Portugal - Back In The Penalty Box

Official projections put Portugal's debt to GDP at more than 124% by the end of this year. Utilizing Europe's continuing fantasy accounting; this is the number that Portugal and the EU posts for general consumption. However by counting liabilities and using American addition, subtraction and division I come up with a number of about 236%. In May 2011 Portugal did bite the dust and received $101 billion in bailout funds. Since then it has bobbed up, devastated its citizens with trying to meet the demands of the European Union and been hailed by both Brussels and Berlin for its imposition of the mandated austerity measures. Today we can assure you; Portugal is going down again. Former Portuguese PM Alberto Soares warns, "In its eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal." A careful reading of what the EU is now demanding reveals an actual shortfall of about $6 billion and where Portugal is going to come up with that is a good question (gold anyone?)

Where Does Your Tax Dollar Go?

In 2012, Washington collected $2.4 trillion in taxes, more than $20,000 for every American household...and spent $3.5 trillion...

Five More Undetonated Bombs Found In Boston; Death Toll Rises To 3


In the aftermath of the Boston Marathon explosions, the WSJ is reporting that counterterrorism officials have found what they believe to be five additional, undetonated explosive devices around the Boston area. The devices - which are in addition to the two that exploded near the finish line of the marathon - were discovered over the course of a frantic inspection of suspicious packages. Each had been rendered inoperative or was in the process of being rendered inoperative. A White House official said: "Any event with multiple explosive devices - as this appears to be - is clearly an act of terror."

2007's "Mega LBO" Set To File Prepackaged Bankruptcy

When news hit the tape in February of 2007 that TXU would be acquired by a consortium of PE firms including KKR, TPG and Goldman, for the mind-boggling price of $45 billion, to this day the biggest LBO in history, there were those who were morbidly excited about the future as money was flowing freely, bonuses would hit a record, and there was only upside, and then there were those who knew this was the can't miss top-tick indicator of the beginning of the end. The latters ones turned out to be right. And not only because a year later the entire financial system imploded and only a $25 trillion global coordinated bailout prevented the collapse of the western way of life as we know it, but because now six years later, in the worst kept secret of Wall Street of the past month, TXU, now known as Energy Futures Holdings, is on the verge of the ultimate humiliation for private equity investors: Chapter 11, and a complete wipe out of not only the equity but major impairment of the debt holders as well.

All Abe-Inspired "Gold-In-JPY" Buyers Now Underwater

JPY was its strongest at the start of October - and then the new Abenomics plan began. Very quickly the "long of gold in JPY terms" trade became extremely popular. After an impressive 16.4% rise into mid-February, gold-in-JPY corrected modestly; but the BoJ-inspired action smashed gold-in-JPY back up to its recent highs (helped by the seeming capitulation is JPY longs on the bigger-than-expected QQE). This appears to be the last straw on this trade. With JPY shorts so extremely positioned, the small rally on Thursday/Friday in JPY sent many scrambling to cover and, along with the need to unwind any and every asset to cover cash needs for JGB volatility, the avalanche began in gold-in-JPY. In 2 days, the entire Abe-inspired 'rally' in gold-in-JPY has been undone and all post-Abe buyers are now underwater. Whether this marks a short-term capitulation of these positions is unclear but CTFC CoT this week will be intriguing - and further JGB vol will not help. The rally in JPY of the last two days is the largest in 35 months - so someone clearly broke something...

'Alternative For Germany' Party Buoyed By "Every Swastika On The Streets Of Athens"

A month ago we discussed the rising anti-Euro sentiment in the core of Europe and the "Alternative for Germany" party appears to be growing in strength. As the NYTimes reports, this is a party driven a collection of elites (not a groundswell from the streets) tired of Merkel's "flagrant breach of democratic, legal, and economic principles." While we warned that the forthcoming 'wealth tax' will raise the ire of the southern-European elites (and thus increase the likelihood of a euro breakup), it appears this small-but-growing party in Germany is pushing in the same direction, as one member noted, "we keep giving out more and more money when we have so many problems at home." Polls show as many as 1-in-4 would consider voting for the new party, and "they don't need more than 5% to make things very tight for [Merkel]." The increasing tension in Europe (and rising anti-Germany sentiment) is helping raise membership as "every swastika on the streets of Athens" reduces Merkel's support, and, as members note, "if the euro fails, Europe will not fail," amid nostalgia for the former German Mark.

100 Years Old & Still Killing Us: America Was Much Better Off Before The Income Tax

Did you know that the greatest period of economic growth in American history was during a time when there was absolutely no federal income tax?  Between the end of the Civil War and 1913, there was an explosion of economic activity in the United States unlike anything ever seen before or since.  Unfortunately, a federal income tax was instituted in 1913, and this year it turned 100 years old.  But there was no fanfare, was there?  There was no celebration because the federal income tax is universally hated.  This year, the American people will shell out approximately $4.22 trillion in state and federal income taxes.  That amount is equivalent to approximately 29.4 percent of all income that Americans will bring in this year, and that does not even take into account the dozens of other taxes that Americans pay each year.  At this point, the U.S. tax code is about 13 miles long, and those that are honest and pay their taxes every year are being absolutely shredded by this system.

