And the game continues as Speaker Boehner appears to be kicking the can across the corridor to the Senate (and implicitly the Democrats) as he quite specifically advises them that with no budget, there is no talk of debt-ceiling extensions. The principle is simple, he notes, "no budget, no pay." As Dow Jones reports, the 'compromise' deal is that the House will propose a three-month extension of the debt-ceiling in exchange for a budget (i.e. spending cuts from the Senate) - which of course is all but impossible given the years of inability to pass a budget anyway. Check to Obama (though we know the response)...
- *U.S. HOUSE WILL PASS 3-MONTH DEBT LIMIT INCREASE NEXT WEEK
- DJN - DJ U.S. HOUSE TO SEEK THREE-MONTH EXTENSION OF DEBT CEILING
- DJN - DJ U.S. REP CANTOR: IF HOUSE AND SENATE DON'T PASS BUDGET IN 3 MONTHS LAWMAKERS WON'T GET PAID
"April 10 was the first trading day in London after the “London Whale” articles were published. When the U.S. markets opened (i.e., towards the middle of the London trading day), one of the traders informed another that he was estimating a loss of approximately $700 million for the day. The latter reported this information to a more senior team member, who became angry and accused the third trader of undermining his credibility at JPMorgan. At 7:02 p.m. GMT on April 10, the trader with responsibility for the P&L Predict circulated a P&L Predict indicating a $5 million loss for the day; according to one of the traders, the trader who circulated this P&L Predict did so at the direction of another trader. After a confrontation between the other two traders, the same trader sent an updated P&L Predict at 8:30 p.m. GMT the same day, this time showing an estimated loss of approximately $400 million. He explained to one of the other traders that the market had improved and that the $400 million figure was an accurate reflection of mark-to-market losses for the day."
It was the best of times, it was the worst of times. That just about sums up the divergence of opinion among credit (bad) and equity (good) traders had as the week ended on a very sour note for bonds. Financials, which have seen nothing but compression and exuberance, have swung notably wider in the last 36 hours or so - as the spectre of the repayment of LTRO begins to show forth. Meanwhile, stocks are flatly ignoring that reality and close (broadly) at the highs of the week. Sovereigns in general trod water (+/-5bps) except for Spain which rallied 21bps (of course it did, the awesome bad loans data must have been the bad-is-good driver?). EURUSD also started to sag today back to its lows of the week - even as Swiss 2Y rates broke back above 0% for the first time in 9 months and Europe's VIX is stable at around 16%.
UPDATE: VIX and SPX have recoupled
Given the compression in realized volatility and surge in stocks, it is not totally surprising that spot VIX would see some catch down compression. Sure enough, spot VIX just plunged to 13.00 (for the first time in almost 6 years). Stocks are falling as VIX is falling though - in a convergence from yesterday's gap-open. Longer-date VIX futures are also falling but not as much - implying further debt-ceiling deadline steepeners being laid out.
According to Bloomberg's rankings (based on wealth disparity, average unemployment benefits, and overall unemployment pool), and somewhat confirming the food-divide discussion we had last night, the following states are the worst to live in if you are unemployed. Connecticut tops the list with its massive wealth disparity - more than one $200,000 household for every household earning less than $10,000. New York, California, and D.C. are close behind with Oregon and Alabama in 19th and 20th 'worst' place to be unemployed. Welcome to the bifurcated un-recovery.
All commentary at this point on the infinite monetary sinkhole of Southern Bavaria, f/k/a Greece (whose lack of privatization efforts have angered Mother Merkel, who is now demanding more Greek assets be sold to "willing buyers") is now worthless:
- IMF SEES GREECE NEEDING EXTRA EU5.5-9.5 BILLION IN 2015-16
- GREEK GDP TO SHRINK 4.2% THIS YEAR, GROW 0.6% IN 2014, IMF SAYS
- IMF RECOMMENDS HAIRCUTS ON BILATERAL GREEK LOANS FROM EUROPE
- IMF RECOMMENDS RATES `CLOSE TO ZERO' ON BILATERAL GREEK LOANS
Has the IMF hired Armstrong yet?
Back in late August, we presented a chart whose foresight and accuracy turned out to be so spot on, it scared even us. We asked: "With Apple overtaking Microsoft's 'peak-market-cap' and becoming the most 'valuable' company ever traded, we thought a reflection on what humans (as opposed to machines programmed by humans) did the last time a world-changing technology company went ubiquitous. Comparing AAPL's last few years to the run-up in MSFT's peak in 1999..." Or, in other words, "is it different this time?" Turns out, the answer is, No. It was not different this time. It never is.
With Spanish and Italian sovereign bond spreads back at 19-month lows (admittedly driven by OMT 'promises' and self-referential buying from any and every domestic fund possible), many are arguing that all is well, crisis averted and the world can go on its merry way to Dow 30,000. However, the reality is extremely different in the real economy - and the optics of the spread compression have done nothing but armor the politicians to stall any needed reforms for now. The ultimate cognitive dissonance is highlighted nowhere better than in Italian GDP (whose 2013 forecast was just slashed further to -1% - and remember in Jan 2012, the 2012 GDP forecast was -0.4% and it is currently running at a 6x miss around -2.4%); and Spanish bad loans, which are now running at ever-new record highs of 11.6% and accelerating year-over-year. The chasm between the facts on the ground (reality) and the market's optics have never been wider as data point after data point indicates stagnation at best (core and periphery) and depression at worst.
