Financial News

[StrangeSox]

Don't worry, I am sure he will find one of his other Goldman buddies to take over.

 

But Obama hates banks and is so mean to them!

 

Geithner should have been gone a year ago at the latest.

[StrangeSox]

Jobless claims ticked back up:

 

http://www.bloomberg.com/news/2012-01-26/f...volatility.html

 

Applications (INJCJC) for unemployment insurance payments climbed by 21,000 to 377,000 in the week ended Jan. 21, up from an almost four-year low in the prior period, Labor Department figures showed today in Washington. The median forecast of 47 economists in a Bloomberg News survey projected 370,000.

[NorthSideSox72]

Jobless claims ticked back up:

 

http://www.bloomberg.com/news/2012-01-26/f...volatility.html

4 week average actually fell, since the overall trend has been going down lately.

 

[StrangeSox]

GDP growth rate was 2.8% in 4Q2011.

http://www.bbc.co.uk/news/business-16760575

 

Slow, but improving.

[StrangeSox]

More reactions on the GDP news, some good, some bad.

 

http://andrewsullivan.thedailybeast.com/20...1/gdp-reax.html

[Balta1701]

Germany has begun demanding that as a condition for being bailed out, Greece give up control of something called "Greece".

Europe's leaders remained locked in dispute yesterday over the size of the eurozone bailout funds, as it emerged Germany is pushing for Greece to be stripped of powers to control its budgets.

 

The move to make Greece hand over control of budgetary policy as the price for agreeing a €130bn rescue package would represent a humiliating blow to Greece's hopes of controlling its own destiny but could offer a means of staving off financial ruin.

 

The proposal was made by Germany as the euro group considered how extra finance should be offered to countries such as Greece which need support but are "continuously off-track" with their budgets. The idea, a source told Reuters, would be that European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.

No one is going to convince me that "giving up sovereign control over your own government" is a better move than giving up and leaving the Euro.

[StrangeSox]

The Germans want to annex territory, shocking.

[SuperSteve]

The Germans want to annex territory, shocking.

And impose internal wage deflation of what, 40-50%? I think Greece needs to be jettison because Portugal is in bad shape now too. Cut you fingernail in order to save your body. Let the Greeks be shut out of the international bond market and simply tell them we tried to help you but you wouldn't help yourself.

[Balta1701]

And impose internal wage deflation of what, 40-50%? I think Greece needs to be jettison because Portugal is in bad shape now too. Cut you fingernail in order to save your body. Let the Greeks be shut out of the international bond market and simply tell them we tried to help you but you wouldn't help yourself.

If the Germans or French tried to dump Greece, this would be a very bad thing for a select group of German and French banks and investors. Thus, even if that were to be the right decision for everyone else, it won't happen, because the banks and investors are the important ones.

[SuperSteve]

If the Germans or French tried to dump Greece, this would be a very bad thing for a select group of German and French banks and investors. Thus, even if that were to be the right decision for everyone else, it won't happen, because the banks and investors are the important ones.

The size of the Greek bonds are not material in the grand scheme. The market is already pricing in a default event and the ECB may need to take a haircut on the 40b EUR in Greek bonds that they hold. That in effect would have an effect on using the Greek bonds as collateral.

 

I disagree with the comment investors are important. Taking a huge haircut only to receive 3.25% 20-30 year bonds in return is sticking it to investors especially if Greece retroactively changes any laws. Think of what happen to the auto industry in the US. Creditors got screwed and the unions made out like bandits.

 

The solution to giving Greece another 130b EUR in March is insane. Use that money to pay off the CDS and make the banks whole. Greece is a black hole right now. They're insolvent.

 

The big question last month was how much of the LTRO would be used to buy sovereign debts. Outside of the fact the banks are parking 500b EUR at the ECB, it seems to have worked on Spanish and Italian bonds. Portugal has gotten even scarier now. We have another round of LTRO in February (effectively QE), which should aid the economies more, however Greece is essentially a brain dead patient. Sell 50% wage deflation to get them back to competitiveness or they return to their own currency.

 

Long thoughts, short question. You'd like to keep bailing out Greece, shall the EU just continue to give them hundreds of billions of euros each year? On the current course, Greece probably cannot be saved.

 

 

The most interesting piece of all this too is the views of the banks. I trade currencies for a corporate for a living and we know to take all the commentary with a grain of salt and stick to commentary by Isda, consultants, or researches like Bianco.

