The only question we have is how much higher will this week's 390K number be revised to next week in continuing the BLS one trillion sigma tradition of revising every prior number higher and never lower. As it stands, the 390K is the lowest since April, and a drop of 10K from both the previous print and expectations. In other news Non-seasonally adjusted claims increased by +29,106 to 398,753: this is the second highest number since July. What was also notable is that those on EUCs and Extended Benefits rose by 43K in the past week, an odd reversal to the now persistent issue of 99'ers hitting the cliff. In other news, the previous continuing claims number was revised worse by 24k from 3,683K to 3,707K which means today's 3,615K number will also see a downward revision soon. Regardless, no matter how one looks at this, the Claims number confirms there is no net job creation, and considering the bloodbath on Wall Street that will occur over the next month which will affect very high paying jobs, the bottom is about to fall out where it hurts the most: tax collections, which means the government will once again be forced to do what it does best: print paper, with the Fed firmly in tow to monetize it. Same old song.
Those of us who have supported Ron Paul since his presidential run in 2008 (and some who supported him long before that) have come to expect an astonishing array of mainstream media tricks, lies, and censorship when it comes to the “journalistic” examination of the good doctor. This doesn’t mean, however, that we have ever or will ever come to ACCEPT this consistent trend of deception and disinformation as a forgone conclusion of our political lives. We will never throw up our hands and walk away from the mess the MSM has deliberately created, because that is exactly what they would like us to do; give up, shut up, go home, vote for Romney (an establishment crony with the creepy grin of a pedophile), and watch him lose to Obama (yet another establishment crony) in 2012. With this stated up front, it was brought to my attention that CNBC was running a poll asking readers who they thought won the recent Republican Presidential Debates in Michigan. Now, as in many polls in 2008, the name “Ron Paul” has been rising to the top of the charts in 2011 despite all efforts by media lapdogs to dissuade the public from even considering such a candidate. CNBC did not fail to play its roll this time around either. Ron Paul won by a substantial margin, and of course, their response was to take the poll down!
This morning brings the latest, or the third, in the ongoing pitch book of Italian bonds by Goldman's Francesco Garzarelli, in which the strategist hopes that third time will be the charm for calling the bottom to the BTP collapse (sold to you, Goldman client). What apparently has Goldman confused is how its former employee Mario Draghi has let BTP spreads hit the record and unsustainable levels they did yesterday. To wit: "We were actually quite surprised not to see more forceful intervention by the central bank in secondary markets after the LCH announced it would raise initial margin requirements (and wrong in assuming it would have helped keep the Italy vs. AAA spread close to 450bp – it closed yesterday at 500bp over, but is now back at 450bp)." Here Goldman confirms what we suggested on Monday: that the ECB is now nothing but a policy enactment and dictator overhaul tool: "In this context, Italy still has to comply fully with the ECB’s ‘requests’ dated August 8, while Greece’s commitment to more austerity in exchange for financial support has continued to sway (at the time of writing, news that former ECB no. 2 Papademos would take the helm is encouraging)." Even so, the future to Goldman is quite cloudly :Granted, one positive collateral effect of market tensions has been to precipitate a political shakeup in Italy. But the collateral damage created by the price shock in Italian bonds to the stability of the EMU project (aggravated by explicit talk of countries being expelled from the single currency) is high and quite lasting. It will probably take a leap forward into deeper forms of fiscal risk-sharing (Prof Monti is a long-time proponent of Eurobonds) to get the market properly functioning again." OTOH, Barclays has done the math, and as we pointed out a few days ago, is not surprised.
To everyone who was hoping the latest Greek PM would be a double letter, triple word score game killer in Scrabble, our apologies. In the end the ECB's puppet ended up in control, just as initially expected. Kneejerek reaction in the EURUSD higher which will be promptly faded and all that jazz. Fact is nobody cares about the ECB/Fed protectorate known as Greece any longer.
- Permanent EU Bailout Fund Said to Face Delay (Bloomberg)
- Deal Greek President to Meet Party Leaders (Bloomberg)
- EU Lowers Euro-Region Growth Forecasts (Bloomberg)
- Italy Senate Speeds Vote That May Lead to Monti Government (Bloomberg)
- U.S. Dems Offer $2.3 Trillion Deficit Plan (Bloomberg)
- Friendship Is Tossed in MF Global Storm (WSJ)
- Clients who fled MF Global face clawback risk (Reuters)
- Yuan Bet Losing Its Luster (WSJ)
- Fannie Alabama’s Jefferson County Enters Biggest Muni Bankruptcy as Crisis Victim (Bloomberg)
Earlier today Italy sold €3 billion in 1 year Bills at an average yield of 6.087%, the highest since September 1997, and almost 3% higher compared to a month ago, when it prices at 3.570%. Yet there was a stunning twist: the 1 Year was trading at a whopping 7.75% in the gray market minutes before the auction, or almost 200 bps wide of the auction result, something which never happens under normal conditions unless the invisible hand of the central bank has anything to say about it. Now we know already that the ECB stepped in to aggressively mop up Italian bonds in the secondary market immediately after the auction to bring 10 year yields below 7%, however briefly: the bond has since widened above that level once again. Yet what is shocking is the primary market strength for the 1 year: since the ECB is prohibited by law from intervening in the primary, auction market, we wonder just what illegal backdoor funding scheme the ECB has concocted with friendly banks in order to have the auction price where it did, and how much money was transferred by back door channels to keep Europe from imploding one more day. Considering that the EURUSD was trading below 1.35 just prior to the auction at around 3 am, and has since regained losses, just as we expected yesterday, please remind us to add this latest illegal central bank intervention feature to the list of things to uncover once Europe blows up and the ECB's secret trading records are laid out for all to see. In the meantime, here is the Wall Street snap reaction to the Bill auction.
