Stocks fell in Europe today, that’s in spite of the fact that German investor confidence rose the first time in 5 months (ZEW), as market participants focused on somewhat unfavourable auction schedule for Spain, which may force the Treasury to raise its T-bill issuance in order to meet its zero-net funding target. As a result, Bunds traded higher throughout the session, with the shorter-dated Spanish and Italian bonds underperforming (Italian and Spanish 2s up by c.3bps). Of note, Spanish 10y bond yield has risen back above 6% and given the upcoming supply, there is a risk that yields will continue to rise and flatten the curve. On that note, the Spanish Treasury is set to sell a new 3y benchmark and a 10y re-opening this Thursday, which proved notoriously difficult to sell in the past. Spain is also planning to issue EUR 8bln in private placements with EUR 3bln on Sep-21st and EUR 5bln in mid-October.
Bob Janjuah - "Central Banks Are Attempting The Grossest Misallocation And Mispricing Of Capital In The History Of Mankind"Submitted by Tyler Durden on 09/18/2012 - 07:45
"The bottom line is simple: The Fed and the ECB are directing and attempting to orchestrate the grossest misallocation and mispricing of capital in the history of mankind. Their problem is that their actions have enormous unintended and even (eventually) intended consequences which serve to negate their actions in the shorter run, and which could create even bigger problems than we currently face in the near future. Kicking the can is not a viable policy for us now. The private sector knows all this, consciously and/or sub-consciously, which is why I feel these current policy settings are doomed to fail. Having said all that, the one area which for some reason still holds onto hope that Draghi and Bernanke can still perform feats of "magic" is the financial market, which central bankers assume, rely on and are happy to encourage Pavlovian responses. The reality here though is that even financial markets are, collectively, either sensing or assigning a half-life to the "positives" of central bank debasement policies, which to me means that even markets are only suggesting a short-term benefit from the latest policy actions. This is not what Draghi and Bernanke are hoping for, but in order for them to see the half-life outcome averted they know that we need to see major political and structural real economy reforms which somehow make Western workers competitive and hopeful again. The track record of the last four to five years inspires very little confidence that we will see such great necessary reformist strides taken anytime soon."
- Nothing has changed and things have just gotten worse: Europe Banks Fail to Cut as Draghi Loans Defer Deleverage (Bloomberg)
- Mitt Romney secret video reveals views on Obama voters (BBC)
- Romney Stands by Government-Dependent ‘Victims’ Remark (Bloomberg)
- Video shows Libyans helping rescue U.S. ambassador after attack (Reuters)
- Fannie Mae paid BofA premium to transfer soured loans-regulator (Reuters)
- Northrop to shed nearly 600 jobs (LA Times)
- LOLmarkets: Retail Currency Traders Turn to Algorithms (WSJ)
- U.K. Royal Family Wins French Ruling on Kate Photos (Bloomberg)
- Nevada recluse dies with $200 in bank, $7 million in gold at home (LA Times)
- Gap Between Rich and Poor Grows in Germany (Spiegel)
- Chicago teachers meet Tuesday to decide whether to end strike (Reuters)
- Australia's Fortescue wins debt breather, shares soar (Reuters) ... a deal which ultimately will prime equity and unsecureds by $4.5 billion in secured debt
- Ford car sales fall 29% in Europe (FT)
Protests Reignite On Anniversary Of Japanese Invasion Of China; Boats Enter Japan's Territorial WatersSubmitted by Tyler Durden on 09/18/2012 - 07:16
Anyone who thought that anti-Japan protests would quietly go away on the 81st anniversary of the Japanese invasion of Manchuria may have to reevaluate. First, overnight the HKEJ said that China is preparing economic sanctions against Japan, and as the situation again escalates, Reuters reports that at least two of 11 Chinese ocean surveillance and fishery patrol ships sailing near East China Sea islets claimed by both Tokyo and Beijing have entered what Japan considers its territory, public broadcast NHK said on Tuesday, quoting Japan's Coast Guard. Subsequently, NHK reported that "a Chinese fisheries patrol ship has departed after approaching Japan's territorial waters off the Senkaku Islands in the East China Sea. The Japan Coast Guard remains on the alert, saying the Chinese vessel may enter the area again. The Coast Guard spotted the boat some 43 kilometers north-northwest of the largest island, Uotsuri, early Tuesday morning. The Coast Guard confirmed the boat had left the area before 10:30 AM. It said at around 11:10 AM, the vessel again approached Japan's territorial waters off another island and left soon afterward. In response to warnings from Japan's Coast Guard, the Chinese vessel replied the islands are inherent Chinese territory and that its mission is legitimate." Watch this space carefully, especially once the Chinese armada of 1000 fishing boats, which is already en route to Senkaku, engages in a stand off with Japanese battleships: "China's state-run radio has reported 1,000 fishing boats have left the provinces of Zhejiang and Fujian for waters near the Senkaku Islands. But Japan's Coast Guard says it has not yet spotted a large fleet in the area." It will quite soon. Elsewhere, sentiment across mainland China is getting the opposite of better, fast.
