Posts from Monday May 14 2012

The Closer


The 10-year Bund yield fell to a record low (Wall Street Journal) and the S&P 500 hit its lowest level since February, closing down 1.11 per cent at 1,338.35 (Reuters). Read more

‘Your differences are small compared to the size of your debt to your country’

That’s our (no doubt dodgy it was: fixed) paraphrasing of President Karolos Papoulias of Greece, during Sunday’s talks with the leaders of the New Democrats, PASOK, and Syriza.

Οι διαφορές των θέσεών σας είναι μικρές και ασήμαντες σε σύγκριση με το χρέος σας απέναντι στην πατρίδ

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The mysteriously falling US trading volumes

Does anybody know what’s been driving down daily US trading volumes in recent years?…

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Two billion dollar ‘hedge’

Trust us, it isn’t easy to lose $2bn in a “synthetic credit portfolio” over five weeks from the beginning of April, as JPMorgan’s Chief Investment Office managed to do. A lot of analysts are scratching their heads wondering just how this feat was accomplished.

One would need a number of ingredients to even get close to pulling this off. A good helping of models that were trusted too much, as it seems the CIO’s value-at-risk (VaR) model was, is a good start. But one needs a bit more than that. Per BloombergRead more

Some chasm-like eurozone bond spreads

Based on Tradeweb data (with a h/t to the FT’s Tracy Alloway),

Spanish 10-year government bond yields rose to as high as 6.30 per cent on Monday, with the spread to Bunds widening to a euro-era record high of 486 basis points after the yield on Berlin’s debt fell to 1.44 per cent for the first time.: Read more

Merkel and Hollande: you say growth, I say austerity, let’s call the whole thing off

Tuesday is a big day for France-German relations. Francois Hollande will be inaugurated president, and announce his choice of prime minister. Just hours later he’ll meet Angela Merkel, marking the genesis of a new portmanteau. Goodbye Merkozy! Hello Merd*!

While the relationship has had an inauspicious start, the signs are that it will go well, at least initially. Both leaders find themselves under pressure at home, but they need each other. Read more

The SEC’s Pink Sheet attack

On the day the UK said goodbye to its own little unregulated shop for penny dreadfuls, the SEC has unleashed an altogether more dramatic crackdown on the US equivalent – so-called Pink Sheet stocks traded over the counter.

Washington, D.C., May 14, 2012 — The Securities and Exchange Commission today suspended trading in the securities of 379 dormant companies before they could be hijacked by fraudsters and used to harm investors through reverse mergers or pump-and-dump schemes. The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures.

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Grexit and the euro: an exercise in guesswork

Everyone who’s anyone (and some other people too) has a view on what will happen to the value of the euro if Greece makes an exit. Probably of dubious predictive use, but here is a selection for your interest (with our emphasis):

Soc Gen’s Kit Juckes: Read more

China’s economic data disaster

China’s trade data for April came in well short of expectations on Thursday, and was followed by a raft of more disappointing data on Friday.

Here are a few highlights, courtesy of BAML’s China economists Ting Lu, Xiaojia Zhi and Larry Hu: Read more

JPMorgan: the management change

NEW YORK–(BUSINESS WIRE)–JPMorgan Chase (NYSE: JPM) announced today that Ina Drew, Chief Investment Officer, has made the decision to retire from the firm. Ina has served the firm for more than 30 years, most recently as head of our Chief Investment Office.

Matt Zames, currently co-head of Global Fixed Income in the Investment Bank and head of Capital Markets within the Mortgage Bank, will succeed Ina as the firm’s Chief Investment Officer and continue in his mortgage-related responsibilities. Matt will also join the firm-wide Operating Committee. Daniel Pinto, currently co-head of Global Fixed Income with Matt, will become sole head of the group. Daniel will also remain CEO of our Europe, Middle East and Africa region, based in London. Read more

The capital monster

Starring A. Spanish banker as the Cookie Monster, and Mr Taxpayer as Ernie

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ELA stumble du jour

This delightful misstep was pointed out by Ralph Atkins over at FT Money Supply. Apparently in the rush to distance Belgium from any suspicion of Emergency Liquidity Assistance, Luc Coene, Belgium’s central bank governor may have turned snitch on Portugal.

As Ralph notes, we know ELA, which is essentially a bank bailout by national authorities when things get really, really bad, has been heavily used in Greece and Ireland. Read more

Markets Live transcript 14 May 2012

Live markets commentary from 

The “other reportables” oil mystery

From John Kemp at Reuters on Monday (our emphasis):

Hedge funds and other money managers reduced their long position in U.S. crude by the equivalent of nearly 54 million barrels of oil, the largest one-week decline since at least June 2006, according to data released by the U.S. Commodity Futures Trading Commission (CFTC) on Friday. The long liquidation was three times greater than in the “flash crash”, almost exactly a year ago on May 5, 2011, when speculative longs were cut by a little under 19 million barrels.—– Read more

The (early) Lunch Wrap

Good morning, New York…


RRR cuts ≠ credit easing. Keep saying it.

Pretty much every China watcher, including us, has written in recent months about how reserve ratio requirement (RRR) cuts by the People’s Bank of China are not necessarily about credit easing. In fact these days, an RRR cut is not so much a move to make more credit available as it is to avoid reductions in liquidity.

Mark Dow, portfolio manager at Pharo Management, has a nice explanation of how this is, and where the RRR fits into the PBoC’s broader monetary policy. It starts with the policymakers’ credit expansion targets, which are believed to be about Rmb8tn to 8.5tn this year: Read more

Further reading

Elsewhere on Monday,

– Ugly history lessons for a Grexit. Read more

The 6am Cut London

Three senior JP Morgan staff are expected to leave the company this week over the $2bn trading loss, which is continuing to grow, reports the WSJ, citing people familiar with the situation. The losses grew by $150m on Friday, the report says. Expected to leave as soon as Monday are Ina Drew, who heads the chief investment office; Achilles Macris,  who led the London-based trading team; and trader Javier Martin-Artajo.  JP Morgan is carrying out an investigation into whether staff hid the risks of the trade, reports the FT, and JP Morgan’s entire CIO unit in London may be disbanded, says Bloomberg, citing a person familiar with the situation.

Greece appeared to be heading for fresh national elections after last-ditch coalition talks chaired by the country’s president ended in mutual mud-slinging by the conservative, socialist and leftwing leaders, reports the FT.  Meanwhile tax collection slowed markedly during the election campaign, putting budget deficit targets at risk, according to a finance ministry official. Read more

Overnight markets: Mixed

Asian shares inched up after China took further steps to shore up its slowing economy by cutting banks’ reserve requirements, which outweighed concerns about Greece’s possible exit from the eurozone, says the FT. The MSCI Asia Pacific index gained 0.1% with Japan’s Nikkei 225 Stock average up 0.7% Australia’s S&P/ASX 200 index 0.3% higher and South Korea’s Kospi Composite index adding 0.1%.

Asian markets
Nikkei 225 up +26.05 (+0.29%) at 8,979
Topix up +0.25 (+0.03%) at 758.63
Hang Seng up +58.51 (+0.29%) at 20,023 Read more