Europe started the day poorly, following up on the weak close and its own poor economic data. Then the ECB got involved and started buying Spanish and Italian debt aggressively. Rumors is that the ECB will have unlimited buying power for Italian debt once the austerity bill is passed. The current buying spree is completely expected. They can't resist intervention and in spite of a massive inventory of unmarked underwater bonds, still believe it does something. This intervention didn't do much for a 1 year auction and the price action in the secondary market has become routine. Some quick short covering. Dealers snapping up some paper to offer back to the ECB. A few additional purchased to goose the market higher, tell the ECB how great they are doing and that it is impossible to source paper, sell your inventory at an even higher level, spoof around while trying to figure out when the ECB is done for the day and what targets they have, sell into the last bit of strength and then let the shorts who covered early reset at much higher prices.
Dismal data from French manufacturing and industrial production along with growing chatter of a 'core' Europe strategy having been discussed is sending spreads among sovereign bonds notably wider. As a reminder Italy faces a rather large 1Y bill auction later this morning and the front-end of the BTP curve is underperforming as 2s10s inverts for the first time since August 1994.
UPDATE 1: Italian Bond Futures opened -1.7%
UPDATE 2: Credit cracking hard now XOver +35bps, Main +8bps, SENFIN +13bps
UPDATE 3: BTPs opened +16bps at 569bps over Bunds
UPDATE 4: OATs trading over 150bps wider than Bunds for first time ever
With German Consumer Price inflation coming a little hot, Wholesale Price index deflating MoM (and less than expected YoY), and Finnish Industrial Production turning negative unexpectedly, (and now French Industrial Production and manufacturing dropping significantly), sellers returned in the early European day with EURUSD breaking below 1.35 (for the first time since 10/10) and ES -7pts from the close (and 12pts from overnight highs) at overnight lows. As everyone anxiously awaits the open of BTPs, credit markets are already playing catch up to the US afternoon with Main 5bps wider and XOver 23bps wider.
The last few weeks have seen numerous discussions of the less-than-perfect quarterly earnings picture and outlook and despite an endless barrage of 'well, 73% of firms beat expectations', it is the outlook that is critical to understanding valuations. With CEO Confidence, from Chief Executive magazine, at its lowest in a year and having dropped at its fastest rate since the first quarter of 2009, Goldman dissects the conference calls of Q3 earnings to discern four key themes: Uncertainty is hurting confidence and reducing activity, a more cautious tone on margins, and belief/hope in emerging markets' ability to power growth. Goldman's 'Beige Book' equivalent provides all the detail one needs to comprehend what is at best a defensive strategy going forward.
1 minute 40 seconds into this clip is where Rick Perry's presidential chances flash crash. Literally. As the attached InTrade chart shows, the Perry presidential contract imploded from a prevailing level of about 9 by 60% to 3 in the span of milliseconds, and has since dead cat bounced to about a 50% decline. Who would have thought that the vacuum tubes have now taken over presidential odds as well? As for Perry's presidential chances, this being America, where the population gets precisely the president it deserves, we would not be at all surprised if this epic moment of self-humiliation did not just cement Perry's election chances. In other news, ISDA has just declared all CDS written on Perry to be untriggered as his political suicide was completely voluntary.
In the pre-dawn darkness of a chilly LA morning, my day started off with a chuckle. A friend in the reforestation business sent me an email detailing the US Department of Agriculture’s new ‘Christmas Tree’ tax that was approved yesterday. I thought it was a joke. It wasn’t. One can only laugh at the absurdity of the government getting involved in such a matter. But it’s happening more and more. You see, the United States is on a one-way collision course with its financial judgment day; the country long ago passed the historical point of no return– the point at which it has to start borrowing money simply to pay interest on the money it has already borrowed. After this, the next mind-boggling category of taxes that will be introduced are ‘social taxes’. In other words, you get taxed on what everyone else is doing… like an anti-terrorism security tax, or better yet, national healthcare where you pay for other people to go to the doctor. During the Tokugawa period in feudal Japan, they called this ‘honto mononari’. Village peasants were taxed by the local daimyo on the basis of the entire village’s rice yield for that season. Even if you didn’t grow a single grain, you still paid. Perhaps the most heinous forms of taxes to come, though, are asset taxes. And at roughly $5 trillion in total value, individual retirement accounts (IRAs) are the lowest hanging fruit that the federal government can grab.
The overnight futures ramp crew may have its work cut out. With a major unknown catalyst - the €5 billion Italian Bill auction - due to hit only after BTPs reopen around 3 am Eastern, the ramp will only occur only after 4 am if at all. On the other hand, we fully expect European insurers filled to the gills with collapsing European sovereign bonds to experience a very significant helping of gravity themselves as soon as the European market awakes. Either way, Bank of America may need to revise its solar-driven trading model.