As many recall, Morgan Stanley's always cheerful, and unfortunately always wrong on the first try, Jim Caron had a target of 4.5% on the 10 Year for 2010 only to see the bond trade at half the yield at year end (a call for which he later apologized). Today, following another comparable bullish call on yields (and thus inflation, and the economy) Caron has done it all over again. "We see the key risk to the market as a downgrade in growth expectations for the quarters ahead. This could happen as early as this month if the data does not materially improve after a big miss in 1Q growth and keep us on track for reaching 3.4% consensus 4Q/4Q growth in 2011. And despite today’s stronger headline release of NFP, the Household Survey, which we saw as a leading indicator of jobs, fell 190K and the unemployment rate rose 0.2% to 9%. This keeps us wary of growth prospects in the months ahead. As a result, we recently turned neutral from bearish bonds. We also see risk for curves to flatten as yield forecasts may also get downgraded along with growth." Gee, and it was only on April 7, that this strategist wrote: "Overall there is little doubt that policy in the US continues to be very easy, which presents a risk that markets may tighten those conditions well ahead of the Fed, especially if Q2 growth is back on track. This is why we think that the risks are skewed toward higher rates." What a difference month makes. But that's ok, just like when Caron turned bearish on bonds in 2010, promptly followed by Goldman going all out in its QE2 demands, so this time the very same action, now that 2011 is a carbon copy of 2010, we fully expect Wall Street demands for QE3 to hit a fever pitch within 3 months tops.
And so the margin hike rumor mill shifts from silver to crude. Pretty soon nobody will dare to invest any capital in commodities (or FX) for fear of an imminent 100% margin spike by the exchanges, causing the S&P to trade at 100x P/E, and letting China buy up every commodity at a 50% off. Another brilliant ploy to preserve the wealth effect while not accounting for any possible side effects of Printocchio's actions.
For those wondering which bank domino drops first if Greece files tomorrow, Sunday, in one month, or in one year, here is the market providing the answer: Deutsche Bank put volume surges to 7,353, 11 times normal.
From Reuters, quoting Bill Gross, who previously did not believe in another round of QE:
PIMCO'S GROSS SAYS WILL CHANGE HIS MIND ON SHORTING US TREASURIES IF THERE IS POTENTIAL FOR ANOTHER RECESSION
And of course, another recession will mean more QE, which means more debt monetization, which means that naturally, the first and last buyer for Treasury bonds, the Fed, will be there for ever and ever, which means more fiat printing, which means $5+ trillion in Fed "assets", which means more inflation expectations, etc, etc.
While on one hand nobody can predict what the downstream effects on the European financial system will be from a Greek restructuring, and if Lehman is any indication, they would be quite dramatic to say the least, the biggest reason why Greece would likely never voluntarily initiate a pull out of the eurozone (which would mean an immediate default for all EUR-denominated Greek debt, which is all of it), comes courtesy of Credit Sights: "The reality from Greece's perspective is that if it unclear why restructuring would be a politically astute option. More than a quarter of Greek debt is held domestically - primarily social security (€28 billion) and banks (€31 billion), but even Greek households are holding €6 billion in short-dated securities. While those are relatively small amounts, we don't believe that asking those sectors to accept losses on their holdings of government securities would be a vote winner. What's more, Greece has the liquidity it needs until some time in 2013 thanks to the EU and IMF loan facility. There is €83 billion within Greece' EU-IMF facility that has not yet been drawn."
For all those lamenting the sad fate of "commodity" guys, we suggest you save your tears for the FX brigade. Levered between 10 and 100 times more, the recent 560 pip move in the EURUSD means that at least one macro fund, who has not hedged FX exposure, has gone under. Oh, and this whole move is nothing but a EUR hit job. There is no chance that Greece will leave the eurozone (at least not for a long time and not voluntarily).
From Reuters: Senior Greek government official denies report that Greece raises possibility of leaving Eurozone. So pretty much everyone has denied this, the EUR has crashed, and in a worst case the EUR is one step closer to reverting to its fair value: the DEM? Of course, with a record number of EUR longs, meaning the spec bandwagon in the EURUSD is orders of magnitude greater than the silver trade, the kneejerk response was down, and likely wrong. And yes, if Greece has gotten so far, German banks are certainly now happy to write off their exposure, and convert their EUR-denom Greek exposure to the drachma. The only question is what the impact to the ECB would be. As per Spiegel: "The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion). Of course, the ECB can simply print, print, print.
