On one hand we have the BLS telling us core inflation declined to a ludicrous 0.1%, on the other hand Charles Plosser just had a soundbite, captured for posterity, that "high oil prices don't cause inflation", but luckily confirming there is someone not taking crazy pills, is the third hand, which takes gold to a new all time high of $1,481.46. We wonder, of the three hands, which one is right...
Once again confirming that sentiment indicators are completely irrelevant and thoroughly misleading at best, we have the UMichigan consumer sentiment coming out at 69.6 compared to expectations of 68.8 and up from the March 67.5 print. This number is a rather stark contrast to the recently highlighted Gallup consumer confidence which plunged to August 2010 levels. And looking at current economic conditions index confirms that since 2010 the economy has gone precisely nowhere. But most notably, 1 year inflation expectations are still at the highest since 2008 at 4.6 unchanged M/M. All that of course is irrelevant as the algos just scanned the headline and go batshit, lifting every offer with gusto.
From Goldman: "US industrial production increased by 0.8% mom in March, up from a revised 0.1% increase previously. In February, unseasonably warm temperature reduced heating demand and therefore output of utilities. This held back the gain in overall production despite growth elsewhere. This effect reversed in March, leading to strong growth in the index." So between snow, rain, heat, earthquakes, nuclear explosions, oil spills, all of which are of course completely unforeseeable, why do we need economists making "forecasts" again?
It seems that the ECB has now resigned to letting Greece fail. While previously any time we had a whopping 2 point drop in one day the ECB would promptly step in and be the buyer of only recourse in peripheral debt, it has been deathly silent today. And as the chart below demonstrates Greek debt is about to go bidless: a par 10 Year note is trading at 62, with the resulting yield now literally going parabolic. And the 2 Year is now at 16.5%. Luckily for a globalized economy, dominoes are completely isolated and what now appears to be a certain "chain reaction" in creditor defaults will have no impact on the Russell 2000: after all the Fed is surely prepared for this contingency.
While we will present a comprehensive update of the just released TIC data shortly, the one chart worth noting is the sequentual change in holdings by foreign countries, and particularly one of them. Importantly, of the 4 largest holders of US debt, China, Japan, the UK and Oil Exporters, the latter 3 all saw an increase in their Treasury holdings, China continues selling Treasurys, with a 4th consecutive decline in its total holdings. That said, since TIC data is notoriously flawed and always incorrect, with at least half UK purchases being attributed to China post annual revisions (nobody knows who is responsible for the other half) it could well turn out that China was the only country actually buying US paper. We won't know for sure for at least a year from now following the next full year revision. And by then it likely won't matter.
The Empire Manufacturing Index came out at 21.70, on expectations of 17.00, reversing the recent downward trend seen in other diffusion indices. The full release is here. The only chart, however, that matters is the following: Prices Paid.
And again we learn from the Department of Truth that core inflation is non-existent. Of course, this number is not applicable to anyone who actually has to buy things. According to the BLS CPI came in line with expectations, and unchanged from last month, at 0.5%. CPI ex food and energy of 0.1% actually declined from last month's 0.2%, and was below consensus of 0.2%. From the release: "The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment. Gasoline and food prices continued to rise and together accounted for almost three quarters of the seasonally adjusted all items increase in March. The gasoline index posted its ninth consecutive increase and has now risen 14.4 percent over the last three months. The household energy index rose as well, with advances in the fuel oil and electricity indexes more than offsetting a decline in the index for natural gas. The food at home index continued to accelerate in March, rising 1.1 percent as all six major grocery store food groups increased." What this means is that core CPI will likely not get high enough to derail the option for QE3 if and when it comes around some time in Q3.
Greek 10 Year-Bund spreads just passed 1,000 for the first time ever and were last trading north. Following this statement from Germany's Hoyer, it seems all hell is about to break loose for peripheral spreads.
- *GERMANY WOULD BACK VOLUNTARY GREEK RESTRUCTURING, HOYER SAYS
- *GREEK DEFICIT CUTTING MAY NOT BE ENOUGH, HOYER SAYS
- *GERMANY ‘WORRIED’ ABOUT GREEK FISCAL DEVELOPMENTS, HOYER SAYS
- *GREEK DEBT RESTRUCTURING `WOULD NOT BE A DISASTER,' HOYER SAYS
- *GERMAN EUROPE MINISTER HOYER SPEAKS IN INTERVIEW IN BERLIN
If Citi is right, and it is, and CPI comes high, and it will, looks for some fireworks in FX following the announcement of CPI in 5 minutes: "Market is most sensitive to core CPI reading as that is the Fed's target (at least the Fed majority's). Consensus and Citi are at 0.2%m/m on core, but there are many more at 0.1% than at 0.3%. Given how yields have moved in recent days the pain is on an 0.3% m/m rather than an 0.1%. The 0.3% would probably cause fear that the Fed will raise rates sooner rather than later while the 0.1% would be in line with a Fed hick in 2012. High core CPI would be a risk off event but USDJPY would see some upside support. If equities sell off it would be an added USD positive, since market is short USD and long risk, and rates unwind would lead to USD-supportive position cutting. On headline expectations very much in 0.4/0.5% range. A big overshoot on headline and core at expected 0.2% would probably have a modest and possibly temporary affect on US rates."
