Forget The "Bazookas": Here Come The "Tomahawks" And "Howitzers" - An R-Rated Walk Thru The Greek Endgame
Submitted by Tyler Durden on 05/21/2012 - 17:01 Bank Run Central Banks Creditors default European Central Bank Eurozone Germany Greece headlines Ireland"So lets "run" through the mechanics of a Greek bank run. ... The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth. We may have to push risk assets a bit lower from here, but the global central banks will be firing howitzers and tomahawks very shortly, not bazookas!"
Things That Make You Go Hmmm - Such As The "Grexit"
Submitted by Tyler Durden on 05/21/2012 - 19:49 European Central Bank Eurozone France Germany Greece Hyperinflation Ireland Italy Mervyn King Portugal Reality Reuters Smart Money“I don’t envisage, not even for one second, Greece leaving. This is nonsense, this is propaganda.”
– Jean-Claude Juncker, Chairman EuroGroup FinMin Committee
“When it becomes serious, you have to lie.’’
– Jean-Claude Juncker, Same guy
The Benefits Of A College Education
Submitted by Tyler Durden on 05/21/2012 - 19:32 recovery
... Are what again? As the following graphic from IBD demonstrates, for the first time in history, a majority of jobless workers over 25 have attended some college, and now outnumber those without a job who simply have a high school diploma or less. But at least those in the fomer category have tens of thousands of non-dischargeable debt to show for it.
Facebook IPO Post-Mortem For Dummies
Submitted by Tyler Durden on 05/21/2012 - 17:30
Over the weekend we presented a very sophisticated, bottoms-up, trade-level analysis of the Facebook IPO debacle courtesy of Nanex. Now that the $38 underwriter-supported price has been breached with gusto, and absolutely anyone and everyone who bought into the Facebook IPO and still holds the stock as of market close has suffered major losses, here is a far more simplified, grass-roots, animated Facebook post-mortem for the 'rest of us'... many of whom likely are nursing 10-20% losses in the span of 48 hours.
Stocks Bounced As Financials, Socials Trounced
Submitted by Tyler Durden on 05/21/2012 - 16:28 BAC Copper Exchange Traded Fund High Yield NASDAQ Reality SPY
Something different today. A dip was bought and kept a little momentum - aided and abetted by some late-afternoon desperation EUR buying correlation-help which dragged the Dow back over the magical 12,500 level. Stocks and high-yield credit bounced nicely today - with the latter dragging the former higher from what we could tell (on the back of reversion to fair-value in the ETF and credit market) - as the rest of risk-assets were generally stable. AAPL rotation (making yet another one of its 9-plus % drops-and-pops) helped drag NASDAQ up while FB dragged the entire social media segment down. Financials, while up as a sector, were ugly in the majors with JPM joining Citi and MS in the red YTD now and BAC back to 4 month lows. Gold was unch and silver down as Oil and Copper jumped (with the former testing $93 at the close). Treasuries were practically unchanged from Friday's close but the long-end rallied the most from its opening levels last night and the 2s10s30s curve was a significant risk-on driver. Stocks were on their own though when we look at Treasuries, the USD, and gold as it appears the credit compression arbs were enough to pull stocks up and AUD and EUR strength into the close was interestingly aggressive - short-squeeze or does someone know something? Heavy and large size volume into the close suggests it was another ramp to provide exits - and credit indices needed to shed some 'cheapness' - though we remember that Europe is due to open in 10 hours. VIX tumbled over 3 vols but remains above 22% with the term-structure fo vol still steep.
RANsquawk US Market Wrap -- 21/05/12
Submitted by RANSquawk Video on 05/21/2012 - 16:13 RANSquawkChina Can Now Monetize US Debt Directly
Submitted by Tyler Durden on 05/21/2012 - 15:28 Bond China Monetization Reuters
The Treasury, apparently dissatisfied with the speed of indirect bank and/or Fed-inspired monetization of its exponentially rising debt-load at ever-cheaper costs of funds, decided in June 2011 to allow the Chinese, with their equally large bucket of USDs to bid directly for US Treasuries. As Reuters reports, China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government. The documents, viewed by Reuters, indicate that the US Treasury has given the PBOC a direct computer link to its auction system - which was first used in the 2Y auction of June 2011. Perhaps this helps explain the massive spikes in direct bidders July and August 10Y auctions (around the US downgrade). Interestingly, Primary dealers are not allowed to charge customers money to bid on their behalf at Treasury auctions, so China isn't saving money by cutting out commission fees; instead, China is preserving the value of specific information about its bidding habits. By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price. This, after the 2009 discovery (and relaxing of other reporting requirements to cover this) that China was using special deals to hide its bond purchases, seems like more pandering to the large-holder-of-Treasuries as "direct bidder status may be controversial because some government officials are concerned that China has gained too much leverage".
