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Tuesday, March 10, 2009

You Don't Put in THE Bottom With a Spike in Libor

Remember our good friend LIBOR? Well, he's totally causing shit again. So don't get too excited about this short squeeze... errr... rally. (You don't put in THE bottom with a spike in Libor.)

Three-Month Libor for Dollars Increases for 11th Day (Update2): "The cost of borrowing in dollars for three months in London rose for an 11th day as banks sought cash to cover their commitments through the end of the first quarter.

The London interbank offered rate, or Libor, that banks say they charge each other for such loans climbed two basis points to 1.33 percent, the highest level since Jan. 8, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, increased to the most since Jan. 9.

Banks are balking at lending amid a squeeze on cash toward the end of March on concern more financial institutions will need to be rescued by governments following almost $1.2 trillion of writedowns and losses since the start of 2007. Italy’s Banco Popolare SC today became the nation’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7 in return for state-asset guarantees.

“The liquidity will be horrible in the next couple of weeks,” said Vincent Chaigneau, head of international rates strategy at Societe Generale SA in London. “We have seen renewed stress in the Libor-OIS spread.”

The spread, the difference between the three-month Libor for dollars and the overnight indexed swap rate, widened two basis points to 107 basis points. It averaged 11 basis points from December 2001 to July 2007, and soared to 364 basis points in the weeks following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc."

Remember how giant spikes in Libor occurred PRIOR to the absolute meltdown in equities? October 2008 resulted in panic liquidation of risky assets (translation: the stock market shit the bed). Just prior to the absolute destruction of your 401k, Libor perked up.

09/24/08: Libor, Fed Funds, Money Markets: It's All Broken
06/26/08: LIBOR Perks Up Gain...
05/27/08: LIBOR Liars: UBS, HSBC, Royal Bank of Scotland
05/20/08: ZEW Hits Record Lows, LIBOR Woes Hurting Eurodollar
05/13/08: Libor Poised For Shake-Up, Credibility GONE
04/24/08: RISE Dark Lord Libor! RISE!
04/21/08: The Race To The Bottom Accelerates
04/17/08: The South Sea Bubble and Today’s Central Banks: FRB, BOE, ECB
04/14/08: The TED Spread, LIBOR and EURIBOR = Scary Bad

So when you read about how stocks "popped" yesterday, consider that Libor is getting ready to crash your party.

Stocks Post Best Rally of 2009 on Improving Citigroup Outlook: "Stocks around the world staged the biggest rally of the year after Citigroup Inc. said it was having its best quarter since 2007, spurring speculation the worst of the banking crisis is over. Treasuries and gold fell.

Citigroup jumped 38 percent as Chief Executive Officer Vikram Pandit wrote in an internal memorandum that the bank, which reported five straight quarterly losses, was profitable in the first two months of 2009. JPMorgan Chase & Co. climbed 23 percent and Bank of America Corp. surged 28 percent as Federal Reserve Chairman Ben S. Bernanke urged an overhaul of financial regulations. General Electric Co. rose 20 percent, its steepest advance since at least 1980."

In conclusion, if you really believe Citigroup (C) has suddenly started making money (excluding mark-to-market losses) you are quite possibly border line retarded. They've had the "best quarter since 2007"! Really? They did as well NOW as during the absolute apex of the greatest credit bubble ever? HOW? HOW is that even possible? WHERE could those profits possibly come from? (These are the same clowns that quietly moved a $1 trillion SIV onto their balance sheet.)


ARAK said...

While LIBOR may be spiking, the market can be irrational longer than a trader can be solvent. 18B shares traded today with $NYUPV:$NYDNV going absolutely berserk. There has to be a retrace, but who knows if the clowns will take this to the 740 to 760 area like they did last Oct and Nov after bottoming. If you noticed the new lows were set on very divergent distribution.

In short, I'm short and extremely cautious about a further rebound. Hopefully we do a DAX and retrace all the gains tomorrow.

Anonymous said...

Well others also note some stress in the system:

If bondholders get a haircut, the shareholders usually get a body shave.

none said...

From Bill Murphy's site tonight:

This Citgroup "release" is the biggest farce since Bear and Lehman said they didn't need any new capital. It is also illegal to "pre announce" earnings in this manner and has set up Citigroup to be pummeled with lawsuits if the tide turns for them in March. Did you notice that the news said the earnings excluded one-time charges?

"Pandit declined to say how large credit losses and other one-time items have been that would at least partially offset profit."

The latest housing decline has pummeled the value of Mortgage Backed Securities...are they not counting these? How many Credit Default Swaps did they have riding on GM? GM has already stated that they will run out of cash in March and it has already been agreed that a bankruptcy would be the likely outcome. For years GM has been the poster child for CDS bets with estimates running in the multi $TRILLIONS of bets placed on GM. Counterparty failures are already stressing the derivatives market but a GM failure will surely set off the Weapon Of Mass Financial Destruction blowing the big banks out of the water.

So why did Citigroup do it?

That's week starts the Stock Black-out Period for most of the financial institutions before their 1st quarter earnings release. During the black-out period company employees are not allowed to trade (or dump) their own stock until after their earnings release. With the banking sector about to implode any day this will be the insiders last gasp at cashing out.

Yes. This is a complete fraud but the SEC is in on the game.

MrM said...

Citi could have counted the reduced market value of its debt as part of "other income" - this is what Barclays did just a few weeks ago

Anonymous said...


Thanks as well as to all those who commented. I'm short as well and all this helps a lot. We may have to hold our noses a bit but it shouldn't last too long. For the mutual fund public this has got to be an opportunity to sell,so beyond short covering and hedge funds in on the game I don't see much pushing the market hgher.


Anonymous said...


Great blog!

Does this mean that there will be another rush into gold by the Europeans and that it will spike to $1000/oz again?

raytayzmd said...

...maybe...but always remember just about the time you're absolutely sure an indicator is going to make you rich...well, that's also about the time it puts you in the poorhouse.

Anonymous said...

none is right - how can this be legal?

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