There was a time when sentiment and newsflow mattered, and then Bernanke took over. If there is anything today's soaked vacuum tubes will focus on is that it is the 81st anniversary of the invasion of Manchuria by Japan, as developments in the East China Sea are starting to get decidedly deja vuish, if somewhat inverted. Also notable is the ever louder chatter that Spain will have to be destroyed (bonds plunge), for it to be saved (Rajoy submits bailout request), as we observed over a month ago. For that to happen, the central planners will need to allow the markets to take a deep breath and actually slide, which in turn may crush confidence in central planners' ability to keep markets rising in perpetuity. What's a central planner to do these days to be appreciated anyway. It also means that the days of innocence, when nothing at all matters on the fundamental side, will, just like in Q1 after the LTRO $1.3 trillion injection, be followed by days when fundamentals matter with a vengeance. Alas, we are not there yet. Instead, the best we can do is wonder just what asset will experience today's flash crash du jour following yesterday's still unexplained 5% plunge in crude in minutes. New Normal indeed.
Analogizing from the sleight-of-hand tricks of magicians to the confidence-based efforts of the world's central bankers, Brent Johnson of Santiago Capital provides at once an entertaining and also devastatingly simple explanation of what these guys are up to. As he notes, in deference to The Usual Suspects, "the greatest trick central bankers ever pulled was convincing the world that they work for the public and not for the banks." Comprehending the financial repression and inflation that is occurring - and knowing where to look to see the truth (and how to protect your assets) - is critical in not becoming the shill in Bernanke, Draghi et al.'s global game of Three-Card-Monte.
As Cantor's Peter Cecchini notes today "when things are this senseless, a reversion to sensibility will occur again at some point." His view is to be long vol and as the disconnect between the economic cycle and stocks continues to grow, we present three mind-numbing charts of the exuberant hopefulness that is now priced in (oh yeah, aside from AAPL actually selling some iPhones in pre-order). Whether it is earnings hockey-sticks, global growth ramps, or fiscal cliff resolutions, it seems the market can only see the silver-lining. We temper that extreme bullish view with the fact that all the monetary policy good news has to be out now - for Ben hath made it so with QEternity.
A regional war in the Middle East could result, potentially sucking in the United States and Eurasian powers like China, Pakistan and Russia. China and Pakistan have both hinted that they could defend Iran if Iran were attacked — and for good reason, as Iran supplies significant quantities of energy. And with the American government deep in debt to foreign powers like China who are broadly supportive of Iran’s regime, America’s ability to get involved in a war on Israel’s behalf is highly questionable. And even without a war, further hostility and tension between America and her creditors would surely result in an even faster rush toward more bilateral and multilateral agreements to ditch the dollar for trade, something that America will almost certainly seek to avoid. So even with a President in the White House significantly more sympathetic to Netanyahu than Obama, America may find herself constrained by the realities of global economics, and unable to assist Israel. Most discouragingly, such a high risk operation seems to offer very little reward — a successful Israeli strike on Iran is estimated to set back Iran’s program by only one to three years. And such an operation would likely require bombings over many days and in many locations. If Netanyahu wishes to go ahead with such a scheme then that is his prerogative. But if he will not listen to Dagan’s wise counsel, why should the West rush to his aid if his scheme backfires?
One cannot but wonder at the idiocy blindness of those who sustain that both the European and the US central banks removed “tail risks” in the last days, with their new measures. To start, the whole idea that a tail risk exists is simply a fallacy of Keynesian economics. It assumes there is a universe of possible outcomes and, as if humans acted driven by animal spirits, randomly, each one of them has a likelihood of occurring. In all honesty... what else can occur if a central bank prints money to generate a bubble? Why would the bursting of the bubble be called a tail-risk, rather than the logical outcome? Why, if that was tried in 2001 in the US, resulting in the crisis of 2008... why would it be any different now, when there is an explicit announcement to print billions per month? Why?
