Today, as per the latest ICAP data, the collateral shortage is back on, with the 10 Year moving from -0.10% in repo yesterday to 0.85% ahead of Wednesday's second re-re-opening of 912828VB3. But what is more curious is the repo shift, because while the On The Run shortage was to be expected with the 10 Year getting pounded to 2.75% on Friday, it was the 3 Year that saw a plunge in repo, with the repo rate soaring from -0.13% to -1.45%: ostensibly the widest it has been in our records database. In other words, the collateral shortage just ahead of the 3 and 10 Year auctions is back and while the shortage of the 10Y OTR is somewhat more manageable than last month, it is the 3 Year, or the short-end, that is now in very short inventory supply.
Looking at the banners in the massive Egyptian protests last week, we saw many anti-American slogans. Likewise, the Muslim Brotherhood-led government that was deposed by the military last week was very critical of what it saw as US support for the coup. Why is it that all sides in this Egyptian civil war seem so angry with the United States? Because the United States has at one point or another supported each side, which means also that at some point the US has also opposed each side. It is the constant meddling in Egyptian affairs that has turned Egyptians against us, as we would resent foreign intervention in our own affairs. So, successive US administrations over the decades have supported all sides in Egypt, from dictator to demonstrator to military. There is only one side that the US government has never supported: our side.
On occasion of an address to economists at a conference in France, Bundesbank president Jens Weidmann reminded the audience that 'the ECB cannot solve the crisis', because it is due to structural reasons and therefore requires structural reform. Weidmann rightly fears that governments will begin to postpone or even stop their reform efforts now that the ECB has managed to calm markets down. In a Reuters article on the topic, a number of people are quoted remarking on ECB policy. What is so interesting about this is how far removed from reality general perceptions are when it comes to judging current central bank policies. In short, Weidmann wants to end the three card Monte, whereby commercial banks buy the bonds issued by governments because they don't have to put any capital aside for the purpose, which bonds they then can in turn pawn off to the central bank for refinancing purposes. Weidmann wants to see the connection between banks and sovereigns severed, a connection that has been fostered by governments over many centuries in order to enable them to spend more than they take in through tax revenues.
Despite terrible negative-to-positive pre-announcements, global earnings revisions fading fast, and plunging analyst' earnings downgrades, according to Bloomberg data, S&P 500 Earnings are expected to grow over 8% in Q2 2013 as we head into this season with top-line revenues growing almost 5% (with Consumer Discretionary expected to deliver around 10% growth). With Alcoa kicking us off this evening and likely being extrapolated for at least one trading day (although it is the lowest market cap name in the Dow by far), we note the top-down and bottom-up fundamental trends that 'support' this market. With only 20 names reporting this week, it is relatively quiet, though Friday may have some fireworks when JPM and WFC report their realized losses and loan-loss-reserve-subsidized gains.
The EUR is fading fast (-0.3% on the day) as Draghi re-iterated his commitment to lower, longer, forever, he promises... Germany's DAX was the best performer across the region today as there was a sea of green in European stocks. Even with a late-day drop, the DAX gained 2.3% - its best run in 10 weeks - as Bunds underperformed Treasuries by over 5bps on the day even as exports and production data collapsed. Spanish and Italian stocks rallied but bond yields rose (and Spanish bond spreads rose around 5bps). Portuguese bonds improved around 18bps - marginally positive compared to the collapse in the last week or two - as it seems the market is not convinced that all is fixed again.
With spot gold prices down 28% year-to-date, it appears John Paulson's Gold Fund has managed to create some epic high-beta losses. In a letter to investors, Paulson explains his fund fell 23% in June, is down 65% in 2013; but do not fear - as he concludes time and time again, the gold fund will "produce outsized returns in the long-run".
Think the $90 million sale of the penthouse duplex at the still unfinished One57 to an undisclosed buyer is a milestone for New York real estate? Then you haven't looked at the asking price for Steve Cohen's duplex on the 51st story of the Bloomberg building aka One Beacon Court. At $115 million, if sold, this will represent the most expensive New york real estate transaction in history.
One of the most widely accepted truisms in what passes for our financial media is that the dollar and gold are correlated: when the dollar weakens, gold rises, and when gold rises, the dollar declines... except this vaunted correlation isn't remotely visible in the charts. There is no correlation between gold and the U.S. dollar index. Not even close. The two move independently; any apparent correlation is semi-random signal noise. They are not on a simplistic see-saw, but instead their co-movements reflect the complex dynamics at work in pricing gold and the U.S. dollar independently.
There was some confusion yesterday when news hit that the SecState's wife, Theresa Heinz Kerry, was hospitalized. This came shortly after yet another fiasco involving Kerry who was caught in a rejection, then admission snafu, that while Egypt was burning he was on his yacht not one but two days in a row. We now get some clarity as to the affliction affecting the billionaire heiress:
HEINZ KERRY SAID TO HAVE BEEN HOSPITALIZED AFTER SEIZURE SIGNS
HEINZ KERRY'S DOCTORS HAVEN'T MADE EXACT DIAGNOSIS, PERSON SAYS
HEINZ KERRY'S CONDITION DISCUSSED BY PERSON CLOSE TO FAMILY
Chart Of The Day: Taper Fears Lead To Biggest Monthly Loss In Bank Securities Portfolios Since LehmanSubmitted by Tyler Durden on 07/08/2013 - 09:15
Wondering how the blow out in interest rates is impacting commercial banks, which just happen to have substantial duration exposure in the form of various Treasury and MBS securities, not to mention loans, structured products and of course, trillions in IR swap, derivatives and futures? Wonder no more: the Fed's weekly H.8 statement, and specifically the "Net unrealized gains (losses) on available-for-sale securities" of commercial banks in the US gives a glimpse into the pounding that banks are currently experiencing. In short: a bloodbath.
Just when the jawboning from Europe is reaching its climax that Portugal is fixed again, Greece is fixed, and the core is showing green shoots from the near-depression, Germany (the corest of the core) comes out with its worst exports data since 2009. While imports remained stable - suggesting domestic demand is sustained for now - YoY export growth collapsed 3.2%, the worst tumble since November 2009 "illustrating that Germany's economy still has difficulties shifting into higher gear." The details are a horror-story. Exports to the euro-zone, where 40% of Germany's exports are sent, fell by a stunning 9.6% (while exports to the rest of the world dropped 1.6%). To add to the misery for the 'things are getting better' crowd, Germany's industrial production data missed expectations are dropped back into the negative YoY following the 'hope' inspiring positive YoY print in April that signaled all-is-well. Of course, none of that matters, the DAX is up a stunning 2.4% today on the back of this dismal-is-great data. So much for those green shoots...
It seems that US investors has become so institutionalized in the new normal world of government bailouts and handouts that when the central planners make a decision that is not instantly accretive to the equity shareholders' bottom-line, the first instinct is to sue them. Following the conservatorship that was forced upon FNM/FRE in 2008, which required the companies to pay a quarterly dividend of 10% on the government's near-80% stake (and obviously implicitly benefited the tag-along bailout riders), the decision in 2012 to change the bailout terms to instead hand over most of their profits to the government (since they moved into profitability - thanks to a Fed-sponsored MBS market). This action "impaired shareholder value" according to Perry Capital - who, Reuters reports, is suing the government, noting "investors had every right to expect these rules to be followed." Indeed, just as the 'rules' have been followed in every bailout that has occurred since 2007.
For hedge funds, June was the cruelest month.
Ambulances are running everywhere, don't know where to, cannot access what sounds like a war zone.
— Mohannad Sabry (@mmsabry) July 8, 2013