- Wheels Turning to Create New Silk Road (China Daily)
- Banks, SEC in talks to settle mortgage charges (Reuters)
- Qaddafi Taunts West as NATO Seeks More Attack Planes (Bloomberg)
- Fears Grow Over Greek Debt Default Despite Bail-out (Telegraph)
- Broke U.S. States’ $48 Billion Debt Drives Unemployment Aid Cuts (Bloomberg)
- Moody’s Cuts Ireland Rating Two Levels, Outlook Negative (Bloomberg)
- Irish Warning to EU of ‘Spoke in Wheel’ of Growth (FT)
- G-20 Faces Need to Heed Criticism as Stronger IMF Voice Sought (Bloomberg)
- G-20's Efforts on Growth Stall (WSJ)
- Losing 84 Cents on Dollar Reveals Runaway U.S. Public Pensions (Bloomberg)
Bank of America Provisions $1 Billion For Reps & Warranties Liability In Q1 As Claims Jump By $2.9 Billion, Pays Monoline AGO $1.1 Billion To...Submitted by Tyler Durden on 04/15/2011 - 07:57
Bank of America continues crawling along the razor's edge, with the biggest threat to its continued business model: ongoing legacy CFC fraud being largely unprovisioned for. In the just released earnings presentation, we learn that the bank provisioned only $1 billion for its ongoing Reps and Warranties liability, after charging off a minuscule $238 million - the lowest in over a year, bringing its total liability accrual to $6.2 billion. Yet over the same period total outstanding claims by counterparty surged by nearly 30%, from $10.7 billion to $13.6 billion, primarily due to GSEs, although the steady putback rise in monoline GSE claims is relentless (and appears to have gotten to the bank considering the just announced Assured Guaranty settlement, see below). Total outstanding claims at the end of Q1 totalled $13.6 billion. Also someone please explain to us how Merrill Lynch (see footnote
2) is one of the parties responsible for filing new claims against its
parent and rescuer Bank of America. As for a real world example of just what the real cost of these
liabilities is in a full discharge scenario, we have the just announce
settlement with Assured Guaranty which cost the company $1.1 billion to
settle loss-sharing reinsurance arrangement on 21 first
lien RMBS transactions totalling $4.8 billion net par. In other
words the settlements that are about to be announce with MBIA and other
monolines could possibly be in the double digits, crushing BAC's earnings in whatever quarter they are announced.
Gold and silver have reached new all time and 31 year record highs in trading in London this morning. Silver is particularly strong and the euro particularly week on sovereign debt contagion concerns. Inflation and sovereign debt fears are leading to continued safe haven demand. It is import as ever to note that the record highs are nominal highs and inflation adjusted gold and silver remain a long way from their respective highs of $2,400/oz and $140/oz in 1980. These inflation adjusted highs remain viable long term price targets. $1,500/oz and $50/oz remain short term targets. Resistance levels have been breached and thus these psychological price points will likely now be tested. Trading and timing markets remains high risk but astute hedge funds and other traders will continue to “make the trend their friend’. The negative treatment of gold and silver is in marked contrast to the treatment of more high risk individual equities and equities in general. Bearish sentiment abounds and we have seen a lot of profit taking this week. These are tell signs and contrarian signals that gold and silver are far from the bubbles that some have been claiming for some time.
Following China's blistering CPI which came as leaked at 5.4%, today we get our own number which is known by only very select traders on Wall Street. We will also get the Empire Index, TIC treasury flow data, Industrial production and capacity utilization, UMichigan consumer sentiment, a couple of Fed speeches and of course, POMO.
Bank of America EPS Misses Consensus Of $0.26, Comes At $0.17, Despite Credit Loss Provisions Plunging 72%Submitted by Tyler Durden on 04/15/2011 - 07:12
Just as JP Morgan, Bank of America takes accounting manipulation to the next degree and lowers its credit loss provision to $3.8 billion, down $6.0 billion from a year earlier, and $2.3 billion from Q4, even though the actual amount of charge offs sequentially barely declined from $6.7 billion to $6.0 billion. "The provision for credit losses was $3.8 billion, which was $6.0 billion lower than the same period a year earlier. The provision was lower than net charge-offs, resulting in a $2.2 billion reduction in the allowance for loan and lease losses, including the reserve for unfunded commitments, in the first quarter of 2011 (net of reserve additions of $1.6 billion related to consumer-purchased credit-impaired portfolios as noted below). This compares with a $1.0 billion reduction in the first quarter of 2010." Even so, the company still was unable to goal seek its EPS consensus of $0.26, coming in at $0.17. Without this accounting gimmick, BAC would have had a sizable loss in Q1.