One of the key stories of 2011 was the revelation, courtesy of MF Global, that no asset in the financial system is "as is", and instead is merely a copy of a copy of a copy- rehypothecated up to an infinite number of times (if domiciled in the UK) for one simple reason: there are not enough money-good, credible assets in existence, even if there are more than enough 'secured' liabilities that claim said assets as collateral. And while the status quo is marching on, the Ponzi is rising, and new liabilities are created, all is well; however, the second the system experiences a violent deleveraging and the liabilities have to be matched to their respective assets as they are unwound, all hell breaks loose once the reality sets in that each asset has been diluted exponentially. Naturally, among such assets are not only paper representations of securities, mostly stock and bond certificates held by the DTC's Cede & Co., but physical assets, such as bars of gold held by paper ETFs such as GLD and SLV. In fact, the speculation that the physical precious metals in circulation have been massively diluted has been a major topic of debate among the precious metal communities, and is the reason for the success of such physical-based gold and silver investment vehicles as those of Eric Sprott. Of course, the "other side" has been quite adamant that this is in no way realistic and every ounce of precious metals is accounted for. While that remains to be disproven in the next, and final, central-planner driven market crash, we now know that it is not only precious metals that are on the vaporization chopping block: when it comes to China, such simple assets as simple steel held in inventories, apparently do not exist.
Volume was extremely weak on a run-rate basis during the middle of the session, picked up once we started the oil-driven algo-correction, then faded as AAPL dragged equities up to their VWAPs leaving the Dow Transports notably underperforming, NASDAAPL just in the green and small drops in the Dow and the S&P. Notably the S&P reached back down to the day-session closing price from FOMC-day and reversed all the way back to its VWAP at the close - the machines were well and truly in charge today! Treasury yields were lower on the day with the long-end outperforming and so real pullback as stocks surged. Oil dominated the price action of the day as correlation monkeys pulled and pushed around the pit close and contract roll with un-priced-in SPR rumors blamed by some. USD strength on the day saw commodities in general leaking lower. Markets had a very illiquid EKG-like feeling to them today - more so than most in recent times - with post-Europe-close activity in equity, volatility, and credit appearing to almost stop entirely. The Trannies closed today below pre-FOMC statement levels.
With a NASDAQ-100 weighting rapidly approaching the critical 24% level (and probably considerably higher in most fund manager's 'diversified' portfolios given its outperformance), the media excitement over pre-orders this morning has pushed the stock-of-all-stocks up over 1.1% to breach the magical $700 level just after the day session closed.
As we have explained recently, the US fiscal cliff is a far more important issue 'fundamentally' than the Fed's economic impotence. While most market participants believe some kind of compromise will be reached - in the lame-duck session but not before the election - the possibility of a 3.5% drag on GDP growth is dramatic to say the least in our new normal stagnation. As Goldman notes, the window to address the fiscal cliff ahead of the election has all but closed, the 40% chance of a short-term extension of most current policies is only marginally better than the probability they assign to 'falling off the cliff' at 35%. The base case assumptions and good, bad, and ugly charts of what is possible are concerning especially when a recent survey of asset managers assigned only a 17% chance of congress failing to compromise before year-end. Critically, and not helped by Bernanke's helping hand (in direct opposition to his hopes), resolution of the fiscal cliff will look harder, not easier, to address as we approach the end of the year - and its likely only the market can dictate that direction - as the "consequence is terrible, but bad enough to force a deal."
Connecting the dots between my anecdotal observations of suburbia and a critical review of the true non-manipulated data bestows me with a not optimistic outlook for the coming decade. Is what I’m seeing just the view of a pessimist, or are you seeing the same thing? A few powerful men have hijacked our economic, financial and political structure. They aren’t socialists or capitalists. They’re criminals. They created the culture of materialism, greed and debt, sustained by prodigious levels of media propaganda. Our culture has been led to believe that debt financed consumption over morality and justice is the path to success. In reality, we’ve condemned ourselves to a slow painful death spiral of debasement and despair.
“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.” – Chris Hedges