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For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw acoordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday’s losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.

As Bloomberg’s Richard Breslow comments, the majority of Asian equity indexes finished with losses but on an upbeat note, helping most European markets to start with modest gains that have increased with the morning, thanks to the aforementioned domestic and global mood stabilization. S&P futures have been positive all day other than a brief dip negative at the worst of the day’s China levels. Chinese equities opened quite weak and were down another 5% before the authorities assured the market that speculation they would withdraw from market supportive measures was misguided. This began a rally of over 6% before a mid-afternoon swoon.

…click on the above link to read the rest of the article…

Italy – Non-Performing Loans Hit a New Record High

July 15, 2015

Italy – Non-Performing Loans Hit a New Record High

While all Eyes are on Greece, Italy’s Banks are Drowning in Bad Debt

The real danger to the euro area probably doesn’t emanate from Greece, but from two of its heavyweights, namely France and Italy. A small note in the European press reminds us that all is not well in at least one of these countries, least of all with its banks (currently this is only a “page 16 story”, but it has great potential to eventually move to the front page).

NPLs by region Regional distribution of non-performing loans in Italy

The note reads as follows:

“Rome – because of the recession of recent years and corporate bankruptcies, the total of bad loans has continued to rise in Italy. According to Italy’s banking association ABI, non-performing loans amounted to 193.7 billion euro in May, 25.1 billion more than in the same month in 2014. This is the highest level since 1996.

Non-performing loans represent 10.1 percent of all loans granted by Italian banks, ABI said on Tuesday. Especially small and medium enterprises continue to be under pressure due to bad loans, so will take a long time before banks will see the bad loan situation ease, the ABI report stated. Italian companies are currently struggling with the effects of the longest economic crisis since World War II and are therefore often no longer able to service their loans.”

(emphasis added)

If our calculator can be trusted, this means that bad loans in Italy’s banking system have increased by roughly 14.9% over just the past year – by no means a peak crisis year, although Italy’s listing economy continued to contract slightly.

As the following chart shows (unfortunately we were only able to obtain this slightly dated version), Italian NPLs stood at € 165 bn. in Q1 2014. However, to this one must actually add all sorts of loans that are otherwise delinquent/dubious or sub-standard, but haven’t yet reached “full” NPL status. These are summarized together with NPLs under the term impaired loans below.

…click on the above link to read the rest of the article…

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

July 9, 2015

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

Here is a brief sample of some of the measures the Chinese government and the PBOC have unleashed in just the past ten days to prop up the crashing market include:

a ban on major shareholders, corporate executives, directors from selling stock for 6 months
freezing more than half (1400 at last count per Bloomberg) of the listed companies from trading,
blocking fund redemptions, forcing companies to invest in the market,
halting IPOs,
reducing equity transaction fees,
providing daily bailouts to the margin lending authority,
reducing margin requirements,
boosting buybacks
endless propaganda by Beijing Bob.

The measures are summarized below.

But it wasn’t until last night’s first official threat to “malicious” (short) sellers that they face charges (i.e., arrest), as Xinhua reported yesterday:

[Ministry of Public Security in conjunction with the recent Commission investigation of malicious short stock and stock index clues ] correspondent was informed on the 9th morning , Vice Minister of Public Security Meng Qingfeng led to the Commission , in conjunction with the recent Commission investigation of malicious short stock and stock index clues show regulatory authorities to the operation of heavy combat illegal activities.

… that the wall of Chinese intervention finally worked. For now.

And since this is all about one thing, the stock, market, it is worth noting that the Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who used a wrong discount rate in their DCF, when everything suddenly took off, and the SHCOMP closed a “Dramamine required” 5.8% higher, the biggest daily increase since March 2009!

“As China beefs up its efforts to rescue the market, with even the public security ministry involved, market sentiment is recovering slightly from a panicky stage earlier,” Shenyin Wanguo analyst Qian Qimin says by phone

…click on the above link to read the rest of the article…

Germany Crushes All Hope Of Greece Getting Debt Relief

July 8, 2015

Germany Crushes All Hope Of Greece Getting Debt Relief

As the Grexit debate is falling into the background a new, far more powerful conflict emerges: one between Germany on one side, and the IMF, France, Italy, and perhaps even the US, when it comes to the all important issue of debt relief.

