Mish's Global Economic Trend Analysis |
- Judge Unloads on Deal SEC Struck with Citigroup; No Lessons Learned, Citi Still Too Big to Exist
- France, Germany have "Intense Consultations" on Smaller Eurozone; Breakup Inevitable, but How?
- Banks Create New Rules to Show they are Already "Well Capitalized"; Magic Spreads at Lightning Speed
- Ceridian Fuel Index Rises but Compared to What?
- Yield Blowout, Bond Market Emphatically Rejects Italy's Solution; No Place to Hide
- Margin Call of 4-5 Billion Euros as Clearing House Raises Deposit Requirements on Italian Bonds; Roman Empire Under Pressure
Judge Unloads on Deal SEC Struck with Citigroup; No Lessons Learned, Citi Still Too Big to Exist Posted: 09 Nov 2011 07:31 PM PST A federal judge today blasted 40 years of slap-on-the-wrist, no-admission-of guilt deals the SEC has reached with Citigroup. In the latest deal, with no admission of guilt, the SEC fined Citigroup for $160 million in illicit profits, even though regulators claim Citigroup profited by $700 million. Please consider Judge Unloads on Deal SEC Struck With Citi A federal judge sharply questioned the Securities and Exchange Commission about why it didn't force Citigroup Inc. to admit to "what the facts are" before the agency agreed to settle a mortgage-bond case for $285 million.No Lessons Learned, Citi Still Too Big to Exist As long as the rules of the game are such there is no chance of being fined more than illegal profits are made, banks will ignore rules and go for illegal profits. The SEC has learned nothing from these deals, but the financial sector has. Banks have learned they will profit more from illegal activities than they will be fined if they are caught. The added bonus is they are unlikely to get caught in the first place. Such actions prove Citigroup remains too big to exist even though Citigroup CEO Claims Citi has Learned a Lesson on Leverage and Banks Should be Banks, Not Supermarkets. Banks should be banks, not criminal operations. Then again, some might wonder, is there a difference? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List | ||||||||||||||||||||
France, Germany have "Intense Consultations" on Smaller Eurozone; Breakup Inevitable, but How? Posted: 09 Nov 2011 02:08 PM PST Realization the Eurozone is no longer tenable is at long last at hand. In fact, "intense discussions" have been underway for months but are just now admitted to by senior EU officials. Bloomberg reports U.S. Stocks Extend Declines on Concern Nations May Exit Euro U.S. stocks extended declines following a report that German Chancellor Angela Merkel's party wants to make it possible for European nations to exit the euro area.France and Germany have "Intense Consultations" on Smaller Eurozone Please consider French and Germans explore idea of smaller euro zone "France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.Never Believe Anything Until It's Officially Denied We now have an official denial from France that breakup conversations are taking place. This contradicts an admission by others that such discussion are taking place. According to the 1980's British sitcom Yes Minister, "The first rule of politics," Sir Humphrey, the wily civil servant in the show, insists is: "never believe anything until it is officially denied." Eurozone Breakup Inevitable, But How? The Eurozone is a failed experiment. A breakup is inevitable just as it has been from the beginning. Structural flaws were too great, built up over the years. No currency union in history has ever survived unless there was also a fiscal union. The German supreme court has ruled out a fiscal union and printing unless German voters approve (and they won't). Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for details. The Italian bond market revolt (see Yield Blowout, Bond Market Emphatically Rejects Italy's Solution; No Place to Hide) and the collapse of Greece says the breakup is sooner rather than later. However, politicians have a propensity to kick the can down the road longer than anyone thinks possible. The key question now is how? It would be best for all involved if Germany left the Eurozone and went back to the Deutschmark. Germany would have an immediately credible currency. Should Greece or Spain leave first, those countries might experience hyperinflation or massive inflation. Breakup Scenarios and Logistics of Denial For further details discussion of various breakup scenarios as well as a discussion on the "Logistics of Denial", please see my September 16 article Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied) It's important to remember that Germany suffers regardless. As long as the Eurozone stays intact (it can't and won't over the long haul) German taxpayers have to keep acting bailing out foreign countries, foreign banks, and their own banks. On the other hand, were Germany to leave, the debts to German banks will not be paid back in Deutschmarks but rather deflated Euros. On the whole, Germany exiting the Eurozone would be less disruptive, than massive inflation scenarios in Greece, Portugal, and Spain. If France wants to stay in the Euro, let them. They can have the ECB as well. Then the ECB will print money to bail out the French banks (just as French president Sarkozy wants). Sarkozy may not want a collapse of the Euro, but it would happen. The message here is simple: If you are in Euros, get the hell out. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List | ||||||||||||||||||||