CME Hikes Gold, Silver Margins By 18.5%

Anyone surprised, please raise your hands. And yes, it was fun when margin were hiked only on surges in the various futures contracts. Now, dumps works just as well. The logic, of course, is that gold shorts are also margined. However, judging by the immediate $15 drop in gold upon the announcement, those who are short the metals certainly have a much, much bigger balance sheet and cash hoard to satisfy any collateral requirements than those long. Next: expect the Shanghai Gold Exchange to hike margins in a few short hours once China wakes up and looks at overnight PM prices in horror.

Obama Addresses Nation

At 6:10 pm, Barack Obama is expected to address the nation over today's explosions at the Boston marathon. It is unclear what additional info he can provide at this time as there is little to no incremental information available, aside from the conviction everywhere that this was a terrorist attempt (which likely means war against someone is imminent), but watch it live below in any case.

Mike Bloomberg Releases Statement, To Deploy Critical Response Vehicles And Additional Police

As law enforcement authorities investigate today’s explosions in Boston, I ask all New Yorkers to keep the victims and their families in your thoughts and prayers. I have spoken with Police Commissioner Ray Kelly, and the NYPD has stepped up security at strategic locations and critical infrastructure, including our subways. Some of the security steps we are taking may be noticeable, including deployment of Critical Response Vehicles and additional police personnel, and others will not be. We have 1,000 members of the NYPD assigned to counter-terrorism duties, and they – along with the entire NYPD and the investments we have made in counter-terrorism infrastructure – are being fully mobilized to protect our city.

Boston Police Department Press Conference - Live Stream

While headlines are flashing with increasingly worrisome details, the Boston PD is about to provide up-to-date details on the incident.


Boston PD are warning people to stay home - this is an ongoing event.

Reported Boston Explosion Suspect In Custody, Is A Saudi National

Update from Bloomberg: Boston Police says no suspects are in custody. Could it be that even the venerable NYPost got something wrong? Or is the Boston PD merely making a distinction between someone in custody (i.e., arrested) and someone guarded as a possible suspect? We should find out soon.

Just a brief blurb at the NY Post for now (which may have been overzealous in reporting the number of casualties earlier) but for what it's worth:

  • Authorities ID'd a suspect in marathon bombings - he is being guarded in Boston hospital.
  • Authorities have a identified a suspect, who is currently being guarded in a Boston hospital with shrapnel wounds.

Unclear how much credibility to assign to this, but that's what is being reported. We will provide more info if and when we see it. Some more via twitter, where we learn that according to CBSNews, police have surveillance video a person bringing multiple backpacks into the area 20 or so minutes before the explosions. The NY Post has released more, such as the nationality of the suspect: Saudi.

Gold Plummets By Most In 30 Years, Stocks Have Biggest Drop Of 2013

A bad day all around. Liquidation continued from Asia and commodities were Baumgartner'd - especially gold and silver, suffering their biggest single-day drop in 30 years. Weak NAHB data stalled any BTFD in stocks and despite a couple of tries at EUR ramps, stocks had their biggest drop in 5 months. The horrible acts in Boston seemed a catalyst for late-day weakness in stocks but there was no bid and heavy volume as homebuilders were hit their hardest in 10 months and US equity indices plunged into the close. Dow Transports had its worst day in 17 months. Away from stocks, FX markets were just as volatile with JPY's 2-day rally the biggest in 35 months (and AUD the biggest down day in 5 months). Swiss 2Y rates dropped to their lowest of the year and US Treasuries were relatively calm (though bid) until Boston hit and then dropped 3-4bps on the day. VIX also surged higher by 5.2 vols to 17.25% (its highest since the Italian elections).

Large Explosions Reported At Boston Marathon; Numerous Injuries And Casualties

North Korea's daily war bluffs may be (rightfully) ignored by the market, but an unexpected and tragic development comes out of Boston, where local media reports of two explosions and numerous injuries:



San Fran Fed Blames High California Unempolyment And Rising Poverty On Highly Efficient Workers

For the past three years we have been pounding the table on one very simple fact: when it comes to jobs, there is a quantitative picture, which is often muddied by seasonal adjustments and political narrative but which the mainstream loves for the simply, clear plotline: "the US created [   ] jobs in the past month", and there is a qualitative one: one which takes into account the far more important quality of the jobs created in the US economy in whole or in part (such as in various states). It appears this simple logic has finally trickled down to those masters of the obvious at the San Fran Fed who have just released a paper titled "Job Growth and Economic Growth in California" whose summary is as follows: "California job growth over the past two decades has been relatively anemic compared with gains in the rest of the country. Nevertheless, economic output has grown faster in California than in the rest of the United States. One factor underlying this pattern may be the growth of higher-wage jobs in California, which has contributed more to output than to employment growth. This creates relatively few opportunities for low-skilled workers, which may help explain why poverty increased more in California than in most states over the period."

Gold's VIX Term Structure 'Most Inverted' Since Lehman

While there are obviously sellers in the gold market, there is also a dramatic spike in demand for protecting what is still being held (remember there is a buyer for every seller). Gold's short-term VIX (implied volatility) has spiked to 18 month highs above 29% but it is the steepness of the term-structure of volatility that shows just how much protection is being sought. The difference between the one-month volatility and one-year volatility is almost 10 vols - the highest level of inversion (short-term risk higher than long-term) since Lehman. It seems the market is extremely fearful of further volatility in the short-term but less concerned longer-term. What is also worrisome is that the last two times that Gold's VIX was this much higher than the S&P's VIX was June 2006 (when the first hedge funds started to implode from Subprime) and Sept 2008 (Lehman). It appears that gold volatility is signalling counterparty risk concerns once again.