In October, I posted The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008! and As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves. Time will tell if I am correct, but the trends are still moving in my favor. From Bloomberg:
JPMorgan Chase & Co. and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said.
JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of 2009, compared with a gain of $10 million in the same period a year earlier. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc. and the trustee liquidating Bernard L. Madoff’s firm.
... JPMorgan’s third-quarter net profit of $4.4 billion, up 23 percent from the year earlier, would have been larger if it hadn’t set aside $1.3 billion of pretax income for lawsuits and $1 billion for mortgage repurchases. Banks haven’t yet reported their results for the fourth quarter.
Of course, there are a few tidbits missing from this statement that can add to its accuracy. Let's see... Where did those profits come from? Again, you will find divergence between how BoomBustBlog reports and that of mainstream financial reporting. See JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!! Sunday, October 17th, 2010
In a Nutshell, JPM’s quarterly results were downright horrible – as we expected and warned of in our previous quarterly analyses (see notes at bottom of page)…
This mornings news flow is essentially a "Didn't Reggie tell us this in full detail up to two years ago" fest. Indebted Europe is falling apart for the new year just a day after the liquidity driven romp in equities. The Portugal T-Bill Yield Almost Doubles in Auction, from 3 months ago. The yield Portugal pays on its debt has increased 522% since this last year. This is after the Pan-European bailout fund was announced and implemented to put an end to such pressures. Alas.... The best laid plans. CNBC reports, as does Bloomberg:
Portugal sold six-month bills today, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. The government debt agency, known as IGCP, auctioned 500 million euros ($665 million) of bills repayable in July. The yield jumped to 3.686 percent from 2.045 percent at a sale of similar maturity securities in September, with investors bidding for 2.6 times the amount offered. A year ago, the country paid just 0.592 percent to borrow for six months.
Yeah, this is sustainable. What is so interesting that mathematically, a default is definitely in the Portuguese cards, but the mains stream media does not drill down on this. Why? We, at BoomBustBlog have literally given away a complete mathematical analysis that shows the default happening - in real time, and for free. See The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History Tuesday, December 7th, 2010 and The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog Monday, December 6th, 2010. The line of default demarcation has been drawn in the sand t 2013, but does anyone truly believe that all of these deeply indebted states will float for that long. Could you imagine your interest rates rising over 500% and continue to climb during YOUR time of need?
In 2008 I gave explicit warning that an unprecedented swath of US municipalities were at risk of default. I was pooh poohed by many "experts" who consistently said that the history of default in the US muni bond market is slim to none. Well, my friends, that is history and this is now. The dearth of revenues from declining building permits, sales taxes in the absence of real sales, property taxes from depreciating properties, etc. - all built upon budgets that were carved at the peak of bubble economics groupthink combine to make a disastrous brew.
NYC, arguably the richest economic "city state" in the world and the mecca of banking and real estate is experiencing "applied austerity" programs, effectively going through the service and government payment cutbacks that the Europeans are "promising" to deliver. Keep in mind that NYC is comparable to, if not larger than, from an economic footprint perspective Greece and Portugal. I have accurately determined that the EU is in it very deep - deep enough that default of several nations is a foregone conclusion (see the complete Pan-European Sovereign Debt Crisis series for more on this).
Despite the nearly guaranteed default of the Euro-area nations, it ain't pretty over hear either, particularly as those eliminated services that have been taken for granted are needed, as in the post Christmas mini-blizzard. I say mini-blizzard because real New Yorkers know that 16 inches of snow is close to a regular occurrence. We get snowstorms nearly every year, but this one literally shut the city down - completely down.
Our proprietary Sovereign Contagion model explicitly warned of Belgium issues as far back as June 4th, 2010. S&P is just now catching up, lowering its outlook on Belgium to negative.
S&P Lowers Outlook On Belgium To Negative Wall Street Journal
LONDON (Dow Jones)--Standard and Poor's Corp. lowered its ratings outlook on Belgium to negative from stable Tuesday, saying if the country fails to form a government within six months it could possibly face a one-notch downgrade. The ratings agency also affirmed the country's AA+ rating, the second-highest level, on a better-than-expected 2010 government budget outcome. However, the prolonged political uncertainty in the country poses a risk to its credit standing, "especially given the difficult market conditions many euro-zone governments are facing," it said.