- GREECE THREATENS TO LEAVE EURO AREA, GERMANY'S DER SPIEGEL SAYS
- FINANCE MINISTER FROM EUROZONE AND EU COMMISSION HOLDINGS CRISIS MEETING TODAY IN LUXEMBOURG
- MEETING AGENDA INCLUDES POSSIBLE NEAR-TERM DEBT RESTRUCTURING FOR GREECE
- EUROGROUP CHAIRMAN JUNCKER "TOTALLY DENIES" MEETING TO BE HELD TODAY TO DISCUSS GREECE
- And cue panic and furious denials:
- And cue panic and furious denials:
- French finance ministry official cannot neither confirm or deny Spiegel report of emergency Eurozone meeting
- Austrian Finance Minister spokesman says Eurozone breakup "absolutely unthinkable"
- German government source says theres no plan for Greece to leave the Eurozone
- Senior Greek government official denies report that Greece raises possibility of leaving Eurozone
- IMF SAYS IT HAS `NO COMMENT' ON REPORT OF GREEK EURO EXIT BID
And another puppet in the gran Fed scheme is out and talking, this time self-annoited hawk (who never voted against the consensus, and who is now a non-voting FOMC member), James Bullard who said that "based on leading economic research on oil shocks, the current surge in oil prices does not seem to qualify as an important macroeconomic shock." And why would it: as the silver "case" has so well demonstrated, all that needs to happen the next time crude is at $115 is for the CME and other exchanges to hike margins in a parabolic fashion and drive out all traders from the market, keep prices artificially low, until stockpiles run out at which point not even negative margins will have much of an impact. Bullard also had some remarks on a commodity (read gold) standard. To wit: "Although commodity standards were last discussed in the 1970s when
U.S. inflation was high and variable, Bullard noted that today,
inflation is quite low. He added, “Tying the currency to commodities
when commodity prices are highly variable is questionable.” While a commodity standard forced some accountability on the central
bank, “it did not always." Yes, you read that right: a central banker against a gold standard (which would make central banking for all practical purposes irrelevant). Surprising indeed.
And another piece of new you will not see discussed anywhere. According to the JPMorgan Global Manufacturing & Services PMI, not only did the growth of the global economy slow "sharply" in August, it grew at the slowest pace since August 2009. "April saw growth of the global economy ease sharply for the second successive month to its weakest pace since the recovery began in August 2009. The weaker rate of expansion mainly reflected a significant cooling of business activity growth in the US non-manufacturing sector and further steep contractions in output at both Japanese manufacturers and service providers. The JPMorgan Global All-Industry Output Index plunged to 51.8, well below February's near five-year peak of 59.1. Growth eased in both the global manufacturing and service sectors. The extent of the slowdown in services was especially marked, with the rate of expansion the lowest during the current 21-month period of increase. Growth of manufacturing output fared better, but stillslipped to its weakest pace since last September." But yes, McDonalds hiring 62k people, and some statistical jiggering by the BLS as ever more full-time jobs are converted to part-time is surely a major inflection point in the undecoupling theme.
Broadly speaking, "blowback" is the unintended consequence to the civilian population of secret government operations. It is typically used to describe the consequences of overseas covert operations. But there is another kind of blowback brewing in the U.S.: the negative consequences of massive covert manipulation of the domestic economy by the Federal Reserve and agencies of the Federal government. A key feature of propaganda is the "documentation" presented to support a politically advantageous distortion. In all cases, the numbers are doctored in a coordinated covert campaign to persuade the public that the economy is growing smartly. The stock market has doubled as a consequence of a declining dollar and other policies of the Federal Reserve designed to incentivize speculation in "risk trades" such as stocks and "carry trades" in currencies. The jobs report is heavily reliant on the "birth-death model" of small businesses, an opaque Federal guesstimate of the number of new small businesses being started and those being closed. As reliably as clockwork, hundreds of thousands of "created out of thin air" jobs are logged as if they were real by the Bureau of Labor Statistics' "birth-death model." Yet in the real world, the number of small businesses has been in a three-year free-fall.
