A ton of data today, covering the labor market, conditions in manufacturing and construction, auto sales, and productivity. We also hear from Vice Chairman Yellen, two other members of the FOMC (Gov. Tarullo testifying on mortgage servicing at 10:00; Dallas Fed President Fisher speaking on the economy at 13:00), and the beige book. And, as always, most importantly today's POMO is at 11:00 am. Additionally, the Fed releases a data dump of information on bailed out banks at noon.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/12/10
While everyone knows that it was two and a half decades of imbecilic monetary policy courtesy of the Monstro [sic] that caused the credit bubble, few things were as much of a direct proximal cause of the market crash as the August 2007 quant collapse. And few indices tracked the obliteration of the M/N quant landscape that followed as well as the HSKAX (below). Well, after two years of painful grinding (for the market neutrals), the HSKAX is back to the same level to which it plunged in that week in early August 2007. What does it mean? Who knows, suffice to say that the market not only stopped working when the quants were all briefly destroyed back in 2007, but it marked the all time high in the S&P. We are now back to those same levels.Only this time instead ot the Market Neutrals providing the traditional market liquidity it is the HFTs, the NYSE DMMs, and the New York Fed. What happens next is anyone's guess.
Following Wikileaks Revelations, The Tricky Dick Rushes To The Rescue, Sees Bank of America Worth $21 In BankruptcySubmitted by Tyler Durden on 11/30/2010 - 23:02
This is certifiably one of those days when the insanity refuses to end. The latest laugh out loud episode come from the lunatic who has outstayed his "analytic" welcome by about 2 years following his Buy recommendation on a soon to be bankrupt Lehman Brothers (sorry Dick, nobody will ever let it go): The Rochdale analyst, continues to reprise the role of the evil grandpa-in-law who just. refuses. to. leave. even though it is about 12 hours past his credibility-time, now sees Bank of America as worth $21 in bankruptcy. You really can't make this shit up. To wit: from a very funny Dick: "In death, this company would be worth 91% more than it is worth in life." You may laugh now.
Per BreakingNews.com, Interpol has just issued an international arrest warrant for Julian Assange. The offense listed: SEX CRIMES. And somehow Interpol does not have access to the Internet and is unable to pull an image of the wanted criminal. Unclear if Ben Bernanke will follow suit in the same Sex Crime category for repeated involuntary fornication with the world's middle class. In other news, we are now taking odds on a dramatic, globally televized slow speed chase on a California highway in Julian Assange's future?
There was a time when the SEC at least tried to pretend the market is safe and efficient for investors. That was before Reg NMS, ATS and who knows what other mandated changes to market structure made a once stable marketplace into a labyrinth of fragmented sub-markets, exchanges, ATS, OTC venues and dark pools, where flash crashes, sub-pennying, HFT scalper algos, feedback loop generating synthetic CDOs aka ETFs, bank internalization and rampant outright fraud made the market into a sad and pale imitation of what it used to be. Of all this, May 6 was merely the culminating point. It is no wonder that since the first of many Flash Crashes investors have pulled money in 29 consecutive weeks: the message is all too clear - the retail participant has left the building...and the market. And to put the final nail in the coffin of investor confidence, we present the following detailed analysis from Nanex, which proves that in the past 5 years trading is nothing short of a travesty. The market analysis firm has conducted the definitive exchaustive analysis of "mini crashes" and has found a whopping 18,209 events of either mini melt downs ot melt ups. We hope Mary Schapiro reads this report and provides us with a refutation of either the analysis or the conclusion. We will gladly provide her the venue she so desperately needs to address an infinitely skeptical public that she has anything under control at this point.
In what is becoming a very sad development, the more money (pardon, monetary base) Bernanke prints, the more silver coins Americans buy. According to the US Mint, November sales of silver just hit 4.16 million ounces or coins, an all time record, since the introduction of the coin in 1986, and that does not even include the last day of the month. The number is roughly a 30% increase to the 3.15 million one-ounce Eagles sold in October, and well above the previous 2010 record of 3.6 million sold in May. So far in 2010, the mint has sold 32.8 million ounces of silver, higher than the previous full year record of 29 million coins set in 2009.
Of course, he will need not only help, but a bailout, in one week when his bonds are trading a 10%+. In the meantime, let the comedy continue.
This is getting ridonculous: "On Nov. 30, 2010, Standard & Poor's Ratings Services placed its 'A-' long-term and 'A-2' short-term foreign and local currency sovereign credit ratings on the Republic of Portugal on CreditWatch with negative implications. The transfer and convertibility assessment remains 'AAA'." The only that matters: what does Dagong say. Our clown rating agencies are way overdue for retirement watch imminent. If the market is totally retarded, we guess the EURUSD may be whacked on this news.
China Approves Fund That Will Invest In Foreign Gold ETFs, Opening Avenue For Millions Of Mainland InvestorsSubmitted by Tyler Durden on 11/30/2010 - 16:26
And here is the catalyst: China has approved a fund that will invest in gold exchange-traded funds outside the country, opening the door to mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation. Beijing-based Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund. Next stop: gold much higher as the bubble mania is really unleased in such ETFs as GLD, UGL and PHYS.
