Gold and Silver are spiking once again, after experiencing quite a roller-coaster ride of rips and dips in the last week or so but this latest spike is suggesting the market's concerns at NIRP is growing. Moments ago, when noting the recent drive for NIRP at the ECB, we noted, that "once [the EUR747 billion in ECB deposits] has to pay to stay, it is certain that nearly $1 trillion in deposit cash, currently in electronic format, would flood the market." Judging by the dramatic move in gold in the last few minutes, at least the PMs appear to already be discounting just such a move.
Just because ZIRP is so 2009 (and will be until the end of central planning as the Fed can not afford to hike rates ever again), the ECB is now contemplating something far more drastic: charging depositors for the privilege of holding money. Enter NIRP, aka Negative Interest Rate Policy.
This Summit is likely to be the one where the masks come off the revelers at the Ball and where the faces behind the masks are unveiled for all to see. We predict this weekend will be full of many “Oh My God” moments which will go unreported in the Press but where it dawns, with a wicked thump, that the wealthy nations of Europe are unwilling to pay for the poorer ones and that all of the make nice comments of the last thirteen years were no more than polite conversation in the European parlors. This Summit will not be the end but it may well mark Churchill’s famous postulation that it is the beginning of the end. The cries of anguish are about to be met with refusal and the realization that “No” is actually “No” will produce, I fear, the exact same reaction of a six year old unruly child who throws himself on the floor in utter frustration when he does not get what he wants. It is still now, it is quiet; but it will not be soon!
We can finally close the case on the massive Libor manipulation issue that we first brough to the world's attention back in January 2009 when we penned: "This Makes No Sense: Libor By Bank." As of minutes ago, Barclays is the first bank to admit it has engaged in gross manipulation of the key benchmark rate that sets the cost of capital for $350 trillion in interest-rate sensitive products. As the CFTC notes, as it produly announces an epic wristslap of $200 million for Barclays Bank: "The Order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005." Surely this massive fine will teach them to never do it again, until tomorrow at least, when the British Banker Association once again finds 3 month USD liEbor to be... unchanged. In other news, who would have thought that the fringe "conspiracy" brigade was right all along once again.
There is a little for everyone in the latest BWB (Baffle with BS) data point - durable goods. The headline number printed at +1.1%, on expectations of a 0.5% rise, up from a downwardly revised -0.2% (from 0.2%). So a beat even as the baseline was cut. However, when stripping out the extremely volatile transports number, the result was very different and at +0.4%, it was a miss of expectations of 0.7%, although still up from the April -0.6%. Finally, actual Capital Goods shipments excluding non-defense rose 1.6% on expectations of a 1.9% increase. In other words: a beat when including volatile fluff, a miss on the core. The inventory/shipments ratio slipped to 1.63, lowest reading since Dec. 2011; may “imply weaker times ahead,” says Bloomberg economist Rich Yamarone. Is this good enough for the Fed to push on with the NEW QE: it is unclear. Which is why next Friday's NFP will once again be watched by everyo8ne and be the latest "most important payrolls number ever."
European equities are seen modestly higher at the midpoint of the European session, with the utilities and financials sectors leading the way higher. As such, the Bund is seen lower by around 40 ticks at the North American crossover. The closely-watched Spanish 10-yr government bond yield is seen lower on the day, trading at 6.85% last, as such, the spread between the peripheral 10-yr yields and their German counterpart has been seen tighter throughout the European morning. Issuance of 6-month bills from the Italian treasury passed by smoothly, selling EUR 9bln with a higher yield, but not an increase comparable with yesterday’s auction from the Spanish treasury. The decent selling from Italy today may pave the way for tomorrow’s issuance of 5- and 10-year bonds, which will be closely watched across the asset classes. Data of note has come from Germany, with the state CPIs coming in slightly higher than the previous readings, proving supportive for the expectation of national CPI to come in flat at 0.0% over the last month.
In a market in which horrible data leads to upward stock spikes, what can one expect but a directionless market for now: after all today's biggest pending disappointment, the durable goods orders due out in an hour, has not hit the tape yet sending stocks soaring. Newsflow out of Europe is more of the same, summarized by the following BBG headline: 'MERKEL SAYS EURO BONDS ARE THE ‘WRONG WAY." We for one can't wait for the algos to read into this as more bullish than Eurobonds only over her dead body. Perhaps that explains why despite the constant barrage of abysmal economic data, capped by today's epic collapse in MBS mortgage applications plunging 7.1% or the most since March despite record low mortgage yields, futures are once again green. In summary: the usual Bizarro market which has by now driven out virtually everyone.
