From Egan-Jones: "Spain will inevitably be faced with sizable payments to support its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to "BB"; watch for requests for support from the banks."
"Economists today primarily serve the needs of powerful interests at the expense of society in general" is how Robert Johnson - the frighteningly honest Executive Director of INET - describes the self-indoctrinating field of study that remains in such seemingly high regard in the nation. In an excellent and forthright brief interview with Stifterverband, Johnson notes that "Economists are very much accused of 'only seeing the economy through the eyes of the model' as opposed to seeing the economy and building a model as a map of what reality is." And while "when the people become anxious they want the expert to tell them what's going to happen. And they feel good when their anxiety is relieved because they think they understand the future. But if the expert instead of telling the truth is selling snake oil - a false story - when that is unmasked the expert becomes the scapegoat." Overall he believes 'economists' did a great disservice to mankind and suggests a number of approaches to "cleaning up after that". Sadly, he opines, "At the core, economics is about politics and about power, and the question for the economists is whose power are you going to serve as an expert."
Back on March 21, Goldman's Peter Oppenheimer released the "Long Good Buy, The Case For Equities", which was Goldman's subversive attempt to rally equity into buying all the stocks that Goldman had to offload, as well as buy all TSYs that GS clients had to sell. Needless to say, Goldman top ticked the market and stocks have tumbled ever since, even as the 10 Year soared from 2.5% to the current ~1.75%. So what? Well, this morning the same analyst, precisely two months on the anniversary of his "once in in a lifetime" stock buying opportunity, has released a new report with the paradoxical header: "Near-term risks are to the downside." But, but... Anyway, that's all the market needed to grasp that Goldman's prop desk is now buying every piece of risk not nailed down hand over fist as the June FOMC meeting is now the D-Day. Futures have soared ever since.
Asking "what is wealth?" seems needless because we all know what wealth is: never having to work again, endless leisure, endless consumption of the "good things of life," being waited on hand and foot, luxurious belongings, vehicles and homes, a life of travel and sport, trust funds, stacks of secure gold, and so on. All this is "obvious," but is that certainty illusory? There are many people with $2 million in net worth, a significant number with $20 million, and more than a few with $200 million. All would be considered wealthy by the average household earning $63,000 annually with a total net worth of less than $100,000, not to mention the 61 million American wage-earners who pull down less than $20,000 a year who own negligible net worth. Those with a mere $2 million may not reckon themselves wealthy, if their eyes are fixed on those with $20 million. But if a wealthy person suddenly discovers they are riddled with fast-growing cancer, then they quickly lose interest in financial wealth except in terms of what medical treatment it can buy. There really isn't much more modern medicine can do for someone worth $200 million than it can for someone worth $2 million; once one's life and health are at risk, then conceptions of "wealth" are drastically reordered: health is wealth, and nothing else matters.
Translating Germany's standard line on joiontly-backed European bonds is simple: "We don't want to pay" - it is as simple as that so you can ignore the rest of the rhetoric. France at the next EU summit is going to push for Eurobonds and Germany will resist in what may be a quite unpleasant stand-off. From Germany’s perspective we can easily understand their feelings about this matter because the consequences of Eurobonds are very negative for them. Eurobonds are quite clearly a “transfer union” where Germany is the primary source of funding then for the rest of Europe. If Eurobonds are ever enacted we would suggest selling any/all of the “AAA” countries and buying the periphery ones as the correct play in the intermediate term. In fact, Eurobonds are the crux where Federalism comes head to head with Nationalism and where the rhetoric gives way to actualization.
No close encounters of the Dimon kind today, but we get our first sworn testimony on all matters #FailWhale, when Mary Schapiro and Gary Gensler open their mouths at 10:00 am, and confirm what everyone knows - that the TBTF's prop trading desks are alive amd well, that the Volcker Rule was one big misdirection, and most importantly, that nobody has any idea what multi-billion trades the big banks engage in until it is far too late, and even then they refuse to give their investors a snapshot of how big the real losses are.
UPDATE: 6 minutes into the day-session and FB has a $30 handle and 17mm shares traded.
1.8mm shares have traded this morning as the long-selling continues as the stock-that-shall-not-be-named traded as low as $32.70 this morning (from its $45 highs on Friday)...
