EURUSD Trading at 1.2866 After Breaking Support, Same News Haunts Eurozone

After EUR/USD broke through floor support the other day in that perfect descending channel, or long-term downtrend since May 2011, tonight EUR/USD broke through 1.29 and is currently trading at 1.2866 (4:33am Eastern). The next line in the sand is the January 2012 low of 1.262. I have a post coming up on the GLD/SPY ratio, GLD, and SPY. The same risks are haunting the euro: the possibility of Greece leaving the Eurozone and causing market dislocations, insolvent banks, debt contagion spreading to Spain, Italy and Portugal, deflationary recessions in the Eurozone ex-Germany, and perhaps more easing by the ECB.

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China Lowers Bank Reserve Requirement Ratio, Shanghai SE A-Share Index Unchanged

*World edges closer to deflationary slump as money contracts in China (Telegraph)
*Yuan Declines After PBOC Weakens Fixing, Lowers Reserve Ratios (Bloomberg, w/ links to charts)
*China’s latest move to cut RRR marks to further ease policy (businesswatch.2lcbh.com)
*China’s monetary policy: where it stands now (Also Sprach Analyst, w/ charts)
People’s Bank of China cuts reserve requirement ratio by 50bps after ugly data (Also Sprach Analyst)
*The worst is NOT over for the China’s economy (Also Sprach Analyst w/ charts)
*China Lowers Banks’ Reserve Requirements to Support Growth (Bloomberg)
*China May Cut Reserve Ratio Further To Boost Economy - Paper (WSJ)
*China Stimulus May Limit Oil's Losses This Week: Survey (CNBC)
*Analysis: China growth risks signal need for fiscal action (Reuters)

The Shanghai Stock Exchange A-Share Index is unchanged at the moment.

Jamie Dimon on Meet The Press Talking About JPMorgan's $2 Billion Trading Loss

Jamie Dimon (Wikipedia)

As you already know, JPMorgan's chief investment office in London, which includes trader Bruno Iksil (the "London Whale") and CIO Ina Drew, lost $2 billion on wrong way bets, credit hedges, basis trades, curve trades, or whatever they were, on the synthetic credit default swap index CDX.NA.IG.9. I'll provide more details on this trade in another post. For now, I embedded the clip of Jamie Dimon on Meet the Press this morning talking about JPM's massive trading loss.

On April 6, Bloomberg first publicized JPM trader Bruno Iksil's sized position in the CDX.NA.IG.9 index, who was said to be "distorting prices."

"The trader may have built a $100 billion position in contracts on Series 9 (IBOXUG09) of the Markit CDX North America Investment Grade Index, according to the people, who said they based their estimates on the trades and price movements they witnessed as well as their understanding of the size and structure of the markets."

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California Faces $16 Billion Budget Deficit, Higher Than the $9.2 Billion Estimate in January (Governor Brown Video)

Source: Youtube

In his address to the people of California today on YouTube, California Governor Jerry Brown said Cali now faces a $16 billion budget deficit this year, up $6.8 billion from his estimate of $9.2 billion in January. To close the gap, Governor Brown wants plan to increase income and sales tax rates to spare budget cuts to public safety and schools. At least, as of yesterday, California was not on CMA's top ten list of sovereigns most likely to default via their credit default swaps. I posted yesterday that Illinois was higher than Spain at #9 on the list. In the video, Governor Brown said:

"We are still recovering from the worst recession since the 1930s. Tax receipts are coming in lower than expected, and the Federal government and the courts have blocked us from making billions in necessary budget reductions. The result is that we are now facing a $16 billion hole, not the $9 billion we thought in January. This means that we will have to go much further and make cuts far greater than I asked for in the beginning of the year."

"That's why I'm bypassing the gridlock and asking you, the people of California, to approve a plan that avoids cuts to schools and public safety. The plan: ask high income earners to pay up to 3% more in their income taxes for 7 years, and increase sales taxes by 1/4 of 1% for 4 years."

Bloomberg has the actual numbers:

"It would temporarily raise the state sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost rates on income starting at $250,000. The 10.3 percent levy on those making $1 million or more would rise to 13.3 percent, the most of any state."