The escalating series of simply tragicomic news out of Europe continues. Per Reuters, "France deserves its "AAA" credit rating at the current time, the president of Standard & Poor's credit agency told a French business daily on Tuesday. "At the current time, France deserves its AAA rating," newspaper Les Echos quoted Deven Sharma as saying in an advance edition due for publication on Wednesday." As we suggested earlier, France will not be downgraded by Moody's before 2014. That means S&P will last until France is rebranded the German Vassal Kingdom of Gaul before it notches the country even one rating lower.
You really can't make this up: the WSJ reports: "As market sentiment toward the euro zone sharply deteriorates, European
officials are planning a new round of bank "stress tests" that they say
will be more rigorous than the widely discredited exams conducted
earlier this year." Thank you for confirming the prior stress test, the one which found that not one Irish bank was impaired, was a bunch of bullshit. Of course, this being Europe, it will require another forceful intervention by the uber-propaganda czar Geithner to get European countries in line: "But the tests are already subject to bickering between countries. While
some European leaders are pushing for next year's tests to be broader
and more transparent than last summer's exercise, the agency that will
oversee the tests says it might opt not to publicly disclose the results
at all." And all will be proclaimed to be fine. No further comment needed.
As was mentioned briefly yesterday, and all Netflix longs had hoped it would be promptly dead and buried, Comcast has begun imposing a fee on Internet middleman Level 3 Communications Inc., one of the companies that Netflix Inc. has hired to deliver movies and TV shows to Web customers. Bloomberg adds: "Comcast, the largest U.S. cable TV company, has set up an Internet “toll booth,” charging Level 3 whenever customers request content, the Broomfield, Colorado-based company said in a statement yesterday." This could very well be the end to the Netflix business model which so far has had the benefit of near-free streaming content distribution. Of course, this move was inevitable as Netflix is rapidly stealing traditional cable subscribers from precisely the likes of Comcast, whose premium on demand services are unable to compete with the Netflix model (which is based more on marginal churn retention than anything, and as such has very little barriers to entry). Furthermore, traditional distributors of content are also starting to scratch their heads at the cost-benefit analysis of their Netflix relationship. As such, as more and more gates are imposed, and as the cash breakeven suddenly surges for Netflix, what will likely be impaired is not only the firm's cashflow (which as we described recently has been rapidly declining) but to its long-term growth prospects. In a word: nothing good.
As the idiot market relishes in yet another day of foolish self-delusion that the most globalized market in history can simply decouple between the two largest economies in the world (Europe as a whole is far larger than China), things are starting to stir beneath the surface in Europe. While it is now given that no state will be allowed to default, no market will be allowed to trade down, and no bank will ever be impaired as long until the current flawed economic fundamentalist religion is violently overthrown, the question now becomes (just like it did in the America in late 2008) how far down the foodchain with the global Bernanke put stretch? Case in point: Italian insurance company Assicurazioni Generali (CDS ticker: ASSGEN). The proximal reason - today the company's CDS spread has gone vertical, wider by 34 bps on the day, or about 20%, to 184 bps. Why is this happening? Simple: ASSGEN has total assets of €423 billion, and more worrisome, a fixed income portfolio of €262 billion, of which 93% is European-bond based (Italy 28%, France 22%, Germany 25%). We all know what has happened to Italian bond prices in the past weeks: as of today, Bund spreads have just hit a fresh all time high. But all this is irrelevant since the bank must have a capital buffer to accommodate the losses. After all, what idiot would run a company with almost €300 billion in Euro-facing bond exposure and not factor for deterioration in risk after the events of May... Well the ASSGEN CEO may be just such an idiot. The company's balance sheet as of 9/30 discloses that the firm had a mere €10 billion in tangible capital (excluding €10.7 billion in intangible assets). So let's recap: €262 billion in Euro bonds on.... €10 billion in tangible equity! A 26x leverage on what is promptly becoming the most impaired asset class in the world. We are amazed that it has taken the market so long to realize that European insurers are the next shoe to drop, and doubly amaze that instead of trading points up, ASSGEN is only 184 bps. We give it a week.
If you thought Olli Rehn's "intervention" in Ireland's "democratic" process would end with his yesterday involvement in the voting process, you may be surprised to learn that diktat #2 is coming up. As we speculated last week, the first casualty of the Irish loss of sovereignty will be the country's lowest among the DM countries corporate tax rate. Today we read in the RTE that we are one step closer to being proven right: "A row has broken out in the European Parliament over Ireland's 12.5% corporate tax rate. It has emerged that eight, mostly French and German, MEPs have issued a declaration attacking Ireland's corporate tax rate and calling for a minimum EU wide corporate tax rate of 25%." Furthermore, these are not just any MEPs: "What has heightened the dispute is the fact that the eight MEPs are all co-ordinators for the different political groupings in the parliament and are, as such, representatives for those groupings on an influential parliamentary committee." While it is not a done deal yet, the days of the Irish tax haven may be numbered: "The declaration invites signatures from other MEPs and if it can gather the support of 350 MEPs it then becomes the position of the European Parliament." And here is how the new diktatura will spin its control over the Irish state...