Just like yesterday's G-Pap vote of confidence was largely a snoozer and a "sell the news" type of event, so today's FOMC meeting and subsequent press conference, will likely disappoint, despite the 2 Year now trading at an Operation Twist 2 "priced in" 0.358%. It is certain that this expectations of at least some modest Fed intervention has slipped into equities. Thus, should Gross' prediction of a tentative QE3 announcement today fall through, and remember that the S&P has to be about 20% lower for the green light in our humble opinion, look for Waddell and Reed to be put under quarantine again at 12:30 when the decision is released.
Remember the whole UK stagflation scare, where the misery index recently hit a 20 year high, as both inflation and unemployment surged to two decade highs, keeping the GBP strong on expectations of rate hikes by the BOE? Well, the stagflation is still there, but according to just released BOE minutes, there has been a sudden 180 within the Monetary Policy Committee, which has now flipflopped, and just as we predicted, has fallen back to the traditional central bank fall back plan, namely "buy more bonds" as despite surging inflation, the country's central planners once again view deflation as a greater threat. As Bloomberg reports: "Bank of England minutes showed some policy makers see a potential need for further bond purchases as the economic recovery struggles and “downside” risks to growth and inflation mount. For the majority of the nine-member Monetary Policy Committee, “the fiscal challenges in the euro-area periphery highlighted the potential for further adverse shocks to demand,” according to minutes of the June 8-9 meeting published today in London. “For some of these members, it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialized." So the spin now is not to worry about that surging inflation: it's "transitory"... just as the imminent UK QE2 will be: "While U.K. inflation was 4.5 percent in May, more than twice the central bank’s target, Governor Mervyn King said last week that the current price surge is temporary as he defended keeping the key rate on hold to aid the economic recovery during the government’s budget cuts. Paul Fisher said yesterday that adding to the bank’s bond program remains “very much on the table” as a policy tool." Next up: a major quantitative easing episode out of Japan as the two "peripheral" developed economies attempt to fill the void left by the Fed and fail miserably, at which point Bernanke will have no choice but to get involved as well.
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
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Elijah Cummings Asks Darrell Issa Why It Is Taking So Long To Subpoena The Big Banks On FraudclosureSubmitted by Tyler Durden on 06/21/2011 - 23:31
Describing new evidence of illegal foreclosures, inflated fees, and other widespread abuses, Ranking Member Elijah E. Cummings wrote to Chairman Darrell Issa today to request that the Committee issue subpoenas to require mortgage servicing companies to produce previously-requested documents. “You have not hesitated—in other investigations—to issue subpoenas in a matter of days when your deadlines were missed, so it is unclear why a different standard applies to this investigation,” Cummings wrote. “This same sense of urgency should apply even when the targets of the Committee’s investigation are banks.” On February 10, 2011, the Committee voted unanimously to investigate “the foreclosure crisis including wrongful foreclosures and other abuses by mortgage servicing companies.” “If mortgage servicing companies are allowed to disregard requests for documents that are integral to this investigation, the Committee’s integrity will be called into question and, more importantly, abuses may continue,” Cummings wrote. Today’s letter from Cummings marks the fourth in a series of letters he has sent to Issa over the past six months urging the Committee to take action on wrongful foreclosures and other egregious abuses by mortgage servicing companies. On May 24, Cummings sent a letter to Issa requesting that the Committee issue subpoenas to six mortgage servicing companies that have refused to provide documents relating to foreclosure abuses. “The best long-term solution that our Committee can offer in response to illegal acts committed by mortgage servicing companies is vigorous investigation, oversight, and reform,” Cummings added. “Inaction will tacitly reward abuse and signal tolerance for major corporate wrongdoing.” So... what's wrong with that exactly?
Things That Make You Go Hmmm.... Such As The 10 Steps To Realizing You, Or Your Country, Is A Debt AddictSubmitted by Tyler Durden on 06/21/2011 - 23:13
A blast from the "the more things change, the more they stay the same" past courtesy of Grant Williams: "Back in the dog days of October 2008, The Consumerist published a piece on its website called ‘12 Signs You’re Addicted to Debt’. This public-spirited piece was designed to help people recognize an addiction to debt that might topple them over the edge of the abyss in the new, post-Lehman world of fear and desperation. You remember that world, right? Lehman had just collapsed? The world was about to spiral into a nightmare the likes of which hadn’t been seen in a generation? You remember, surely? The ‘GFC’? The ‘Great Recession’? No? But we all said it was a watershed that would change our behaviour for decades to come. We all swore never to forget how close we came; how terrified we all were.... In the interests of brevity, I’ve cut the original twelve signs down to ten, but that should be plenty to ascertain whether the world is addicted to debt (though it may make this introduction may be a little longer than usual). Let’s get started, shall we?..."
Following a rather anticlimatic day in which Greece did precisely as the conventional wisdom expected it to, leading to a modest sell the news drop in the EURUSD (down to 1.4370 as of this writing), Greece is a long way from being out of the woods. Summarizing the immediate next steps is SocGen's Vladimir Pilonca: "George Papandreou’s PASOK government survived the confidence vote on Tuesday night. As expected, Papandreou obtained a relatively narrow majority, with 155 votes to 143 in the 300 seat Parliament (and two abstentions). The focus now shifts to next Tuesday’s Parliamentary vote of the Medium-Term Fiscal Plan (MTFS). The MTFS includes €28bn of additional austerity measures for 2011-2012 as well as an accelerated privatisation plan."
