BNP Warns On Japanese Repression: Echoes Of The 1940s Fed
Submitted by Tyler Durden on 05/24/2013 - 12:12
In the 1940s, the Fed adopted pegging operations to protect the financial system against rising interest rates and to ensure the smooth financing of the war effort. In effect, the Fed became part of the Treasury’s debt management team; as the budget deficit hit 25% of GDP in WW2, it capped 1Y notes at 87.5bps and 30Y bonds at 2.5%. From the massive bond holdings of its domestic banks to its exploding public debt, Japan today faces a situation very similar to the US in the 1940s. When the long-term rate climbs above 2%, the BoJ will probably adopt outright measures to underpin JGB prices to prevent turmoil in the financial system and a fiscal crisis - and just as Kyle Bass noted yesterday, they are going to need a bigger boat as direct financial repression in Japan is unavoidable.
- Comments: 48
- Reads: 12,038
European Bonds Plunge Most In 8 Months, Stocks Worst Week In 2 Months
Submitted by Tyler Durden on 05/24/2013 - 11:47
European stocks fell for a second day-in-a-row (notable in its own right as not having happened for 5 weeks) for the biggest drop in 6 weeks capping the worst week in 2 months. Spain and Italy saw their stock indices drop 3.6% on the week. But it was European banks and peripheral sovereign bonds that saw the most damage. As JPY-funded leveraged momo come rapidly undone, Italian and Spanish bond spreads saw their biggest 2-day drop in 8 months to end back at 5-week highs. EURUSD ends the week up 0.6% (and the JPY +2.2%) as repatriation escalates. Europe's VIX is holding around 18.% (up 2.5 vols on the week).
- Comments: 16
- Reads: 5,412
The Two Charts That Keep Draghi Up At Night
Submitted by Tyler Durden on 05/24/2013 - 11:18
While many would argue that youth unemployment (the real scariest chart here), in fact we suspect it is the following two charts that are really keeping Mario Draghi up at night. The lip service paid by the French and the Germans to growth strategies and youth unemployment pale in relation to the desperation of the European collateralizer-of-last-resort to de-fragment his transmission channels and unleash his own QE to the starving banking systems of Spain and Italy. As BNP notes, recent data on Italian and Spanish banks’ bad and non-performing loans (NPLs) have reignited the debate on the health of the banking sector in the eurozone’s peripheral economies and its implications for the bloc’s credit supply and, ultimately, economic growth. But what is worse is that interest rates on new loans for a company in Italy or Spain are almost double those in Germany and France. It is against this backdrop that Draghi expressed plans to revive the ABS market - but implementation will prove significantly more challenging than market hopers believe (as is clear in credit markets) and direct purchases will probably face vetoes by a number of influential members of the board. To add further salt to these fresh wounds, the FT reports that Spanish banks will need to set aside more than EUR10 billion more reserves to cover the rolling over of EUR 200 billion of 'extend-and-pretend' loans.
- Comments: 18
- Reads: 8,552
Europe Opens $80 Trillion Shadow Banking Pandora's Box: Will Seek To Collapse Repo "Collateral Chains"
Submitted by Tyler Durden on 05/24/2013 - 10:51
In what may be the most important story of the day, or maybe year, for a world in which there already is an $11 trillion shortfall in high-quality collateral (and declining every day courtesy of Ben's monetization of Treasury paper) so needed to support the deposit-free liability structures of the shadow banking system (as most recently explained here), Bloomberg has just reported that Europe may begin a crackdown on that most important credit money conduit: the $80 trillion+ global shadow banking system, by effectively collapsing collateral chains, and by making wanton asset rehypothecation a thing of the past, permitted only with express prior permission, which obviously will never come: who in their right mind would allow a bank to repledge an asset which may be lost as part of the counterparty carnage should said bank pull a Lehman. The result of this, should it be taken to completion, would be pervasive liquidations as countless collateral chain margin calls spread, counterparty risk soars all over again, and as the scramble to obtain the true underlying assets finally begins.
