We posted this on Monday. With the SCOTUS ruling due out in minutes, here again is a preview of the various permutations that can come out today, and their impact on capital markets: "BofA outlines five possible scenarios and their potential impact across the healthcare sectors. They base the likelihood of their scenarios on a review of the March oral arguments, previous circuit court decisions, as well as surveys of legal experts and former Supreme Court clerks. Everything you need to know about the possible outcomes and actions to take."
The British Bankers Association Is "Shocked", "Shocked" That Lie-Bor Manipulation Is Going On In HereSubmitted by Tyler Durden on 06/28/2012 - 09:27
The British Bankers Association - the entity responsible for organizing and compiling the daily Lie-bor fixes, and which as Zero Hedge incidentally reported two weeks ago continues to report one absolutely meaningless and unchanged number in "Spirit Level... Or Li(e)bor?" has just opined on the topic of massive Lie-bor fixing collusion and manipulation. In short: they are absolutely "shocked."
As Merkel, via Schaeuble, continues unwaveringly in Germany's pursuit of their consistent call for controls if the rest of Europe gets their money, chatter on desks is that maybe its not Zee Germans that are the problem at the Summit but Les French with Hollande's insistence that "there can be no transfer of sovereignty if there is no improvement in solidarity." Strategic Alpha's Maurice Pomery is "not convinced that Germany should be deemed the stubborn aggressor in all of this" and as we have been vociferously stating "Merkel is NOT going to be bullied into any wealth transfer; forget it" and "Hollande cannot make sweeping socialist changes and expect Germany to pay for it." Critically, given the levels of financial repression, and Newedge's comment that "the counter-intuitive moves Hollande has made by cutting some pension ages and rising the minimum wage have scared the market" and taken together with his comments about growth, the markets perceive Hollande as lacking a strong commitment to austerity. Until he demonstrates otherwise, France is vulnerable to a repatriation spiral (going the same way as Spain then Italy - where the markets have increasingly repatriated themselves into domestic enclaves) and the inevitable endgame where domestic demand for bonds becomes unsustainable.
Two data points out today: the first was Initial Claims which did precisely as expected: it improved even as it deteriorated: why - the media headline will blast: "Initial Claims Decline by 6K" because last week's number of 387K was just revised to 392K. Ironically, enough, this was just as at least we expected. From 8:27 am.
Last week's Initial Claims number of 387K will be revised to at least 390K in 3 minutes
— zerohedge (@zerohedge) June 28, 2012
That what actually happened was a miss of baseline expectations, in that claims would drop to 385K is irrelevant. Just as it is irrelevant that next week, today's 386K number will be revised to 390K. And the media manipulation song and dance revisions will continue. More importantly, and continuing the 99 week cliff issue, 60,000 people dropped off initial and extended claims in the past week. In other words, 1.260 million people have fallen off extended benfits in the past year: people who no longer collect any form of unemployment benefits. Surely they have all "found jobs."
As it dawns upon the world that Ms. Merkel means exactly what she says and is not going to back down you may expect a quite negative reaction in the equity markets and a widening of spreads for some risk assets along with a strengthening of the Dollar. I am talking about the “Trend” here and not some trading strategy for today’s business. Germany is not going to flinch and cannot both due to local politics and to the now obvious fact that Germany has just about reached the limits of what she is financially able to do with a $3.2 trillion economy. To put it quite simply; they have run out of excess cash and more European contributions are only going to weaken the balance sheet of the nation and seriously imperil Germany’s financial condition. I say, one more time, Germany is not going to roll over and all of the pan European schemes brought forward by the bureaucrats and the poorer nations are not going to go anywhere. There is one novel possibility here and that is that the Germans, like the British, may opt out. Germany, Austria, the Netherlands, Finland et al may just say, “Fine, go ahead if you wish to have Eurobonds and the like but we will not guarantee them.” All plans do not need to have an either/or solution and this may well be Germany’s position in the end which would place the periphery nations and France in quite an interesting, if unenviable, place.
Earlier today there was an amusing headline generated in the WSJ "Berlin Blinks on Shared Debt" which we noted in the frontruninng section and promptly mocked, because it was patently 100% untrue, and would have a chance of happening only if markets were in full on crash mode. It also goes completely against what everyone in Germany has been saying for weeks and months. Still, the stupid markets, and especially the EURUSD algos keep responding as more and more media sources caught on to this headline. It took just under 40 minutes for Germany to get out of bed and slap the WSJ down, which as of this morning has about the same credibility as the Guardian in the Euro-rumor mongering department.
