And the leading indicators continue collapsing (ECRI later today): the BDIY has posted its 31st sequential decline, and has closed just barely above 1,900, at 1,902, and back to March 2009 lows. One wonders when the BRICmaster, Jim O'Neill, will ever put the appropriate spin on this particular statistic in his weekly permarosy missives.
- Immediate leak to refute that Postbank, or any other bank, will fail stress tests. Can't have a failure of confidence in a massively insolvent bank can we (Bloomberg)
- Computerized stock trading leaves investors vulnerable (USA Today)
- Biggest defaulters on mortgages are the rich (NYT)
- US will not brand China a currency manipulator, US exports now have no excuse to continue sucking (Reuters)
- Google says China renews its internet license (Google), sending Google stock higher, BIDU lower
- Dumbest money clinging to shattered V-shaped dreams like Moody's to AAA rating of subprime (Reuters)
Major Bond-Equity Divergence Implies Stocks Are Mispriced By 60 Points; Goldman Warns Not To "Chase Equity Bounce"Submitted by Tyler Durden on 07/09/2010 - 08:25
Just like the daily occurrences of dislocations in the carry trade and risk assets, another major divergence has developed in the market, this time between bonds and stocks. As the following chart from Goldman points out, over the past month, stocks and 10 year yields have diverged quite notably, with a convergence of the two series implying an up to 60 S&P point disconnect. As these types of convergences are by far the least risky trades available (or most risky, depending on the amount of leverage), a recoupling bias would suggest shorting the broader market and selling the 10 Year (betting on a yield increase). Either way, it is obvious that the credit market, which is inevitably always right compared to the computerized pandemonium of stocks, suggests a substantial overpricing in equities.
- Asia stocks rise to two-week high, Won gains on rate increase.
- Australia delays proposed mandatory Internet filter; 3 ISPs agree to block child porn.
- Bank of Korea unexpectedly raises its policy rate by a quarter point, cites rising inflation.
- China reduces rare earth export quota by 72%, may cause U.S. trade dispute.
- China shares rebound on government pledge of easy credit, end week up 3.7 percent.
- China weighing nationwide resource tax to channel funds to help develop impoverished western regions.
Greece Scraps Plans To Sell 1 Year Bills On July 13, Will Just Issue 6 Months, As €2.2 Billion In Bills MatureSubmitted by Tyler Durden on 07/09/2010 - 08:07
So the Greek debt agency, headed by a former Goldman banker, sniffed around, did some reverse inquiry, and discovered that nobody wants to be locked into its debt for more than 6 months, not even with the explicit backing of the ECB. The result: the widely fanfared Greek auction on July 13 which was supposed to indicate some return to capital markets access, and had been planned to be a combination of 6 and 12 Month Bills, will now be just 6 Months. So explain to us again what the point of the whole "confidence boosting" exercise is again?
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 09/07/10
The good folks over at numismaster.com report that, starting on January 1st in 2012, U.S. federal law will require coin and bullion dealers to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. The report is written by David L. Ganz and is headlined "$600 Sale? Get Ready for Tax Form." Apparently this little jewel was an add-on to the national health care legislation. But there’s a new bill being introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section... so we'll see how that turns out. According to the author of the article Ed references, the rationale for the new regulations is that the taxocrats believe that people conducting off-book trading in precious metals are chiseling them out of $17 billion in lost revenue annually. The net result, however, will be that the government will soon know who’s got the gold. We reached out to another well-informed source who confirmed that the new regs would apply to all businesses. For example, under the new regime a plumber who does work for you in excess of the $600 threshold would be required to file a 1099 report. The implications of this move transcend just the precious metals. Rather, this is a deliberate step in the direction of implementing a VAT – once the government has everyone reporting essentially every transaction, taking the next step is a snap.
Surreal Macabre Circus Is Now In Session: Stocks Surge In Week When Lipper Reports $11.6 Billion In Equity Fund OutflowsSubmitted by Tyler Durden on 07/08/2010 - 22:52
Today's Lipper/AMG fund flow data confirmed the ICI data disclosed earlier: in the week ended July 7, in which stocks have rallied by who knows how many percent - nobody without Gallium Arsenide logic gates really keeps track of the market anymore, equities saw outflows of $11.6 billion. We'll repeat it because it bears repeating: stocks have surged as mutual funds have seen one of their biggest weekly outflows in 2010. Will someone with a Ph.D. from a reputable institution please explain that one to us. Furthermore, HY fund lows saw yet another exodus, this time of $166 million, following last week's $322 million. On the other hand, things in IG land are back to normal: after seeing their first outflow in 69 weeks last week for a tiny slip of $32 million, investors are back to dumping all their money in investment grade corporates, with inflows of $896 million. And most notably, money market funds saw their biggest inflow in 2010, at $18.5 billion, following last week's outflow of $11.6 billion. So yes, money was actively being allocated to cash yet somehow the powers that be managed to ramp the computerized stock market farce that is the Dow by something like 500 points in 4 days. Whatever. Will the three blind mute retarded monkeys who actually still have any faith left in our ridonculously manipulated market please follow all the other lemmings over the cliff, not forget to pay Goldman Sachs the $200 suicide fee, and shut the light on their way out.