- Comments: 331
- Reads: 32,711
Where's The "Buy The Dip Mentality" Today?
Submitted by Tyler Durden on 05/24/2013 - 10:18
While yesterday saw the mainstream media cock-a-hoop at the fact that we pulled 'off-the-lows' with the phrase "buy the dip mentality" parrotted prayer-like every minute of the afternoon. Overnight shenanigans saw that BTFD mentality come and then quickly go and now the US market is fading fast. USDJPY has broken below 101 and US equity markets are testing below yesterday's lows... Treasury yields are now low on the week for the long-bond; gold and silver are holding up as JPY strength is weakening the USD broadly. Meanwhile, European peripheral debt is getting monkey-hammered (worst 2 days in 8 months)...
- Comments: 85
- Reads: 8,641
These Are The Stocks Most Hated By Hedge Funds: Let The Squeeze Begin
Submitted by Tyler Durden on 05/24/2013 - 09:50
In a world in which the bipolar, schizophrenic markets are dominated by Mrs. Watanabe's daily gyrations of the USDJPY (in response to Kuroda's daily jawboning) which in turn has become the primary signal feeding ES algos now that fundamentals are no longer relevant and that the EURUSD-ES correlation is dead and burried, there continues to be one, almost assured way to generate alpha for those so inclined to gamble with the fastest of the vacuum tubes out there: going long the most shorted stocks, which have become the most convex way of betting that Ben Bernanke will continue to dominate the hedge fund league tables as the world's most accomplished portfolio and risk manager. Indeed, using our previous representations (Q3 2012, Q4 2012) of the most shorted stocks to generate a "long basket" and sitting it out, has generated some 40%+ annualized returns without fail. Which is why it is now time to look at the most recent roster of stocks most hated by the hedge fund community, which slowly but surely is converting into the much maligned "long onlies" as abandoning hedges is the only way to at least catch up with the market, if not overtake it.
- Comments: 46
- Reads: 21,587
Spot The Trend In US Durable Goods And CapEx Spending
Submitted by Tyler Durden on 05/24/2013 - 09:13
The trend is quite clear.
- Comments: 79
- Reads: 13,352
The Housing UnRecovery Is Here: Architectural Billings Plunge Most Since 2008
Submitted by Tyler Durden on 05/24/2013 - 08:55
Not only is this 'housing recovery' being built without the use of Lumber (as we explained here), but Architects are no longer useful either. The last two months - as homebuilder stocks surge and house prices spike - has seen Architectural billings plunge by the most since November 2008. The current level of activity is at its lowest since June 2012 - hardly indicative of the rampaging rapacious demand for homes that we are spoon-fed day after day...
- Comments: 96
- Reads: 10,576
Nikkei Futures Resume Plunge
Submitted by Tyler Durden on 05/24/2013 - 08:25
Japanese stocks had another violent night with record trading volumes on the TOPIX. The early 'buy the dip mentality' rapidly escalated into sell-Mortimer-sell as the Nikkei 225 dropped another 1000 points after the lunch break. A late day recovery managed to close the index just in the green and all could relax that the world was once again a better place thanks to Abenomics. However, since Japan closed, Nikkei futures have been sold aggressively now testing back down towards overnight lows.
- Comments: 88
- Reads: 11,866
The Rout In Spain
Submitted by Tyler Durden on 05/24/2013 - 08:13
Spain has already gone bankrupt. It is not spoken of in this fashion, no one mentions it in public but that is the truth of it. The money, some $172 billion, was funneled to the banks and not to the sovereign in one more European ruse to distract everyone but the results are the same. Now it is becoming apparent that even this amount of money was not enough so more will have to be given. The money will go to the Spanish banks, the debt will be guaranteed by Spain, the contingent liability will not be counted as part of Spain's debt to GDP ratio but we will know the truth of it. Whatever direct money from Spain that goes into their banks will be called an "investment" and put on the left side of their balance sheet as an asset and the mockery will continue but I can still read a ledger; thank you very much.
