As noted earlier when we said that Jamie Dimon (who just happens to be one of two Class A directors at the NY Fed) just showed the Fed who is boss, the Fed has now been "forced" to release the Stress Test results today at 4:30 pm instead of as previously scheduled on March 15. Jamie Dimon is now officially defining the Fed's timetable. This is all in jest of course: Dimon would never do anything without preauthorization from Bill Dudley, which means that even as the FOMC statement was a big yawn, the JPM release less than an hour later was planned purely to ramp stocks into the close on the lack of a definitive promise by the Fed to keep printing. Well played gents.
CBO Hikes 2012 Budget Deficit Forecast By $97 Billion In One Month, Sees $1.17 Trillion In Funding ShortfallSubmitted by Tyler Durden on 03/13/2012 - 14:50
What a difference a month makes: back on February 7, the CBO released its first forecast for the 2012 budget deficit. The number then? $1.08 trillion. Just over a month later, the CBO has released its amended budget deficit. The bottom line this time around: an increase of just under $100 billion, or $1.171 trillion. Since this number is still about $150 billion less than the President's own scoring, or $1.33 trillion, expect even more revisions. And why not: this is simply debt that nobody will ever repay, and in exchange the money, which is finally flowing through the bottom line at least to the banks (JPM shareholders thank the US Treasury) will proceed to pad if not the middle class, then certainly banker bonuses.But not all is bad news: by 2022, the CBO, which has a pristine track record of predicting one decade into the future, sees a $186 billion reduction in total deficits compared to January. Let's not forget that b then Greece will have negative debt/GDP ratio.
Is social media the new Chinese reverse merger? Only three months after its IPO, ZNGA (trading over 21% above its post-IPO open price) will be doing a secondary offering. Yes, you lucky punters who can't get enough of FBOOK's IPO can step in and fill another money void with this follow-on (supposedly to avoid a lock-up sell-off!!). The stock is trading down only 2% on this 'great' news. When will ZNGA announce their dividend hike?
Update: And so they come storming in, as the WSJ reports that Bank of America is the next to frontrun the Fed's public announcement, and announce it passed the stress test. However, unlike JPM it says it has not asked for new buybacks, or dividend increases. No surprise there.
There was a time when banks would at least pretend to pay lip service to the Fed. Those days are gone. Two days before the Fed is scheduled to release stress test results, JP Morgan's Jamie Dimon has decided to show the folks at Liberty 33, but more importantly the world, that it is "good enough" and has proceeded with announcing a $0.05 dividend hike as well as a $15 billion stock buyback (in effect increasing its leverage further by reducing its statutory equity). Since we are now obviously replaying the entire credit crisis, from beginning to end, must as well go all in. Now - who's next? And perhaps just as importantly, who isn't.
It's nothing if not choppy. Treasuries are selling off now (having initially oscillated) and the initial 'upgrade' of the economy juiced stocks but that has been faded. The DXY is surging higher as AUD, JPY, and EUR are losing the most ground against the USD. Commodities are feeling the lack-of-QE pain with Silver and Gold down quite hard. It seems equities remain the most confused - do we follow Treasuries (inflation/QE-off) and rally or do we follow USD/Commodity (QE-off) and drop? Based on pre-FOMC correlations, risk should be coming off and we note VIX gapped down under 15% and then back up to almost 16% now.
Expectations going in were apparently of no material change likely with some increase in dissents. It seems the market is initially disappointed by the Fed's lack of "we'll print 'til we die" comments as Bloomberg notes:
- *FED SAYS STRAINS IN GLOBAL MARKETS `HAVE EASED' BUT POSE RISKS
- *FED SAYS OIL, GAS `WILL PUSH UP INFLATION TEMPORARILY'
- *FED SAYS UNEMPLOYMENT `DECLINED NOTABLY,' REMAINS ELEVATED
Notably, economic "growth" has moved from modest to moderate, and inflation word count: 6.
Once again, credit markets have roared back to converge with equity's exuberance to close the day in line. Very soon after our earlier post on the divergence, the two bipolar markets began to converge rapidly. Will tomorrow's 4th time be the charm, we wonder?
Back to basics with some definitions:
DEFAULT, n. Semi-mythical celestial occurrence that passes by Earth every 76 years.
I was worried for a second about that Greek default, but I realise there's nothing to see now and all is well.
FEDERAL RESERVE, n. A wholly owned subsidiary of Goldman Sachs.
The Federal Reserve voted to give a few more billion dollars to Wall Street.
US GOVERNMENT, n. Another wholly owned subsidiary of Goldman Sachs.