As a reminder, it was the unexpected release of the IMF’s debt (un)sustainability draft late last week (with US support over the vocal objections of Europe) that not only gave Tsipras a Greferendum win (he did not desire), but showed clearly that without a debt haircut of at least 30%, any Greek deal will merely lead to another, even more violent Greek default down the line.

Then, overnight, the Telegraph showed that the “debt-haircut” axis has even more supporters in Europe:

French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put “Greece on a path toward debt sustainability” and sort out the festering problem once and for all.

The Franco-American push is backed by Italy’s Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief for Greece.

Finally, it was none other than Tsipras who piggybacked on the IMF’s imlicit recommendation who following the “victorious” referendum made a clear demand of Europe:

TSIPRAS ASKS FOR 30 PERCENT DEBT HAIRCUT

Fast forward to this morning when shortly after the latest Greek capitulation, when in Tsipras’ official request for ESM bailout he said timidly that “as part of a broader discussion to be held, Greece welcomes the opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term” Germany made it very clear whether there will be any debt haircuts, or reprofiling in the coming years.

Nein.

…click on the above link to read the rest of the article…

Greece Caves, Formally Requests ESM Bailout: Full Headline And Next Steps Summary

July 8, 2015

Greece Caves, Formally Requests ESM Bailout: Full Headline And Next Steps Summary

As we reported yesterday, following the latest European leaders summit, Greece was given until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe’s currency bloc and into economic ruin.

“The stark reality is that we have only five days left … Until now I have avoided talking about deadlines, but tonight I have to say loud and clear that the final deadline ends this week,” European Council President Donald Tusk told a news conference.

It did that moments ago when Greece officially submitted a request for a three-year loan facility from the European Stability Mechanism. And to think Syriza’s main election promise was no more bailouts…

As Bloomberg reports, the loan will be used to meet Greece’s debt obligations, and to ensure financial system stability. Greece proposed immediate implementation of measures, including tax, pension reforms as early as next week. Govt to detail its proposals for specific reform agenda on July 9 at latest or tomorrow.

More details from the WSJ:

Greece formally requested a three-year bailout from the eurozone’s rescue fund Wednesday and pledged to start implementing some of the overhauls demanded by creditors by early next week, according to a copy of the request seen by The Wall Street Journal.

Crucially for Greece’s creditors, the letter says the government would start implementing some measures, including on taxation and pensions, by the beginning of next week, though it doesn’t go into details.

The letter is a first step toward fulfilling a demand by international creditors, who have given Athens until Sunday to come up with tougher measures they would impose in return for desperately needed financing that could keep the country from bankruptcy and even worse economic turmoil.

…click on the above link to read the rest of the article…

Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash

July 8, 2015

Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash

Today’s market battle will be between those (central banks) “hoping” that a Greek deal over the weekend is finallyimminent (which on one hand looks possible after a major backpeddling by Tsipras – who may never have wanted to win the Greferendum in the first place – yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.

For those who may have missed the overnight fireworks, here are some more indicative Bloomberg headlines about China:

China’s Stocks Plunge as State Intervention Fails to Stop Rout
China Freezes Trading in 1,300 Companies as Stock Market Tumbles
China’s State-Owned Firms Ordered Not to Cut Share Holdings
China’s Market Rescue Makes Matters Worse as Prices Lose Meaning
China Ramps Up Policy Response as Panic Grips Stock Market

While pundits have been eager to downplay what is now a historic rout in Chinese risk assets, one that is matched by the depression of 2008 and which has sent the SHCOMP from up 60% for the year 3 weeks ago to barely green losing some 15 Greeces in market cap since mid-June…

… the same pundits to whom neither the oil crash nor a Grexit nor the imminent collapse in Q2 corporate revenues and GAAP EPS, or anything else matters, the reality is that the Chinese stock rout is very clearly starting to have contagion effects on the rest of the economy, crashing commodities such as crude, gold, copper, iron and virtually everything else where China has been a marginal source of demand, but leading to forced selling of anything that is not nailed down.

…click on the above link to read the rest of the article…

Leaked Documents Show FBI, DEA and U.S. Army Buying Italian Spyware

July 7, 2015

Leaked Documents Show FBI, DEA and U.S. Army Buying Italian Spyware

The FBI, Drug Enforcement Administration and U.S. Army have all bought controversial software that allows users to take remote control of suspects’ computers, recording their calls, emails, keystrokes and even activating their cameras, according to internal documents hacked from the software’s Italian manufacturer.