- Comments: 65
- Reads: 13,847
Why Italian Bonds Have A Long Way Down To Go
Submitted by Tyler Durden on 05/24/2013 - 07:47
As we hinted last night, and as the market is starting to realize, one of the bigger downstream casualties of the first rumblings that Abenomics is starting to crack, have been peripheral bond yields, with Spanish, Italian and Portuguese yields all wider by 10 bps and rising. However, that is only half the story. The other half is that, with its usual 6-8 week delay, the market is finally grasping the biggest danger in Europe - one which we have been pounding the table on week after week after week (most recently here): the soaring non-performing loans held by European banks. In fact, it took the FT to confirm what we have been warning about all along. And just so the market has a sense of how much downside may be imminent if indeed reality reasserts itself and frontrunning the Japanese carry trade both occur at the same time, here is a rather unpleasant chart courtesy of Diapason, of what expects all those who bought up Italian bonds in the recent dash-for-trash, oblivious of the collapsing fundamentals, and driven purely by FOMO. The downside could be big to quite big.
- Comments: 25
- Reads: 7,977
Frontrunning: May 24
Submitted by Tyler Durden on 05/24/2013 - 07:31- The deeper agenda behind "Abenomics" (Reuters)
- BoJ governor Haruhiko Kuroda promises to stabilise bond market (FT)
- Obama Sees Sunset on Sept. 11 War Powers in Drone Limits (BBG)
- Lower CPMs for everyone: FTC Begins Probe of Google's Display-Ad Business (WSJ)
- Apple’s Tax Magic Leaves Irish Bondholders Unmoved (BBG)
- Asia Goes on a Debt Binge as Much of World Sobers Up (WSJ)
- All hail Gazpromia: UK gas supply six hours from running out in March (FT)
- Spain’s banks face €10bn more provisions (FT) ... and then more, and more, and more
- Truck strike may have caused Washington state bridge collapse, officials says (Reuters)
- P&G Says A.G. Lafley Rejoins as Chairman, CEO (BBG)
- Five Key Things About the SAC Insider Case (BBG)
- Comments: 13
- Reads: 2,976
Bizarro Time As Better Data Sends Stocks Lower
Submitted by Tyler Durden on 05/24/2013 - 06:56"The last 36 hours have perhaps been evidence as to what might happen if stimulus is withdrawn before the global recovery has been cemented and what might happen if Japan makes mistakes along the way to their attempted new dawn. With the Chinese data still ambiguous, Europe still in recession, Japan in the very early stages of a growth experiment and with the US recovery still historically very weak one has to say that liquidity has been the main market fuel in recent months. So central banks have to tread carefully and the Fed tapering talk and the BoJ's seemingly benign neglect policy towards JGBs has had the market fretting." - Deutsche Bank
- Comments: 41
- Reads: 5,431
Despite 'Promises', Japanese Market Chaos Continues
Submitted by Tyler Durden on 05/24/2013 - 00:17
UPDATE 1: Japanese stocks turned negative (NKY -600pts from highs, -1.5% on day; and TOPIX down over 4% from highs); Japanese banks -11% from yesterday highs; S&P futures down 10 points from after-hours highs...
UPDATE 2: *KURODA WANTS TO AVOID INCREASING VOLATILITY IN BOND MARKET (yeah thanks... as useful as saying "we all want to avoid syphilis")
UPDATE 3: Nikkei 225 Drops below 14,000 - TOPIX down 11% from highs
For the second day in a row, and in spite of comments from Abe and Kuroda on communicating with the market (as Kuroda says BoJ Monetary easing sufficient), Japanese capital markets are out of control.
- Comments: 182
- Reads: 21,514
Will It Be Inflation Or Deflation? The Answer May Surprise You
Submitted by Tyler Durden on 05/23/2013 - 22:33
Is the coming financial collapse going to be inflationary or deflationary? Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country. Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation. Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts. So what is the truth? Well, for the reasons listed below, we believe that we will see both.
- Comments: 307
- Reads: 46,446
