Two months ago, Congress voted down the "Obama budget" by a vote of 414-0. Today, the Senate chimed in. The result was just as definitive. Final outcome, between the Congress and the Senate, a grand total of zero votes were cast for the Obama budget... and a mere 513 against.
After a day full of depressing news, what is the best way to unwind? By pretending one is former Goldman employee Mario Draghi and having to grapple with 4 make believe scenarios, of course. These are: deflation, price stabeeleetee, high inflation and hyperinflation. But instead of actually being in his shoes, and stuck in a damp Frankfurt basement with the manual for Heidelberg: Mainstream 80, Web-fed Rotary Printer, figuring out how to put it into overdrive, one can have fun from the comfort of one's own REOed and mortgage-free (thank you Congressional Politburo) home courtesy of the following ECB video game. Good luck, and may the printiest man win.
There was a time when retail investors were mocked and derided by all: after all whenever the big boys needed to unload they jest blew the whistle, and like obedient lap dogs retail would buy at the very peak of the market because "stocks are a once in a lifetime buy", leading to what some call distribution, and others, a plunge. Not any more. In spite of the recent 20% surge in stocks, following a pattern absolutely identical to the one from September 2010 to March 2011, for the entire 32 week duration of the artificial central bank induced rally beginning October 5, there were a total of 3 weeks of inflows into the market, totaling a whopping $2.8 billion. The outflows: 29 weeks for a total of $96.6 billion, with $2.4 billion pulled out in the most recent week. And as speculated that in the absence of the traditional greater fool (that would be you dear reader hidden behind your E-Trade platform) stepping in, the prop desks, prime brokers, and hedge funds had no other choice... but to sell to each other, in the process exposing sophisticated 'Qualified Institutional Buyers' as nothing more than glorified, stock-peddling Pied Pipers who are good at only one thing: manipulating the less sophisticated crowd. Which works until it doesn't.
We already posted a full run down from JPM on what the immediate costs from a Greek EMU exit would be (starting at €400 billion and going higher), but one point that bears repeating is just how much borrowing capacity Greece has under the ELA in the aftermath of today's news that the ECB is leaving Greek banks to fend for themselves until such time as the Greek recapitalization payment is wired over to Greece, which the ECB has defined simply as "soon." The answer: woefully inadequate, and certainly not enough to backstop the remaining Greek deposits of €170 billion as of the end of March (likely far less now), at €65 billion. And that's an upside estimate: as JPM says "The true maximum amount that Greek banks can borrow via ELA is likely though to be significantly smaller because not all loans are accepted as collateral via ELA." Remember: this is all just one giant game of chicken - Greece's Syriza has bet the farm that the cost from a Greek fallout is just too big to Europe and the terms of the hated "Memorandum" will be adjusted, while to Europe, on the other hand, the outcome to Greece, at least according to Europe and the IIF's Dallara will be "between catastrophic and armageddon." So... Who blinks first?
Well, my hat is off to the global central planners for averting the next stage of the unfolding financial crisis for as long as they have. I guess there’s some solace in having had a nice break between the events of 2008/09 and today, which afforded us all the opportunity to attend to our various preparations and enjoy our lives.
Alas, all good things come to an end, and a crisis rooted in ‘too much debt’ with a nice undercurrent of ‘persistently high and rising energy costs’ was never going to be solved by providing cheap liquidity to the largest and most reckless financial institutions. And it has not.
