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Italy Pays More For 6 Month Debt Than America Pays For 30 Year, As LTRO Claims Its First Bank Insolvency

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."



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"Bankruptcy Only Choice Left" As Stockton Set To Become Largest US City Chapter 9

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'


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Chile Is Latest Country To Launch Renminbi Swaps And Settlement

The dollar exclusion list is becoming bigger and bigger with every passing day as China gets ready.



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Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant Possibility

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.



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Guest Post: Liquidation Is Vital

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.



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Rosenberg Opens Pandora's 'Global Economic Shock' Box

In a detailed discussion with Bloomberg TV's Tom Keene, Gluskin Sheff's David Rosenberg addresses everything from Europe's "inability to grow its way out of the problem" amid its 'existential moment', Asian 'trade shock' and commodity contagion, and US housing, saving, and fiscal uncertainty. He believes we are far from a bottom in housing, despite all the rapacious calls for it from everyone, as the over-supply overhang remains far too high. "The last six quarters of US GDP growth are running below two percent" he notes that given the past sixty years of experience this is stall speed, and inevitably you slip into recession". He is back to his new normal of 'frugality' and bearishness on the possibilities of any solution for Europe but, most disconcertingly he advises Keene that "when you model fiscal uncertainty into any sort of economic scenario in the U.S., what it means is that businesses raise their liquidity ratios and households build up their savings rates. This comes out of spending growth. And that's the problem - you've got the fiscal uncertainty coupled with a US export 'trade shock'."



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Guest Post: Who Destroyed The Middle Class - Part 3

Forty five years after the War on Poverty began, there are 49 million Americans living in poverty. That’s a solid good return on the $16 trillion spent so far. It’s on par with the 16 year zero percent real return in the stock market. We have produced a vast underclass of ignorant, uneducated, illiterate, dependent people who have become a huge voting block for the Democratic Party. Politicians, on the left, promise more entitlements to these people in order to get elected. Politicians on the right will not cut the entitlements for fear of being branded as uncaring. The Republicans agree to keep the welfare state growing and the Democrats agree to keep the warfare state growing -bipartisanship in all its glory. And the middle class has been caught in a pincer movement between the free shit entitlement army and the free shit corporate army. The oligarchs have been incredibly effective at using their control of the media, academia and ideological think tanks to keep the middle class ire focused upon the lower classes. While the middle class is fixated on people making $13,400 per year, the ultra-wealthy are bribing politicians to pass laws and create tax loopholes, netting them billions of ill-gotten loot. These specialists at Edward Bernays propaganda techniques were actually able to gain overwhelming support from the middle class for the repeal of estate taxes by rebranding them “death taxes”, even though the estate tax only impacts 15,000 households out of 117 million households in the U.S. The .01% won again.



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Equities Rise On Low Volume Tide As Broad Risk Assets Tread Water

Slow Day. S&P 500 e-mini futures, stumbled early on by some 'reality' from Merkel, recovered to the magical 1315 level that has seemed so important in the last few weeks. Broadly speaking risk-drivers were either weaker or went sideways in narrow ranges as Energy, Financials, and Discretionary high beta pulled stocks higher. From yesterday's equity day-session close, oil is unch, copper down modestly, Gold down more and Silver down the most as the USD limped very quietly lower on the day (interestingly divergent as AUD and GBP strength was enough to balance the EUR weakness). Treasuries went sideways to modestly higher in yields by 2-3bps. Stocks outperformed (once again) from around the European close - pulling notably away higher from CONTEXT-based broad risk perspective but, just as with the last few days, financial weakness into the close led the broad indices into a decent nose-dive back towards VWAP right into and beyond the bell (on heavy volume and larger average trade size). It's getting old. VIX fell less than 0.5 vols and surged up to nearly 20% at the close (as stocks dumped giving up almost half its day-session gains) as total day volume was weak, average trade size low, and intraday range the lowest in 2 months. HY and HYG underperformed stocks (we suspect as the LT convergence reduces the push into HYG) and we are seeing IG-HY decompression pick up a little.



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Turkey Mobilizing: Media Manipulation, Provocation Or Reality?

In the aftermath of the recent escalation in tensions between Turkey and Syria, whereby Syria was accused of hostile behavior for firing and taking down a Turkish fighter jet that supposedly spent at least 5 minutes in its airspace, today was a quiet day. At least until recently we saw the following footage in a clip uploaded to YouTube. Supposedly, Turkey has sent troop reinforcement to the Syrian border, after Erdogan's warning that soldiers approaching the border will be treated as targets, the clip explains, citing Turkish daily Zaman reported citing the Cihan news agency. This is unverified, nor is the statement that 15 military vehicles, including tanks and cannons, were dispatched to the border from Diyarbakir. We are skeptical of the validity of the above especially since earlier today Russia said that Tuesday's Syrian shooting down of a Turkish warplane should not be seen as a provocation and warned world powers against using the incident to push for stronger action against Damascus. It was Moscow's first official reaction which made it quite clear that Russia will not just stand idly by awaiting for NATO to unilaterally take a decision to punish the middle eastern nation for daring to defend itself. But then again, this may be merely misreading Russia's resolve, in collaboration with China, to defend its own national strategic interests.



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Momentarily Stepping Back From The Trees To Show These Two Charts Of The Forest

Every time we get too bogged down by details, minutae, nuances, footnotes, rumors, lies, or, at the very bottom of the bullshit pyramid, Eurocrat promises, and think that maybe, just maybe, there is a way to fix the mess we are in, we take a quick look at what is in store (most recently recapped by Deutsche Bank in the form of the following two charts) and quickly realize that all concerns about a happy ending have been for nothing.



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Supply Chain Slowdown Signals US Economic Slump Ahead

The American Chemistry Council's chief economist Kevin Swift created a 'Chemical Activity Barometer' which tracks chemical production and prices, hours worked at producers, and manufacturing output among other factors. As indicated in today's Bloomberg Chart-of-the-Day, this indicator, based on its 'earliness in the supply chain' provides a signal that "the outlook for the economy is slowing during the next six to nine months" since 96% of manufactured goods are derived in part from materials produced by the US chemical industry. Three-month declines of 3% or more have preceded all but one recession since 1947 and it is currently down over 2.5% from its highs in March suggesting sub-par growth is coming.



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RANsquawk US Market Wrap - 26th June 2012



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Egan Jones Downgrades Germany From AA- To A+

The unstoppable Egan-Jones juggernaut continues



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