European Stocks Dive Most In 10 Months

Stock market of Brussels (Photo credit: Wikipedia)

There was quite a bit of dispersion among European equity indices today (with Italy worst and Spain actually holding up - albeit down 1.4%) but the European equivalent of the S&P 500 (the BE500) dropped 2% - its biggest single-day plunge in 10 months.

Credit markets - just as in the US - have been warning of a disconnect for two weeks and today's equity dive has more than halved that divergence. European sovereigns are wider by 10-15bps. Europe's VIX is over 2 vols higher at 18.4% (its highest in a month).

European financial stocks dropped by their most in 3 months and European high-yield credit worsened by its most in 3 months. A late-day ramp made things look a little better than they had earlier with a 100 pip rally in EURUSD off earlier lows seemingly providing some help. Read more >>

Greek Unemployment Soars To New Record, 56% Of 15-24 Year Olds Without Job

Judging by ongoing momentum moves in various European stock and bond market indicators, one could be left with the impression that something in the continent is actually improving.

And while hope of improvement is certainly be high, the reality is vastly different as confirmed by the just released Greek unemployment data, which saw the broad unemployment rate soar to a fresh record high of 26.8% in October (24.1% males, 30.4% females - that's nearly one in three), up from a pre-revision 26.0% in September, and up from 19.7% a year ago, the youth (15-24 age group) unemployment rising again to a new all time high of 56.6% (up from 56.4%), and the ratio of those employed (3.68MM) to unemployed (1.34MM) plunging to a record low 2.75x.

At this rate it may well hit 1.00x quite soon. But even sooner, perhaps in a few months, the total number of inactive workers (3.34MM) will surpass all those who are working. In short, the Greek collapse is just getting worse and worse. Read more >>

Long Shadows Cast Over US Economy

Image via WikipediaJim Willie
Numerous are the threats to the US Economy and US financial structures. Many are hidden threats, subtle challenges to undermine increasingly fragile support systems, planks, and cables that hold the system together.

The year 2011 will be when the system breaks in open visible fashion, when the explanations that justify it sound silly and baseless, when the entire bond world endures major crashes. All thing financial are inter-related.

Recall that in summer 2007, the professor occupying the US Federal Reserve claimed the subprime mortgage crisis was isolated. The Jackass countered with a claim that the bond market was suffering a crisis in absolute terms, where all bond markets were on the verge of fracture, perhaps globally.

In year 2008 the banking system in the Western world broke, fatally and irreparably in my view. In 2009, the solutions, the treatment, the official programs were all exaggerated for their effectiveness while banker welfare became a fixture. Neglect of the people on Main Street became policy.

In 2010, the system revealed it is still broken. The global monetary system after all rests atop the sovereign bond market. This year, it must fight off a collapse. Many are the hidden points of vulnerability. Gold & Silver will continue to be the great beneficiaries. Read more...

Of Bonds and Bondage

VK @ The Automatic Earth
Certificates of confiscation: Of bonds and bondage
Recently I had a private conversation with Automatic Earth contributor El Gallinazo in which he proceeded to chide me for my shortcomings in viewing the stock markets only, clamoring I should focus my attention more on the debt markets, since, as he so graciously put it, "the stock market is but a pimple on the debt markets ass".

I went surfing for knowledge as it were and noted the value of the world's stock markets as of November 2009 was about $44.2 trillion (That's a pretty big pimple!) while global debt markets were valued at $82.3 trillion.

What does this mean? I got out my notes on the debt market from my days not so long ago in University. And came across many long forgotten concepts: par values, coupon rates, zero coupon bonds, basic bond pricing, duration, convexity, credit risks,inverted price yield relationships etc. Aaaarrgggh!! Enough to make my head spin. Too much jargon is bad for you.

Then I stumbled upon a little line: Indenture: Agreement containing the terms under which money is borrowed.

That's what they call bond contracts. Indenture. According to the dictionary, or in this case a convenient google search, Indenture refers to a type of contract in the past that forced a servant or apprentice to work for their employer for a particular period of time.