The move is the first change S&P has made to Belgium's rating outlook since July 1992, when it first applied a stable outlook to the sovereign. The AA+ has been constant since first applied in Oct. 1988. The new outlook, along with the rating, puts Belgium on par with New Zealand in terms of S&P's ratings universe. "We view Belgium's political uncertainty as primarily evidenced by the prolonged delay in forming a federal government after the June 2010 general election, as well as the prolonged inability to form a key policy consensus across Belgium's linguistic divide," said Marko Mrsnik, credit analyst at S&P.
While on the topic... 'Belgium Has No Future' Spiegel Online
Six months after the general election, Belgium still has no new government. Flemish nationalist Bart De Wever, head of the country's largest party, wants to split Belgium into two states. In an interview that has caused a scandal in his country, he told SPIEGEL why the nation has "no future."
Primarily Dealer Credit Facility
Note: Paying subscribers may download the fully scrubbed model containing all of the date output by the Fed regarding the PDCF as an Excel pivot table here, Primarily Dealer Credit Facility Analysis. Those who are interested in subscribing to our research should click here.
Yesterday, I illustrated how the Fed buried TARP 2.0 amongst a spreadsheet dump of over 70,000 trades and what amounted to probably a million cells of spreadsheet data distributed among a plethora files, see Buried Deep Within The Files That The Federal Reserve Released On Thier MBS Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!. Today, we will review another one of those files, dealing with the lending program that the Fed instituted for its Primary Dealer banks.
I have warned many a BoomBustBlog reader not to discount Microsoft in the mobile computing wars (Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet). Their recent tech, whether it be mobile OS, cloud-based or interface related is impressive and represent clean starts and breaks from the past hegemony. May I introduce the future of Microsoft Windows?
If you think that is a little far fetched, it is currently running on a Microsoft OS at MIT using the Xbox Kinnect interface. MIT's brain labs cobbled together the hand detection system that has been pretty much fantasy up until now, and has used Microsoft's Kinect accessory for the Xbox 360 to do it. The clip below illustrates a demonstration using a makeshift picture-scrolling UI.
Cast your mind back to the ancient time that was this August and you'll recall Eric Schmidt telling you, with no lack of pride, that 200,000 Android phones were being sold each and every day. Skip past Steve Jobs' snide remarks about what's included in that tally, and fast-forward to today, where Andy Rubin is blowing minds with the latest, very nicely rounded, total: 300,000 daily activations. Yes, in spite of being the most fragmented thing this side of our 10-year old hard drives, the Android OS just keeps growing at an exponential rate. So Steve, any comment on today's data? Were they counting it wrong?
Well, to begin with... Just how fragmented is Android, really? From Phandroid, Android 2.x Running On 83% Of Devices Accessing Android Market
Android Developers released its regular report on Android OS distribution on Android devices accessing the Android Market in a two week period, and the number of devices running Android 2.1 and Android 2.2 have continued to become more prevelant than Android 1.5 and 1.6 powered devices, with Android 2.x OS devices now account for an 83% share.
In media, particularly video, distribution costs have been literally flattened by the web, production costs have been dramatically reduced by digital HD technology and do-it-yourself CGI, and marketing made democratic via viral and social networking channels; the barriers to entry that allowed the big media houses to rake in fat margin profits no longer exist. Its just a matter of time before the world at large figures this out. It would behoove those in positions of power and influence in these shops to come to this realization and truly embrace the magic of distributed computing in lieu of trying to force the genie back into the bottle, replete with all of its accompanying magic.
With this being said, there has been much talk regarding the MSM blocking access to their content though Google TV, Google's new initiative to merge the Web and TV content through a unified, seamless interface...
The Wall Street Journal is reporting that the Big Three TV networks have decided not to allow their programs, which already stream online, to be available through Google TV, which puts the web onto consumers' televisions.
According to the The Journal's Sam Schechner and Amir Efrati, "The move marks an escalation in ongoing disputes between Google and some media companies, which are skeptical that Google can provide a business model that would compensate them for potentially cannibalizing existing broadcast businesses."