S&P 500 e-mini futures closed at their day-session lows, below yesterday's day-session lows, and heading for overnight lows rapidly - once again giving up some decent early gains amid much heavier volume into the close. Markets were a mess today. Risk-assets in general had the highest intra-correlation in a long-time - with FX, credit, rates, curves, and stocks moving in almost lockstep all day (up then down). Equities were smashed left, right, and center by comments from the Ira Sohn conference (as it seems people have given up reading hedge fund 13Fs) with Einhorn's comments in particular showing up just how fragile and thin the real liquidity picture is so many stocks. Silver plunged just after the European close (margin/collateral calls?) and dragged the rest of the commodity complex down with it as stocks basically turned on a dime after hitting yesterday's closing VWAP this morning. Treasury yields rose and plunged in the same pattern - ending the day marginally lower than overnight low yields at the long-end but marginally higher at the short-end (post FOMC minutes). Financials were the worst performer again, down around 1.5%, with the majors in particular now starting to catch up to credit market's long-held conviction on these names (with MS -10.5% YTD and BofA plunging today but still +27.8% YTD). Gold remained relatively stable getting a lift post-FOMC (along with silver as the inevitability of QE was clear - but an equity plunge necessary before it can occur) - though we note the Gold/Silver ratio is now unch YTD. Credit markets are not done worrying yet - and that weighed on JPM (-2%) as IG9 pushed above 150bps offered for the first time this year and HYG (the high-yield bond ETF) collapsed along with HY credit spreads. Still doesn't feel capitulative as overnight nerves for Greece remain high.
At various stages in the last two years everyone from China, to Germany, to the Fed to the IMF, to Martians, to the Imperial Death Star has been fingered as the latest saviour of the status quo. And so far — in spite of a few multi-billion-dollar half-hearted efforts like the €440 billion EFSF — nobody has really shown up. Perhaps that’s because nobody thus far fancies funnelling the money down a black hole. After Greece comes Portugal, and Spain and Ireland and Italy, all of whom together have on the face of things at least €780 billion outstanding (which of course has been securitised and hypothecated up throughout the European financial system into a far larger amount of shadow liabilities, for a critical figure of at least €3 trillion) and no real viable route (other than perhaps fire sales of state property? Sell the Parthenon to Goldman Sachs?) to paying this back (austerity has just led to falling tax revenues, meaning even more money has had to be borrowed), not to mention the trillions owed by the now-jobless citizens of these countries, which is now also imperilled. What’s the incentive in throwing more time, effort, energy and resources into a solution that will likely ultimately prove as futile as the EFSF?
The trouble is that this is playing chicken with an eighteen-wheeler.
Here are some of the things that David Einhorn likes and does not like, having just started his speech at the Ira Sohn Conference:
- Martin Marietta - stock plunges 10% and triggers circuit breaker.
- France - "a french default is not out of the question" - France not limit down yet. He says that a return to the Franc is not out of the question.
- Einhorn likes GJF.NO - "Norway is the only country which can finance itself."
- Einhorn likes Cairn Energy as it trades at discount to assets in just Britain and India.
- Says China is misunderstood and is not an investment opportunity: not enough money to feed the economy and banks aare becoming illquid; money is leaving the country
- Also does not like Japan for all the usual Kyle Bass and Andy Xie reasons. The Yen will continue strengthening.
- Einhorn likes AMZN, calls it "elephant in the room", but questions profit growth.
- Einhorn likes Dena Co, and Gree Inc in Japan
- Einhorn is short DKS
- Einhorn, who is long about $870MM AAPL as per last night's 13F, likes AAPL. Stunner.
To all Dividend funds who bought AAPL on hope the Dividend would lead them to untold future riches and a perpetual stream of cash we have some bad news: since the March dividend announcement (of $2.65/qtr) you have already forfeited 5.66 years of dividend payments in the form of capital losses. Because what so many forget is that stock dividends also have another side: capital gains. Or in this case losses.
It wouldn't be the same in this post-BTFD-always-works, post-LTRO, post-QE, post-central-bank-supported unreality if we didn't see an early day rally rejected and dump back to its lows in the afternoon in the S&P 500 e-mini futures. Of course JCP's Tilson-crushing continues (-19%) as does the selling of financials - JPM -1.5% ($35 handle), MS -3% (35% off its end-March highs and -8% YTD) - as credit indices do not seem quite done with their unwinds quite yet.
