Who would have thought that Ron Paul's ideological ally in his quest to take down the Chairsatan would be none other than the Russian dictator-in-waiting (or rather, in actuality), Vladimir Putin. In a speech before the of economic experts at the Russian Academy of Sciences, the Russian prime minister had the following to say: "Thank God, or unfortunately, we do not print a reserve currency but what are they doing? They are behaving like hooligans, switching on the printing press and tossing them around the whole world, forgetting their main obligations." What appears to have angered the former KGB spy is the end of QE2. According to RIAN: "Putin's comments came in the wake of the completion of the US' quantitative easing (QE) 2 program on June 30, in which the Federal Reserve bought $600 billion worth of its Treasury bonds. The Fed's first round of QE, which ended in March last year, amounted to less than half the size of QE2." We can't wait to hear what expletive Putin will usher once Bernanke launches QE3.
A year ago we discovered that several European countries only managed to squeeze into the Eurozone by misrepresenting their total debt courtesy of Goldman Sachs facilitated currency swaps which misrepresented the true state of said countries' finances. Yesterday it was revealed that at least one Spanish region had been openly lying about its economic performance and underrepresented its budget deficit by about 50%. Today we go deeper into the rabbit hole, after a WSJ report discloses that European banks 'may' have been openly and frequently lying by misrepresenting to others about the amount of third party demand at any given bond auction. Think of it as the same BS that a bulge bracket bank in the US will use to sucker retail momo investors into a hot IPO. "A European self-regulatory body is looking at whether that perennial optimism might have at times been misleading for investors in the European debt markets, according to people familiar with the matter. The International Capital Market Association, or ICMA, is examining whether banks have been improperly exaggerating the amounts of investor demand they are seeing in certain bond sales, including for debt issued by European governments, these people say." Where does the rabbit hole lead next: someone discovers that the Bid To Cover ratio in all US bond auctions over the past several years have really been 50% lower than represented publicly? As for Europe: does anyone believe anything coming out of that continent anymore following the whole Jean-Claude Juncker fiasco? The Eurozone and the euro are both doomed and everyone knows it. But all is fair in love and perpetuating doomed ponzi pyramids (which is not to say that the US is any better).
We think what’s happening is almost comical. Most Western governments are in a race to the bottom to get their currencies as low as possible. This is an attempt to cheapen their debt by debasing their currencies. Every time the dollar spikes it must make Bernanke pull the hair he has left out of his head. Every time the euro weakens the Fed does what it can to strengthen it. One way is by opening swap desks with the European banks to give them all the dollars they need. Another way is to say the magical phrase QE3. While the timing of this news is in many respects a coincidence (because the minutes are released weeks after the event) we do recognize that Western economies must devalue their debt. We are in a race to the bottom and the euro is winning, hence the rally in gold. Gold goes up for two reasons now. The first is obvious: gold is a dollar-denominated asset and as the dollar weakens it will increase in value. The second is sovereign or default risk, which is actually deflationary. Europe and the U.S. will continue taking turns driving gold higher with the Chinese chasing it all the way up.
Continuing our exploration of why small business isn't expanding and hiring: here are four more deeply pernicious structural dynamics crushing small business. Yesterday I addressed this issue in Here's Why Small Business Isn't Hiring, and Won't be Hiring; Part II covers three other three systemic issues: 1. The real estate bubble completely mispriced/overvalued commercial real estate; 2. Financing is cheap to global Corporate America and costly to nonexistent to startups and expanding small businesses; 3. Crony capitalism doesn't like competition; it seeks monopoly or a shadow cartel, imposed and maintained by the regulatory agencies of the Central State;
4. Overlapping regulation designed to suppress competition, benign neglect/hostility from government bureaucracies obsessed with self-preservation and lack of financing make it impossible to scale up a success business in the real world.
The latest monthly breakdown from PIMCO's Total Return Fund is out. Among the key findings for June are that the total AUM declined modestly by $400 million to $242.8 billion, well below the all time highs of $256 billion in October 2010. More notably, it appears that Gross has gotten tired of being mocked by CNBC for his Treasury short position and has raised his cash Treasury bond exposure by 3% to 8%, though even with that move he is still net neutral courtesy of a 1% Agency cash position and -9% in synthetic swap exposure, unchanged from May. Therefore Gross is no longer short on a net basis. He also reduced his IG exposure from 18% to 17%, offsetting an increase in emerging market corp bonds by 1%. Where he did however invest quite a bit of money in are Non-US Developed market: i.e. European sovereigns: arguably Italian names, as per the announcement of PIMCO's Bosomworth on Bloomberg TV last night. However, since this report is for June, and since the increase in bond exposure occurred before the massive rout in July, it probably means that Gross did not time his increase in European debt exposure quite as well as he had hoped. Lastly, and just as interesting, is the increase in the effective duration of the TRF, which rose from 3.73 to 4.37, the second highest in 2011, and a steep rise from the near record low 3.42 in April. At least Gross can now saw that he is no longer largely underweight duration. Lastly, the fund still has gobs of cash, at just over $70 billion.
Just like right after Fukushima the USDJPY waited for the illiquid 5pm session to collapse, here comes part two. Have the FX HFT algos now completely taken over? A 100 pip move is catastrophic for most levered FX desks. It is time someone figured out what is casuing these periodic plunges. Sure enough, someone will gobble this up and hopefully make some money, unless there is actual news that just sent the Yen to near all time record highs.
DoubleLine's Jeff Gundlach has released his latest presentation on the economy and the markets, titled, cryptically enough, "Now What?" Zero Hedge readers can access it below. For those who wish to hear Gundlach cover the key topics live, can do so in real time here (registration required) as he is currently holding a Q&A on the key topics presented.