What struck me was how true this is, not referencing past shenanigans, but present day reality. Society as we know it is indentured, we are virtual debt slaves, servants of our corporate and political elites.

Every time a sovereign, municipal or corporate bond is sold somewhere, every time you hear the national debt going up, that's a piece of you being sold off. There's nothing more to the bond market, nothing less. Human beings are being lined up on the chopping block, sold to the highest bidder, for a price.The future of their children and their hopes and dreams sold at a price determined by a large market for human debt slaves. A modern day global debt gulag if you ask me.

If you work for a corporation, the private debt issued by them promises to extract everything from you while they can milk you for all that you are worth. If the debt is issued by your country or town, the promise is to extract everything necessary to pay up from your you and your children.

Hence, in today's world, there are multiple claims on you, your life, your children and your hopes, dreams and ambitions, as well as theirs. The elites through various frauds, machinations, complex algorithms and at its heart plain greed for unbridled power have bundled you into little packages and sold you off many times over to the point that there are claims on your life, your soul and its third derivative.

Which brings me to the monster $1000+ trillion derivatives market (Exchange Traded + Over The Counter), which has been to a large extent built (leveraged) on top of the $44.2 trillion stock markets and $82.3 trillion debt markets.

At least in the pre-derivatives era a human life had been reduced to the value of the cash flow it produced over its lifetime, conveniently called Net Present Value.

In today's world, a human life has been further reduced to and by bets being played on a global video game network much like Call of Duty/ World of Warcraft, except in this case, you can't opt out nor can you log off. The consequences are very real, the outcome of suffering is inevitable. There is no reset button.

I can understand cattle not having a complex enough awareness to be able to judge their own imminent demise at the slaughter house, but people? Why, they have no excuse at all, we are a real tragi-comic bunch. Not only do we elect our herders and executioners i.e. politicians, we elect them with cheer, pomp and adulation, we also commend their choice of weapon, in this case being debt to wave away whatever happens to ail us. Debt, the very thing that we are slowly but surely being slashed with. Death by a thousand cuts if you will.

What will you tell your children? What excuse have you prepared? The numbers were too big? Economics is really confusing? I didn't realize I was selling you off at an auction? You'd almost think we're all delusional Catholics, sending our children to schools where they can be molested by hordes of conniving predators who, when pressed, won't shy away from calling themselves the victims. The Vatican and Goldman Sachs have way more in common than just the fact that both swim in luxury.

Next time you read that the National Debt has gone up by $1,600,000,000,000, that total debt owed by the US internally and externally is $54 trillion, that there are $65-100 trillion in unfunded liabilities, one thing I hope you take from this little rant is that you and your family are on the hook for all this debt owed to Kings and psychopaths, bankster mafia elites and drug lords with Caribbean accounts. I hope you also realize that they've decided to feast on your children with a sprinkling of shattered futures, dreams and hopes.

I'll sign off with The Automatic Earth's Ilargi's saying, "Tails you lose. Heads you die." Now that's a bet you never should have taken.

The Big Short: Inside the Doomsday Machine

From a Vanity Fair Blip:
Michael Burry always saw the world differently—due, he believed, to the childhood loss of one eye. So when the 32-year-old investor spotted the huge bubble in the subprime-mortgage bond market, in 2004, then created a way to bet against it, he wasn’t surprised that no one understood what he was doing. In an excerpt from his new book, The Big Short, the author charts Burry’s oddball maneuvers, his almost comical dealings with Goldman Sachs and other banks as the market collapsed, and the true reason for his visionary obsession. Read an excerpt here.

This interesting little tidbit from Scion Capital's website:

Thank you for visiting. Dr. Michael Burry has liquidated Scion Capital, LLC and is currently focusing on his private investments. Dr. Burry is not accepting outside investors. If you have an interest, Dr. Burry has made Scion Capital's earliest investor reports available.

____________________________________________

Further, Dr. Burry feels the financial crises originating in the United States and elsewhere were eminently predictable and preventable. The following timeline regarding developments at Fannie Mae and Freddie Mac is illustrative of why the crises were not prevented.