- France to Lift Minimum Wage in Bid to Rev Up Economy (WSJ)... weeks after it cut the retirement age
- Merkel Urged to Back Euro Crisis Measures (FT)
- Monti lashes out at Germany ahead of summit (FT)
- Italy Official Seeks Culture Shift in New Law (WSJ)
- Migrant workers and locals clash in China town (BBC)
- Romney Would Get Tough on China (Reuters)
- Bank downgrades trigger billions in collateral calls (IFRE)
- Gold Drops as US Data, China Speculation Temper Europe (Bloomberg)
Italy Pays More For 6 Month Debt Than America Pays For 30 Year, As LTRO Claims Its First Bank InsolvencySubmitted by Tyler Durden on 06/27/2012 - 07:02
Today Italy had a rather critical Bill auction in which it sold €9 billion in debt due six months from today. Obviously, since the maturity is well inside of the LTRO, the auction itself was rather meaningless from a risk standpoint. Still, the good news is that Italy managed to place the entire maximum amount targeted. The bad news: it cost Italy more to raise 6 months of debt, or 2.957%, than it costs the US to borrow for 30 years (2.70%). Not only that but the average yield 2.957% was the highest since December when the Italian 10 Year was north of 7%, and nearly 50% higher compared to the 2.104% at auction on May 29, or less than a month ago. The Bid/Cover of 1.62 was unchanged compared to the 1.61 at the May 29 auction. From Reuters: "Today's bill sale points to the sovereign getting this supply away but at yield levels sufficiently elevated to leave a niggling doubt at least as to the medium-term sustainability of the country's public finances," said Richard McGuire, a rate strategist at Rabobank. On Tuesday, Spain paid 3.24 percent to sell six-month bills. Madrid is seen at risk of having to ask for more aid after formally requesting a European rescue for its banks this week. But doubts are also growing on Italy's ability to keep funding its 1.95 trillion euro debt, which makes it the world's fourth-largest sovereign debtor. Domestic appetite has so far allowed the Treasury to complete 56 percent of its 445-billion-euro annual funding plan."
As mediation with the city's creditors fails, the California city of Stockton looks set to become the US' largest ever city bankruptcy. The city with the second largest foreclosure-rate in the nation has seen its property taxes and other revenues decline while retiree benefits drained city coffers, according to the SF Chronicle. The city manager, Bob Deis, spoke to a special council meeting tonight, noting (via Bloomberg):
- *STOCKTON CREDITOR TALKS FAILED TO END CRISIS, OFFICIAL SAYS
- *STOCKTON CITY MANAGER SAYS TALKS ON DEBT WON'T AVOID INSOLVENCY
- *STOCKTON CITY MANAGER SAYS BANKRUPTCY `THE ONLY CHOICE LEFT'
The dollar exclusion list is becoming bigger and bigger with every passing day as China gets ready.
Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant PossibilitySubmitted by Tyler Durden on 06/26/2012 - 19:54
Lately, more and more professional investment "advisors" and newsletter recommendations boil down to just one catalyst: wait for either Germany, the ECB or the Fed to step in, as usual, and bail the world out, because, well, they have to, and any additional thought is rendered moot as fundamental analysis is meaningless under central planning (plus it is actually more work than just repeating the same stuff over and over while charging $29.95/month for it). Of course, when these same snakeoil salesmen are asked the simple question: what if said bailout does not happen, or if it happens late (for the purposes of this exercise let's assume one is not a central bank that can print its own money, have an infinite balance sheet, and can afford to be wrong almost into perpetuity), they give a blank stare, start mumbling something and walk away, especially if one mentions Lehman brothers and the simple detail that, oh, it failed. Which is why if Ray Dalio, head of the world's largest hedge fund, is correct, it may time to summarily fire and stop subscribing to each and every broken record Oracle whose template is "X will bailout Y" for the simple reason that it is wrong.
In light of the zombification that now exists in Japan and also America (and coming soon to every single QE and bailout-heavy Western economy) — zombie companies, poorly managed, making all the same mistakes as before, rudderless, and yet still in business thanks to government intervention — it is clear that the liquidationists grasped something that Keynesians are still missing. Markets are largely no longer trading fundamentals; they are just trading state intervention and money printing. Why debate earnings when instead you can debate the prospects of QE3? Why invest in profitable companies and ventures when instead you can pay yourself a fat bonus cheque out of monetary stimulus? Why exercise caution and consideration when you can just gamble and get a bailout? Unfortunately, Mellon and his counterparts at the 30s Fed were the wrong kind of liquidationists — they could not heed their own advice and leave the market be. Ironically, the 30s Fed in raising interest rates and failing to act as lender-of-last resort drove the market into a deeper depression than was necessary (and certainly a deeper one than happened in 1907) and crushed any incipient recovery.
Liquidation is not merely some abstract policy directive, or government function. It is an organic function of the market.