Because it is one thing to predict the inevitable when one doesn't have a PhD in Economics, it is something totally different when it comes from the likes of Goldman Sachs (Huw Pill and Themistokis Fiotakis to be precise). In this case, that something is what happens at T+1, T being the inevitable (there's that word again) point where payments from the ECB to sustain the zombified Greek patient, all of which go to ECB funded entities anyway, stop. The biggest concern is that, as we suggested first thing this morning, the ECB is now engaged in a fatal game of chicken, whereby it is forcing Greeks to vote "Pro Bailout" (something that just dawned on the FT), in exchange for continued funding, because unlike last year when the threat of a referendum resulted in the termination of G-Pap, now there is no leader who can be sacrificed, and Europe has no real leverage over the people who have lost so much already, aside from threatening a full out bank system collapse. However, this could very well backfire as more and more Greeks pull their money out, not wanting to find out who blinks first as it would be their money that could be locked up in perpetuity, in essence making the ECB threat into a self-fulfilling prophecy. And as Goldman says, "If confidence is lost and a run on banks occurs, the implications are hard to assess." Well, as ZH warned yesterday, this is already starting. Again from the FT: "Athens-based bankers said withdrawals exceeded €1.2bn on Monday and Tuesday – 0.75 per cent of deposits – as President Karolos Papoulias failed in two final meetings with conservative, socialist and leftwing leaders to form a national unity government." Or double what was suggested yesterday...
We are constantly told that this time is different and we are on a sustainable magic carpet ride to growth, that stocks are merely 'stabilizing' to allow earnings to catch up with valuations, and that buying-the-dip is the obvious trade. However, as the three charts below indicate - its no different this time at all. As Barclays notes, VIX and credit markets are leaking exactly as they did in 2010 and 2011 in preemptive anticipation of the end of Twist (and LTRO) leaving stocks vulnerable to the real shocks of a real macro event risk world; equity performance remains too good to warrant a central bank response (as we just saw in the FOMC minutes) and TIPS breakevens are far above previous intervention levels; and while bank funding fears, growth slowdown concerns, and sovereign downgrade worries are supposedly lesser than in previous sell-off periods, we suggest they are absolutely rising in anxiety and that is the catalyst for the next leg down before the inevitable QE/LTRO occurs.
- SEVERAL ON FOMC SAID EASING MAY BE NEEDED IF RECOVERY FALTERS
- MOST' FOMC PARTICIPANTS SAW GRADUAL DECLINE IN JOBLESS RATE
- MOST FOMC PARTICIPANTS SAW INFLATION SUBSEQUENTLY AT-BELOW 2%
- MOST FOMC MEMBERS SAW UNEMPLOYMENT ABOVE TARGET IN LATE 2014
- SOME PARTICIPANTS SAW RISKS INFLATION PRESSURES COULD BUILD
Actually, nothing new in the minutes which are largely a rehash of the official statement already released.
When Ron Paul stands up in front of a crowd and explains the fictional-reserve banking system's unreality, some listen, many shrug and bury their heads. When ZeroHedge does the same, comments are heavy but change is slow to come. But when a 12-year-old girl, in a little over five minutes can explain the total farce that is our monetary system, surely people have to listen and break free of the matrix. Victoria Grant, 12, explains how "The banks and the government have colluded to financially enslave the people of Canada," and as CTV notes, 'Grant lays out a brief history of the Canadian banking system, referencing obscure historical figures such as former Vancouver mayor Gerald McGeer and explaining that the Bank of Canada held primary control over government lending until the 1970's. Starting then, she says, governments began borrowing from private banks instead at considerably higher interest rates than those available through the central bank. The result, Grant argues, is a rapidly increasing national debt. The pint-sized pundit is quick to offer a solution. "If the Canadian Government needs money, they can borrow it directly from the Bank of Canada," she says. " ... Canadians would again prosper with real money as the foundation of our economic structure." The truth is out there - whether it comes from Alan Simpson, Ron Paul, ZeroHedge, or a 12-year-old Canadian young lady.