AP) - News Corp.'s Fox has joined broadcasters ABC, CBS and NBC in blocking access to full episodes of shows when searched from Google TV's Web browser. That's according to a person at Fox familiar with the matter.
There are more and more "professionals" in the mainstream media stating that they expect European defaults. What is interesting is that as there is at least a minority of pundits that are facing this inevitable event. European (and American) equity markets are still chuggling the global liquidity elixir awash in the markets and moving ever higher. From Bloomberg: Shrinking Euro Union Seen by Creditors Who Cried for Argentina
Nine months before Argentina stopped paying its obligations in 2001, Jonathan Binder sold all his holdings of the nation’s bonds, protecting clients from the biggest sovereign default. Now he’s betting Greece, Portugal and Spain will restructure debts and leave the euro.
Binder, the former Standard Asset Management banker who is chief investment officer at Consilium Investment Management in Fort Lauderdale, Florida, has been buying credit-default swaps the past year to protect against default by those three nations as well as Italy and Belgium. He’s also shorting, or betting against, subordinated bonds of banks in the European Union.
“You will probably see at least one restructuring before the end of the next year,” said Binder, whose Emerging Market Absolute Return Fund gained 17.6 percent this year, compared with an average return of 10 percent for those investing in developing nations, according to Barclay Hedge, a Fairfield, Iowa-based firm that tracks hedge funds.
He’s got plenty of company. Mohamed El-Erian, whose emerging-market fund at Pacific Investment Management Co. beat its peers in 2001 by avoiding Argentina, expects countries to exit the 16-nation euro zone. Gramercy, a $2.2 billion investment firm in Greenwich, Connecticut, is buying swaps in Europe to hedge holdings of emerging-market bonds, said Chief Investment Officer Robert Koenigsberger, who dumped Argentine notes more than a year before its default.
No disrespect intended to these fine gentlemen and distinguished investors, but the default of several of these states is simple math. You cannot take 8 from 10 10 from 8 and come up with a positive number. It really does boil down to being just that simple in the grand scheme of things. I actually released a complete road map of Portugal's default yesterday (see The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog), and today I will walk those who are not adept in the area through it with simple graphs and plain vanilla explanations.
You don't need a "wikileaks.org" site to reveal much of the BS that is going on in the world today. A lot of revelation can be made simply by having motivated, knowledgeable experts scour through publicly available records. I'm about to make said point by showing that the proclamations of the ECB, IMF, the Portuguese government and all of those other governments that claim that Portugal will not default on their loans is simply total, unmitigated, uncut bullshit nonsense.
If you recall, I made a similar claim regarding the Irish government and posted proof of such, see Here’s Something That You Will Not Find Elsewhere – Proof That Ireland Will Have To Default… November 30th, 2010.
For those who wish to skip my market commentary and feel you may already understand how to interpret the output of the restructuring model, go straight to the haircut analysis by simply clicking this link and scroll to the bottom until you see the live spreadsheet. For the rest, let's start by looking at it from the German's perspective as reported in Bloomberg: Germany Snubs Pleas to Boost Aid, Sell Joint Bonds
Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund or introduce joint bond sales, signaling its refusal to bear extra costs to stamp out the debt crisis. With European finance ministers gathered in Brussels today for their monthly meeting, German Chancellor Angela Merkel rebuffed pleas from Belgium and central bankers to boost the emergency fund to save countries such as Portugal and Spain from falling prey to speculation. “Right now I see no need to expand the fund,” Merkel told reporters in Berlin. She said EU treaties bar joint bond sales, which might force up Germany’s borrowing costs, the lowest in the euro area. European political discord pushed down bonds in Spain and Italy today, reversing gains made last week after purchases by the European Central Bank briefly eased concern about the spreading crisis. The ECB bought the most bonds in a week since June, according to a statement today. The yield on Spain’s 10-year notes climbed 9 basis points to 5.08 percent as of 5 p.m. in London. Italy’s yield rose 7 basis points to 4.47 percent. The euro halted a three-session rally, dipping 1 percent to $1.3283.