[Balta1701]

How on Earth do you expect any country to pull off that level of wage deflation while the ECB holds eurozone wide inflation rates at or below the magic 2%? Wages simply do not do that. If there's a clear message from the European situation, that's it. You can take others, but that's the clearest one you can see...the ECB has tried to impose that solution on half a dozen countries and it has failed in every case.

 

And when the investments that the european banks and hedge funds hold would be literally worth nothing in the event of Greece just giving them the middle finger, anything they'd get in return for those investments is a taxpayer-arranged gift.

[SuperSteve]

How on Earth do you expect any country to pull off that level of wage deflation while the ECB holds eurozone wide inflation rates at or below the magic 2%? Wages simply do not do that. If there's a clear message from the European situation, that's it. You can take others, but that's the clearest one you can see...the ECB has tried to impose that solution on half a dozen countries and it has failed in every case.

 

And when the investments that the european banks and hedge funds hold would be literally worth nothing in the event of Greece just giving them the middle finger, anything they'd get in return for those investments is a taxpayer-arranged gift.

I don't expect that type of wage deflation. That's your argument. If the Greeks stay in the EZ, then that wage deflation will have to happen in order to make them remotely competitive. Even if the private haircut deal happens, the Greeks will still be at 120% debt to GDP. My argument is Greece needs to leave the EZ, given them the ability to inflate to level wages. Even if they choose to go the non-deliverable route in order to control the currency.

 

If the Greeks default, the insurance kicks in. Those pesky credit default swaps will protect the hedge funds while the EZ can use the 130b EUR that's going to be given to Greece as their next bailout to protect the banks in the remaining EZ.

 

You never answered my question too. You don't want to cut wages or have Greece leave the EZ, so would you just prefer a bail out every quarter? The IMF has basically said hold on there. The Greeks do not have a schedule to pay any of their bailouts back.

[SuperSteve]

Basically my biggest fear is contagion and I just cannot see how Greece can fix itself without leaving the EZ. Sorry if I came off as dickish too Balta,I wasn't trying to.

[SuperSteve]

Jamie Diamond has an interview on CNBC that he says a Greek default will have almost no affect on US banks.

[kapkomet]

Jamie Diamond has an interview on CNBC that he says a Greek default will have almost no affect on US banks.

 

Which is exactly why the current policy is to "let Europe deal with it".

[Balta1701]

Basically my biggest fear is contagion and I just cannot see how Greece can fix itself without leaving the EZ. Sorry if I came off as dickish too Balta,I wasn't trying to.

Actually I've been saying that the only way this gets fixed is if Greece leaves the EZ as well, for a while.

 

Anyway, I come off as dickish to everyone here, so no worries.

[Balta1701]

Which is exactly why the current policy is to "let Europe deal with it".

Didn't we guarantee them some big loans last fall?

[SuperSteve]

Didn't we guarantee them some big loans last fall?

Are you referring to the central bank coordination between the US, Canada, ECB, UK, Swiss, and I want to say Japanese but I can't remember the sixth?

[Balta1701]

Are you referring to the central bank coordination between the US, Canada, ECB, UK, Swiss, and I want to say Japanese but I can't remember the sixth?

Yeah, I didn't pay attention to all the details but I knew the Fed was involved in guaranteeing something about the time that the yields on italian bonds started stabilizing/plummeting.

[SuperSteve]

It came out today that Greece needs 145b EUR for their next bailout, 15b EUR more than agreed to. The German fin min said about a week ago they will not get more than the 130b EUR. This will be interesting.

 

Portugal's bonds were beat up today (as we're Italy and Spain's). That situation has the potential to be another Greece.

[Balta1701]

So, Facebook IPO talk, in here or separate thread?

[lostfan]

Hey southsider2k5 let's go back a couple of years when you and I were talking about commodities trading and you were telling me it doesn't affect the price of oil because whenever a speculator buys a futures contract, they have to also sell the contract to someone too. I figured something out though and you can tell me if I'm right or wrong.

 

The way you described it, that's how it's supposed to work in theory and that's how the commodities market worked for several decades because it's a short term market. What's different is investment banks encouraging index funds and other large sources of money to invest in the commodities market like it was the stock market (there were rules against this from the start for very specific reasons but as usual there were loopholes found/created), the idea being to add "liquidity" which is redundant anyway because that's the entire reason speculators exist in the first place. Because this money is all for long term investing their only motivation is having the price go up over time (also not the point of futures which are only for a month, not 10 years) and it blows the whole market, not like the stock market where people buy and hold, or short sell and whatnot, and aren't dealing with physical goods that people use in real life. So, people are still buying and selling, but pushing dozens of times the amount of money into speculation means you're buying and selling at much higher prices that don't reflect the actual value of what's being traded, in this case oil.