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FYI: Illinois Has a Higher Default Probability Than Spain (CMA's CPD %)

Using CMA Datavision's cumulative probability of default percentage, Illinois has a higher default probability than Spain (37.46% vs. 36.27%). On CMA's highest default probabilities list, Illinois is ranked #9 and Spain #10. Don't ask how they came up with the calculation. Spain's 5Y credit default swap mid spread is at 519.88 and Illinois 5Y CDS is at 221.05. Look at the chart of Spain CDS at Bloomberg.com.

source: CMA Datavision

Student Debt Clock Hits $1 Trillion, Defaults Are Rising (CFPB), Moody's Downgrades Student Loan Revenue Bonds Guaranteed By Government

Source: FinAid.org (real-time update below)

FinAid's student debt clock is now over $1 trillion (see below). But, according to the Consumer Financial Protection Bureau in March, the total student debt balance (federal and private) hit $1 trillion several months ago.

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Chart Art: EUR/USD at 1.29361 (5/10/2012)

EUR/USD is currently trading at 1.29348 and recently broke through the Feb/March/April support level. If EUR/USD goes below 1.00, I'm taking a trip to España for dos semanas. Make it happen ECB. Will QE4 kill the descending channel?

source: freestockcharts.com

Best Buy Express: BBY is Near the 2008 Low ($19.94)

Part II from my previous post on April 16: Best Buy is Closing 50 Big Box Stores In 2012, Here is Their Store Strategy BBY.

Best Buy's stock chart ($BBY) continues to look weak and is double dipping towards the 2008 low. The stock closed at $19.94 today, a level not seen since October 2008. For the long side, BBY needs to build a support level and see a positive catalyst so it can attempt to break through ceiling resistance and that downtrend line. The first chart shows where BBY is trading relative to the 2008 crisis levels; the second chart is more short-term.

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Links: Greece, Euro, European Banks (5/9/2012)

Athens (source: DoctorWho - Flickr)

EFSF Confirms Release of 5.2 Billion Euros for Greece - (Bloomberg); EFSF bailout fund approves Greek emergency payment (Reuters); Europe Delays Bailout Payment For Greece (WSJ).

Euro Global Poll Shows More Than 50% Predicting an Exit (Bloomberg)

"Elena Panaritis, a former Greek member of parliament for the socialist Pasok party, talks about the outlook for the nation's debt crisis and possible exit from the euro zone." (Bloomberg Video)

FX Concepts' John Taylor thinks Greece could leave the euro zone this summer. Says money runs out in June (Bloomberg Video)

Roubini: "Greece is going to be the first country that's going to restructure and exit." "By the end of the year Spain is going to lose market access." (CNBC)

Euro Will Have to Be Devalued to Save EU: Prof. Jeremy Siegel (CNBC)

In One Paragraph, Art Cashin Explains How Greece Ends Up Back On The Drachma (Business Insider)

Greek left attacks ‘barbarous’ austerity (FT)

Greece Euro-Exit Debate Goes Public - (Bloomberg)

Moody’s Bank Downgrades Risk Choking European Recovery (Bloomberg)

Beyond Greece: EU Banks May Be Next Focus of Markets (CNBC)

*CIC Stops Buying Europe Government Debt on Crisis Concern (Bloomberg)

Greece General Share Index Now Down 88.4% From November 2007 Peak (5346 to 615)

The Greece General Share Index ($ATG) peaked out at 5346 in October 2007 and is now trading at 635 (-88.4%!). It just broke the January 2012 low as well.

Now look at the Greek General Share versus the S&P.

Source: StockCharts.com

Greece's "Uncompromising Nationalist" Party Golden Dawn Won 7% of Greek Parliamentary Vote (Leader's Speech Video)

It's starting to get interesting politically in the euro zone. It shouldn't come as a surprise given the severity of the sovereign debt crisis, austerity measures, bailouts, unemployment, and economic depressions in the euro zone. First, in the French election on May 6, French President Nicolas Sarkozy lost to François Hollande, the first socialist president elected in France since Francois Mitterrand in 1981 (BBC, Reuters, NYT). And in Greece's election over the weekend, the "uncompromising Nationalists" party, or neo-Nazi party (look at their flag), 'Golden Dawn' won 7% of the popular vote or 21/300 seats in the Greek parliament. I found an infographic by Thomson Reuters that broke out the Greek election.

