Global Deflationary Macro Links (May 21, 2012)

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Ray Dalio's World (Barron's)
Hedge Funds Rebuild Euro Bear Bets On Greek Exit Banks Weigh (Bloomberg)
The anatomy of the eurozone bank run (Financial Times)
Treasury Yield Close To Record Low On Europe Debt Crisis (Bloomberg)
Wen Growth Pledge Spurs Speculation Of China Stimulus (Bloomberg)
Chinese buyers default on coal shipments -traders (Reuters)
Latest data raises red flags likely to burst China’s bubble: SocGen's Albert Edwards (The Globe and Mail)
Insight: China pays high price to spare state firm from bankruptcy (Reuters)
Analysis: China's towering metal stockpiles cast economic shadow (Reuters)
Morgan Stanley cuts India’s growth forecast to 6.3 percent (FirstPost/Reuters)
Rising US recession risk poses the real threat to Europe (The Telegraph)
Greek euro exit could throw UK 'into long-term recession' (Guardian)
UK: Recession prompts rise in calls to mental health lines (BBC)
Food Stamp Use Picks Up Again, In Los Angeles County (
New college graduates earning less than a decade ago (Los Angeles Times)
OUTLIER? - Tide Turning In Japan Deflation Fight, BOJ’s Top Economist Says (Bloomberg)

Deflated  (Robert Couse-Baker via Flickr)

Highlights From Jamie Dimon's Call on JPM's $2 Billion+ Trading Loss on Synthetic Credit Positions

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Listen to JPMorgan Chase's CEO Jamie Dimon explain how JPM's chief investment office in London lost $2 billion on synthetic credit exposure in only six weeks (and perhaps up to $5 billion as JPM unwinds its positions). Or now it could be $6 to $7 billion? Seriously?

"The number being bandied about now is closer to a range of $6 billion to $7 billion, according to several people working on trading desks that specialize in the derivatives JPMorgan Chase (JPM, Fortune 500) used to make its trades and from two sources with knowledge of the bank's positions." (CNN Money)

Huge wrong way "re-hedges" on the synthetic credit default swap index CDX.NA.IG.9, put on by the 'London Whale', were supposedly responsible for some of the losses. But the rest of the complex trade that blew up appears to be a mystery. The JPM Whale Watching Tour at FT Alphaville is trying to figure it out. And here's the original Bloomberg piece from April 6 that set everything off with CDX.NA.IG.9 (JPMorgan Trader’s Positions Said To Distort Credit Indexes). It is interesting that as of 12/31/2011, the total notional value of OTC credit derivatives held at JPMorgan Chase stood at $5.7 trillion.

Listen to highlights from the May 10 conference call below.

How Facebook Managed To Stay Above Its $38 IPO Price (Update)

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Watch this amazing explanation by on how Facebook managed to stay above its $38 IPO price on its first day of trading. Watch high frequency traders scalp $FB between $38 and $38.05 for five minutes straight with a large mystery buyer at the IPO price. I put up charts as well. So, when do all bonds and credit default swaps start trading at these bid/ask spreads? Update: Facebook Banker Morgan Stanley Bought A Humongous Amount Of Stock To Try To Support Price (Bloomberg at Business Insider)

Facebook's $38 IPO Price Values Company at $104 Billion (26x Sales)

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Source: Facebook Form-S1
As a reminder, Facebook starts trading today under the ticker symbol $FB on the NASDAQ. The IPO price was set at 
$38, which values the company at $104.2 billion and 26x sales. LinkedIn (LNKD) currently trades at 15.57x sales, Tencent Holdings Ltd (700:HK) at 11.64x sales, Baidu (BIDU) at 15.88x sales, and Google (GOOG) at 5.04x sales. Those were the high flyers. Are there better comparables I'm missing? Read Facebook's S-1 filing to see its financial statements and trends in user metrics. To your right are charts showing Facebook's quarterly revenue trends since Q1 2010.

Here's a interesting metric to monitor. Bloomberg's Cory Johnson (video below) showed that Facebook's revenue-growth-per-daily-active-user trend year-over-year fell in Q4 2011 and Q1 2012 to 3% and 0%, respectively. So, it's clear why Zuck is hanging out in China, buying companies like Instagram, and trying to diversify revenue streams (credits, app store, coupons, etc). The stock will be fun to watch. Are VXFB futures coming out soon? I also posted Zuckerberg's letter to investors and embedded an interesting interview with Zuck in 2005. Biiiiig day today.