GMO's Edward Chancellor has written what is arguably the coup de grace of papers analyzing the dynamics of soveriegn default, together with the conditions required to succumb to this terminal condition, and is the functional equivalent of months of research and combing through all the recent literature on the topic. By initially highlighting the reasons for government default, which include i) a reversal of capital flows, ii) unwise lending, iii) excessive foreign debts, iv) a poor credit history, v) unproductive lending, vi) rollover risk, vii) weak revenues, and viii) rising interest rates, Chancellor presents the frame of reference in which every potential sovereign default situation should be analyzed. Chancellor also highlights several examples where a sovereign default was all but assured (Britain post the Napoleonic wars, Sweden in the 1990s), analyzes the opportunity cost of hyperinflating instead of pursuing default (when inflation is more convenient, when it resolves political conflicts, when avoiding inflation is a low priority, and when there has been a public credit flameout), and makes an exhaustive analysis using historical parallels of today's sovereign debt crisis. He summarizes the different view of the current sovereign fiasco as follows: i) this time is (really) different, ii) we are not all Greek, iii) posits that the US is not on the verge of a default, iv) that inflation is more likely than default. He concludes by analyzing potential tipping points, which in a herd mentality market such as ours, are all that matters, and suggests that Japan is precisely on the verge of such a tipping point. Yet his two most critical conclusions, in our opinion, are the following: "public finance is a ponzi scheme" and, for all those who are fans of Rosie's thesis that bonds are the go to investment currently, "Current yields on government bonds in most advanced economist are at very low levels. Under only one condition - that the world follows Japan's experience of prolonged deflation - do they offer any chance of a reasonable return. But this is not the only possible future. For other outcomes, long-dated government bonds offer a limited upside with a potentially uncapped downside. As investors, such asymmetric pay-off profiles don't appeal to us." Must read for everyone who wants to have an intelligent opinion on the matter.
Oil prices advanced again on Thursday, after this week’s DOE report showed another larger?than?expected drawdown in crude oil stocks. In the process of moving higher, August crude oil prices touched their highest intra?day figure yet in July. It was a second day of gains following six days lower, and it continued to look like a rally more than a genuine advance. It was, not coincidentally, also a day during which equities were higher. The DJIA and crude have not been moving point?for?point, but they have had similar?sized gains in numbers these last two days. The DJIA gained 120 points while crude gained $1.37/bbl. The oil complex had been trading higher before the DOE report was released. Traders had been positively impressed by the American Petroleum Institute (API) report out Wednesday evening, because it had shown draws across the board. Even though the two reports are often quite different, the API numbers can provide insights into the DOE report released the following morning. In this case, both reports showed large draws in crude oil stocks. - Cameron Hanover
Fresh from Reuters:
A U.S. appeals court on Thursday rejected the Obama administration's request to put on hold a ruling that lifted a temporary moratorium on deepwater oil drilling in the wake of the BP Plc oil spill.
The U.S. Court of Appeals for the Fifth Circuit, based in New Orleans, ruled about an hour after hearing arguments over the administration's request to put on hold a lower court ruling that lifted the six-month moratorium.
Another slap in the face for a president who believes the constitution is something that has to be taught but not really followed. Of course, the appeals court ruled against Obama in the Chrysler case too, only to have the most corrupt "judicial" organization in the US, the Supreme Court, rule in favor of abolishing creditor rights at the end of the day.
Official Estimates Confirm Zero Hedge Projections That SNB Will Suffer €8 Billion In FX Interventions in Q2Submitted by Tyler Durden on 07/08/2010 - 18:47
A few weeks ago it was speculated on Zero Hedge that the total losses experienced by the SNB as a result of ongoing currency interventions in Q2, were in the €8 billion ball park arena. Today, the FT picks up on this theme and reports that "the Swiss National Bank may have suffered paper losses of up to SFr10bn (€7.5bn) from huge interventions in the currency markets to restrain the value of the franc. The central bank is expected by market observers to report a big loss when it publishes second-quarter accounts in mid-August. Economists cannot make a precise forecast, as the SNB does not reveal when, or at what rates, it has sold francs and bought other currencies – mainly euros – in recent months. However, Martin Neff, chief economist of Credit Suisse, said: “It’s certain there will be a big loss.” And while that may not seem like a large number at first glance, as Bruce Krasting pointed out, "The 8.4b loss for the SNB would be equivalent to a $200 billion loss for the Fed. So actually this is a very big deal."
In what will likely be the first major municipal bankruptcy of the New Normal, Harrisburg is likely about to shut the gates. In an interview conducted with restructuring site Debtwire, the City's controller Dan Miller said Harrisburg would be better off filing for Chapter 9 than trying to restructuring finances under Act 47, the Financially Distressed Municipalities Act. He added that the latter has never solver the problems of any municipality that entered the program and the institution of a commuter tax in Harrisburg to avoid a Chapter 9 would be unworkable. On the other hands, "when reached for comment, long-time opponent of a Chapter 9 filing for the city, PA governor Ed Rendell said Harrisburg officials have not given him any indication that they will seek Chapter 9 protection. Rendell said he hopes that the city "will either sell assets or seek Act 47" before making a Chapter 9 filing." Alas, it appears the nearly bankrupt city has run out of options.
UN Security Council Condemns Cheonan Sinking, An Act North Korea Had Stated Would Be Considered An Act Of WarSubmitted by Tyler Durden on 07/08/2010 - 17:41
On June 15, North Korea threatened military action Tuesday in response to any UN censure over the sinking of a South Korean warship. As AFP then reported, "We don't want the Security Council to take measures provoking us," Pyongyang's ambassador to the United Nations, Sin Son Ho, told reporters in a rare press conference here by North Korea. If the 15-member UN Security Council takes action against Pyongyang "follow-up measures will be carried out by our military forces...I (will) lose my job," he warned. It appears the UN's Security Council has decide to call North Korea's bluff. The AP reports that "The United States has introduced a draft statement in the U.N. Security Council that would condemn the deadly sinking of a South Korean warship and express "deep concern" at the finding of an international investigation that blamed North Korea for torpedoing the vessel." It was however, unclear, if according to the draft statement would directly place the blame on North Korea, or if the condemnation would be targeted at nobody in particular, leading to a major political victory for the communist country.