Wednesday, November 30, 2011


Those who run money were saved today.  With the announcement by the major central banks of the world of a massive increase in swap lines and a reduction in their cost, the stock markets boys reacted by buying everything in sight pushing the DOW up almost 500 points at the close. The spin on the action was incredible ranging from a world-wide intent to funnel liquidity into global markets to boost economies (incorrect) to Jim Kramer's joyous statement that this was the sign that Bernanke and his buddy, The Suit, were taking over from their Euro counterparts and were now running the show (beyond stupid as Kramer often is).  We'll get to what really happened in a moment but understand that this revelry is going continue for a while as the complete misreading of the actually events caused massive short covering that will continue which in turn will completely reverse the outlook for the money managers for year end which, once awful, is now in the manageable stage.  They're going to keep buying because...well, everybody else is buying.  I mean, isn't that the way this works?

Remember the phone calls I made a week or so ago to friends still in the business?  What happened today was to be expected.  This was no positive intervention on the part of goverments and central banks  designed to kick start global economies.  This was a concerted action based on the sheer terror of what was going on in regard to bank funding, especially for European banks.  The system was beginning to seize up once again with no one prepared to face banks even in the same political jurisdiction and an almost complete shut down of dollar funding for European branches and subsidiaries in the United States.  In short, we were looking down the barrel of the same gun as in 2008 absent the American institutions and THAT is a big difference indeed.  And so, if these dumbos on Wall Street believe that this was a good thing, leave them alone.  By the by, if anyone out there thinks this analysis is incorrect just consider the fact that the ECB can now borrow from the Fed at a level 25 basis points BELOW the level for U.S. banks.  When was the last time you saw that?

It seems to me that the question is does this mark a change in the nature of, or the future of the sovereign crisis in Europe?  I think not.  What it does do is to relieve the liquidity concerns that have been building but heighten the understanding that the hope for a  growth agenda for Europe has probably been dashed for the central banks involvment simply provide continuing funding to existing operations and not expansionary credit.  Hopefully, this will provide a new degree of confidence (there's that word again) enabling banks to tap traditional sources of liquidity once again in the coming days and weeks but the credit issues will remain and this is very much a credit-driven crisis especially since the liquidity issue has been taken off the board for the time being.  And speaking of credit, don't expect our Euro friends to be out beating the bushes for new business opportunities; these boys are in desk defilade for the foreseeable future, providing a once in a lifetime opportunity for U.S. and Canadian banks.

And so, Carter, you may think that Greece is sooooo last spring, but I think not.  By the by, it was a pretty good analysis wasn't it?  What Greece tells us is that there is a subtle shift in the leverage positions of the major players.  The losers are clearly the banks who having been pulled back from the brink today in an event which, believe it or not, I expected, and are no longer in a position to demand as much if anything from their political contacts.  It also put the U.S. in the game--for better or worse--as we now have a dog--albeit a small one--in the fight.  Frankly, I don't know where that one goes, but already one sees the administration's publicity organ, The New York Times, blabbering that the northern Euros writing of a check is the only true solution to the problem.  Looking over the landscape, Greece appears to have made the decision that now is the time to go it alone and they just might pull it off.  So might a couple of others and if that happens the cat will certainly be among the pigeons.  Think of it, little Greece turning the whole thing on it's head!  Very Spartan-like indeed, then again, no salvation least not for 300 Spartans.

1 comment:

  1. Foam on the runway for US banks, nothing more.

    This might even be a "let's just try to get to the weekend" ploy.... like the little kid in the Bruce Willis movie "I see dead banks" Unicredit, Commerz, hell the German Association of the little Sparkassen (VOeB) were praising this move on bloomberg 15 minutes after it was announced.

    I like Jim Hamilton's take: this is to enable the Fed to provide Euros to European subs of US banks (GS, MS, ML, JPMC, maybe BNYM) in a TAF as Eurosclerosis becomes Euro-rigor-mortis.

    This does nothing for the EU banks, nothing to address EU state solvency or liquidity.

    The Europeans basically said today that there will be no collective recapitalization of the banks, it will all be done nationally. All this does is highlight even more starkly the differences in the level of EU sovereign + bank debt to GDP.

    Doesn't make Eurobonds any closer (and a Eurobond would be, what, an Aa3 credit at best?). Once one country (Greece) starts to walk away it becomes much easier for the next countries (Portugal, Italy, Ireland, Belgium, and on and on) to walk as well.

    Panic is setting in: the Germans are willing to go around their Bundestag by enabling the Bundesbank to play around with SDRs? The Chinese are cutting reserve requirements on their banks?

    Hope is not a strategy. This is a market driven by some strange thinking that somehow Ben can make the helicopters cross the Atlantic and rain fairy dust in time for Christmas.

    Back to our lyrical allussions, a little Queen for your Wednesday enjoyment:

    Is this the real life?
    Is this just fantasy?
    Caught in a landslide,
    No escape from reality
    Open your eyes,
    Look up to the skies and see,
    I'm just a poor boy, I need no sympathy,
    Because I'm easy come, easy go,
    Little high, little low,
    Any way the wind blows doesn't really matter to
    me, to me