EURUSD is now testing the January low (1.262) on Greek exit, European bank worries

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EUR/USD is currently trading at 1.26442 and finally testing the January 13 low of 1.26244. Nice downside move after breaking support. It could bounce at the January low and test that downtrend line for a potential upside trade, but EUR/USD is still trading in a descending channel. January support is an important level to hold, in my opinion. If 1.26 breaks, 1.20 to parity is next (second chart). I'd be very bullish on the euro (EUR/USD) if it managed to break above 1.30 (ceiling resistance) and through that downtrend line from September 2011. The euro is worried about the possibility of Greece leaving the European Monetary Union (Economic and Monetary Union) and credit risk rising at European banks.

Fitch Downgrades Greece to 'CCC' on Grexit Risk, Moody's Downgrades 16 Spanish Banks

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Greek Drachmas (Wikipedia)
The market's reaction today: S&P 500: 1304.86, -1.51%, Gold (Spot): 1,570.90, +2.17%, and 10-year Treasury Note Yield 1.70%, -3.57%. Chart update coming up.

"Fitch Takes Negative Rating Actions on Greece
17 May 2012 1:30 PM (EDT)

Link to Fitch Ratings' Report:
Fitch Takes Negative Rating Actions on Greece

Fitch Ratings-London-17 May 2012: Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B-'. The Short-term foreign currency IDR has also been downgraded to 'C' from 'B'. At the same time, the agency has revised the Country Ceiling to 'B-'.

The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the 6 May parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF EUR173bn programme.

In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable. A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations, despite a moderate sovereign debt service burden following the restructuring of Greek government bonds in March.

Alerts: Spain's Bankia Tanks, ECB Stops Lending to Some Greek Banks, Moody's to Downgrade 21 Spanish Banks

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Bankia -23.5% (source: Yahoo Finance)
Breaking Links for May 17, 2012:

*Bankia customers pull out over 1 billion euros: report (
*Bankia Shares Dive on Deposit Concerns (WSJ)
*Bankia Shares Plummet On Concerns About Deposit Drain (Dow Jones Newswires)
*Moody's to downgrade 21 Spanish banks: report (AFP)
*Spain beset by bank crisis, recession, bond pressure (Reuters)
*Exclusive: ECB stops operations with some Greek banks (Reuters)
*ECB Stops Loans to Some Greek Banks as Draghi Talks Exit (Bloomberg)
*ECB move on Greek banks hits euro confidence (Reuters)
*TREASURIES-Bonds firm on ECB/Greece banks news, FOMC minutes (Reuters)
*UK PM: Core of Euro Zone, ECB Must Do More To Solve Crisis (Dow Jones Newswires)
*SocGen: If Greece Leaves The Euro, Get Ready For A Whoosh Out Of Spanish And Italian Banks (Business Insider)
*Former ECB Member: Anyone Who Thinks A Greek Exit Won't Cause A Major Crisis Has No Clue What They're Talking about (Business Insider)

*JPMorgan’s Trading Loss Is Said to Rise at Least 50% (so, the loss will total $3 billion) (NYT)
*Coffee May Help Drinkers Live Longer, U.S. Study Suggests (Bloomberg)

Housing Update: XHB, ITB vs. SPY, DIA, QQQ, IYT, XLF (Charts)

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House Attack, Vienna (via weburbanist)
Even though
KB Home (KBH), Hovnanian (HOV), and other levered housing stubs have been under pressure as of late (or for years now), the homebuilding and construction ETF's XHB and ITB have been holding up quite well during the recent market selloff. I put up charts of XHB and ITB, and XHB and ITB versus SPY, DIA, QQQ, IYT, and XLF.

ITB (black line) and XHB (blue line) haven't followed the severity of the selloff. It seems like the homebuilding ETFs have been pricing in less-bad housing data and the possibility that homes will become a "non-depreciating asset" in the next few years. ITB is still down 75% from its 2005 peak. Home prices continue to make new lows, albeit at a slower rate, while foreclosure inventory remains near historic highs and the unemployment rate is at  8.1 8.4%, in real terms. The new REO-to-rental (real estate owned-to-rental) programs at the TBTF banks and GSEs could help support prices, but "Goldman Sachs sees three huge obstacles to the program's success." On a final note, on Pandora Radio today I heard two ads on house flipping, and I noticed that Vanilla Ice is deep in the game.