Whether one believes that Bernanke's mandate mission in life is to 'save the banking system', 'reflate asset prices', 'devalue the USD' - all of which seem to err on the side of inflation (and ultimately hyper-inflation once the trust is gone); it seems more critical to focus on the other side of the coin - deflation. Bernanke's true raison d'etre is simple: avoid debt deflation and implicitly everything he has said and studied points to the avoidance of any deflation. For this reason, BofA notes that today's chart of the day is the Break-even inflation rate in the US. This has been the most consistent - non-numeraire-based - leading indicator of Fed QE efforts. We note that the initial QE2 decision took a little longer to enact but was signaled considerably earlier (Jackson Hole) as the break-evens dropped below its NEW QE threshold. But with the levels currently 25-30bps off their threshold levels, we suggest those holding their breaths for the next Fed-induced liquigasm in stocks, should practice Pranayama.
While the euro bond song and dance is all too familiar, being a carbon copy replay of last year, we feel obliged to remind who the key actors are, but more importantly who the key decision makers are. In short: while last year, at least in the first half, it was everyone against Merkozy, demanding that the two AAA rated countries backstop Europe at their own expense, following the French downgrade, France no longer cared if there are Eurobonds and joined the peripheral push to convince Merkel to shoulder the cost of preserving the Eurozone on its own. Germany politely declined. Fast forward to this year, when we get the same, only Hollande is now more vocal than ever knowing full well that he alone will be unable to deliver the "growth", read incremental leverage, needed to back up his campaign promises. This is, or rather was, the whole point of today's and tomorrow's latest European summit which, just like this weekend's useless G-8 photosession for the world's leaders to express their support for either Chelsea or Arsenal, will achieve absolutely nothing. Importantly, we now can add at least one more country to the list of those opposed to a AAA-backstopped rescue of the rest of the Eurozone.
UK CPI this morning came in weaker than expected at 3.0% Y/Y in April, weighed by a fall in air fares, alcohol, clothes and sea transport, according to the ONS. The release saw aggressive selling of GBP in the currency market and has underpinned the rise in gilt futures. Alongside the 26th month low in UK CPI the IMF also issued their latest assessment on the UK economy and said further policy easing is required and that the Bank could cut its interest rate from the current 0.5% level. In other market moving news a Greek government source said that Greek banks are to receive a EUR 18bln recapitalisation down payment this Friday which initially saw the EUR and stock futures rally, however, the move was short lived as it became clear that the payment is scheduled as part of the bailout programme for Greece. Elsewhere, Fitch made a surprise announcement and downgraded the Japanese sovereign rating by two notches to A+, outlook negative. The move means Fitch has the lowest rating for Japan of the three main rating agencies so we remain vigilant for any comments from S&P and Moody’s today.
Adam Fleming, Chairman of Wits Gold and Fleming Family & Partners (yes, related to Ian Fleming of James Bond game), discusses the gold bull market with GoldMoney's Chairman James Turk. Topics include metal price action, the eurozone's debt crisis, and mining in South Africa. Both men think that we are the "in the foothills" of a long precious metals bull market, and that the gold price is in some ways cheaper than it was back when they spoke at GATA's Dawson City conference in 2005, owing to all the quantitative easing – or more bluntly, money printing – that central banks have engaged in since the financial crisis of 2008.
A panel of the Swiss parliament is discussing the introduction of the parallel ‘Gold franc’ currency. Bloomberg has picked up on the news which was reported by Neue Luzerner Zeitung. The Swiss parliament panel will discuss a proposal aimed at introducing a new currency, or a so-called gold franc. Under the proposal, which will be debated in the lower house’s economic panel in Bern today, one coin in gold would be worth about 5 Swiss francs ($5.30), the Swiss newspaper reported. The Swiss franc would remain the official currency, the paper said. The proposal may lead to a wider debate about the Swiss franc and the role gold might again play to protect the Swiss franc from currency debasement. The initiative is part of the “Healthy Currency” campaign which is being promoted by the country’s biggest party – the conservative Swiss People’s Party (SVP).
- Hilsenrath: Fed Pondering Why Inflation and Deflation Threats Ebbed (WSJ)
- The Naivete: France to push for eurozone bonds (FT)
- The rebuke: Merkel Says She Won’t Shy From Clash With Hollande at EU Summit (Bloomberg)
- The Euro-love: Hollande's euro arguments "nonsense": Austria's Fekter (Reuters)
- Obama Campaign Does Damage Control After Dems Question Anti-Bain Strategy (ABC)
- Greece: four major banks recapitalized by Friday (L'Echo)... and if they aren't?
- China to fast-track infrastructure investments (Reuters)... because China needs more cement
- Jeeps Sell for $189,750 as China Demand Offsets Tariffs (Bloomberg)
- As Facebook’s Stock Struggles, Fingers Start Pointing (NYT)
- Facebook 11% Drop Means Morgan Stanley Gets Blame (Bloomberg)