Something troubling happened in D.C. today, where it seems that the Senate Republican leader basically just folded like a cheap suit in the ongoing farscial standoff on the debt ceiling (which luckily should bring the whole comedy to an end and the nation can progress with its previously scheduled ponzi collapse). In essence, as Bloomberg says, according to McConnell's proposed 3-Stage plan, "The debt-ceiling increase could occur without the companion spending cuts, McConnell said." Ironically, when we observing comparable posturing by Boehner from two days ago we said "in two weeks we get news of no tax hikes, and no deficit reduction, which will be spun by the great diversionary media machine as the great compromise, and, of course, leading to a $2.5 trillion debt ceiling hike. Win, win for everyone." It seems precisely this is on the agenda. Details on McConnell's plan to basically let the President do whatever he chooses: "Senate Republican Leader Mitch McConnell proposed a “last choice option” for increasing the U.S. debt limit in three stages in case President Barack Obama and Congress can’t agree on a deficit-reduction plan. McConnell’s plan would let the president raise the limit, while accompanying it with offsetting spending cuts, unless Congress struck down his plan with a two-thirds majority. Don Stewart, a spokesman for McConnell, said the plan would allow Obama to raise the debt limit while putting the onus on him and congressional Democrats for any failure to cut spending." Surely the president would be shaking in his boots knowing that if he were to cut spending the "onus" would be on him. Here is how the Republican justifies this betrayal: "The proposal is “not my first choice,” McConnell said, adding that he wanted to show the financial markets that the U.S. will not default on its debts. He said he continues to seek a broader deal to raise the $14.3 trillion debt limit with congressional Democrats and the White House." Funny: this is the same logic that Jean-Claude Juncker used when validating outright lying to the media, and general public. It appears there are little if any differences between politicians in Europe and the US when it comes to lies.
Art Cashin, the skeptical floor veteran, and always practical and easy-spoken observer of market moves and developments, shares his latest set of views on the happenings in Europe. Granted this is backward looking, as things in Europe change from one total mess to another in minutes, but still a good summary for new entrants into the utter chaos that is a EUR-driven market with 1.000 correlation to the European currency.
Who would have thought a few years ago that Moody's would be one of the biggest supporters of the gold bulls..."Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative. The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling -- i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates -- in proportion to the size of the creditors' holdings of debt that are coming due."
Yesterday, when sharing our latest thoughts and observations on the $8.5 billion Bank of America settlement we said, "One thing is certain: the final BAC settlement, if one even comes to fruition, will not be $8.5 billion." Once again: we may have been correct...
- NEW YORK INVESTIGATING $8.5 BLN BANK OF NEW YORK MORTGAGE DEAL
- NEW YORK ATTORNEY GENERAL SEEKS DATA ON BANK OF AMERICA ACCORD
- NEW YORK PROBE IS PART OF MORTGAGE SECURITIZATION INVESTIGATION
- NEW YORK SENDS LETTER TO GOLDMAN SACHS, BLACKROCK, ING, INVESCO
BAC stock not liking this latest development at all.
The only section that matters: "Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation....A few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run." Translation: QE3?
There probably is a reason for the sudden move higher in gold, but we don't know or care. At this point the end of Ponzism is a given. Just a matter of time. Next stop for gold $2,000, then various multiples of $1,000 after. But first, the all time nominal high of $1,577 from May 2.
The Fearmongering At The Top Begins: Obama Says "Can Not" Guarantee Social Security Payments Without A Debt Ceiling HikeSubmitted by Tyler Durden on 07/12/2011 - 12:30
It worked for Hank Paulson who showed up in Congress with a three page termsheet, delusions of grandeur, a scary story, and an easily frightened audience. Why should it not work for the president. As Reuters reports, "Barack Obama said in an interview on Tuesday that checks to recipients of the Social Security retirement program may not go out in early August if he and congressional leaders do not agree a debt deal. "I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue," Obama said in an interview with CBS, according to a transcript on the network's web site. "Because there may simply not be the money in the coffers to do it," Obama said." Is that so Mr. President? Please explain then how according to the most recent DTS the YTD (fiscal) amount paid out on Social Security is $469 billion, well below the amount collected from Federal Tax Deposits of $780 billion. As a comparison, this number is lower than the combination of Medicare and Medicaid ($638 billion YTD), and the combination of Defense and Education Payments ($480 billion). Indicatively, Federal salaries are a whopping $137.6 billion, or said otherwise, all of the SSN payments to date are just three times bigger than what the government pays its own employees. Perhaps a bigger issue is that the debt held by the public has increased by $720 billion YTD, a number which will soon grow to $1.5 trillion if the government does get debt hike it so desperately needs.
No QE, No Problem: Despite Drop In Indirect Interest, $32 Billion 3 Year Prices Better Than ExpectedSubmitted by Tyler Durden on 07/12/2011 - 12:15
With the When Issued trading at 0.688% just before 1pm, some were expecting a relatively weak 3 Year auction to price. Instead, the Treasury managed to place the $32 billion in paper at a new 2011 low yield of 0.67%, nearly 2 bps inside the WI. The Bid To Cover was nothing to wrote home about at 3.219, the lowest since February, although certainly not a bad number. There was little else to cheer about: Dealers took down 49% of the total, with the Indirect share declining once again, from 35.6% to 34.5%. The offset was a surge in Directs bids which were responsible for 16.5% of the auction, the highest of 2011. Whether this is merely London-based Chinese proxies, or some other Vince Reinhartian contraption keeping rates low, is unknown. As a result of the auction which many were quite nervous about, the Green eurodollar pack was down 1.75 bps as was the Red (down 1.75 bps) and White (1 bp) after the auction after being down 3.5, 3 and 1.25 bps before the auction. Bottom line: good appearance by the Dealers in the post QE2 era. The question now is who do they offload to.