While the euro bond song and dance is all too familiar, being a carbon copy replay of last year, we feel obliged to remind who the key actors are, but more importantly who the key decision makers are. In short: while last year, at least in the first half, it was everyone against Merkozy, demanding that the two AAA rated countries backstop Europe at their own expense, following the French downgrade, France no longer cared if there are Eurobonds and joined the peripheral push to convince Merkel to shoulder the cost of preserving the Eurozone on its own. Germany politely declined. Fast forward to this year, when we get the same, only Hollande is now more vocal than ever knowing full well that he alone will be unable to deliver the "growth", read incremental leverage, needed to back up his campaign promises. This is, or rather was, the whole point of today's and tomorrow's latest European summit which, just like this weekend's useless G-8 photosession for the world's leaders to express their support for either Chelsea or Arsenal, will achieve absolutely nothing. Importantly, we now can add at least one more country to the list of those opposed to a AAA-backstopped rescue of the rest of the Eurozone.
UK CPI this morning came in weaker than expected at 3.0% Y/Y in April, weighed by a fall in air fares, alcohol, clothes and sea transport, according to the ONS. The release saw aggressive selling of GBP in the currency market and has underpinned the rise in gilt futures. Alongside the 26th month low in UK CPI the IMF also issued their latest assessment on the UK economy and said further policy easing is required and that the Bank could cut its interest rate from the current 0.5% level. In other market moving news a Greek government source said that Greek banks are to receive a EUR 18bln recapitalisation down payment this Friday which initially saw the EUR and stock futures rally, however, the move was short lived as it became clear that the payment is scheduled as part of the bailout programme for Greece. Elsewhere, Fitch made a surprise announcement and downgraded the Japanese sovereign rating by two notches to A+, outlook negative. The move means Fitch has the lowest rating for Japan of the three main rating agencies so we remain vigilant for any comments from S&P and Moody’s today.
Adam Fleming, Chairman of Wits Gold and Fleming Family & Partners (yes, related to Ian Fleming of James Bond game), discusses the gold bull market with GoldMoney's Chairman James Turk. Topics include metal price action, the eurozone's debt crisis, and mining in South Africa. Both men think that we are the "in the foothills" of a long precious metals bull market, and that the gold price is in some ways cheaper than it was back when they spoke at GATA's Dawson City conference in 2005, owing to all the quantitative easing – or more bluntly, money printing – that central banks have engaged in since the financial crisis of 2008.
A panel of the Swiss parliament is discussing the introduction of the parallel ‘Gold franc’ currency. Bloomberg has picked up on the news which was reported by Neue Luzerner Zeitung. The Swiss parliament panel will discuss a proposal aimed at introducing a new currency, or a so-called gold franc. Under the proposal, which will be debated in the lower house’s economic panel in Bern today, one coin in gold would be worth about 5 Swiss francs ($5.30), the Swiss newspaper reported. The Swiss franc would remain the official currency, the paper said. The proposal may lead to a wider debate about the Swiss franc and the role gold might again play to protect the Swiss franc from currency debasement. The initiative is part of the “Healthy Currency” campaign which is being promoted by the country’s biggest party – the conservative Swiss People’s Party (SVP).
- Hilsenrath: Fed Pondering Why Inflation and Deflation Threats Ebbed (WSJ)
- The Naivete: France to push for eurozone bonds (FT)
- The rebuke: Merkel Says She Won’t Shy From Clash With Hollande at EU Summit (Bloomberg)
- The Euro-love: Hollande's euro arguments "nonsense": Austria's Fekter (Reuters)
- Obama Campaign Does Damage Control After Dems Question Anti-Bain Strategy (ABC)
- Greece: four major banks recapitalized by Friday (L'Echo)... and if they aren't?