Below I embedded videos of Nikolaos Michaloliakos, the leader of the Golden Dawn party, giving his victory speech to the media (translated into English) and answering questions on the street. I added a Russia Today video as well. If you want more info on this political party, VICE interviewed a member of Golden Dawn a few days before the election. Interesting turn of events. I also found a chart of the opinion polls going back to 2009. Look at Golden Dawn's trend line since November 2011 (black line).

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The Top 5 Banks That Dominate Derivatives

source: occ.gov (see below w/ table)

The Businessweek article I previous linked to (Goldman Says Rule Curbing Counterparty Links Risks Jobs) had interesting info on the too-big-to-fail banks' derivatives exposure as of 12/31/2011 (Q1 2012 not available yet):

"As of December, five firms accounted for 96 percent of the total U.S. banking industry’s notional holdings in derivatives and 86 percent of the industry’s net current credit exposure in derivatives, according to the Office of the Comptroller of the Currency."

I looked into this further and found the OCC's Q4 2011 report on bank trading and derivatives activities. Here's more from the summary.

• The notional amount of derivatives held by insured U.S. commercial banks fell $17 trillion, or 7%, from the third quarter of 2011, to $231 trillion. The fourth quarter decline in notionals followed a 0.6% decline during the third quarter, and marks the first time notionals have declined in consecutive quarters. Notional derivatives at year-end were 0.2% lower than at the end of 2010, the first year-over-year decline on record.

• Derivative contracts remain concentrated in interest rate products, which comprise 81% of total derivative notional amounts. Credit derivatives, which represent 6% of total derivatives notionals, fell 6% to $14.8 trillion.

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Link: Goldman Says Rule Curbing Counterparty Links Risks Jobs

Interesting article at BloombergBusinessweek:

"Goldman Sachs Group Inc. (GS) said a proposed Federal Reserve rule seeking to limit links between banks could cut U.S. economic growth by as much as 0.4 percentage point and eliminate as many as 300,000 jobs."

?

Live Occupy Wall Street Feeds (May Day), Market News Links

Herbalife down 23%!

Today was an eventful day.

• The ISM PMI number was better than expected and the market rose (so far);
• Einhorn knocked Herbalife (HLF) down 23% today after asking a question during its Q1 conference call;
• Fed governors were out talking about unemployment vs. tightening, when to tighten, ending too-big-to-fail banks, and criticized bank risk models;
• Greenspan was on Bloomberg saying stocks are "very cheap";
• And today was the May Day Occupy Wall Street protest. So I embedded two OWS Livestreams below for you to enjoy.

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Manufacturing Sector Expands In April For 33rd Consecutive Month, SPY Around April High Now

The market is up after the Institute for Supply Management reported a better than expected PMI (manufacturing) number for April (54.8% vs. 53.4% in March).

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Infographic On Suburbia's Decline

Here's an interesting infographic on the decline of the suburbs designed by Megan Jett at ArchDaily. The sources have come to the conclusion that poverty, gas prices, and Generation-Y wanting to drive less and live in more "walkable/bike-friendly areas" are contributing to suburbia's decline. Sounds about right. So does rail save the burbs?

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Learn Discounted Cash Flow Analysis, More Layoffs Coming At Banks

Learn discounted cash flow analysis courtesy of the Khan Academy. Didn't all of this analysis fail in the real world in 2006-7? At the end Sal Khan explains how these models fail. The financial industry keeps cutting thousands of jobs even after the mass layoffs during the financial crisis (Large layoffs loom on Wall Street - Fortune, 4/30/2012). "Banks haven't come up with a model that makes up the profits they used to get from propriety trading, CDOs and other structure deals they used to do," says Goldstein." And I'm reading at Business Insider that Bank of America/Merrill Lynch is planning to cut 2,000 jobs "in its investment banking, commercial banking and non-U.S. wealth-management units", which is "on top of the 30,000 planned layoffs the bank had already announced last fall." Maybe it's impossible to model asymmetric information.

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Spain Now in Recession (-0.3% Q1 GDP), S&P Downgrades Spanish Banks

Source: Spain's National Statistics Institute

After Spain reported a 24.4% unemployment rate on April 27, today Spain's National Statistics Institute reported that GDP declined by 0.3% during Q1 2012. Spain is now officially in a recession. Also, today S&P downgraded 11 Spanish banks today after they downgraded Spain's sovereign debt to BBB+ from A.