The Elephant In The Room: European Capital (Out)flows And Another €215 Billion In Spanish Deposit Flight
Submitted by Tyler Durden on 05/21/2012 - 15:19 Bank Run Bond European Central Bank Greece Ireland Italy Meet The Press Nationalization None Portugal Rating Agencies ratings
Frequent readers know that Citi's Matt King is our favorite analyst from the bailed out firm. Which is why we read his latest just released piece with great interest. And unfortunately for our European readers, if King is right, things in Europe are going to get far worse, before they get better, if at all. Because while one may speculate about political jawboning, the intricacies of summit backstabbing, and other generic nonsense, the one most important topic as discussed lately, is that terminal event that any financial system suffers just before it implodes or is bailed out: full scale bank runs. It is here where King's observations, himself a member of a TBTF bank which would likely be dragged down in any cash outflow avalanche, are most disturbing: "In Greece, Ireland, and Portugal, foreign deposits have fallen by an average of 52%, and foreign government bond holdings by an average of 33%, from their peaks. The same move in Spain and Italy, taking into account the fall that has taken place already, would imply a further €215bn and €214bn in capital flight respectively, skewed towards deposits in the case of Spain and towards government bonds in the case of Italy....Economic deterioration, ratings downgrades and especially a Greek exit would almost certainly significantly accelerate the timescale and increase the amounts of these outflows." That's right: according to Citi there is a distinct likelihood that, all else equal, the domestic bank sector in Spain will see another €215 billion in deposit outflows.
Guest Post: How Can You Have Any Pudding If You Don’t Eat Your Meat?
Submitted by Tyler Durden on 05/21/2012 - 14:48 Corruption Guest Post
I had the privilege of seeing Roger Waters perform ‘The Wall’ to a live crowd of over 40,000 fans at the LA Coliseum on Saturday night– the second time I’ve seen the show on this tour. It was an amazing production– I wholeheartedly recommend the experience as it’s something that no DVD or album recording could possibly reproduce. At one point, Waters paused his set and began telling the audience about Jean Charles de Menezes, a 27-year old Brazilian national who was shot *8-times* by British police several years ago at a south London tube station after being mistakenly identified as a terrorist. The police, adhering to the ‘shoot first, ask questions later’ model of peace enforcement, have never been held accountable for taking the life of an innocent man at point blank range. “If we stand at the top of the slope and give our governments, and particularly our police, too much power, it’s a very long and dangerous slippery slope to the bottom,” Waters said. The crowd went berserk, roaring with approval.
The Keynesian Emperor, Undressed
Submitted by Tyler Durden on 05/21/2012 - 14:37 Capital One Central Banks Deficit Spending Eurozone Fannie Mae Federal Reserve Financial Regulation Freddie Mac Germany Global Economy Government Stimulus Greece Gross Domestic Product Housing Bubble Housing Market International Monetary Fund Ireland Italy Japan John Maynard Keynes Keynesian Stimulus Maynard Keynes Monetary Policy None OPEC Purchasing Power Real estate Reality Recession recovery Stagflation The Economist Unemployment Unemployment Benefits Unemployment Insurance United Kingdom
The standard Keynesian narrative that "Households and countries are not spending because they can’t borrow the funds to do so, and the best way to revive growth, the argument goes, is to find ways to get the money flowing again." is not working. In fact, former IMF Director Raghuram Rajan points out, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side as technology and foreign competition means that "advanced economies were losing their ability to grow by making useful things." Detailing his view of the mistakes of the Keynesian dream, Rajan notes "The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.", and critically his conclusion that the industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities.
Guest Post: Americans Want Smaller Government And Lower Taxes
Submitted by Tyler Durden on 05/21/2012 - 14:03 Barack Obama Guest Post Mexico National Debt Reality Ron Paul Unemployment
The reality is that — with the exception of Obama — Americans have again and again opted for a candidate who has paid lip-service to small government. Even Bill Clinton paid lip service to the idea that “the era of big government is over” (yeah, right). And then once in office, they have bucked their promises and massively increased the size and scope of government. Reagan’s administration increased the debt by 190% alone, and successive Presidents — especially George W. Bush and Barack Obama — just went bigger and bigger, in total contradict to voters’ expressed preferences. The choice between the Republicans and Democrats has been one of rhetoric and not policy. Republicans may consistently talk about reducing the size and scope of government, but they don’t follow through.Today Ron Paul, the only Republican candidate who is putting forth a seriously reduced notion of government, has been marginalised and sidelined by the major media and Republican establishment. The establishment candidate — Mitt Romney — as governor of Massachusetts left that state with the biggest per-capita debt of any state. His track record in government and his choice of advisers strongly suggest that he will follow in the George W. Bush school of promising smaller government and delivering massive government and massive debt.
