As if the Greeks haven't suffered enough from Northern European actions (admittedly in response to their own actions), it seems the anti-German sentiment is keeping the wealthy tourists away from the beaches. As Reuters notes today, 'German tourists are in short supply in Greece these days, frightened away by reports of visceral anti-German sentiment in some places'. Data for the main summer holiday season shows pre-bookings from Germany down by some 30 percent. We guess the pictures of Molotov cocktails being thrown, city-wide strikes, and cardboard cities full of unemployed youths was too much but as one Greek tourist-shop-owner clarified "They're not coming because of the problems. But we don't have a problem with German people, only their government." Tourism - the one remaining possibility for Greece to drag themselves out of the quagmire (aside from olive oil and yoghurt) - is now under pressure as The Germans ("That's just the way Germans are: if there's trouble in some country, then Germans just don't go there on their holidays.") wage "an economic war against Greece". Sadly the xenophobic and nationalist tensions are indeed rising (as we warned many times in the past - and suggest will be the ultimate undoing of the political compact in Europe) as the crisis had revived anti-German sentiment from World War Two that most thought had long since disappeared. "The Greeks moved on and tried to forget, then this. If you ask me, Germany owes Greece billions for all the murders and war crimes. Germany should pay Greece what it owes."
A 2.7% gain in the NASDAQ, obviously dramatically aided and abetted by the squeeze-fest in AAPL +9% from last night's close, was the best gain in over four months for the tech-heavy index but still leaves it lagging the Dow (by over 2%) and S&P 500 (by over 1.5%) from the 4/9 highs in Apple. At the other end of the spectrum in the real economy, CAT's less than rosy outlook, saw it suffer its largest drop in 7 months dragging an impressive 37pts out of the Dow's lagging but positive performance on the day (now positive from the 4/9 Apple Top day). Of course the Apple-exuberance which seemed enough for the entire world's risk-asset markets to decide that everything is fixed started the day off gap higher in the US and late-to-the-game retail pushed equities higher out of the date this morning as the rest of risk-assets were generally steady. Europe's close seemed to have only minimal impact as everyone was focused on the FOMC statement and Bernanke's presser. Between the FOMC and the Bernanke conference, Gold, stocks, and the USD knee-jerked and retraced but Treasuries remained worse (higher in yield by 3bps or so). Once Bernanke began his quaking tenor, Gold pushed higher, Treasuries lower, stocks higher and the USD lower as hints of QE back on the table were dribbled in between defensive tacks on biflationary concerns. This QE-specific action was accompanied by low volumes though (as usual) but volatility did compress (a la typical QE trades) with VIX closing below 17% - its lowest in over a month and near its largest divergence from European volatility (V2X). Commodities in general lagged early then recovered as USD sold off on QE chatter from Ben - Silver underperformed on the day but outperformed notably off its lows after testing below $30 for the first time in 3 months. Treasuries pulled back positively off their high yields of the day in the late afternoon ending the week with the short-end (out to 5Y) flat and 10s/30s 2.5bps higher in yield. HYG was a dramatic high-beta outperformer today - now green for the month - even as HY and IG credit lagged the ebullience in stocks (though did improve to two-week highs). ES (the S&P 500 e-mini future) closed above its 50DMA on average volume today with some heavy and larger average trade size into the close ending just above Friday's highs - even after the dismal US data (Durable Goods) and Europe's issues this morning.
Since last night's blockbuster earnings by Apple presented yet another "paradigm shift" in how the company is presented to potential new investors (how many are left one wonders); namely, no longer reliant on incremental US purchases - just to avoid the thorny issue of wireless company subsidization - and one now dependent on Chinese consumer demand for future growth, we thought, in conjunction with William Banzai, to present a graphic simplification of what the Apple business model is all about going forward. Two words: "value added"
Guest Post: Will Bond Investors And Savers Have To Hold Forced Government Loans At Some Point In The Future?Submitted by Tyler Durden on 04/25/2012 - 15:00
If central planners decide to circumvent the already manipulated bond market and enforce much lower interest rates by implementing forced loans, there would be a big uproar for some time in the market. However, the negative wealth effect on the private sector would be more foreseeable and stretched out over a longer period of time. This definitely would decrease uncertainty. In my opinion, this measure would actually help to break through the downward spiral and avoid the much more devastating course towards a restructuring event with its negative side effects.
Appropos Bernanke's razor's-edge tight-rope-walk fence-sitting as the not-too-cold-not-too-hot economy reduces the Fed's ability to do anything, Jeff Gundlach of Double Line provided a succinct explanation of the the 'uncomfortable position' the place-of-confusion Fed finds itself in. Simplifying the dilemma to: the Fed cannot raise rates as the dramatic implications for the huge debt load (and implictly the interest expense saving the budget deficit) of the US Government are untenable while at the same time inflation (in the things we need - not just want) is rising notably. However the new bond-king notes rather sarcastically, that the Fed can show that there is only modest inflation thanks to housing and wage growth (and herelies 'the biflation'). The old-school-Fed's efforts at pre-emptive strikes against inflation is simply not going to happen, he states, citing an "intentional attempt to suppress national income - an attempt to stop nominal GDP growing too much - simply won't be tolerated until inflation moves into the 4-5% category".