GM's Channel Stuffing Catches Up With The Company: Dealer Backlogs Force Plant Shutdowns; Q3 GDP Cuts To FollowSubmitted by Tyler Durden on 06/21/2011 - 18:45
A few days ago, JPM's Michael Feroli literally wrote off Q2 GDP: "Recent economic data have been dispiriting, and increasingly 2Q is being written off as a lost quarter in which no progress will be made in closing the output gap." The silver lining, however, according to Feroli was that Q3 GDP would jump on a surge in auto supplies and sales to fill the vacuum left in the post-Fukushima space: "Motor vehicle assemblies sank in April, particularly at the US plants of Japanese automakers, as supply lines for parts from Japan were interrupted. That, in turn, led to a steep drop in inventories of cars on dealer lots. As Japanese parts and supplies come back on line, automakers located in the US are planning to ramp up production to replenish lean inventories." Uhm, lean inventories? It seems Michael has not had a chance to actually see what inventories look like (unlike Zero Hedge readers). In fact as we demonstrated three weeks ago, GM dealer stuffing has hit an all time high, so we can attribute this oversight to Mr. Feroli's zeal to validate yet another projection hockeystick. Yet somehow we fail to see how this massively excess inventories situation will be amenable to prompt restocking. And now we are not the only ones. According to the AP, "General Motors plans to close two U.S. pickup truck plants for two weeks in July as sales of pickups begin to wane and trucks are backlogged on dealer lots, the Associated Press reported Tuesday, citing the auto maker." That sure doesn't sound to us like something that would happen to an industry that has just faced a "steep drop" in inventory.
Despite Bloomberg calling the vote in favor of G-Pap, it seems the immediate response in the EURUSD is to dump the euro currency.
Final Vote: 155:145
In a previous thread readers can watch what is happening on the square in front of the parliament, which for now is secondary and will likely be determined by the outcome of the G-Pap vote of confidence due in just over an hour. Readers who wish to watch the ongoing debate in the Greek parliament can do so at the following link. Currently Samaras, the leader of the opposition is speaking. The real fun should begin in about 40 minutes. After the vote passes successfully, we suggest you switch back to the outside camera.
Just like back in January when rumors of tax repatriation holiday started creeping up, the past week has seen a surge in speculation that the Homeland Investment Act part 2 may be coming back. Unfortunately, neither now, nor in January, nor during the original HIA back in 2005, did this tax repatriation of billions in cash do absolutely anything to stimulate the economy, and in fact the waves of layoffs that followed likely added to the weakness that would become apparent with the December 2007 transition into the Second Great Depression. Yet that will not stop big multinational companies from lobbying for this one time gift which will allows management teams to buy back shares, and lock in individual profits on their insider holdings (certainly expect an unseen wave of insider selling in the aftermath of a HIA 2 should one be implemented). As for the economic rationale, there is none. We discussed this back in January and February extensively, but for hose who may have forgotten, here is a good recap courtesy of David Rosenberg's latest leter to clients.
Two weeks ago we broke the story that the bulk of the excess reserves, and thus cash, generated as part of QE2 has gone not to US banks, but to foreign banks operating in the US. One of the generic rebuttals of this observation was that it is naive to assume that European banks have been buying up the Treasurys issued by the Fed (and flipping these to their clients) which would also leads to a contemporaneous increase in excess reserves (over $630 billion since the start of QE3). This was a good question and we did not have a ready answer. Luckily, Stone McCarthy has come up with a resolution. In a just released note to clients, SMRA hints at how these banks have loaded up on cash without having to also see domestic assets surge (and instead just have just seen the net liability owed to foreign offices increase). The answer: Eurodollars.
- SEC TO HOLD CONFERENCE CALL TO DISCUSS ENFORCEMENT VS JP MORGAN
- JP MORGAN TO PAY $153.6M TO SETTLE SEC CHARGES
- JP MORGAN TO SETTLE SEC CHARGES ON MISLEADING IN CDO ON HOUSING
- SEC CITES MISLEADING INVESTORS IN CDO TIED TO HOUSING MARKET
- KHUZAMI: JPMORGAN FAILED TO DISCLOSE MAGNETAR'S ROLE, INTERESTS
- KHUZAMI: JPMORGAN HAS REIMBURSED INVESTORS IN TAHOMA CDO
- KHUZAMI SAYS SEC MISLED INVESTORS IN SQUARED CDO
Done and done. And now JPM is off the hook for ever and ever. In other news JPM made $153.6 million in profits since you clicked on this post. Of course, that's irrelevant as Bear Stearns will be stuck with the bill.
In other news, www.bangbus.com shares are surging on a rumor of an imminent $153.6 million investment from an unknown source
Greek crowds which have already started to congregate at Syntagma square are probably not celebrating today's summer solstice. In fact, they are probably not celebrating anything, since after today's vote in which 155 ruling PASOK party members are expected to vote in favor of G-Pap's government reshuffle, all of them will end up far worse off than if they could merely devalue their currency and tell Europe's bankers and the ECB to shove it. Alas, courtesy of living in a quote unquote democracy, this vastly popular decision will likely never happen in a peaceful setting. So will today's latest protest session in front of the Parliament do anything to change an outcome which the market has already decided is certain and favorable? Below are is a live Greek webcast which may provide clues.