Four Reasons Why The Euro Is Not Crashing
Submitted by Tyler Durden on 05/21/2012 - 13:23 Bank of England Bank of Japan Central Banks European Central Bank Eurozone Fail Federal Reserve Greece Japan Middle East Norway Quantitative Easing United Kingdom
Based on a swap-spread-based model, EURUSD should trade around 1.30, but based on GDP-weighted sovereign credit risk EURUSD should trade around 1.00; so who is right and what are the factors that supporting the Euro at higher levels than many would assume (given the rising probability of a Euro-zone #fail and the 0.82 lows from 2000). UBS addresses four key reasons for the apparent paradox based on the difference between ECB and Fed 'monetization', the EZ's balanced current account (independent of foreign capital flows), and the high-oil-price induced petro-dollar circulation diversifying into Euros (or out of USD). The final and most telling of factors though is bank deleveraging as European financial entities, who remain under pressure to shrink their balance sheets and re-build capital, have been selling foreign assets. They remain EUR dismalists with a year-end target of 1.15 but expect the slide to these levels to be cushioned (absent an imminent break-up) by banks' 'shrinkage'.
Blast From The Past: SNL Explains Wall Street
Submitted by Tyler Durden on 05/21/2012 - 13:04
Just because few have captured the essence of Wall Street quite like the following "Straight talk with Global Century" SNL skit from the recent past, which reminds us that the more things change, the more they stay the same: a timely reminder in the aftermath of the FB bloodbath.
Guest Post: Feedback, Unintended Consequences And Global Markets
Submitted by Tyler Durden on 05/21/2012 - 12:39 Crude ETC European Central Bank Fail Federal Reserve Free Money Guest Post Meltdown Moral Hazard Real estate Too Big To FailAll models of non-linear complex systems are crude because they attempt to model millions of interactions with a handful of variables. When it comes to global weather or global markets, our ability to predict non-linear complex systems with what amounts to mathematical tricks (algorithms, etc.) is proscribed by the fundamental limits of the tricks. Projecting current trends is also an erratic and inaccurate method of prediction. The current trend may continue or it may weaken or reverse. "The Way of the Tao is reversal," but gaming life's propensity for reversal with contrarian thinking is not sure-fire, either. If it was that easy to predict the future of markets, we'd all be millionaires. Part of the intrinsic uncertainty of the future is visible in unintended consequences. The Federal Reserve, for example, predicted that lowering interest rates to zero and paying banks interest on their deposits at the Federal Reserve would rebuild bank reserves by slight-of-hand. Banks would then start lending to qualified borrowers, and the economy would recover strongly as a result.
They were wrong on every count.
"The Mourning After" - Argentina Is On The Greek Side, But Why Is The IMF Holding It Hostage?
Submitted by Tyler Durden on 05/21/2012 - 12:07 Greece Iceland International Monetary Fund Michael Cembalest
The latest gambit used by the Eurocrats is that should Greece dare to not follow their sage advice, and leave the EMU, it will burn in hell for perpetuity, where famine and pestilence will join in making Greeks regret they ever dared to not listen to their Keynesian overlords. The only problem is that despite what econo-pundits everywhere claim, the Argentina case study (as well as the Iceland and the Southeast Asian) is a rather optimistic one of what Greece can expect to occur after it finally "just says no" to the biggest vanity experiment in European history. And as JPM's Michael Cembalest shows without any doubt, "there is a morning after." The far bigger problem is that there will be a "mourning after" for all those who are threatening Greece will hell and damnation right about now. Which brings us to a very critical question: why is the IMF not doing what it should be doing, and promising to assist the Greek decision, even if it means exiting the Euro. As JPM's Cembalest says "If the IMF did what it is supposed to do and lend into a devaluation/ structural adjustment (instead of financing a German and French bank rescue), Greece just might have a shot. Within the Euro, they don’t." Which begs the question: just how many pieces of silver did it take for the IMF to join the bandwagon of sell out and rehypothecate its soul, and charter, to the highest bidder?