Spain's National Statistics Institute (ine.es):

"According to the quarterly GDP advance estimate, during the first quarter of 2012, Gross Domestic Product (GDP) generated by the Spanish economy registered a real variation of –0.3%, as compared with the previous quarter, similar rate to fourth quarter 2011.

The interannual GDP variation was –0.4%, as compared with 0.3%, for the previous quarter. This behavior was due to the negative contribution by domestic demand, partly compensated by the positive contribution of foreign demand."

Reuters: TEXT-S&P takes negative rating actions on 16 Spanish banks (includes Banco Santander and BBVA)

"-- The sovereign downgrade has direct negative rating implications for the banks that we rate at or above the sovereign rating on Spain, and on most banks whose ratings incorporate uplift over their "stand-alone credit profiles" (SACP) to reflect Spanish government support.

-- In addition, the factors behind the downgrade of Spain could have potentially negative implications for our view of the economic risk and industry risk affecting the Spanish banking industry and for our analysis of specific rating factors that drive our SACP assessments on Spanish banks.

-- We are lowering our long- and short-term ratings on 11 banks. In addition, we are also placing on CreditWatch negative the long- and short-term ratings on six banks, and only the long-term rating on one bank. We are keeping the ratings on three banks on CreditWatch negative and the ratings on one bank on CreditWatch positive."

Prof. Bill Black: Our System is So Flawed That Fraud is Mathematically Guaranteed! (Part 1)

Professor William Black, who was a former bank regulator and prosecutor during the Savings and Loan crisis in the early 1990s, told Chris Martenson in an podcast that losses from today's control frauds in the financial system "exceed the financial losses from all other forms of property crime combined!" When Professor Black was asked what he thought about hedge fund Paulson & Co.'s role in picking subprime mortgage-backed securities that were referenced in the Abacus synthetic CDO that Paulson sold short via Goldman Sachs (who then sold long exposure to IKB and RBS/ABN AMRO), he went WAY back and explained how the whole mortgage fraud epidemic started in the 1990s after the S&L crisis, which became systemic when Washington Mutual and Citicorp bought the wholesale lender/largest subprime lender Ameriquest. He then mentioned how the FBI said there was a huge mortgage fraud epidemic in 2004, but bank regulators didn't even contact them. And in 2006 when one in every three loans were liars loans (fraud). Chris Martenson and Bill Black also discussed how asymmetric information in the financial system created an "intellectual hole" that was "enough to drive the world's largest financial bubble through and the biggest epidemic of elite fraud in the history of the world", which of course is the foundation of most derivatives.

Like 50 Cent's movie "Get Rich or Die Tryin'", the financial system gets rich or gets bailed out trying! Crony capitalism FTW! Listen to part #1 below and part #2 at Chris Martenson's site.

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Video: President Obama at the 2012 White House Correspondents' Dinner

Here's the CSPAN video of President Obama at the 2012 White House Correspondents' Dinner. He ripped on Huffington Post's business model.

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Spain's Unemployment Rate Hits 24.44%, Youth Unemployment At 52%, Not Good (Q1, 2012)

Spain Unemployment Rate 24.44% (source: INE)

Wow, the Spanish government is trying to cut its budget deficit through austerity measures with the unemployment rate at an 18 year high, Spanish government bond yields and CDS rising, banks stressed with bad property loans, and regional governments possibly needing bailouts! You can see why S&P chopped Spain's credit rating to 'BBB+' from 'A' the other day and thinks there's a risk net government debt could rise further.

Spain's unemployment rate rose to 24.44% in the first quarter of 2012, which is near the multi-decade high of 24.5% in 1994 (Reuters chart via @pdacosta). And the youth unemployment (ages 16-25) rate hit 52% during the quarter (MarkitEconomics chart).

From Spain's Instituto Nacional de Estadística's (National Statistics Institute) data release on April 27, 2012:

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Video Tours of North Korea and a Google Presentation; Government Prevents Technical Breakouts

VICE founder Shane Smith went on a "highly orchestrated" tour of North Korea and even saw one of their labor camps in Siberia, Russia. I also embedded Google Tech Talk and National Geographic videos on North Korea, which provide more detail on the country. You'll learn more about the regime's prison camps and nuclear program, as well as hear a defector's story. But, since this is a financial blog, Siegfried Hecker, of Stanford's Center for International Security and Cooperation, briefly talked about North Korea's private market activity during his Google presentation. But, unfortunately, the government prevents technical breakouts.