The company, Hacking Team, has also been aggressively marketing the software to other U.S. law enforcement and intelligence agencies, demonstrating their products to district attorneys in New York, San Bernardino, California, and Maricopa, Arizona; and multi-agency task forces like the Metropolitan Bureau of Investigation in Florida and California’s Regional Enforcement Allied Computer Team. (We do not use this product nor are we currently considering a proposal from the vendor/manufacturer to purchase it,” Jerry Cobb, a spokesperson for the Maricopa County Attorney’s Office said.)

The company was also in conversation with various other agencies, including the CIA, the Pentagon’s Criminal Investigative Service, the New York Police Department, and Immigrations and Customs Enforcement.

The revelations come from hundreds of gigabytes of company information, including emails and financial records, which were released online Sunday night and analyzed by The Intercept. Milan-based Hacking Team is one of a handful of companies that sell off-the-shelf spyware for hundreds of thousands of euros — a price point accessible to smaller countries and large police forces. Hacking Team has drawn fire from human rights and privacy activists who contend that the company’s aggressive malware, known as Remote Control System, or RCS, is being sold to countries that deploy it against activists, political opponents and journalists.

Even in the U.S., where the software would presumably be used only with a judge’s approval, the tactic is still controversial. Just last month, Sen. Chuck Grassley, R-Iowa, wrote to the director of the FBI asking for “more specific information about the FBI’s current use of spyware,” in order for the Senate Judiciary Committee to evaluate “serious privacy concerns.”

…click on the above link to read the rest of the article…

Greece Fallout: Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks

July 7, 2015

Greece Fallout: Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks

Greece France Spain and Italy

In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth ofclaims on Greece. French banks, as shown in the right-hand figure above, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain.

The €110 billion of loans provided to Greece by the IMF and Eurozone in May 2010 enabled Greece to avoid default on its obligations to these banks. In the absence of such loans, France would have been forced into a massive bailout of its banking system. Instead, French banks were able virtually to eliminate their exposure to Greece by selling bonds, allowing bonds to mature, and taking partial write-offs in 2012. The bailout effectively mutualized much of their exposure within the Eurozone.

The impact of this backdoor bailout of French banks is being felt now, with Greece on the precipice of an historic default. Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is. Governments have filled the breach, but not in proportion to their banks’ exposure in 2010. Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%.

In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above. In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion. Total German exposure is up by a similar amount – €35 billion. Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010. The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

…click on the above link to read the rest of the article…

The Biggest Issue Now Is “The Math”

July 6, 2015

The Biggest Issue Now Is “The Math”

Some quick pre-market observations from Bloomberg’s Richard Breslow

Just Don’t Nip Out for a Haircut

The Greek citizenry voted and the handicappers got it very wrong. The result of the vote was called much earlier than anyone expected. It wasn’t close.

Much was made last week of the abrogating of responsibility by PM Tsipras by allowing the referendum. How can mere citizens be trusted with understanding such difficult issues? Issues that the technocratic experts got nowhere with. No one expected the result. No one was set up for the result. Chaos will ensue. But here we are, admittedly early the next morning and the markets are remarkably calm

Merkel and Hollande will meet. The ECB will meet. The Greek cabinet will meet. Cool heads will prevail. The unpopular Varoufakis is not gloating, he is resigning. The base case remains that a deal will happen because it must happen. The Greek people may have gotten us closer to a deal than all of the summits ever could

EUR/USD has held inside last Monday’s range. Two Mondays in a row, the pair has traded below 1.1000 and quickly rejected those lower prices. The 100-DMA (1.1057) is looking more like a pivot than a line in the sand. USD/JPY has bent, but not broken; 122.00 continues to be an important level and is holding. Watch the JPY as a measure of safe-haven demand

I remain a USD bull and still think EUR/USD will go lower, but its resilience in light of all the news is impressive.

Bund futures are higher, but holding well below the 55-DMA (153.61). U.S. 10-yr futures are holding below the important 127-00 level. Watch 126-16 as interesting support. Below there we are back into familiar territory

…click on the above link to read the rest of the article…

Did The IMF Just Open Pandora’s Box?

