February, Friday 17, 2012

DOW +46 = 12950
SPX + 3 = 1361
NAS – 8 = 2951
10 YR YLD +.02 = 2.01%
OIL +1.75 = 104.06
GOLD – 5.00 = 1724.80
SILV -.24 = 33.38
PLAT + 11.00 = 1638.00

The stock market is looking great. The S&P 500 hit a nine-month high. The Dow is back at levels from the beginning of 2008, (record high was 1517 for SPX) (14,198 for Dow). At least it’s looking decent. The market was cruising along with triple digit gains, but couldn’t hold into the close. Confidence is one thing, but going long heading into a holiday weekend.., well, let’s not get carried away.

Optimism was high that there would be some sort of  deal worked out to rescue Greece by burying the country under unsustainable debt.  Euro-zone finance ministers will be meeting over the weekend to hammer out details. The big challenge is to cut Greece’s debt down to 120% over the next 8 years; to do this, the Greeks will have an orderly default of debt, paying off bonds at about 30 cents on the dollar for private sector investors and about a 50% haircut for the central bankers that hold Greek bonds. And nobody is quite sure if the private sector investors are going to accept the haircut. In return for the discounts, the Greeks would accept, maybe, harsh austerity measures that will contract the economy. And they keep saying they will have a deal, probably by Monday. And all I can think of is that Homer is now writing the press releases for the Euro Union.
But as years went by, there came a time when the gods settled that  Ulysses should go back to Ithaca; even then, however, when he was among his own people, his troubles were not yet over; nevertheless all the gods had now begun to pity him except Germany, who still persecuted him without ceasing and would not let him get home.
The euro-zone financial mucky-ups claim they know how to handle the problems; they think they can contain the debt problems to Greece; they’ll build a ring fence around Greece. As best I can figure, a ring-fence means they will throw a whole bunch of money at the bankers to make sure they don’t fail and to avoid a credit freeze. And the markets love it when the central bankers are tossing around free money.  This economics stuff isn’t so complicated.
Yesterday, Moody’s warned of credit downgrades on 17 global and 114 European financial institutions. As bank ratings slide, bank trading counterparties may demand more collateral to compensate for an increasing credit risk. Such increased capital costs would come at an inopportune time for investment banks and lenders with a significant exposure to the capital markets, which are in the midst of a big drop in trading and deal activity in 2012 to follow a weak second half of 2011. Ratings downgrades that make many of those businesses more expensive to run would be a double indemnity, as earnings suffer from a slow market. So, you might think the credit rating warning would be bad news.
Today, the markets brushed off the warnings and pushed bank shares higher.  Something the egghead, bean counters at Moody’s haven’t quite figured out is that when the central banks toss out free money, it doesn’t end up in my pockets, it goes straight to the bankers.
This doesn’t always have a happy ending, though.
Remember, back in 2008, back before the central banks had figured out this ring-fence, firewall thing.  Well apparently, JP Morgan had some money with Lehman Brothers and they wanted to get that money out before the inevitable collapse. In the days leading up to Lehman’s September 15, 2008, bankruptcy filing JP Morgan may have had unparalleled access to Lehman’s finances, and they might have used that access to extract the collateral. And that access may have been at least partially granted by the then President of the New York Federal Reserve bank, Turbo -Timmy Geithner.  So, now Lehman’s restructuring plan, approved by a bankruptcy court in December, figures to pay creditors roughly $65 billion. The company hopes to officially emerge from bankruptcy and begin paying back creditors in the coming weeks. And as they try to figure out how much collateral JP Morgan “extracted”, the Lehman lawyers want to talk to Geithner. Geithner doesn’t want to talk. JPMorgan has filed a counter-lawsuit in the matter, saying Lehman left it with $25 billion in unpaid loans secured by undesirable assets Lehman traders referred to as “goat poo.” And how is it that the JP Morgan attorneys determined that undesirable assets were goat poo as opposed to some other form of animal excrement?
Seriously, I  can’t make this stuff up.
As we learn more and more about the Lehman mess, suddenly the MF Global mess seems to make more and more sense. It is starting to look like this. If you have money with JP Morgan, and if they think the money is in danger. JP Morgan will extract an amount they deem appropriate. The money just disappears, poof, like it was …, I don’t know, it just gets vaporized.
Of course, one way to avoid the long arm of Jamie Dimon is to print your own money. Today, Italian police announced they had seized about $6 trillion dollars worth of fake U.S. Treasury bonds and other securities in Switzerland; they arrested 8 Italians. It began as a investigation into mafia loan-sharking, but gradually expanded as prosecutors used telephone and computer intercepts to unearth evidence of illegal activity surrounding Treasury bonds. The fake securities, worth more than a third of U.S. national debt, were seized in January from a Swiss trust company where they were held in three large trunks.
Remarkably, treasury prices did not rally on the news, despite reduced supply.
So, what’s up with that? Possibly there are others trying to play counterfeiting games in the bond markets.
A group of traders and brokers successfully managed to manipulate an interest rate that affects loans around the world. In a court filing in Canada, an unidentified bank told  investigators that people involved in the alleged scheme “were able to move” interest rates. People familiar with the situation said the “cooperating party” is UBS AG. The Swiss bank has said it is assisting regulators in a sprawling interest-rate probe in North America, Europe and Asia, which has led to a score of individuals being fired or suspended by major U.S. and European banks and leading brokers.
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