The stunner in this morning's newsflow (the long, long overdue market collapse which is a much needed catalyst for QE3 should not surprise anyone), comes out of the WSJ which has just reported that the Bank of New York has informed institutional clients it will begin charging a fee of 13 bps on deposits in excess of 110% of the client's monthly average. This is nothing short of outright terrorism to get everyone out of cash and into fiat-based ponzi products. Such as Short Term Bills. Indeed, as was reported earlier the 3 Month bill just hit zero. But you ain't seen nothing yet. As Credit Suisse strategist Ira Jersey reports, courtesy of Bloomberg, "If this is true then we’re likely to see short-end interest rates actually go negative. By what degree depends on who else follows and how much money is involved." Cue unpredictable consequences of a totally broken bond market. What happens next will likely make the market dislocations following Lehman like a breezy walk in the park.
The collapse in the global Ponzi scheme is intensifying. Liffe down next, even as the FTSE MIB has reopened, only to plummet to 5% down for the day with Unicredit and Intesa halted yet again. We expect Italy may not reopen tomorrow.
While the central planning cartel is slowly losing all control, there is a very disturbing development at the Virginia Tech campus, site of another previous tragic development, where another gunman has been spotted. The situation is developing rapidly and here is the latest update from WSLS.com
Complete capitulation in the market, accentuated by feedback from one of our Italian PM sources, whose comment on the Italian market says enough: "UTTER PANIC - DEGROSSING ACROSS THE BOARD. DELEVERAGING. RISK MANAGERS IN CONTROL." Which is why bouncing cat dip buying may commence shortly. In the meantime, the Swiss Stock market just entered bear market territory after dropping 20% from the February high.
And so the war against the rating agencies is now official as a floundering Europe does anything in its power to scapegoat anyone and everyone, starting with its natural sworn enemy of course, the rating agencies. According to Reuters, "Italian prosecutors have seized documents at the offices of credit rating agencies Moody's and Standard & Poor's in a probe over Suspected "anomalous" Fluctuations in Italian share prices, a prosecutor said on Thursday." Ah yes, it is Moody's fault that Unicredit, Intesa, Fiat and pretty much all other Italian companies now close limit down at least once a day. Either way, this is sure to end well. We will bring you more as we see it.
Italian Treasury "Discovered" Larger Cash Pile Than Expected; Likely To Withdraw From More If Not All 2011 Bond AuctionsSubmitted by Tyler Durden on 08/04/2011 - 08:51
And the news just gets uber-surreal. According to a Reuters report, the Italian Treasury has a "larger cash pile than generally perceived according to sources." As a reminder this is precisely the excuse that Italy used when it scrambled to cancel medium and long-term auctions for late August as was previously noted. Which can only mean one thing: in order to prevent more ongoing routs, Italy will likely now withdraw from all bond auctions for the "foreseeable future" in order to not give the market a chance to do some real price discovery. Sure enough, the subsequent Reuters headline says that the "Italian Treasury's cash pile is enough to last most of 2011." Odd that we predicted this, and the next steps, just this morning, when we said: "look for Spain to follow Italy in a self-imposed bond market exile." Translation: while Greece, Portugal and Ireland are unable to access capital markets, Italy, as we predicted, has just self-imposed a capital markets exile likely until the end of the year.
And now... the sell off. Total market insanity as the latest intervention halflife is under an hour.
ECB Buys Italian Bonds, Third Major Central Bank Intervention In Past 24 Hours As Status Quo Panic ExplodesSubmitted by Tyler Durden on 08/04/2011 - 08:13
At exactly 9 am, half an hour into Trichet's press conference, the world's most undercapitalized hedge fund: the European Central Bank, demonstratively came in and started buying Italian bonds in hopes the market will forget just how broke the European continent truly is. This is the third major intervention by a central bank in capital markets in the past 24 hours following the SNB and the BOJ. Next up the Fed, and everything going to hell. Because even as Italian bond yields drop below 6%, the selloff in Portugal bonds is accelerating and the 10 Year yield is now 15 bps wider at 11.34%. We have a question: at what point does the ECB have to officially start printing Euros before its capitalization goes negative?
But at least the vacuum tube mindless buying into the close prevented 9 straight down days. We hope they managed to dump to Citadel aka the New York Fed in the last print or else a few more math Ph.D's will be joining next week's Initial Claims ranks.
As we predicted last week when we reported that the surprise 398K claims beat was "quite amusing as next week's upward revision will mean the 400k+ streak will continue", we were again correct: today's print of 400K (which will be revised to 404K or so next week) allegedly beat expectations modestly, but the kicker is that last week's 398K was pushed up to 401K, meaning that the unbroken streak of 400K+ prints is now at 18 weeks. Welcome to the depression. Continuing claims came in worse than expected at 3,730K on consensus of 3,700K, from an upward (of course) revised 3,703K to 3,720K. In other words, whatever happens at tomorrow's NFP will happen, without any feedback either positive or negative from today's claims number. In other news, those on extended benefits and EUCs declined by 44K in the week ended July 16. The state breakdown is amusing because while there was not one state with an increase in layoffs of more than 1,000K, there were 18 states with drops of over 1,000K led by California at 23,689 due to "fewer layoffs in the service industry." Said otherwise: the jobless, homeless, marginless, stagflationary depression continues. Bring on QE3 which will seal the coffin of the once great US of A for good.
The 8:30 EDT press conference is due to start any minute. The key questions which Trichet will not answer this time around are i) whether the ECB will reactivate its secondary bond buying program or maybe even expand it and ii) why the ECB continues to sacrifice the peripheral countries courtesy of high rates just to keep so called "transitory" inflation in check. The rest will be anger-inducing mumbling and bureaucrat rhetoric.
Markets witnessed forex intervention from Japan overnight to curb the strength in JPY, which together with further monetary easing by the BoJ weighed upon the currency across the board, and observed USD/JPY to gain around 300 pips since the initial intervention. In other forex news, strength in the USD-Index weighed upon EUR/USD and GBP/USD as well as commodity-linked currencies, whereas the NZD came under further pressure after New Zealand's finance minister said that strength in NZD is a headwind for the economy. Elsewhere, European equities traded lower in early trade, however did come off their earlier lows after some analysts pointed out that the ECB may reactivate its Securities Market Programme (SMP), which also helped the Eurozone peripheral 10-year government bond yield spreads to narrow. In other news, the BoE kept its benchmark interest rate and asset purchase target unchanged at 0.50% and GBP 200bln respectively as expected, whereas the ECB left its key interest rate unchanged at 1.50% as expected. Moving into the North American open, markets look ahead to the ECB's press-conference following its rate decision to gaze into future policy-direction of the central bank. US jobless claims data is also scheduled for later in the session, whereas in fixed income there is another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Feb'17-Jul'18, with a purchase target of USD 2.75-3.5bln.
Japan Launches Campaign to Weaken Yen (WSJ)
ECB to protect Europe by buying bonds (Telegraph)
Silent Scream of Swiss Franc Shows Great Distortion Amid Great Moderation (Bloomberg)
Pressured by White House, Treasury Secretary Is Expected to Stay at Post (NYT)
The U.S. Economy Feels the Pull of Gravity (BusinessWeek)
ECB Sees Lenders Rush to HoardCash (FT)
Groupon’s Strikeouts Reveal an Unspoken Truth (BusinessWeek)
Americans' Spending Increases in July (Gallup)
Pentagon’s First Installment on Cutting Debt May Be $28 Billion (Bloomberg)