Yesterday, UBS' Maury Harris released a naive note titled "UofM confidence bounce after tax deal?" which we did not understand: would the bounce be on the ongoing depression, the uncertainty over the debt ceiling, the fate of the sequester and coming spending cuts, the manipulated market which just saw a $610 million reserve injection via repo to be followed by another $1.5 liquidity injection via POMO, or the fact that everyone is now paying more taxes in 2013? Turns out the confusion was irrelevant as the preliminary January UMichigan consumer confidence number just printed at 71.3, far below the December final 72.9, and the biggest miss to expectations in seven years. It was also the lowest print since November 2011. And of course, the reaction of the central bankers' soapbox formerly known as the "market" is.... up.
Sometimes people, a vast majority of people, just don’t get it and so the present tense of the world goes on for a while until reality pops up or is forced upon them. It is rather like momentum which proceeds until the fuel runs out. Sometimes it is like living on Earth; the lack of recognition that hydrogen and oxygen surrounds you does not negate the fact that these two gases are present even though you cannot see them; you are still alive and breathing afterall. What we are used to, what we look for, are bubbles that reflect one asset class or another. In the past it has been Real Estate or dot.com or high tech or equities or bonds so that the search is constantly defined by some sector. Present conditions, however, dictate something entirely different, in my opinion, which is not one asset class or another as defined by relative valuation but all of the world’s asset classes as defined by global policies set by the world’s central banks acting in collusion. We are living in a gas house bubble.
It seems that when it comes to looking at fundamentals, chartists such as DeMark and the other bottom-calling knife-catching 'value-players' who claim to have read the Apple tea-leaves are good at looking at, well, charts, and rather horrible at divining the underlying cash flow supporting a stock. Or lack thereof as is rapidly becoming the case of Apple. As Reuters notes, it appears Sharp (the manufacturer of iPad screens) has nearly halted production of the 9.7-inch screens - as demand shifts to the iPad mini. This semi-confirmation of Citi's supply chain checks from last month suggests that concerns over growth in iPad may well have been justified and the expectedly lower margin iPad mini will benefit - as Macquarie Research has estimated that iPad shipments will tumble nearly 40 percent in the current quarter to about 8 million from about 13 million in the fourth quarter, although Apple's total tablet shipments will show a much smaller decrease due to strong iPad mini sales. It is quite apparent, as the WSJ notes, that the shift in the coolness factor has taken place as Samsung's new smartphone is gathering more 'hype' as iPhone is now "the underdog" in innovation.
Yesterday Lance Armstrong admitted to the New Normal national confessional and conscience clearinghouse - Oprah - to what everyone had known for a long time, yet what he spent millions over the years suing others for "defaming" him for. Below is the resulting word liecloud of his interview. Spot the words "apologize" and "sorry." In other news, we look forward to Lance's rise to the ranks of primary dealer prop trader. He certainly has all the sociopathological prerequisites.
It seems the FX market is just a little edgy this morning. A few brief words from ECB member Benoit Coeure on the possibility of short-term LTRO repayment (if rates are cut to negative) appears to have reminded traders that LTRO does have a deadline and that several hundred billion in loans will inevitably be repaid from the LTRO1 and LTRO2 treasure chest. This reminder of implied deleveraging of the ECB's balance sheet triggered a drop from 1.34 to 1.33 overnight as the verbal intervention continues. The concerns over LTRO repayments has also triggered some serious "violent and quite extreme" snaps in EURIBOR yesterday as short-term refunding may become more difficult with a less large cash reserve standing around (waiting to be fungibly used as risk capital).
Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds. This is the conclusion of a wide-ranging analysis of the world monetary system by Official Monetary and Financial Institutions Forum, (OMFIF), the global monetary think-tank, in a report commissioned by the World Gold Council, the gold industry’s market development body. The report warns of “twin shocks” to the dollar and the euro and of a “coming dollar shock” and points out how gold would be a safe haven in a dollar crisis. “Gold has a lot going for it; it correlates negatively with the greenback, and no other reserve asset seems safe from the coming dollar shock.” “The world is preparing for possible twin shocks from the parlous. position of the two main reserve currencies, the dollar and the euro... The OMFIF offers a confidential, convenient and discreet forum to a unique membership of central banks, sovereign funds, financial policy-makers and market participants who interact with them. They note that “western economies have attempted to dismantle gold's monetary role. This has failed.”
- Foreign Hostages Die in Algeria’s Battle With Terrorists (Bloomberg)
- The latest bank to soon join the currency wars: McCafferty Says BOE Must Keep Open Mind on New Policy Tools (Bloomberg)
- US debt talks complicated by timing (FT)
- BOJ eyes open-ended asset buying, agrees new inflation goal (Reuters)
- AmEx Says U.S. Card Income Fell 42% as Loss Provisions Increased (BBG)
- Call to raise age for US’s Medicare (FT)
- Obama Promise to Raise Middle Class Living Already Seen in Peril (BBG)
- China Exits Slowdown as Quarterly Growth Tops Forecasts (BBG) - actually, as new Politburo says to make it appear that way
- Britain to drift out of European Union without reforms (Reuters)
- Republicans weigh interim debt-limit hike (FT)
- Abe's aide says Japan shouldn't fret if yen falls to 100 vs dlr (Reuters) ... and it was 90 just a few days ago
- PBOC May Seek More Liquidity Operations (Dow Jones)