concern in trader’s heads.
The implied correlation, a topic we have discussed in the past at length, quantifies the difference between the index’s volatility and the summation of the underlying volatility of the names in an index. In a nutshell, the implied correlation measures the relative demand for instant liquid index macro protection relative to its underlying names (a slower less liquid way to protect yourself). The higher the correlation, the greater the risk of a very significant downside move (since correlations tend to approach 1 when systemically bad events occur).
By implicitly measuring the market’s demand for this relative protection – and its implicit downside risk sentiment – implied correlation is much more applicable as a measure of investor sentiment.
Currently, implied correlation is rising rapidly – a worrying trend – and has broken back above 70% (a critical threshold from last September when capital market risk became epic). We will be watching implied correlation closely – especially relative to VIX – to get a handle on the market’s relative demand for downside protection and thus a real ‘fear’ index (as opposed to a ‘movement’ index).
VIX remains useful in a self-fulfilling way since so many market participants watch it but with ETFs impacting the short-dated vol markets more and more, we suspect implied correlation (with its ‘relative’ measure of risk) may well become more focused upon.
Guest Post: The E.U., Neofeudalism And The Neocolonial-Financialization Model
by Zero Hedge - May 24th, 2012 11:41 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Charles Hugh Smith from Of Two Minds
The E.U., Neofeudalism And The Neocolonial-Financialization Model
To fully understand the Eurozone’s financial-debt crisis, we must dig through the artifice, obfuscation and propaganda to the real dynamics of Europe’s “new feudalism,” the Neocolonial-Financialization Model.
Forget “austerity”and political theater--the only way to truly comprehend the Eurozone is to understand the Neocolonial-Financialization Model, as that’s the key dynamic of the Eurozone.
In the old model of Colonialism, the colonizing power conquered or co-opted the Power Elites of the region, and proceeded to exploit the new colony’s resources and labor to enrich the “center,” i.e. the home empire.
In Neocolonialism, the forces of financialization (debt and leverage controlled by State-approved banking cartels) are used to indenture the local Elites and populace to the banking center: the peripheral “colonials” borrow money to buy the finished goods sold by the “core,” doubly enriching the center with 1) interest and the transactional “skim” of financializing assets such as real estate, and 2) the profits made selling goods to the debtors.
In essence, the “core” nations of the E.U. colonized the “peripheral” nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the “core” countries exacted enormous profits from this expansion of debt and consumption.
Now that the financialization scheme of the euro has run its course, the periphery’s neofeudal standing is starkly revealed: the assets and income of the periphery are flowing to the Core as interest on the private and sovereign debts that are owed to the Core countries’ commercial and central banks.
This is the perfection of Neofeudalism. The peripheral nations of the E.U. are effectively neocolonial debtors of the Core countries’ banks, and the taxpayers of the Core nations are now feudal serfs whose labor is devoted to making good on any bank loans to the periphery that go bad.
To fully understand the Neocolonial-Financialization Model, we need to establish some basic characteristics of the Eurozone system. Do to that, let’s start with the Eurozone and the euro.
The European Union established a single currency and trading zone for the classical Capitalist benefits this offered: a reduction in the cost of conducting business between the member nations and a freer flow of capital and labor.
From…
And Meanwhile, In The Arabian Sea…
by Zero Hedge - May 24th, 2012 11:04 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
There was a time, late in the winter, that not a day passed without some headline announcing Israel’s preparedness to attack Iran, culminating with the grotesque – a show on Israel TV detailing the actual invasion plans. All these daily updates did was guarantee one thing – that absolutely no war could possibly break out for two simple reasons:
i) you never declare war when the opponent is expecting you, instead you habituate them to news about imminent invasions which never happens, and,
ii) Brent was over $120, which would guarantee no re-election for Obama as outright war would send the energy complex soaring, gas prices surging, and the world economy, but most importantly the Russell 2000, tumbling.
Over the past 2 months two things have happened: chatter of “imminent” war with Iran has died down to barely a whisper, and WTI is now trading 20% lower than 2012 highs. Which means there is far more capacity for a run higher. So putting all that together, does it mean that the prospect of war with Iran is now gone? Below we present the latest naval update map courtesy of Stratfor, and leave readers to make their own conclusions…
Regulatory Capital: Size And How You Use It Both Matter
by Zero Hedge - May 24th, 2012 10:45 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Via Peter Tchir of TF Market Advisors,
Bank Regulatory Capital has been in the news a lot recently. The Spanish banks have their own set of capital issues. There has been a lot of discussion about Too Big To Fail (“TBTF”) in the U.S. with regulators demanding more and banks fighting it. After JPM’s surprise loss this month, the debate over the proper regulatory framework and capital requirements will reach a fever pitch. That is great, but maybe it is also time to step back and think about what capital is supposed to do, and with that as a guideline, think of rules that make sense.
What Is Regulatory Capital?
Simply it is the amount of capital that the banks are required to hold against their assets. Generically, though the concepts have been evolving with various Basel Accords, regulatory capital for various debt instruments is 8% of the bank’s risk-weighted assets. Risk weights vary dramatically – from 0% to high-rated sovereigns to 50% for an investment grade corporate bond rated “A” to over 150% for high-yield corporate bonds below “BB-”. Under Basel II, there are also regulatory capital charges for CDS with respect to counterparty exposures (under a complicated formula), and rules under which CDS provides partial offsets for cash assets regulatory capital requirements. But those risk weights are multiplied by the 8%. So “AA”-rated sovereign uses NO regulatory capital (infinite regulatory capital leverage), a “A”-corporate is 4% charge (25x leverage), and a high yield “B” bond is 12% charge (8.3x leverage). From regulatory capital perspective, therefore, the banks are incentivized to put on large positions of highly-rated debt.
What Is Regulatory Capital Supposed To Do?
Surprisingly enough, there are actually lots of different answers. Many believe that it should cover a bank’s potential losses in a portfolio with some cushion. That is wrong. No bank ever gets the luxury of seeing if the over the long run the capital is enough to cover actual losses. The real world doesn’t work like that.
Bank runs start when people become concerned that if a bank had to liquidate its portfolio, there wouldn’t be enough money to do that. So no matter what style of accounting a bank uses, at some basic level, investors react to the perceived value of the assets, not eventual value. …
Greece Could Implode the Second Bailout and the EU by Mid-June
by Zero Hedge - May 24th, 2012 10:40 am
Courtesy of ZeroHedge. View original post here.
Submitted by Phoenix Capital Research.
The following is an excerpt from my latest client letter
While most of my analysis so far has concerned France’s elections, it was in fact Greece’s May election which proved more significant for the future of the EU.
I do not want to delve too much into Greek history and political parties. So I’ll simply show the results along with the names and brief descriptions of each party:
| Party | Beliefs | Number of Seats |
| New Democracy (ND) | Old school center right, one of two major parties | 108 |
| Coalition of Radical Left- Unitary Social Movement (SYRIZA) | Progressive, socially liberal, popular with youth | 52 |
| Panhellenic Socialist Movement (PASOK |
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