July 2003 (Scion Capital Quarterly Report to Investors): "Freddie Mac and Fannie Mae warrant special comment. Interestingly, Fannie Mae, when it was a much less significant force, was declared insolvent on a mark-to-market basis by the U.S. General Accounting Office back in 1981. As well, each of the two predecessors to the just- fired CEO of Freddie Mac left Freddie to run S&L’s that they subsequently ran into the ground during the 1980s. Yet the market reserved a muted reaction for Freddie Mac firing its top three executives last month over an accounting scandal and, with a straight face, blaming the mess on a lack of accounting expertise within the company.

After hearing from Fannie, Freddie and representatives of the President, U.S. Rep. Richard Baker, a longtime and vehement critic of these two companies, has elected to withhold any knockout punch. Fannie Mae’s CEO in particular lacked subtlety. Citing the company’s primary importance to the national housing market and relying on Fannie’s formidable political connections, he publicly dared the U.S. Congress to act. Not so much as one peep of indignation was heard in response. To the extent the national housing market is untouchable, we have evidence not of strength but of fragility."

October 2004 (Scion Capital Quarterly Report to Investors): "I recently watched Mr. Franklin Raines, CEO and Chairman of Fannie Mae, defend himself before a House subcommittee against allegations of fraudulent financial reporting brought by its regulator, OFHEO. I have already read OFHEO’s interim report on the matter, and you know from prior letters that I have had a dim view of Fannie Mae and its CEO for some time. My impression: Fannie Mae is unregulated, and they are very likely committing fraud.

An entity is not being regulated if it takes subpoenas and threats from the Department of Justice in order to obtain management’s cooperation in a regulatory review. Too, an entity is not being regulated if a Congressional investigation cannot be performed due to wholly inadequate knowledge of the business at issue on the part of the investigators. Watching our representatives flail at questioning Mr. Raines was rather shocking. They were in no manner capable of getting past the headline issues, and even those were covered only in superficial fashion. Remarkably, these particular representatives were members of the House subcommittee specifically charged with regulating the GSEs.

Then there are Fannie’s friends, with whom Mr. Raines apparently spends most of his days. Rep. Artur Davis suggested OFHEO was putting Fannie in more danger with the release of the report. Rep. Barney Frank, the House Financial Services subcommittee’s lead Democrat, went so far as to charge that OFHEO was "irresponsible." Yet, how can a regulator be irresponsible simply by letting the public know it suspects foul play on the part of the regulated?"

On the subject of fraud, OFHEO’s report makes clear Fannie’s intent to deceive. The report details not gray areas of accounting, but rather specific acts to manipulate earnings. Per the testimony of Armando Falcon, Jr., head of OFHEO, “The accounting violations cannot be dismissed as mere differences of interpretation in accounting rules. Fannie Mae understood the rules and simply chose not to follow them.” Time and again, the ethics of men and women have proven no match for a lucrative incentive structure.”

November 11, 2004 (The Washington Post): A senior House Democrat said yesterday that he will not support a budget increase for the federal regulator of Fannie Mae until questions raised in a confidential report have been addressed. Rep. Barney Frank (Mass.), senior Democrat on the committee overseeing Fannie and its regulator, said in a letter to colleagues that an inspector general's report on how the Office of Federal Housing Enterprise Oversight examined the mortgage funding company's accounting "raises very serious issues which must be thoroughly discussed and addressed." Frank said in an interview that the issues involve "the role that OFHEO has played." The report "has major public policy implications," but he could not be more specific because the report has not been made public, he said. OFHEO has said recently that budget restrictions threaten to hamper its continuing investigation of Fannie Mae's accounting...

2006 (The Washington Post): “Fannie Mae engaged in "extensive financial fraud" over six years by doctoring earnings so executives could collect hundreds of millions of dollars in bonuses, federal officials said yesterday in a report that portrayed a company determined to play by its own rules. Regulators at the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight, in announcing a settlement with Fannie Mae that includes $400 million in penalties, provided the most detailed picture yet of what went wrong at the congressionally chartered firm.”