July 3, 2015

Did The IMF Just Open Pandora’s Box?

By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).

And yet, today, in a stunning display of the schism within the Troika, it was the IMF itself which explicitly stated that Greece is no longer viable unless there is both additional funding provided to the country, which can only happen if there is another massive debt haircut.

This is what the IMF said:

Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks. Assuming official (concessional) financing through end–2018, the debt-to-GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2022 (see Figure 4ii). Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets.

…click on the above link to read the rest of the article…

Greek Contagion Spreads As Several Italian Bank Stocks Failed To Open

June 29, 2015

Greek Contagion Spreads As Several Italian Bank Stocks Failed To Open

While things have normalized since the open thanks entirely to the SNB’s aggressive EUR-buying, CHF-selling intervention (good to see that central banks have read the BIS’ report and have learned from their prior intervention mistakes), earlier this morning we got a snapshot of what happens if and when the SNB, and then the ECB itself, finally lose control when as a result of the Greek crisis the contagion promptly spread a few hundred kilometers west to Italy where as the WSJ reported, “several Italian banks failed to start trading on Monday as fears over a Greek debt default induced many investors to shed peripheral stocks, including Italian, with banks suffering the most.”

As the paper reported sales orders on Italian stocks, in particular financial stocks, piled up before the market opening. At the start, the sales orders were so numerous that the system couldn’t manage to process them, something that often happens when specific news causes a sell-off on a stock.

Theoretical prices for Italian banks–the prices at which they would have started trading–hovered around losses of 8% to 10% at the beginning of the trading session.

UniCredit SpA and Intesa Sanpaolo managed to start trading some time after the market opened, but were suspended immediately, accumulating losses of around 6% compared with Friday’s closing prices.

Ironically, in an attempt to avoid just this kind of selling panic, on Sunday, Italy’s banking lobby head Antonio Patuelli dismissed fears of contagion on Italian lenders, saying the country’s banks’ direct exposure to Greece was less than EUR1 billion.

For now the SNB has stabilized things but how much longer will this artificial “stability” continue especially if the just concluded speech by Jean-Claude Juncker managed to antagonize Greeks even further and pushed all those who were on the fence about this Sunday’s coming Greferendum, solidly into the “No” camp.

Prime Minister Matteo Renzi gave a powerful speech on the need of acting against climate change….. or did he?

June 25, 2015

Prime Minister Matteo Renzi gave a powerful speech on the need of acting against climate change….. or did he?

The international media seem to be fascinated by the similarities in the physical aspect of Mr. Bean and of Mr. Matteo Renzi, prime minister of the Italian Government. There may be some similarities, indeed, but it is also true that Mr. Renzi is a shrewd politician who can be seen as a good example of a political style that privileges form over substance.

A few days ago, Mr. Renzi, Italy’s prime minister, attended a meeting on the climate situation. He was praised for having taken a stance against climate change, but I think his speech is a good example of how a smart politician can say a lot and, at the same time, say nothing. It is a political style that is not specific to Italy, but is, rather, universal today.

So, I took the liberty of translating some of Mr. Renzi’s statements at the meeting on climate, (as reported here) and adding their real meaning as Mr. Renzi himself could have done. (boldface: Mr. Renzi actual statements)

“I don’t believe in a culture of negativity and of pessimism, I am optimist, but it is necessary to assume one’s responsibilities and the time of choices is today” – So, I am starting with this remarkable platitude, and don’t think I’ll stop here!

“…to say that for us climate is a priority means to give back a sense of identity to our country…” which is, of course, another platitude, but it serves a purpose: note that I said “a” priority and I didn’t say which are the other priorities so that, as you may well imagine, there will always be some priority higher than climate (and in a moment I’ll tell you what these priorities are).