As 88% Of SLV Shares Outstanding Trade Yesterday, The "Silver Put Buyer" Generates A 68,294,229,502,717.3% Annualized ReturnSubmitted by Tyler Durden on 05/06/2011 - 10:33
Our friends at Lighthouse Investment Management point out something rather amusing: yesterday, yet another day in which the SLV saw far more notional volume than the SPY, the ETF traded 87.5% of its total shares outstanding. In other words, virtually the entire holder base changed hands. And just as amusing: for those who recall our post from April 11 in which we highlighted that an SLV put buyer bought roughly $1 million in SLV $25 July puts, well we have an update: as of today, the same mysterious buyer has now made about a 500% return on his or her investment (with a peak of 700% yesterday, or about 68,294,229,502,717.3% annualized). So fascinated is the market with this development that even Dow Jones has dedicated a column on it: "Market watchers want the anonymous April silver bear in listed options to take a bow. The unknown investor's mid-April $1M bet that iShares Silver Trust (SLV) would hit $25 or lower before mid-July is worth more than $7M after this week's plunge. Not just the drop in price, but huge jump in price volatility, has goosed has enriched this trader's options position. "The investor didn't get this trade right. He or she got it spectacularly right."
Charting America's Transformation To A Part-Time Worker Society (Part 2) And Parting Thoughts On The Household SurveySubmitted by Tyler Durden on 05/06/2011 - 09:57
Before we finally leave the topic of today's NFP data, we wanted to point out one last thing. While the total payroll number increased by 244K, the household survey indicated a drop of 190K. While this may be simply due to a calendar shift in which the Household survey catches up with the Establishment Survey, we wanted to bring readers' attention to one other fact. Observing the Household data breakdown into full time and part time workers, we see that the drop was actually more pronounced: while the March full time (112.755 MM) and part time (27.087MM) total summed nicely to the total headline number of 139,864, off by just 2K, the April data indicated that the component breakdown highlighted a much more pronounced drop in the headline number than the 190K indicated. Summing up the components adds to 139.572 MM, 102K less than the total 139.674 MM disclosed. In other words, the true drop when summed across components was not 190K, but 290K. And next, for the focus of this post, we look at whether this drop occurred in full time or part time jobs. To our complete lack of surprise, of the 290K drop, 291K was from full time jobs. As for part time jobs, you guessed it, increased by 1,000 in April. As the attached chart shows, since the start of the depression, America has lost 9.1 million full time jobs, offsetting this by a gain of 2.3 million part time jobs. No need to outsource to Asia any more: America now outsources jobs to temp agencies. And so the transition of America into a part-time worker society, first discussed in December of 2010 continues.
Results from the household survey were disappointing. Total household employment fell by 190k, and the unemployment rate rose to 9.0% (8.96% unrounded) from 8.8% previously. Results were somewhat better after adjusting for methodological consistency with the nonfarm payroll data; on this basis the household survey measure of employment would have increased by 50k. However, the labor force participation rate was unchanged during the month, indicating that the rise in the unemployment rate reflected job losses rather than an influx of persons into the labor force. While the news was discouraging, it follows four months of declining unemployment, and the level of the unemployment rate remains down 1.1 percentage points from its peak. The employment-to-population ratio fell slightly to 58.4% from 58.5% previously.
As People Not In Labor Force Hit New Record, Those Who "Want A Job Now" Jump By 232,000 In One MonthSubmitted by Tyler Durden on 05/06/2011 - 09:21
Another observation from today's BLS data: while the labor participation rate may have remained flat, the total number of persons not in the labor force as an absolute number just hit a new all time record of 86.248 million, higher than the previous record hit in February of 86.216 million. And just as relevantly, the total number of "people who want a job now" jumped by 232,000 from March to April to 6.482 million, just short of the previous record of 6.643 million. Can someone please redirect all these people to the minimum wage, part time jobs that just opened up at US fast food retailers please?