[NorthSideSox72]

Hey southsider2k5 let's go back a couple of years when you and I were talking about commodities trading and you were telling me it doesn't affect the price of oil because whenever a speculator buys a futures contract, they have to also sell the contract to someone too. I figured something out though and you can tell me if I'm right or wrong.

 

The way you described it, that's how it's supposed to work in theory and that's how the commodities market worked for several decades because it's a short term market. What's different is investment banks encouraging index funds and other large sources of money to invest in the commodities market like it was the stock market (there were rules against this from the start for very specific reasons but as usual there were loopholes found/created), the idea being to add "liquidity" which is redundant anyway because that's the entire reason speculators exist in the first place. Because this money is all for long term investing their only motivation is having the price go up over time (also not the point of futures which are only for a month, not 10 years) and it blows the whole market, not like the stock market where people buy and hold, or short sell and whatnot, and aren't dealing with physical goods that people use in real life. So, people are still buying and selling, but pushing dozens of times the amount of money into speculation means you're buying and selling at much higher prices that don't reflect the actual value of what's being traded, in this case oil.

I am not southsider2k5, but I play on on TV...

 

First, I doubt he said that commodity trading doesn't affect the price of oil. In fact it sets the general value of a certain variety of commonly purchased oil, which leads the market and gives price indicators. What he probably said is the SPECULATION doesn't MANIPULATE the price of oil beyond fundamentally dictated levels, except on rare occasion and for short periods of time.

 

Also, I think you have a slight misunderstanding of how futures (oil or otherwise) work. They are not month-long instruments. At this moment in time, if I am a trader, I can buy contracts for oil that expire in a month or less (this would be called the Front Month), but I can also buy contracts for, say... June, or December, or December of 2013... and in some cases many years out. And in fact those index funds do not always just roll over front month to next, they sometimes balance via calendar spreads or just outright time spreads over multiple contract periods.

 

I would say you are correct about one thing though - the existence of DBO and other similar commodity-long funds does, in fact, probably inflate prices more than just via trading fluctuations. For most commodities, those that are not nationally controlled, this isn't a problem because the spot, unregulated and smaller markets will work against the artificial rise. With oil, the delivery points are too few and too institutional, so even beyond just OPEC, the other actors can be a de facto cartel. There is a danger there.

 

The way the market MIGHT react to that in the long run is, as oil becomes more expensive (it would anyway, but made worse in this instance), usage drops as people conserve, find alternatives, nations increase production, etc. So the overall effect is probably not as dramatic as you may fear.

 

[lostfan]

I am not southsider2k5, but I play on on TV...

 

First, I doubt he said that commodity trading doesn't affect the price of oil. In fact it sets the general value of a certain variety of commonly purchased oil, which leads the market and gives price indicators. What he probably said is the SPECULATION doesn't MANIPULATE the price of oil beyond fundamentally dictated levels, except on rare occasion and for short periods of time.

 

Also, I think you have a slight misunderstanding of how futures (oil or otherwise) work. They are not month-long instruments. At this moment in time, if I am a trader, I can buy contracts for oil that expire in a month or less (this would be called the Front Month), but I can also buy contracts for, say... June, or December, or December of 2013... and in some cases many years out. And in fact those index funds do not always just roll over front month to next, they sometimes balance via calendar spreads or just outright time spreads over multiple contract periods.

 

I would say you are correct about one thing though - the existence of DBO and other similar commodity-long funds does, in fact, probably inflate prices more than just via trading fluctuations. For most commodities, those that are not nationally controlled, this isn't a problem because the spot, unregulated and smaller markets will work against the artificial rise. With oil, the delivery points are too few and too institutional, so even beyond just OPEC, the other actors can be a de facto cartel. There is a danger there.

 

The way the market MIGHT react to that in the long run is, as oil becomes more expensive (it would anyway, but made worse in this instance), usage drops as people conserve, find alternatives, nations increase production, etc. So the overall effect is probably not as dramatic as you may fear.

Oh no I understand futures I'm just not typing on a keyboard which makes me lazy.

 

Shorten that post to say sudden influx of new funds = imbalance of speculators to physical goods = extreme risk of artificial price inflation

[southsider2k5]

Most of those funds aren't actually based in oil though. All of those ETFs that scream about gold or oil, don't actually own gold or oil. They are immaterial to the real price of the commodity they claim to represent.

 

And especially in oil, the futures go out for years. I can go out to 2020 in crude and 2017 in gold.