RED ALERT: FX Dislocation In Process

Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading.

It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once - Euro, Pound, Yen - all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling.

At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds "not that big" to move these markets in a coordinated fashion like this is a trillion-dollar enterprise - this is not some small company that went bankrupt, or even a large company.

There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not "automatic selling"; this is forced liquidation.

Folks, if this translates into Eastern Europe where there are severe instabilities already brewing literally everything in the financial world could come apart "all at once."

The worse news is that if this happens Bernanke will have killed us (in the US) by extending those swap lines all over the planet during the last six months. These will become utterly uncollectable and they are massive, in the many hundreds of billions of dollars.

To those who are reading this, I hope if you're in the markets you are prepared for extreme levels of violence. You must expect that the authorities will try to arrest the destruction if they are able, but you must also be prepared for the possibility that we have reached a "critical mass" point beyond which "duck and cover" is the only winning strategy.

I’m not so sure it’s a panic level movement.

EURUSD is down 150 pips. USDJPY is up 100. GBPUSD is down 100. USDCAD up 70. AUDUSD down 70.

There’s definitely some buying going on. But if you only go back a little while on the chart, say, the 11th of Jan, you find a 400 pip drop on the EURUSD within 2 hours.

And, the ES futures, while down a bit (10pts), are not signaling anything out of the ordinary at this time.

here’s more here from just a few minutes ago:
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Things in Eastern Europe are going from bad to worse and are dragging neighboring countries into the hole. Moody’s just announced that Austrian, Swedish and other banks with Eastern European subsidiaries may face rating downgrades due to deteriorating economic conditions.

East European banks, which are mainly subsidiaries of financial institutions such as Raiffeisen Zentralbank Oesterreich AG and Swedbank AB, are likely to come under “downward pressure” which may also weaken their parent companies, Moody’s wrote in a report released today in London.

Zero Hedge previously discussed the extensive exposure that banks have in Eastern Europe, which according to estimates could amount to a total of €1.3 trillion. Banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84% of Western European bank loans in Eastern Europe.

According to Bloomberg, “the downturn in eastern Europe will be more severe as a consequence of many countries’ dependence” on capital flows from west Europe banks, Moody’s analysts led by Reynold Leegerstee wrote in the report.
Of European countries, Austria is by far the most threatened:

Austria, whose banking system is “most exposed” to central and eastern Europe, has two of the biggest lenders in the region. RZB made 79 percent of its 2007 pretax profits in eastern Europe, including Russia and Ukraine through its Raiffeisen International Bank Holding AG unit, and Erste Group Bank AG earned 65 percent of its pretax profits in countries including Romania, the Czech Republic and Slovakia.

Erste, which said last week that full-year profit probably slumped about 26 percent, is in talks with the Austrian government to get 2.7 billion euros ($3.4 billion) in state aid. RZB, which owns a 69 percent stake in Raiffeisen International, which is active in 18 eastern European countries, is also in talks with the Austrian state and has asked for 1.75 billion euros.

It has been foolish to assume that the convergence that “Western” and “Eastern” European countries have been undergoing over the past 20 years, could be hidden under the rug to prevent all the ugly side effects of convergence from spilling over (LTCM deja vu anyone? yes, it is a stretch, but oddly ironic nonetheless). This is merely yet another glaring example of what happens when all the good things about globalization, that conventional wisdom takes for granted, go terribly wrong.

It’s just that holders of other currencies are panicking into US dollars tonight.

Euro gapped down and kept falling.

Whether it is bad news or not depends on your book.

The move may be temporary and overdone anyway — has happened several times lately.

We’ll have to see if the Dollar double tops around 88. Not far to go.

Saw this story ~ several different ways in a variety of online publications: "The Korean bank (Woo Ri) said that “adverse market conditions” made it cheaper to pay the penalty coupon rate on its bonds than to refinance them in spite of widespread expectations that the junior bonds would still be repaid at the first opportunity. "

All it means is this bank took a look at the situation and decided it was better to husband resources in the short run than tend to long-term investment strategies.

The amount involved is not all that great but financial analysts are concerned that "other banks" will come up with the same idea!

I suspect that if we dug deeper we'd find George Soros and his pack of jackals in there trying to run the banks in Korea AGAIN. This tactic may screw Soros.

I'd keep my eyes open for anything that links Soros with the bonds noted above.

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