Some may accuse us of simply recycling the same post over and over, with pictures of what appears like periodic violent rioting in Athens. Trust us: these are brand new, and the main reason why there is a seemingly massive media blackout of the events in Greece is because the journalists themselves are on strike. Luckily, the WSJ has compiled the following selection of pictures showing just how ugly the reality in an otherwise civilized European country has become. And since much of the proposed next round of austerity spending cuts would come from reducing wage costs in the public sector, cuts in operating expenses at state-owned enterprises, and reduced defense and health-care spending, the vicious cycle of more violent demonstrations will continue as even more cuts are implemented.
And so another $24 billion in liquidity is sucked out of the market, at least temporarily until PDs flip Cusip QN3 back to the Fed. The bond priced at a 3.21% high yield, and a 3.00 Bid To Cover, the lowest so far in 2011. Nonetheless, the bond came inside to the WI which was about 3.222%, confirming the risk off aspect of today's market. Primary Dealers took down 44.4%, with Direct responsible for 8.4%. This means Indirects were left with 47.2%: better than April, but the second lowest of 2011, only better than April's 42.4%. The other question of how this will settle, together with yesterday's $32 billion and tomorrow's $16 billion, under the debt ceiling, we will discover in a few days.
Today's (further) ceiling busting $24 billion 10 Year bond auction is set to price in under 10 minutes, at 1 PM. That's $24 billion in liquidity that wil be taken out of the market on this flashy crashy day. Keep an eye on cross-asset volatility as the bond prices. One thing is certain: the CME will hike a variety of margins today based on vol models across the commodity space in the aftermath of this second wipeout in a week, which will be further exacerbated by a plethora of margin calls hitting at 3:45pm as Prime Brokers start dialing for dollars.
Update 2: NYMEX GASOLINE, HEATING OIL LIMITS NOW 50 CENTS, CRUDE $20. Basically the CME just doubled daily limits. Of course, the CME is happy to double the drops... but never the surges.
Update: CME RESUMES TRADING ON NYMEX CRUDE, PRODUCTS FUTURES
- CME HALTS TRADING ON GAS, CRUDE OIL, HEATING OIL FUTURES
- CME TRADING HALT IN ENERGY FUTURES WILL LAST 5 MINUTES
So now crashes cause the entire market to be halted? Swell
So much for the Chinese IPO bubble, which accounted for 25% of all public offerings in the past year. DATE, which just went public at $11, is now plummeting as underwriters have entirely abdicated their market floor duties. Below is the much vaunted "Chinese Face Book" RenRen, whose epic collapse is a harbinger of what will happen to our own pretty soon. Also, we demonstrate what happens when an equity bubble pops and an IPO stock plunges 10% below its IPO price in 25 minutes or less.
Jeremy Grantham Goes Bearish: "Now Is The Time To Fight The Fed" And "Stocks Trading 40% Above Fair Value Are Badly Overpriced"Submitted by Tyler Durden on 05/11/2011 - 11:48
Just released from Jeremy Grantham, who has gone, for all intents and purposes, "balls to wall" bearish. "I do not feel the same degree of confidence that I did, which was considerable, that the Fed could carry all before it until October 1 of this year. A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected (indeed unexpectable) special factors weighing against risk-taking in these overpriced times. I had recommended taking a little more risk than was justified by value alone in honor of Year 3, QE2, and the Fed in general. Risk now should be more reflective of an investment world that has stocks selling at 40% over fair value (about 920 on the S&P 500) and fixed income, manipulated by the Fed, also badly overpriced. Although the taking of some “extra” risk by riding the Fed’s coattails has been profitable for six months, I admit to being a bit disappointed: I really felt the market had the Fed’s wind in its sails and would move up deep into the 1400 to 1600 range by October 1, where it would be, once again, over a 2-sigma 1-in-44-year event, or, officially, a bubble. (At least in a world where GMO is the official.) At such a level, I was ready to be a real hero and absolutely batten down the hatches, become extremely conservative, and be prepared to tough out any further market advance (which, with my record, would be highly likely!). The market may still get to, say, 1500 before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even. And whether it will reach 1500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it. Investors should take a hard-nosed value approach, which at GMO means having substantial cash reserves around a base of high quality blue chips and emerging market equities, both of which have semi-respectable real imputed returns of over 4% real on our 7-year forecast. The GMO position has also taken a few more percentage points of equity risk off the table."
The fundamental dynamics of the U.S.-China trade partnership--certainly the biggest economic story of this generation--boil down to "capital exploits labor." I am well aware that this sort of quasi-Marxist analysis is supposed to be passe in the era where young nerds can start billion-dollar enterprises in a garage or dorm room. Capitalism is a priori "win-win," as all those workers in China are getting ahead while our youth launch $50 million IPOs of social networking Web 2.0 companies. But if you scrape away the high-gloss propaganda and myth-making, then the fundamental dynamic is definitely Marxist: American capital jettisoned American labor as a costly hassle in favor of cheap, no-hassle Chinese labor. Since Capital's best buddy in the whole world is the Central State and its proxies, i.e. the Federal Reserve, then the Central State and the central bank (the Fed) smoothed over the exploitation and furthered the consumer economy by inflating a credit-housing bubble. Since 60% of American households own a home, this enabled the increasingly impoverished "middle class" to borrow trillions of dollars in "free" money that could be spent--surprise!--on the new imports from China that filled the shelves of big box global retailers everywhere. Allow me to illustrate this dynamic by deconstructing two recent stories in the Mainstream Financial Media...
