Quick Market Update as Merkel suggests of bringing home the D Mark, at least according to a preview of Handelsblatt, via Bloomberg. If this is true or not, we will see tomorrow. On the other hand, we can’t really blame the Germans, or would you like to have the company of Greece, Italy etc? Back to basics time, every man for himself. Bloomberg reports;
RMBS patents ruled invalid German Chancellor Angela Merkel’s Christian Democratic Union party wants to make it possible for European Union members to exit the euro area, Handelsblatt reported in a preview of an article to be published tomorrow, citing unnamed participants in the discussion.
Market is breaking through important levels trading into the last 30 minutes. This is starting to feel rather Flashy…Some intraday levels below. For longer term charts click here.
Majority of markets got absolutely smoked today. Volumes are thin, and all trading dominated by HFT Algos creating pockets of air, irrespective of direction. There is an increasing amount of frustrated fund managers unable to execute their orders in an efficient way. Many markets broke through important short term levels. The Italian MIB index got absolutely slaughtered today, with major banks hitting limits during the course of the day. Italian problems go beyond Berlusconi. The mountain of debt needed to roll over is scaring investors, and the yield curve is now inverted. The hunt has just begun, and if you thought today was bad, it will get worse soon. Some important charts below.
Too much time has passed for anyone to still reasonably expect that the “discrepancy” is just a timing difference or a misallocation between accounts, according to several sources who prefer to remain anonymous because of the sensitivity of the situation. All of the statements made on the record by those in a position to know point to assets taken out of the firm and now gone for good.
CFTC in bankruptcy filing October 31 according to The Financial Times: The CFTC, in a court filing, revealed MF Global’s general counsel Laurie Ferber emailed the regulator at 7.18pm Monday – hours after the bankruptcy filing – to say that it had “discovered a significant shortfall in its segregated funds account”.
Joint statement of CFTC and SEC on November 1: “Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm.”
The CME Group on November 2: “CME completed its on-site review last week. [Reportedly Monday.] At that time, the results of our review indicated that MF Global was in compliance with its segregation requirements. It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011.”
Jon Corzine, who admitted to being the architect of MF Global’s fateful proprietary trading strategy, neglected to manage some fundamental riskswhen making the speculative bets on European bonds for the “house” account, according to an industry veteran who prefers to remain anonymous given ongoing business ties to some of the firms affected. The first risk Corzine ignored is liquidity risk – you have to stay flush long enough to see the trade to profitable maturity. It doesn’t matter if Corzine made a good trade, just whether he can live to see it make a profit.
Full must read article here.
Yesterday the momos bought Silvio’s resignation. Today talks are still of Silvio resigning, but markets are tanking. What is actually going on in Italy? Things are spiraling out of control in Italy. As we suggested several weeks ago, let go of the Greek focus, and focus on Italy, spreads and the soaring yields. Bond vigilantes are telling us Italy is facing huge problems going forward. Risk premium has increased dramatically. Remember, Italy is home to the 4th largest bond market in the World. Not even the mighty Chinese can bail out Italy, nobody can. So what is different today?
This morning Italian rates shot up. We only breached the 6% level some days ago, but the 10 year rate shot up from 6,8 to almost 7,5% today. This is a huge move, especially if you consider Ireland was bailed out at 7%. The Silvio risk premium is a stupid argument. Even if he leaves, nothing will change for Italy overnight. It will probably create an even larger chaos, that will eventually bring rates even higher. The famous ECB “support” buying has not helped, and will not help. ECB should more think about recapitalizing it’s balance sheet, than buying Italian bonds here. We know what happened after they bought Greek, Irish and other PIIGS debt.
Futures all selling off aggressively. Just like we wrote earlier this morning “Investors loading up on ES futures, due to Berlusconi resigning, will face a harsh reality when they realize Berlusconi is not the problem. The fact the Italian spreads and rates have shot up further should make investors very nervous.”.
Well, what has happened since we wrote the above a few hours ago. Futures are off some 20 handles, while the Italian 10 year rate is currently trading at 7,36%. Remember, Ireland was bailed out at 7%. Italy is UNBAILABLE. All pundit, long the market because of Berlusconi, are now regretting those “panic” buys we saw yesterday. Contagion in Europe is unfolding, and Italy is under attack. Next up should be Spain and France. Below are intraday futures levels, and for the “position ” traders, our longer term view is accessible here.
The market is in full Berlusconi mood this morning again. Investors loading up on ES futures, due to Berlusconi resigning, will face a harsh reality when they realize Berlusconi is not the problem. As we have pointed out, Silvio is probably one of the most powerful leaders in Europe. He is also extremely rich, and loves his power. He won’t be handing over the resignation without a proper fight. Neither the Greek, Italian or the other PIIGS problems are because of one leader.
The fact the Italian spreads and rates have shot up further should make investors very nervous. With spreads breaking new highs, bond vigilantes, are in control. Credit is implying a different story in Italy, than that all will be fine after Silvio resigns. The massive Italian bond market is suffering, and this won’t be fixed by Silvio resigning. Italy’s 1.9 trillion euros ($2.6 trillion) of debt is the world’s fourth-largest, behind the U.S., Japan and Germany, and more than that of Greece, Spain, Portugal and Ireland combined. Look for the imminent bond margin hike, and spreads spiking up further. Remember what happened when Ireland and the others reached the below Bond Spread levels….?
The precedent set by the restructuring of Greek sovereign debt risks leaving banks more exposed to future financial crises of other countries, according to Deutsche Bank chief executive Josef Ackermann,http://ftalphaville.ft.com/thecut/2011/11/09/735701/ackermann-warns-of-greek-precedent/
A US federal judge on Tuesday ordered the convicted hedge fund titan Raj Rajaratnam to pay a $92.8m penalty, the largest ever assessed against a person in an SEC insider trading case, says NYT DealBook. Combined with the fines and forfeitures ordered last month when he was sentenced to 11 years in prison for insider trading, http://ftalphaville.ft.com/thecut/2011/11/09/735581/rajaratnam-ordered-to-pay-92-8m-sec-fine/
Chinese inflation fell sharply in October to 5.5 per cent year-on-year, the lowest in five months, the FT reports, clearing the path for a slight easing in monetary policy to support growth. It was the third straight month of slowing inflation and the biggest drop yet, http://ftalphaville.ft.com/thecut/2011/11/09/735571/chinese-inflation-falls-sharply/