Update for those who don't see more easing - bad news:
BERNANKE SAYS FED PREPARED TO TAKE MORE BALANCE SHEET ACTIONS
BERNANKE SAYS `THOSE TOOLS REMAIN ON THE TABLE'
One hour ago, the Fed launched on a big stop hunt, sending gold first much lower, then much higher, even as it released no incremental data, but merely confirmed that with every other central bank still "easing" (by which we mean devaluing their currencies of course, most recently seen in India and Brazil, and shortly, in Japan and of course Europe, once again) it can delay injecting cash until after the president is reelected. So with everyone at least superficially pretending there may be a question about ultimate Fed strategy, Ben will take the podium shortly to answer Steve Liesman's and several other fawning 'journalists' questions on what the Fed sees for the future, which in turn will be driven by the just released revised Fed forecasts (see below). Our question is why does the Fed not sell one or more ad spots on its livestream? Each can sell for at least a few millions - the money could then be used to pay down the debt.
We know correlation is not causation, but... Black line is student loan debt; Orange line is AAPL total cash. 2+2 just may not equal 5 in this case.
In a wonderfully succinct clip, Professor Antony Davies addresses the oft-cited perspective that Government has a debt problem. While correct in fact, he examines the data and summarily notes that debt is caused by deficits leaving the question of what's to blame - too much spending or too little tax revenues? The dramatic rise in spending per-capita by the government is exponentially larger than the rise in price levels over the last few decades and while so much time is spent on Healthcare costs - even that pales in significance relative to the rise in Federal Government spending. The lesson, he notes, is that we don't have a debt problem, we don't even have a deficit problem, what we have is a spending problem - leaving a tax solution impotent. An interesting conclusion on the day when the Fed once again promises to keep rates low forever implicitly supporting a government budget via its low interest expense...
It appears that more even than the Fed, the market, being a perfectly insane reflexive device, saw the 0.1% knee-jerk drop in stocks, and took that as a far greater THE NEW QE™ catalyst than anything just released by the Fed's printer. Gold is now higher than before the FOMC statement and QE-favorites Energy and Financials are notably outperforming.
By now everyone is aware that when it comes to the Fed's "communication" with the public, there is a redacted layer which remains hidden for years, and which just happens to contain the jist of what the Fed truly sees... and then there is what is left for public consumption, such as the just released statement of pre-canned sentences and algo stimulating phrases. However, to get the full transcript of the thinking that went into the policy we have to wait until 2017. Today, courtesy of John Lohman, we fast forward five years for a word cloud of the transcript that backs today's FOMC statement. Enjoy the resulting time travel.
The initial knee-jerk response to a lack of Twist-extension or QE3 on the table was a notable drop in Gold prices, strength in the USD, Treasury yields rising (with 10Y popping back over 2%) and a big fat unch from stocks (and AAPL). The last 15 minutes have seen all of these markets pulling back from their abysses with 10Y now rallying back to unch from pre-Fed, the USD leaking back higher and Gold and Silver (testing below $30) pulling back off their lows. AAPL has leaked lower but the S&P 500 remains practically unchanged (though Energy and Financials are outperforming as Healthcare and Industraisl are underperforming) and VIX has dropped a little. EURUSD is now very slightly lower than pre-Fed. It seems the market would rather wait to look Ben in the eyes at the press-conference before really pulling any triggers.
The FOMC statement once again had a little for everyone but critically lacked the all-important- "we'll print now and to infinity". Key headlines from the statement, via Bloomberg:
- *FED SAYS ECONOMY `EXPANDING MODERATELY'
- *FED SAYS INFLATION `HAS PICKED UP SOMEWHAT' ON ENERGY
- *FED SAYS GROWTH TO STAY MODERATE, `THEN TO PICK UP GRADUALLY'
- *LACKER DISSENTS FROM FOMC DECISION
- *FED SEES `SIGNIFICANT DOWNSIDE RISKS'
- *FED SEES `EXCEPTIONALLY LOW' RATES AT LEAST THROUGH LATE 2014
Pre-Fed price levels:
ES 1382, IG 98.6bps, HY $95.58, 10Y 1.97%, Gold 1639, EUR 1.3200, AAPL 609.5
10Y +3bps, Gold -$10, ES -1pt, EUR -15pips, AAPL -$0.5
Full Statement Redline...
At first we were quite impressed by the following major revenue and EPS beat by Boeing announced earlier today:
*BOEING 1Q EPS $1.22 ON 11C REDUCTION IN RESERVE, EST. 93C
*BOEING 1Q REV. $19.38B, EST. $18.31B :BA US
...until courtesy of Sean Corrigan we found out that Boeing is merely the latest company to discover what GM recently discovered as have so many now defunct other companies. That when in doubt - stuff.
Sampling several investment banks' opinions on what to expect out of today's FOMC decision in a few hours, one would be left with the impression that absolutely nothing will happen. Not surprisingly, this is what the official party line reps and warrants as well, as telegraphed by that faithful mouthpiece, Jon Hilsenrath. And yet if the Fed has finally understood that its role is only effective if it is surprising, this gives all us all the opportunity to not only doubt what the media and the sellside wants us to expect, but to naturally fade Goldman - one of the best trades in the past three years - who says: "We expect no clarity from Wednesday's FOMC statement and press conference on additional monetary easing. Fed officials will not close the door but are also unlikely to provide a clear hint of further action. Our forecast of additional easing hinges not on what Fed officials say this week, but on our expectation of continued weakness in the economic data." Of course it is possible that the Fed is merely staying true to its recent creed of being honest and transparent and telegraphing policy from miles away. And is thus forced until the market is actually driven by actual macro data instead of who buys how many gizmos using student loans. Or not. Because when in doubt, always ask i) what would Goldman Sachs sell and ii) what would PIMCO buy. The two are rarely both wrong at the same time.