We seem to be running out of Goldman Sachs alumni here in the Treasury. No, wait, we've still got hundreds of 'em.
In February, the US spent a third of a trillion to fund various government programs. Since only a fraction of this money was funded with tax revenues, the balance has to come from somewhere else. Like today's 10 year $21 billion Bond auction. In the aftermath of yesterday's weak 3 year, today's bond also priced at the highest yield since October, printing at 2.076%, just inside of the When Issued 2.08%, and a far cry from January's 1.90% as the Fed is expected to use the word inflation in just under 60 minutes. The Bid To Cover was 3.24, compared to the 3.12 TTM average. The breakdown of buyers was virtually unchanged from February's auction, and saw 42% taken down by Dealers, 38.6% go to Indirect Bidders, and Directs taking down 19.4%, or the highest since August. Once this week's auctions are concluded, total US debt will be $15.6 trillion as the ramp into October's (at the latest) debt ceiling fight, which promises to be the highlight of this election season, begins in earnest. Any minute now, the CBO will also release its revised grading of the President's budget, which will see the 2012 deficit forecast increase from $1.08 trillion to $1.2 trillion.
Mark Fisher Accused By CFTC Of Pulling An MF Global, Depositing Customer Funds Into Non-Segregated AccountSubmitted by Tyler Durden on 03/13/2012 - 11:49
Mark Fisher is a staple contributor on CNBC. Or at least was. According to various headlines flashing across both Bloomberg and Reuters, it seems that his MBF Clearing Corp is the first victim of the CFTC expanding its MF Global inquiry, and Fisher's MBF Clearing Corp of performing just the same "vaporization" activity that MF Global engaged in and that boggle regulators' minds.
MBF CLEARING CORP SUED BY CFTC FOR FAILIING TO SEGREGATE FUNDS
CFTC ACCUSES MBF OF DEPOSITING CUSTOMER FUNDS INTO A NON-SEGREGATED ACCOUNT THAT ROUTINELY HELD BETWEEN $30-90 MLN
CFTC ALLEGES CUSTOMER ACCOUNTS WEREN'T PROPERLY SEGREGATED
Oops. In other news, JPM and Jon Corzine are both completely innocent of anything. But at least the CFTC can say it has done its duty of punishing transgressors and all is now well.
While he does have some new philosophy (at X% off MSRP of course, coming to a Kindle near you) to preach, Nassim Taleb's re-emergence from the darkness of the media spotlight starts with a bang: "I realized that something wrong is going on, and only one candidate 'Ron Paul' seems to have grasped the issues and is offering the right remedies". He was given quite a lengthy period to proselytize as he outlines the Big Four problems he sees with the USA (and for that matter the world): Deficits (metastatic governments), The Fed, Militarism, and non-Bailouts (what is fragile should break early). As Ron Paul notes, "It's an illusion that the USD can bailout the world", Taleb makes many interesting, though a little murmur-some for our liking, points like "you don't gamble with hyperinflation" and his comparison between the US and the Soviet Union will surely raise some headlines as he rants of the growing divide between public and private employees standards of living, our "need to do something drastic about it" and on Obama/Government and deficit reduction that "the whole thing is rotten".
CDS is once again (still) in the spotlight. We have moved on from debating whether or not a Credit Event has occurred in the Hellenic Republic, to concerns about whether the CDS market will settle without a problem. There is a lot of talk about “net” and “gross” notionals and counterparty risk. What I will attempt to do here, is build a CDS world for you. We will look at various counterparties, the trades they do, and the residual risks in the system. It will be loosely based on Greek CDS but some liberties will be taken. None of the institutions are real world institutions (in spite of how much they sound like some people we know). It is a simplification, but to make it useful, it has to be robust enough to give a realistic picture of the CDS market/system.
The continual restatement by endless talking heads of the compression in Italian bond spreads/yields as some indicator of success and recovery in Europe is becoming nonsensical. Short-end rates have become anchored, and as UBS notes today, the huge liquidity injections have caused structural breaks between curve slop and spread levels (curve now at its steepest since EUR inception). However, what makes the nonsense-speak greatest is the disappointment in terms of market reaction post LTRO2. After the previous two major liquidity injections (LTRO1 and the Reserve Requirement shift) we saw a considerable spread compression very soon after. However, in the two weeks since LTRO2, Italian spreads have gone nowhere (and have in fact seen notably larger volatility and intraday decompression in the last few days post-Greece). With theeconomics of the carry trade diminished, and the market fully priced in LTRO's impact, expectations of further improvement in Italy's bond curve seem entirely dependent on more surprise liquidity (unlikely short-term) as the carry-trade engine appears to have run out of fuel (or collateral maybe?)