…click on the above link to read the rest of the article…

“The Collateral Has Run Out” – JPM Warns ECB Will Use Greek “Nuclear Option” If No Monday Deal

June 21, 2015

“The Collateral Has Run Out” – JPM Warns ECB Will Use Greek “Nuclear Option” If No Monday Deal

(via Corriere)

Although estimates vary, Kathimerini, citing Greek banking officials, puts Friday’s deposit outflow at €1.7 billion. If true, that would mark a serious step up from the estimated €1.2 billion that left the banking system on Thursday and serves to underscore just how critical the ECB’s emergency decision to lift the ELA cap by €1.8 billion truly was. “Banks expressed relief following Frankfurt’s reaction, acknowledging that Friday could have ended very differently without a new cash injection,” the Greek daily said, adding that the ECB’s expectation of “a positive outcome in Monday’s meeting”, suggests ELA could be frozen if the stalemate remains after leaders convene the ad hoc summit. Bloomberg has more on the summit:

Dorothea Lambros stood outside an HSBC branch in central Athens on Friday afternoon, an envelope stuffed with cash in one hand and a 38,000 euro ($43,000) cashier’s check in the other.

She was a few minutes too late to make her deposit at the London-based bank. She was too scared to take her life-savings back to her Greek bank. She worried it wouldn’t survive the weekend.

“I don’t know what happens on Monday,” said Lambros, a 58-year-old government employee.

Nobody does. Every shifting deadline, every last-gasp effort has built up to this: a nation that went to sleep on Friday not knowing what Monday will bring. A deal, or more brinkmanship. Shuttered banks and empty cash machines, or a few more days of euros in their pockets and drachmas in their past – – and maybe their future.

For Greeks, the fear is that Monday will be deja vu, a return to a past not that distant. Before the euro replaced the drachma in 2002, the Greeks were already a European bête noire, their currency mostly trapped inside their nation, where cash was king and checks a novelty.

…click on the above link to read the rest of the article…

Greece: Out Of Cash, Out Of Time, Out Of Options

June 4, 2015

Greece: Out Of Cash, Out Of Time, Out Of Options

On Friday Greece is due to pay at least a quarter of the €1.5bn due to the IMF in June.

…

The creditors say they will only disburse the money if the Greek government enacts various key economic reforms and does not roll back reforms the last government agreed with the lenders and if the Greek government undertakes to run large enough budget surpluses every year in the future that Greece might have a chance of paying back the money the creditors have lent it.

The Greek government says there is no possibility of it ever paying back all the money it has been lent and the creditors need to accept that, write off some of the debt, and not insist that Greece runs large surpluses (predicated on the fantasy of paying back the debt) or cuts back on pensions or enacts other similar measures that run contrary to the Greek voters’ will (as expressed in the last election).

Most commentary still appears predicated on the idea that there will be some last-minute deal – either because the creditors will back down and give Greece some more money without requiring it to be paid back or because the Greek government will back down if it understands that not doing so would ultimately mean leaving the euro.

I, on the other hand, don’t believe either side is particularly interested in achieving a deal.

The Eurozone does not want to make any compromise with the current Greek government because:

(a) they don’t believe they need to because Greek threats to leave the euro are empty both because internal polling suggests Greeks don’t want to leave and because if they did leave that doesn’t really constitute any threat to the euro;

…click on the above link to read the rest of the article…

Is There Something Behind the Power Outage in Washington DC?

April 10, 2015

Is There Something Behind the Power Outage in Washington DC?

The April 7th, 2015 power outage in Washington DC is curious to say the least. Virtually instantaneously, the government declare it was not a terrorist attack. After all, how could that possibly be when the NSA guards the country. If there was an attack on the power-grid, then the NSA would have to answer for their failure. So clearly, if it was an attack, they would never admit it.

Instead, this has been attributed to a piece of metal breaking loose from a power line 43 miles southeast of the District of Columbia, which knocked out electricity to the White House, State Department and wide area including parts of Maryland. Can a simple piece of metal break and shut down that much power of a strategic area as DC? That seems to be an excuse like some drunk driver knocked over a power pole.

Only six days before Obama had to switch to emergency power was on April 1st in Rome where the power supply was out for hours effecting the Lazio region. That included the major Roman airport of Fiumicino. The cause of that event somehow remains unknown.

Just the day before in Turkey there was another power failure. That was the worst blackout since the devastating Marmara earthquake of 1999. Chaos in the capital and much of the country drew more than 70 million Turks into chaos. Public transport was paralyzed, traffic lights were dark, conveyor belts continued. Elevators halted and mobile phones were silent. Even hospitals switched to emergency mode and the NSA style surveillance cameras in the capital Ankara went black.

…click on the above link to read the rest of the article…

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