Frolicking in America’s Hat this weekend…
Cyprus “blackmailed” into Eurozone bailout, bank deposit levy | Reuters
Cypriot government will vote on more progressive tax on bank deposits, but as it stands right now, the EU & ECB forced them to accept a “bail-in”: emergency funds in exchange for 6.7% one-time tax on deposits €100k.
[Frightening precedent this sets, as supranational/foreign governments have breached national deposit insurance guarantees to enforce a haircut on small depositors, leaving bondholders and subordinated stockholders whole–not to mention the interests of Russian oligarchs here too.]
#Run on the Bank
Rail traffic weekly: Trend growth maintained | Association of American Railroads (AAR)
Weekly traffic +1.3% (vs. this week last year); total ytd volume to +1.1% y/y.
4 of 10 carload groups posted gains: Petroleum products +46.5%; grains -16.5.
FHFA: Update on the Home Affordable Modification Program | Calculated Risk
HAMP mods increased significantly in 2012, as program finally gains traction. With new, relaxed standards, 25% of 2012’s 1.1mm mods were for LTVs over 126%, bringing total to 2.2mm since 2009.
Kyle Bass: “The next AIG,” or the return of mispriced risk | Initiative on Global Markets (Chicago Booth School)
He’s been buying Japanese “jump risk” (12mo tail risk options) for 1bp–priced cheaply because brokers don’t have to hold reserves against it as their stress test doesn’t capture default risk within a 95% VaR model. He’s accumulated $500B in notional coverage, and now his broker wants to close the trade after remodeling their exposure (stress test increased max loss from 50bps to 400bps).
Best investment for the next decade is gold denominated in JPY (XAUJPY).
Howard Marks (Oaktree Capital): We’re in the “fifth inning” of a credit bubble | Barron’s
With junk bonds yielding 5.7% (+490bps spread), it would take 9% default rate for a diversified high yield portfolio to underperform Treasuries, and that’s never happened before. If rates rise, it’ll be due to economic growth, which means HY is the place to be.
Stocks are the best publicly traded prospect, because they still “remain less loved” due to the lingering trauma of the crisis.
His favorite asset class is commercial real estate, where there are still dislocations & distressed opportunities, in which he’s doing a lot of lending.