Now to the charts. How does the gap close between ITB and the rest of the market? Is housing in its own world?

CHK June Put Volume Spikes After S&P Says Chesapeake Could Breach Covenant (Update 2)

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Even after Chesapeake Energy received a $4 billion unsecured term loan (without covenants) from institutional investors to "repay borrowings under the company's existing corporate revolving credit facility", which would support billions in asset sales ($9.5-$11B is their target), S&P downgraded Chesapeake's credit rating to 'BB-', further into junk territory. But most importantly, S&P said that Chesapeake could breach the "debt to lagging-12-month EBITDA" covenant within the next three quarters. As a result, out-of-the-money put volume spiked in June.

Chesapeake Energy Increases Size of Term Loan to $4 Billion (Update 2)

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Chesapeake Energy ($CHK) plans to use the $4 billion unsecured term loan from Goldman and Jefferies (and syndicated to institutional investors) to "repay borrowings under the company's existing corporate revolving credit facility", which, according to CEO Aubrey McClendon, would provide "enhanced financial flexibility to execute our planned asset sales from a position of strength." Aubrey McClendon and CFO Dominic Dell'Osso provided additional information in a conference call with analysts on May 14 (transcript at

CEO Aubrey McClendon on Chesapeake's planned asset sales:

"In addition to the Permian sale and Miss Lime JV, we've identified a number of other assets that are non-core to us. And we will sell enough of those in the second half of 2012 to reach our asset sales target of $9.5 billion to $11 billion for the remainder of the year."

CFO Dominic Dell'Osso on maintenance covenants in Chesapeake's revolving credit facility:

"Remember, our only maintenance covenants are in our revolving credit facility, which is a $4 billion facility secured by a relatively small subset of our $50 billion to $60 billion asset value that Aubrey referred to earlier. These covenants are 4x debt to trailing EBITDA limitation and a 70% debt-to-capitalization ratio."

EUR/USD Selling Off Hard (1.27278), Seeing if January Low Can Hold

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Ever since EURUSD broke support the other day, it's been trending towards the January low of 1.26244. Let's see if it can hold. Coming up, a video with a hedge fund manager's view on the euro.

SPY at Levels Not Seen Since January, GLD Near December 2011 Low

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Below are charts of GLD and SPY. SPY made a new multi-month low today at 133.78, a level not seen since January. GLD, currently trading at 150.59, continues to sell off and is approaching the 12/29/2011 low of 148.27. I've been watching GLD and GLD/SPY since March 1, and they are starting to look interesting again. I'll continue to post on this.

Nomura's Zhang: China GDP Growth Could Fall Below 8% Without Fiscal Stimulus (Video)

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Source: Haldini / flickr
After foreign direct investment (FDI) in China fell by 0.7% in April (
-27.9% from the European Union), the sixth monthly decline in a row, Zhiwei Zhang, Nomura's Chief China Economist, told Bloomberg TV that the downside risk to economic growth in China is "becoming higher", and GDP growth could fall below 8% if the Chinese government doesn't boost infrastructure spending. He also said the PBOC (People's Bank of China) could lower lending rates further, but believes fiscal policy would be more effective than monetary policy at this point.

Yesterday the PBOC lowered the reserve requirement ratio (RRR) for banks by 50 basis points.

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

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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.

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

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*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 (
*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

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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."

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

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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."

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

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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?


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

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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.

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

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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)

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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.


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

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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).

The Top 5 Banks That Dominate Derivatives

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source: (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.

Link: Goldman Says Rule Curbing Counterparty Links Risks Jobs

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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

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Herbalife down 23%!
Today was an eventful day.

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

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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).

Infographic On Suburbia's Decline

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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?

Learn Discounted Cash Flow Analysis, More Layoffs Coming At Banks

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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.

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

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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 (

"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)

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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.

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

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

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

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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:

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

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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)

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

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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)

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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.

Fitch's European High Yield Chart Book For April 2012

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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.

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

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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.

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

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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.

Money, Power and Wall Street (FRONTLINE)

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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." (

FIN 501 #FAIL!

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

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Chart source:
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 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:

North Korea Threatens to Attack South Korea

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Kim Jong-Un, Flickr/PetersSnoopy
Some breaking geopolitical news tonight via @mpoppel of BNO News:

On KCNA's site (says April 20):

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.