"There are signs of market activity all over North Korea. And the markets have gone up and down over the years because as soon as they become successful, then the government becomes scared and tries to shut them down. Soon as it shuts them down, the people try to figure out, you know, where they can actually get something so they build them back up. And so it sort of oscillates over time. What the Chinese would really like to do, they say look what we did thirty years ago and sort of let the strings out on the free market. But the North Korean regime is much too scared of that, so it is very careful." (see last video)

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S&P Downgraded Spain to 'BBB+' From 'A' On Risk Net Government Debt Could Rise Further

Source: Flickr/Xavier68

From the S&P release: Ratings On Spain Lowered To 'BBB+/A-2' On Debt Concerns; Outlook Negative:

• We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.

• At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector.

• As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further.

• We are therefore lowering our long- and short-term sovereign credit ratings on Spain to 'BBB+/A-2' from 'A/A-1'.

• The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign's creditworthiness.

Visit this post I did three days ago to keep abreast of the situation in Spain: Spanish Bank and Sovereign Debt Risk Monitor (Maturity Schedule, Yields, CDS) 4/23/2012.

Fitch's Quarterly Report on U.S. High Yield Bonds, Leveraged Loans and CLOs (BofA Merrill 'CCC' Yield Chart)

I couldn't find Fitch's U.S. High Yield Chart Book (there was a European Chart Book released), but today Fitch released its Q1 2012 U.S. Leveraged Market Quarterly, which is packed with charts showing trends in the U.S. high yield bond, leveraged loan, and CLO (collateralized loan obligation) markets. Fitch mentioned that $86.9 billion of high yield bonds were issued in Q1 2012, a new record high. From the press release:

"The U.S. high yield bond market set a new quarterly issuance record with $86.9 billion in the first quarter. The previous quarterly record was $80.6 billion, set in the fourth quarter of 2010. February's issuance total of $34.4 billion, was the second busiest month on record. Nearly 52% of total issuance during the quarter was directed toward refinancing or redeeming other bonds or notes. High yield retail funds took in strong inflows totalling more than $15 billion during the quarter.

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Fitch's European High Yield Chart Book For April 2012

Fitch's April 2012 European High Yield Chart Book is available for free with a login. Below is the press release and charts of European high yield bond spreads by credit category and spread differentials from the Fitch report. From the spread differentials chart: "CCC vs BB spread rallied the most in Q112, coming within range of 2011 pre-summer levels, reflecting the return of risk appetite. Widening BBB vs BB spread since end March 2012 shows demand for safer assets in view of recent market volatility." I'm going to search for the U.S. high yield chart book.

Image source: Fitch

"Fitch: European High Yield Is Principal Alternative As Loan Issuance Subsides
26 Apr 2012 8:08 AM (EDT)

Link to Fitch Ratings' Report: European High Yield Chart Book April 2012

Fitch Ratings-London/Frankfurt-26 April 2012: Fitch Ratings has published the first edition of its new quarterly European High Yield (EHY) chart book, which illustrates recent trends in high yield bond issuance, maturities, default rates, fund flows and relative performance, as well as secondary market risk-adjusted pricing.

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FOMC Statement, Fed's Economic Projections and Bernanke's Press Conference Video (4/25/2012)

Source: federalreserve.gov/monetarypolicy/files/fomcprojtabl20120425.pdf

If interested, here is yesterday's FOMC statement, the Federal Reserve's economic projections for 2012-2014 (change in real GDP, unemployment rate, PCE inflation and core PCE inflation from January's projections), and a video of Federal Reserve chairman Ben Bernanke's press conference.

The "central tendency" of the Fed's real GDP projection for 2012 rose to 2.4-2.9 from 2.2-2.7 in January, but for 2013 its projection declined to 2.7-3.1 from 2.8-3.2 in January. The central tendency "excludes the three highest and three lowest projections." Click the image for further review. Jim Rogers recently told Fox Business that the U.S. is due for a recession in 2013. They occur every 4-6 years.