- China to fast-track infrastructure investments (Reuters)... because China needs more cement
- Jeeps Sell for $189,750 as China Demand Offsets Tariffs (Bloomberg)
- As Facebook’s Stock Struggles, Fingers Start Pointing (NYT)
- Facebook 11% Drop Means Morgan Stanley Gets Blame (Bloomberg)
There was some hope that today's European summit would provide some more clarity for something else than just the local caterer's 2012 tax payment. It wont. Per Reuters: "Germany does not believe that jointly issued euro zone bonds offer a solution to the bloc's debt crisis and will not change its stance despite calls from France and other countries to consider such a step, a senior German official said on Tuesday. "That's a firm conviction which will not change in June," the official said at a German government briefing before an informal summit of EU leaders on Wednesday. A second summit will be held at the end of June. The official, requesting anonymity, also said he saw no need for leaders to discuss a loosening of deficit goals for struggling euro zone countries like Greece or Spain, nor to explore new ways for recapitalise vulnerable banks at Wednesday's meeting." In other words absolutely the same as in August 2011 when Europe came, saw, and did nothing. Yes, yes, deja vu. Bottom line: just as Citi predicted, until the bottom falls out of the market, nothing will change. They were right. As for the summit, just recycle the Einhorn chart from below. Elsewhere, the OECD slashed world growth forecasts and now officially sees Europe contracting, something everyone else has known for months. "In its twice-yearly economic outlook, the Paris-based Organisation for Economic Co-operation and Development forecast that global growth would ease to 3.4 percent this year from 3.6 percent in 2011, before accelerating to 4.2 percent in 2013, in line with its last estimates from late November... The OECD forecast that the 17-member euro zone economy would shrink 0.1 percent this year before posting growth of 0.9 percent in 2013, though regional powerhouse Germany would chalk up growth of 1.2 percent in 2012 and 2.0 percent in 2013." Concluding the overnight news was a meaningless auction of €2.5 billion in 3 and 6 month bills (recall, Bill issuance in LTRO Europe is completely meaningless) in which borrowing rates rose, and a very meaningful downgrade of Japan to A+ from AA, outlook negative, by Fitch which lowered Japan's long-term foreign currency rating to A plus from AA, the local currency rating to A plus from AA minus, and to the country ceiling rating to AA+ from AAA. Yes, Kyle Bass is right. Just a matter of time. Just like with subprime.
Earlier today we mocked Jamie Dimon for announcing the cancellation of his firm's stock buyback program, just two shorts months after March 13, when none other than JP Morgan forced the Fed to scramble and release the full stress test ahead of schedule, after Jamie Dimon decided to frontrun the full FRBNY stress test release (whose sole purpose was to determine under what worst case scenario the Fed was ok with allowing JPM and various other Bank Holding Companies to proceed with dividend raises/stock buybacks) and announce just that - a dividend increase and a stock buyback. Well, in addition to some well justified egg in Dimon's face, today's results actually have some far more troubling implications. Because while we now know that the buyback is over, what we still don't know, because Jamie Dimon refuses to tell us, is just how big the CIO P&L loss as of close today. Yes, there are many speculations but nobody knows for sure. Zero Hedge was the first to suggest based on reverse engineering of what the potential loss drivers may well have been, and subsequently the slower media corroborated, that the total loss would be orders of magnitude greater than the $2 billion announced on May 10. But how many orders? Well, for what may be a critical clue, we go to the Fed's stress test itself. Presenting Exhibit A - page 73 of 82...
What is a black swan event, or tail event, in the stock market?
- It depends on who’s asking.
- To those familiar with Austrian capital theory, the impending U.S. stock market plunge (of even well over 40%)—like pretty much all that came before in the past century—will certainly not be a Black Swan, nor even a tail event.
- Nonetheless, the black swan notion is paramount—in perception: Market participants’ failure to expect a perfectly expected event—that is, they price in only Anglo swans despite the Viennese bird lurking conspicuously in the weeds—much like what is happening today, brings tremendous opportunity.
“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
... 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.
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.
Forget The "Bazookas": Here Come The "Tomahawks" And "Howitzers" - An R-Rated Walk Thru The Greek EndgameSubmitted by Tyler Durden on 05/21/2012 - 17:01
"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!"
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.