Justice, this time, is served. Raj found guilty on all charges. Next up: up to 20 years in federal pound me in the ass penitentiary (20 years on each of 9 counts, and 5 years on the remaining 5 so a total of 205 years possible). But that's ok, Raj Raj certainly frontran that verdict and is most likely prepared as necessary.
And following the overnight set of news which confirms our January assumption that the keyword of 2011 will be "stagflation" the entire commodity complex once again slides. It is unclear if the move is predicated more by fears of inflation or of economic contraction. After hitting almost $40 overnight, Silver has once again taken the daily tumble back to the sub $37 level. The catalyst today is crude, following the DOE announcement that crude inventories surged to 3,871K barrels on expectations of 1,500K, and Cushing inventory hitting 1,124K compared to 102K previously. WTI slides to sub $101, even with the latest series of margin hikes which purportedly is supposed to mitigate volatility. So much for that.
A hearing that is sure to spark a lot of controversy and debate will be held today at 10 am EDT, by the Domestic Monetary Policy Subcommittee, chaired by presidential candidate Ron Paul. As noted, "The hearing will explore the fundamental role that U.S. government debt
plays in the monetary system; the use of Treasury debt by the Federal
Reserve in conducting monetary policy; and the troubling reliance of
Congress on the Fed to print money to facilitate deficit spending." Alas, there will be no Fed members testifying at the hearing, instead we will hear from Dr. Richard Ebeling, Professor of Economics, Northwood University, Bert Ely, Ely & Company, Inc., and Dr. Matthew J. Slaughter, Associate Dean, Tuck School of Business, Dartmouth College.
And another advocate for the only logical outcome out of the disastrous monetary and fiscal catastrophe the US finds itself in emerges in the face of billionaire, and open administration critic, Steve Forbes. From Human Events: "A return to the gold standard by the United States within the next five years now seems likely, because that move would help the nation solve a variety of economic, fiscal, and monetary ills. “What seems astonishing today could become conventional wisdom in a short period of time,” Forbes said. Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending, the media mogul and former presidential candidate said. The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now, Forbes added." Of course, for this to happen the US would first need to allow a full public audit of its gold 8,000+ ton reserves held at Fort Knox and elsewhere. And that may be problematic.
It was only a matter of time before the combination of a suddenly alienated Pakistan and a top secret stealth helicopter crashed deep in its territory, would raise the specter of China, and specifically its military complex hinting it would be delighted to peek under the dress of said crashed chopper to fortify its expanding stealth program. ABC reports: "Pakistani officials said today they're interested in studying the remains of the U.S.'s secret stealth-modified helicopter abandoned during the Navy SEAL raid of Osama bin Laden's compound, and suggested the Chinese are as well. The U.S. has already asked the Pakistanis for the helicopter wreckage back, but one Pakistani official told ABC News the Chinese were also "very interested" in seeing the remains. Another official said, "We might let them [the Chinese] take a look." Gee, following two weeks of demonization did anyone possibly consider that Pakistan would now scramble to reallign itself with China? Surely not the Clinton stepford wife (or is that husband).
And just as Citigroup predicted, US imports surge even as US exports jump to a record $172.7 billion. But the story is once again in the GDP reducing imports which jump by a whopping $220.8 billion, a $10.4 billion jump M/M. The total deficit of $48.2 billion is the highest since the June 2010 spike which hit $49.9 billion. From the release: "Exports increased to $172.7 billion in March from $165.0 billion in February. Goods were $124.9 billion in March, up from $117.8 billion in February, and services were $47.7 billion in March, up from $47.2 billion in February. Imports increased to $220.8 billion in March from $210.4 billion in February. Goods were $187.0 billion in March, up from $176.9 billion in February, and services were $33.8 billion in March, up from $33.5 billion in February. For goods, the deficit was $62.1 billion in March, up from $59.1 billion in February. For services, the surplus was $13.9 billion, up from $13.7 billion in February." Ah, financial innovation being exported as per usual. Look for another round of Q1 GDP downgrades as this number takes out a few basis points in growth. As we know from China that April exports to the US jumped even more, this import surge will likely carry over into Q2 and result in more GDP cuts.
- U.S. post has $2.2 billion loss, warns of Sept insolvency (Reuters)
- Partisan Divides Harden on Debt Accord as Options Are Rejected (Bloomberg)
- EU Slows Drive for More Greek Aid as Merkel Seeks ‘Proven’ Steps (Bloomberg)
- AIG sets $9 billion stock offer, half of expected (Reuters)
- China Inflation Signals More Tightening to Come (Bloomberg)
- Japan Aims for Tepco Compensation Scheme this Week (Reuters)
- U.N.Chief BanCalls forCeasefire in Libya (Reuters)
- Syria Extends Armed Push; EU Sanctions Begin (WSJ)