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Jim Rogers Says U.S. Due For Recession, Happens Every 4-6 Years; Gold Could Move Lower (Video)

Jim Rogers on Fox Business

On Fox Business on April 23, 2012, Jim Rogers, Chairman of Rogers Holdings, said he was "short some stocks" and believes the U.S. is due for a recession because they occur every four to six years. Also, "substantial tax increases" planned on January 1, 2013 could, if enacted, put pressure on economic growth. Jim Rogers is a long-term commodity bull and currently owns gold and agricultural commodities in his portfolio, but he still thinks gold and silver could move lower if the current trend continues. He also owns the "terribly flawed" U.S. dollar just in case there is global turmoil. Watch the interview below.

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Money, Power and Wall Street (FRONTLINE)

Frontline (PBS) is out with a two part documentary on the 2008 financial crisis titled "Money, Power and Wall Street". Watch the first episode of parts 1, 2, 3 and 4 below.

Bear Stearns documents (source: Frontline/PBS, click for the video)

From Chapter 1:

"In 1994, a team of young, 20-something JPMorgan bankers on a retreat in Boca Raton, Fla. dreamed up the “credit default swap” — a complicated derivative they hoped would help manage risk and stabilize the financial system. Fourteen years later, they watched in horror as that global system — weighed down by the risk of credit default swaps tied to morgtage loans — collapsed." (PBS.org)

FIN 501 #FAIL!

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Spanish Bank and Sovereign Debt Risk Monitor (Maturity Schedule, Yields, CDS)

Chart source: Tesoro.es

Since Spain seems to be the new Greece these days, I thought I'd link to quotes and charts of Spanish government bond yields, Spain's 5-year credit default swap, Spanish bank CDS, the German-Spanish 10Y yield spread (if bunds remain a safe haven), and a chart of Spain's monthly debt maturity schedule in 2012. April, July and October are the biggest months. You can also search for Spanish stocks on Bloomberg.com that trade on the Bolsa de Madrid (Madrid Stock Exchange). In this post I just linked to quotes that are hard to find on the web. I'm not sure where Spanish bank bond quotes are. Credit default swaps are essentially tradable bond insurance contracts that price and protect against default risk in the illiquid cash bond market. If there's a credit event (default), or in Greece's case a "restructuring event", the CDS holders would get a payout at par. But it all depends on the type of credit event and the contract language. The Spanish 5Y CDS spread (rate) made a new record high on 4/10/2012.

FYI: Letras del Tesoro = 3-18 months; Bonos del Estado = 3-5 years; Obligaciones del Estado = 10-30 years. More info here: http://www.tesoro.es/en/deuda/index_deuda.asp.

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North Korea Threatens to Attack South Korea

Kim Jong-Un, Flickr/PetersSnoopy

Some breaking geopolitical news tonight via @mpoppel of BNO News:

• North Korea threatens 'nationwide sacred war' to wipe out S. Korea (BNO News)

• North Korea threatens to attack South Korea: [Statement as released by the North Korean military through the country's state-run KCNA news agency]." (BNO News)

On KCNA's site (says April 20):

• Pyongyang City Army-People Rally Vows to Wipe out Lee Myung Bak Group (KCNA.co.jp) *Update: Watch the YouTube video of the rally below.

• DPRK People Vow to Wipe out S. Korean Regime (KCNA.co.jp)

I'm not sure what Lil' Kim is up to here, but definitely something to keep an eye on. ES (e-mini S&P) and GC (gold) are down 0.20% and 0.04%, respectively.

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The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?) - Elliott Wave International

Total Credit Market Debt % of U.S. GDP 1915-2011 (3Q) - Elliott Wave

Syndicated post by Elliott Wave International

The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?)

More Threatening Than Any Single Economic Sector

April 20, 2012

By Elliott Wave International

History shows that once a financial bubble bursts, it can take a long time to bounce back.

Recent history offers an example: Real estate prices topped in 2006-2007 -- then came the worst part of the sub-prime mortgage crisis in 2008.

Yet instead of recovering with the passage of time, real estate prices just keep getting worse:

Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002.

-- CNNMoney, March 27

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Greek Town Develops Bartering System Without The Euro!

Bartering is making a comeback! Watch the BBC news clip after the jump (hat tip Zero Hedge).

