Much has been said on TV about the "great" earnings season so far. The truth is that ex-financials the upside EPS factor is just 10%. This is driven purely by ongoing cost-cutting and layoffs. What is much more relevant is the top-line. And there again, ex-financials, the upside surprise, is... zero. As David Rosenberg puts it: "In other words, outside of financials, revenues are just meeting analyst expectations. In a nutshell, the impressive earnings surprises, thus far, is being driven by Financials cost surprises (including write offs)." And why are financials beating so heartily? Because they are all reducing loss allowances on their books, when their whole books are based on mark to myth. The wholesale market lie continues, and a read between the lines indicates that the trillions in monetary and fiscal stimulus is still not pushing company top lines. In light of this observation, we are certainly not holding our breaths to see a $100 EPS on the S&P for 2011 as UBS projects.
The $44 Billion 2 Year auction closed at 1.024% on a Bid To Cover of 3.03. But not thanks to foreign bidders: Indirect bidders were the lowest in a year, coming it a mere 31.04%, with a lower number record only in April 2009 when it was 28.71%. The slack was picked up by the so called Fed shadow ops/China London trading desk, with the Direct Bidders taking down a whopping 21.41%: the highest by far for a 2010 auction, and the second lowest in history with just the 26.14% in October higher.
Not much to comment on this chart. The credibility of the central banks is running out.
What do you do when your last multi-trillion stimulus is expiring and its effects no longer generate asset bubbles as you once did? Why, you launch another multi-trillion stimulus of course, although if you are the US you call it something funky like Pennies for Prosties, Benjies for Bodyrubs or something comparable. China has no problems with nomenclature so it calls it how it is: as Bloomberg observes, "China will announce in August a new stimulus package of possibly 4 trillion yuan ($586 billion), the China Business newspaper reported on its Web site, citing unidentified sources. The plan, from China’s National Development and Reform Commission, will likely cover nine industries including information technology and new energy, the report said." So much for monetary prudence. At this point all economies will spend money into overdrive until each and every economy (that can print its own currency) simply implodes into a Keynesian supernova.
With the Goldman hearing going horrendously for the squid, and S&P pouring nitroglycerin on the sovereign implosion fire, the primary source of funding, the carry, is getting taken out to the woodshed. The unwinds of carry mechanism make controlled single file exits out of a burning bank office building seem tame incomparison.
It took the Goldman HFT algos 5 minutes to find Portugal on the map. S&P, with all the finesse of a drunk, pre-BofA acquisition Merrill bull in a CDO store, comes in and spoils the party. Although with volume non-existent, we expect the market to go straight up in a straight line once again as the selling volume dries out.
If there was any confusion before that gold is now the last flight to safety in the fiat devaluation war, the chart below should end that debate. As Portugal got cut, the move in gold was far more pronounced than a comparable move in the dollar. Investors are now bypassing the USD as thebeacon of safety and heading straight for the yellow metal.
S&P just cut its long-term ratings on Portugal to 'A-' from 'A+' and the short-term ratings to 'A-2' from 'A-1'. Euro plunges on the news even as market is aggressively trying to rerisk during the Goldman hearing.
The Greek 10 Year bonds maturing in three weeks (May 19) are now being sold at 98.7 or a Yield to Maturity of ~30%. This is a return that one can not find anywhere in the distress-free corporate world as the Fed has guaranteed that no firm will ever file for bankruptcy. It is also indicative that the EMU is soon to become history and the EMU/EU experiment is coming to an end.
The funding crisis is finally becoming a stock market crisis. Greek bond pricing service HDAT has suspended all bond trade indications.The banking sector is now down 17%. We will keep you updated on the Lehman, pardon, Greek collapse.
Unadjusted Case-Shiller data for February indicated that on a sequential basis the decline in home prices is accelerating. And this is even with every stimulus imaginable thrown at the problem. We can't wait to see what happens with the latest round of homebuyer subsidies runs out. As the press release states: “Existing and new home sales, inventories and housing starts all show tremendous improvement in their March statistics. The homebuyer tax credit, available until the end of April, is the likely cause for these encouraging numbers and this may also flow through to some of our home price data in the next few months. Amidst all the news, however, we should also pay heed to foreclosure activity, which have reached their highest level in at least the last five years. As these homes are put up for sales, we may see some further dampening in home prices. ” While we obviously disagree with the first sentence (see chart below for confirmation) the rest of the press release is somewhat accurate. February unadjusted data came in below July 2009 levels. The double dip in housing is firmly here now.
Because we all know rumors are always false. Bankingnews.gr admoinishes its readers (courtesy of crude Google translation) to "not be carried by rumors of bankruptcy bank - is completely unfounded." With the entire Greek airforce calling in sick, could Goldman just be a smokescreen to the Persian invasion?
Italy Next? €9.5 Billion Bill Auction 2 bps Away From Failure, 6 Month Bill Yielding Higher Than Spain'sSubmitted by Tyler Durden on 04/27/2010 - 09:11
All of Europe is scrambling to issue new debt and refinance in advance of what more and more are seeing as a credit crisis soon to envelop not only the European periphery but its core as well. We all know what is happening in Greece and Portugal. It appears Italy may be next: the country sold €9.5 billion in 6 Month Bills at 0.814%, up dramatically from 0.568% just a month ago, on March 26. What is scariest is that the Bid To Cover on the auction tumbled from 1.56 at the previous auction to a just barely above passing 1.02. At this rate Italy will be unable to find bidders for its next Bill auction. And if it can't sell Bills, it can't roll the easiest part of its curve. Also, unlike Germany, Italy does not have the "flight to safety" appeal. Keep in mind that Italy, just like Greece, dipped freely in the Goldman debt/GDP swap "adjustment" mechanism. We are confident that as contagion fears grip Portugal, Italy is sure to be next. And confirming that the market is seeing Italy as an even greater risk than Spain, the country sold 1.7 billion euros of six-month securities to yield 0.736%, up from 0.482 percent on March 23. On the other hand, Spain has to sell €150 billion in euros in 2010: it has so far only sold 26% of this amount. We wish them best as they scramble to fill the quota.
- Mortgage deals under scrutiny as Goldman faces senators (NYT)
- Stocks drop (not here though, we should go green the second European markets close) on European debt-contagion concerns (Bloomberg)
- Vince Reinhart: The deflation club (The American)
- Volcanic ash crisis cost airlines GBP2.2 billion (Telegraph)
- Senator Dodd's carve out for cronies (Post)
- Ukrainian opposition hurls eggs and smoke bombs in parliament (FT)
- Tim Sykes and Kaja Whitehouse sued by SpongeTech for $43 million (HFN)
- Squids of a feather: Warren Buffett and Prince Alwaleed's secret letters (Telegraph) even as Alwaleed says he'll go on working with Goldman (BLoomberg)