Greek Curve Pancakes, 6 Month GGB Approaches 7%

The curve below indicates that bond investors now believe that Greece will likely default in under 6 months, or at least the EMU will realize that Greece is a lost cause and cut it off, despite all rhetoric to the opposite. Actually, with the 3 month trading at a mindblowing 4%+, which we are fairly confident is a record for any country, let alone a EU and EMU member, one can claim that the country will not see July in its current political form. The 3M-6M spread of nearly 300 bps is an all time record for a developed country. Past the 6M point, you can see all the way to the Pacific. Note the curve shift from April 2009, when the 3M was trading at just over 1%. At this point the only question is whether the 3 Month will join the other points on the curve in the 7% ballpark.

MBA Announces Average 30 Year Fixed Rate Mortgage Surges From 5.04% To 5.31%: Highest Since August 2009

A few days ago we demonstrated the spike in Freddie 30 Year Fixed Rate Mortgages which hit a near 2010 high of 5.08 after being as low as 4.93% a few weeks prior. We speculated that the end of QE is starting to be felt much earlier than anticipated. Today's release of the Mortgage Brokers' Association of the Weekly Application Survey confirms this: the MBA discloses that the average contract interest rate for the 30 Year Fixed Rate Mortgage has surged from 5.04% to 5.31% - the highest 30-year rate recorded in the survey since August of 2009. Discussing this event, the MBA said:"“Mortgage rates jumped last week as the Federal Reserve completed their
purchases of mortgage-backed securities. Refinance application
volume dropped as mortgage rates reached their highest level since
August 2009." With rates surging on the back of the recently breach of 4% in 10 year rates, this has pretty much made sure the Fed will soon need to get involved again. A 1% rise in mortgage rates is equivalent to a loss of a few hundred billion in household net worth. Just as the bond vigilantes are calling Greece's bluff (and winning soundly) so the mortgage vigilantes are stirring.

Greek Debt Hits New Fresh Record Of 410 Bps, National Bank Of Greece Tumbles As Greece Now Seeks Arab Money

How long will this charade continue? The whole world is fully aware that Greece is done, and now even the traditional long-term holders have thrown in the towel: the entire Greek curve has melted up more than our own S&P - Bloomberg now notes that even US accounts whose risk memory is non-existent, may not be willing buyers of Greek debt. What's worse Greece is out of diplomatic and political ammo - the CDS scapegoating is finished, which is quite ironic - as shown below CDS are lagging Bund spreads by an unprecedented amount. This implies, as we have claimed all along, that CDS were never the marginal driving force in the spread explosion, but that it all came from cash selling. Additionally, the paradox is that the inability and unwillingness to hedge has left cash spreads blowing in the wind - now virtually nobody is willing to trade in Greek CDS, so Greece has once again shot itself in what is left of its feet. Of course Greece can join the SEC in blaming the shorts, but that's an old tune. And to top it all off, G-Pap has repeated that the EU/IMF support deal "has been a great success and the situation is manageable." Don't tell that to shareholders of the National Bank of Greece whose stock is down 10% in just two days. And the biggest and most supreme irony, bankingnews.gr reports that Greece is now seeking emergency capital from Abu Dhabi and other Arabic sources... As if they didn't have a Dubai of their own.

Frontrunning: April 7

• Criticism against the lame duck stupidity mounts - The Dodd bill: bailouts forever (WSJ)
• Volcker pushing for Value Added Tax (Post)
• Greece may find lukewarm U.S. response to dollar bond (Bloomberg)
• Greenspan's delusions get worse with age (Bloomberg)
• EU Commission: No knowledge of changes to changes in Greece deal terms (MNI)
• So long capitalism... and then some (IBD)
• Back from the brink of a US-China trade war (Cumberland)

RANsquawk 7th April Morning Briefing - Stocks, Bonds, FX, Etc

RANsquawk 7th April Morning Briefing - Stocks, Bonds, FX, Etc

Guest Post: The Great Imbalance: A Critique Of The Recession Of 1920-21 - Causes, Responses And Insights

Abstract: Many attribute our current recession to the evils of unbridled capitalism. In response, our leaders have embarked on the typical Keynesian recession prescriptions in order to stimulate the economy and lead the nation out of the economic doldrums. Unbeknownst to most Americans however, prior to the Great Depression, policymakers used different tools to help guide the country out of recessions. Herein we examine the causes, responses and insights gleaned from the Recession of 1920-21, the last downturn in which leaders relied on the age-old policy of laissez-faire, combined with massive reduction in government and encouragement of deflation.

Guest Post: When Soda Was A Nickel And Social Security Wasn’t Much More

Every generation scolds the next one down the line and blames society’s ills on the guy up at bat. Considering past policy decisions, this common perspective doesn’t make much sense. Just look at the Great Depression generation, both known for its great character as well as the worst policies of the century. Clearly, older generations did not always make the best decisions.
One of those bad decisions, Social Security, still haunts America today like the grim reaper waiting to take his harvest. It’s strange to think the same men who courageously stormed the beaches of Normandy didn’t have the political courage to dismantle this ticking time bomb. If it wasn’t for WWII veterans, many believe that this article would be written in German. That might be true. But due to an exploding national debt and that generation’s failure with Social Security, we’ll be speaking Chinese sooner than German.
The lack of political will isn’t surprising since most past retirees were net gainers from Social Security while new retirees are net losers. Older folks love bemoaning runaway spending, welfare queens, and handouts. But often they don’t consider their own gains from the welfare state.

As Social Security taxes increased over time, so did the benefits. Essentially, previous generations paid into the system when taxes were low and retired when the benefits were high. A retiree’s maximum tax loss from Social Security in 1940 was $923 in today’s dollars. Compare this to the current maximum of $13,243.