2009 (Reuters): "The Obama administration on December 24 pledged to backstop all future losses for the mortgage giants, without limit, through the end of 2012. The Christmas eve announcement also eased earlier requirements for Fannie and Freddie to reduce the size of their portfolios. The 2010 limits on their portfolios, in fact, would allow their investment holdings to grow.”

2010 (Associated Press): “Freddie Mac, which has lost a total of almost $80 billion since the housing crisis started in 2007, is bracing for more pain. The McLean, Va.-based company said a record 4 percent of its borrowers are at least three months behind on their payments and facingforeclosure.Its chief executive, Charles Haldeman, warned Wednesday of a "potential large wave of foreclosures" still to come. This is a major problem for the federal government, which seized control of Freddie and Fannie in September 2008. The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.And while Freddie Mac didn't ask for any more bailout money last quarter, the company said it will likely need more financial aid and might never repay it.”

Greek Stocks Drop 3.9%; Banks Tumble

Image via Wikipedia

ALKMAN GRANITSAS
Greek stocks fell sharply Monday, extending their losing run to four sessions, as investors battered banking shares.

The Athens Stock Exchange's general index closed 3.9% lower at 1806.40 on relatively heavy turnover, while major markets firmed. Investors also demanded a higher premium for holding Greek government bonds over German Bunds, the euro zone benchmark.

"What we are clearly seeing is not a selloff in just specific Greek shares; we are seeing a wholesale selling off of the country," said Nicholas Douzinas, head of foreign markets at Intersec Securities in Athens.

"We are seeing many open sell orders on the market," he added.

Banking stocks were especially hard hit, falling 6.8%, amid speculation that Greek banks were facing financing difficulties and possibly further credit-ratings downgrades. Market leader National Bank of Greece SA dropped 8.5%, while No. 2 lender EFG Eurobank Ergasias SA dived 9% and Alpha Bank SA closed 5.4% lower.

But both Greek and foreign banking officials Monday privately denied speculation that the Greek banks were facing any financing difficulties. Analysts said that the selloff in bank stocks reflected the difficult environment facing Greek banks.

"I'm a little doubtful about all this speculation," said a senior analyst at a local bank. "But it's a fact, the market sees that the banks are facing a very difficult environment and that's weighing on banking stocks."

Indeed, Greek banks, which are due to start reporting results next week with Piraeus Bank SA on Feb. 18, are widely expected to report disappointing fourth-quarter earnings.

Since December, when Greece's sovereign debt was hit by three ratings downgrades in quick succession, the Athens stock market has lost more than 1,000 points. The index is down nearly 18% this year.

Bank shares also are suffering from the higher yields that investors are demanding for Greek debt, which indirectly affects their borrowing costs. The yield gap between 10-year Greek and German bonds widened to 3.63 percentage point Monday, up from about 3.50 percentage point on Friday.

The market's fall came ahead of a meeting Wednesday between Greek Prime Minister George Papandreou and French President Nicholas Sarkozy and a European Union summit on Thursday.

Many market participants are looking to see if Greece's EU partners will declare some kind of direct or indirect financial support for the country in an effort to forestall future borrowing problems when the country goes to the bond market in April or May.

In addition, the Greek government is to publish a much-awaited tax reform proposal on Wednesday. Civil servants also have scheduled a strike for Wednesday.

"Right now, everyone is looking ahead to Wednesday and Thursday," said Intersec Securities' Mr. Douzinas.

Boy, do I love it when predictions come true

From Urban Survival:
Remember, I’ve been talking about the possibility of a melt-up going into options expiration next week as the nears are in about perfect field position to do a record-book ‘running of the shorts’? (Maybe you don’t get Peoplenomics, but it was there in a recent ChartPack…) The Fed meeting yesterday was - also as predicted - a non-event. Except for this one little part of the FOMC statement:

“As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. “

They might have just as well put a sign out front that said “This Casino is rigged! Come on it - everyone’s a winner! Step right up!

And so, the price of gold is up over $950 again this morning, silver is back knocking on the door of $15 an ounce, and the futures are up like crazy. Why, at this rate, I may have to send in some dough to my brokerage outfit so I can go short as soon as the upside stampede gets ready to set new high water marks. More...