- GERMAN FINANCE MINISTRY SPOKESMAN SAYS SCHAEUBLE DID NOT SAY GERMANY WILL MOVE SOONER THAN EXPECTED TOWARDS SHARED LIABILITY FOR DEBT
- Funny WSJ headline: Berlin Blinks on Shared Debt (WSJ)... sure: if XO hits 1000 bps tomorrow, Eurobonds in 2 days
- Barclays $451 Million Libor Fine Paves Way for Competitors (Bloomberg)
- Fed officials differ on whether more easing needed (Reuters)
- China Local Government Finances Are Unsustainable, Auditor Says (Bloomberg)
- Just because the NYT is not enough, Krugman has now metastasized to the FT: A manifesto for economic sense (FT)
- Merkel dubs quick bond solutions ‘eyewash’ (FT)
- Yuan trade settlements encouraged in SAR (China Daily)
- Katrina Comeback Makes New Orleans Fastest-Growing City (Bloomberg)
- European Leaders Seek to Overcome Divisions at Summit (Bloomberg)
We have long said that the maximum potential loss of the JPM CIO trade based on the blow out in IG9 10 year (and associated trades complex), which has about a $200 million DV01, is far beyond not only the $2 billion that Jamie Dimon estimated on May 10, but above our own estimate which was $5 billion on that same day. Today, the NYT "according to people who have been briefed on the situation" which translated means just more media propaganda because all the news on the topic in the past month has been leaks by axed parties, says that 'Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation." Also according to the NYT, and roundly refuting what the other leak had told Bloomberg and other media outlets, "The bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year." Obviously, this refutes media "reports" also based on "people familiar" or "conflicted sources" that JPM has unwound its trade, either by novating, or by transferring it over to helpful hedge funds. Bottom line: take everything with a grain of salt until Dimon himself gives an update in two weeks, as this could easily be an upper bound loss estimate starwman to set expectations very low, sending the stock soaring when the "final" announce loss comes in at ~$5 billion, courtesy of other well-known "masking" techniques such as loan loss reserve release and DVA benefits.
What goes down, must shoot right back up. In this case we are talking about Spanish bond yields of course, which have yoyoed from a record 7.3% two weeks ago, back down to 6.3% last week, and right back up over 7% as of this morning. While the hope last week was that since the ECB is expanding its collateral it means an LTRO3 is on the way, the market promptly realized (even before LTRO3 was launched), that such a step means that Europe has run out of actual assets, and at this point is merely diluting the taxpayer collateral base. The result is that Spain is right back in purgatory where talk is cheap and unless Europe comes up with something concrete, purgatory will promptly be upgraded to the 8th circle of hell.
For the past six months we have extensively discussed the topics of asset depletion, aging and encumbrance in Europe - a theme that has become quite poignant in recent days, culminating with the ECB once again been "forced" to expand the universe of eligible collateral confirming that credible, money-good European assets have all but run out. We have also argued that a key culprit for this asset quality deterioration has been none other than central banks, whose ruinous ZIRP policies have forced companies to hoard cash, but not to reinvest in their businesses and renew their asset bases, in the form of CapEx spending, but merely to have dry powder to hand out as dividends in order to retain shareholders who now demand substantial dividend sweeteners in a time when stocks are the new "fixed income." Yet while historically we have focused on Europe whose plight is more than anything a result of dwindling cash inflows from declining assets even as cash outflow producing liabilities stay the same or increase, the "asset" problem is starting to shift to the US. And as everyone who has taken finance knows, when CapEx goes, revenues promptly follow. Needless to say, at a time when still near record corporate revenues and profit margins are all that is supporting the US stock market from joining its global brethren in tumbling, this will soon be a very popular point of discussion in the mainstream media... in about 3-6 months.
What few media pundits seem to grasp is that when our trade deficits transfer hundreds of billions of dollars to other nations, those dollars have to end up in dollar-denominated assets like bonds, stocks or real estate. Many people have missed the difference between dollars used to settle accounts and dollars held as a result of trade deficits. Many of those emotionally wedded to the belief that the U.S. dollar is doomed gleefully grabbed onto the news that China and Japan will swap currencies directly (yen and yuan) rather than intermediate the trade with U.S. dollars. This was mistakenly seen as a nail in the coffin of the USD. If I am in Japan and I have yuan due to trade with China, and I want to exchange those yuan for yen, I only need USD for about 10 seconds to intermediate the exchange. Cutting out the USD simply cut the exchange costs and lowered the daily trading volume of the USD. This reduction in the transactions needed to exchange yuan for yen did nothing to change the dollars held by China or Japan as a result of their trade surpluses with the U.S. This also didn't lower the amount of assets or credit (debt) denominated in USD. In other words, the effect on the value of the dollar is trivial. No matter how many exchanges the USD sitting in overseas accounts are pushed through, they still end up in dollar-denominated assets somewhere.