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Links For April 18, 2012

Natural Gas from 1999
 (DoubleLine Capital via BI)

• DoubleLine Capital's conference call slides: "To QE3 or not to QE3, That is the Question" (Jeff Gundlach/Jeff Sherman, April 17, 2012) - Business Insider

• Notes from Jeff Gundlach's conference call (says buy S&P 500 at single digit p/e ratio, likes natural gas) - Business Insider

• Paulson goes short on German Bunds (via CDS) - Financial Times

• Ray Dalio's Bridgewater Says Spain Is Worse Off Than It Was Before The LTRO - Business Insider

• George Soros's Speech at Opening Session (INET Berlin) - Slides / Video 

• George Soros: The Future of Europe 3/6 (INET Berlin) - Video

• Is Mercantilism Doomed to Fail? China, Germany, and Japan and the Exhaustion of Debtor Countries (Joseph Stiglitz's speech at INET Berlin) - Slides / Video

• The World in Balance Sheet Recession: What Post-2008 West Can Learn from Japan 1990-2005 (Richard Koo's speech at INET Berlin) - Slides / Video

• "Not if, but when" for Spanish bailout, experts believe - Reuters

• Spain has accepted mission impossible - Financial Times via BI

Best Buy is Closing 50 Big Box Stores In 2012, Here is Their Store Strategy (BBY)

After Blockbuster (update), Borders and Sears dumped square footage all over the retail commercial real estate market, now Best Buy is closing 50 big box stores in 2012. Here's the list of stores closing. Going forward, Best Buy plans to roll out more smaller stores ("Best Buy Mobile") and their new "Connected Store" format. I found the details in Best Buy's Q4/FY 2012 earnings release:

"U.S. Store Format Improvements

Best Buy's retail store strategy is to increase points of presence, while decreasing overall square footage, for increased flexibility in a multi-channel environment. The company intends to remodel key stores with a new Connected Store format in fiscal 2013, and to continue to build out the successful Best Buy Mobile small format stores throughout the U.S.

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Janet Tavakoli on Bank "Control Fraud", Credit Default Swaps, MF Global's Total Return Swap-to-Maturity Trade (and Missing Money)

If you want to know everything that's going on in the illiquid, opaque world of OTC derivatives and bank/broker-dealer fraud, Janet Tavakoli, founder and president of Tavakoli Structured Finance, is the one to listen to. She was interviewed by Lauren Lyster on RT's Capital Account on 3/26/2012 and discussed the shadow banking system, how "control fraud" blew up the investment banks during the credit bubble, how Jon Corzine's $11.5 billion (gross notional value) "total return swap-to-maturity" trade on risky European sovereign debt bankrupted MF Global via margin calls and ended up misappropriating $1.6 billion of client funds, and how credit default swaps are essentially leveraged bets with little money down and big upside potential (example: John Paulson's ABX trade betting against subprime MBS). She also said derivatives are now dominated by speculators that are distorting markets (example: JPMorgan lost money on a coal derivatives bet in 2010).

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Understanding the Risk of Synthetic CDOs (By Federal Reserve Economist in 2004, Where Was Greenspan?)

I found a research report that was written by Federal Reserve economist Michael S. Gibson in 2004 titled "Understanding the Risk of Synthetic CDOs". Did Alan Greenspan read this?

img: FCIC/Wikipedia

"The paper highlights key issues for investors in synthetic CDO tranches as well as for dealers who structure synthetic CDOs for clients. Investors in mezzanine CDO tranches are taking on leveraged exposures to the underlying credit risk of the reference portfolio. A tranche's credit rating does not convey all aspects of the tranche's risk. If investors disclose the notional amounts of their portfolio, broken down by credit rating, the leveraged nature of a mezzanine tranche's risk exposure would not be obvious.

The paper also touches on some of the risks to dealers who structure and make markets in synthetic CDO tranches for clients. A complete set of synthetic CDO tranches may not be fully hedged by selling single-name credit default swap protection on the CDO's reference portfolio if the CDO tranches are structured as swaps whose payouts do not depend on the flow of income from the reference portfolio. Dealers in CDO tranches, including those who structure single-tranche CDOs, are exposed to model risk and, because of the dynamic hedging required, liquidity risk that are not present in traditional cash CDOs."

Duolingo Lets You Learn a Language For Free Online

Finally, an easy way to learn a new language. I'm going to try this out. Visit Duolingo's website here and watch the video below.

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