Banks Create New Rules to Show they are Already "Well Capitalized"; Magic Spreads at Lightning Speed Posted: 09 Nov 2011 11:30 AM PST Regulators have said European banks need to come up with additional capital. The amounts vary from 8 to 413 billion Euros. Anything less than 200 billion Euros (the IMF's proposed number) is preposterous. Given the rout in Italian bonds today and the gloomy outlook for Spain and Portugal, even 400 billion Euros is far too low. One Trillion Euros would not be surprising. The number that Merkel and Sarkozy hammered out with banks is a lousy 106 billion Euros. However, more stories are out today showing the intent of banks is to raise 0 billion in additional capital (because they don't need to!) For example, Bloomberg reports Financial Alchemy Foils Capital Rules as Banks Redefine Risk Banks in Europe are undercutting regulators' demands that they boost capital by declaring assets they hold less risky today than they were yesterday.The IMF recapitalization need is 200 billion Euros, a figure I think is exceptionally low because it ignores writedowns on Portuguese, Spanish, and Irish debt (and of course Italian debt as well). It also presumes Greek losses will be pegged at 50% when losses are likely to be in the 70-90% range. Nonetheless, the agreement worked out by Merkel reduced that 200 billion euro figure down to 106 billion. I talked about reluctance of banks to raise needed capital on October 31, in Europe to Recapitalize Banks Without Raising any Capital; Berlusconi Defiant as Focus Shifts to Italy; Sarkozy Under Fire for Seeking China's Help The answer to the question "How Does Europe Recapitalize Banks Without Raising any Capital?" should now be perfectly clear ...Magic Spreads at Lightning Speed What one bank does, they all do. The Bloomberg article clearly shows Magic has Spread. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List | ||||||||||||||||||||
Ceridian Fuel Index Rises but Compared to What? Posted: 09 Nov 2011 09:12 AM PST Inquiring minds are digging into the Ceridian Report for October which shows the Pulse of Commerce Index Increased 1.1 Percent in October Offsetting the 1.0 Percent Decline in September. However, appearances may be deceiving because month-over-month comparisons are easy and the three-month moving average is still falling. The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation rose 1.1 percent in October after three consecutive negative months: -1.0 in September, -1.4 percent in August and -0.2 percent in July.About Ceridian-UCLA Pulse of Commerce Index The Ceridian-UCLA Pulse of Commerce Index® is based on real-time diesel fuel consumption data for over the road trucking and serves as an indicator of the state and possible future direction of the U.S. economy. By tracking the volume and location of fuel being purchased, the index closely monitors the over the road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers. Year-Over-Year Growth of PCI Retail Sales and the PCI: Inventories in Motion Ceridian reports .... The growth in real GDP is to a large extent driven by growth in consumer spending. In the above figure, both the PCI and the real retail sales have been normalized by their maximum value, making it easy to see that both declined from their peak values by 13 or 14 percent.Retail Sales Short of Expectations The last line above is interesting because the Financial Times does indeed report US retail sales fall short of expectations November 3, 2011In September, half of the retail sales gains were in autos. Yet, Auto sales are counted when cars are shipped to dealers, not when they are sold to consumers. Please consider GM Sales Barely Rise, Chrysler's Up 27%; What Does It Mean? GM Sales Barely Rise, Chrysler's Up 27%I do not think sales, especially auto sales, were as robust as reported. Even if they were, there is no reasonable expectation the increase in sales should continue.Chrysler Group LLC's October U.S. auto sales rose 27% while General Motors Co. climbed just 1.7% amid a mixed picture for the largest U.S. auto makers.Sales down and dealer inventory up 15% at GM. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List | ||||||||||||||||||||
Yield Blowout, Bond Market Emphatically Rejects Italy's Solution; No Place to Hide Posted: 09 Nov 2011 08:58 AM PST Italy has a debt rollover needs and the market just shut off efficient funding across the entire yield curve. There is no place to hide while waiting for the long-end of the curve to calm down. Italian government debt yields are above 7% from 2-year bonds all the way to 10-year bonds, with an inversion in 3-year and 5-year yields vs. 10-year yields. Moreover the 2-year yield is very close to inversion as well. Sovereign Debt Table Italy vs. Germany
Note that the spread between German and Italian 3-year bonds exceeds 7%. This capture is at about 10:45 Central, after the market calmed down a bit. Here is a chart to show the "calming". Italy 10-Year Government Bond Yield Yields are well below the highs of the day, yet still up significantly. Expect emergency meetings at the ECB, IMF, EMU, EU, and Italian Government to start anytime. Actually they are probably underway right now. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List | ||||||||||||||||||||
Posted: 09 Nov 2011 12:42 AM PST Yields on Italian bonds rose once again on Tuesday as margin requirements on those bonds rose sharply. Bloomberg reports LCH Clearnet Boosts Deposit Required for Trading Italian Government Bonds The so-called deposit factor charged for Italian bonds due in seven-to-10 years will be raised to 11.65 percent, LCH Clearnet SA said in a document on its website dated yesterday. That compares with a charge of 6.65 percent announced in an Oct. 7 document. The additional charges will be applied from close- of-day positions today, LCH said.Roman Empire Under Pressure Steen Jakobsen, chief economist at Saxo Bank, pinged me with these comments. Major investment banks calculate the "margin call" to be around 4-5 billion EUR as of tomorrow.Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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