Almost a year to the day from the first Greek bailout, we thought we would revisit just how successful Europe has been in masking its pervasive insolvency, and just how far Europe has ultimately gone over the past year. As the chart below shows, pretty far. Especially if one measures the displacement by the shift in the Greek bond curve whose 3 year point just passed 18%. Buy it, hold it for 5.5 years and double your money.
Who would have thought permanent austerity and a government crisis would lead to popular unhappiness. Well, the General Confederation of Portuguese Worker, better known as Portugal's largest union, for one. From Reuters: "Portugal's largest labour union is considering calling a general strike as it steps up protests against painful austerity measures that are expected to deepen under an EU/IMF bailout, its leader said on Thursday..."A general strike is an instrument that is on the agenda."" And with 725,000 members, and the certain shutdown of the Portuguese economy that would ensue, it is perhaps time to consider what will happen in Spain and soon all of Europe as the wave of austerity started almost a year ago spreads, and what the impact to European GDP (and thus global) will be. But most importantly, where will the credit money come from to push the world from this latest imminent downturn. After all Jon Hilsenrath telegraphs to us that there will be no QE3. And who are we to disagree.
Bob Janjuah On Picking Your Poison: A 1,350 Top In The S&P Or QE3, With A Change In The FX Regime And A Surge In GoldSubmitted by Tyler Durden on 04/14/2011 - 09:41
Assuming that the QE3 option is eventually exercised (as we do under the hard landing outcome) and assuming it does what we fear to the credibility and status of the US, the US dollar and US Treasuries, then we think the result, most likely at some point between 2012 and 2014, will be major fx regime changes and significant paradigm shifts in global fx markets. As these changes and shifts occur, gold could perform very well, as could other scarce physical assets (possibly super prime real estate). And the highest quality (by BS strength) nominal corporate assets – top quality equities in other words – may at least on a relative basis (if not absolute) perform fairly well.
Joe LaVorgna needs no introduction: the Deutsche Bank (not pronounced Döuche Bangk) "strategist" is easily the posterchild for Microsoft Excel's goalseek function. As such, he is rarely if ever mentioned among the first 26 tiers of economc analysts (one needs to migrate to Hex from ASCII to catch a reference), as his goal seeking tends to take place only after given the green light by Goldman, Morgan Stanley and BofA (in that order). Which is why it does not surprise us that the strategist has had enough and is now valiantly punching through to the front of the line. The permaungloomer, who for the longest time saw the physical silver lining in the mushroom cloud, has just submited his application to the big boys club by being the first to cut Q2 GDP (and yes, he also finally cut Q1). That said, as expected yesterday, look for everyone to do the same as the hockey stick in US economic activity (once again) fails to materialize.
Exactly a year ago, Zero Hedge penned "The Client Always Comes First At Goldman... Except When He Doesn't, Which Is Also Always" which was a review of Goldman's mark manipulation practices particularly as pertains to the OTC domain (read CDS) by going through self-evaluation reviews of the 4 key Goldman trades involved in the Abacus scandal (we would call it crime, but remember: Goldman neither admitted nor denied guilt). As a reminder, in April 2010 we said: "The line penned by Michael, who incidentally was the least like of the
three Goldman SPG MDs testifying on Tuesday based on peer feedback, that
broke our collective heart is the following: "Once the stress in the
mortgage market started filtering into the cash market, I spent numerous
hours on conference calls with clients discussing valuation
methodologies for GS issued transactions in the subprime and second lien
space [redacted] is prime example). I said "no" to clients who demanded that GS should "support the GSAMP" program as clients tried to gain leverage over us. Those were unpopular decisions but they saved the firm hundreds of millions of dollars." Alas, we find that all of Goldman's sincere hypocritical lies before the Senate committee were... precisely just that." This post was followed up by "Goldman Implicated In CDS Price Manipulation Scandal" which essentially recapitulated all the salient points from the first time. Today, with about a full year delay, Bloomberg's Christine Harper and Joshua Gallu realize that there was more than meets the eye to these very disingenuous revalations of impropriety by the very traders who were conducting them, and finally bring much needed broader attention to the matter in "Goldman Traders Attempted to Manipulate Market in 2007, Senate Report Says." Frankly, it's about time.
Jobless Claims Huge Miss To Expectations Of 380K, Print At 412K, Previous Revised Upward, Core PPI Higher Than ExpectedSubmitted by Tyler Durden on 04/14/2011 - 08:40
The BLS beat the expectations game continues. While this week's number of people filing initial cliams surged to 410K, blowing out expectations of 380K, it is once again the prior revision that shows the true nature of the BLS. As we said last week when claims printed at 382K, better than expectations: "last week's 388K was revised up to 392K, declining to 382K below
expectations of 385K, which in tried BLS fashion will certainly be
revised next week so that the actual number will have been a miss but by
then nobody will care." Sure enough: last week's number was revised... to 385K, meaning there was no beat. Obviously this week's number will be revised higher next week. As usual. Looking at continuing claims we see the same thing: the prior number was revised from 3,723K to 3,738K, meaning the drop to this week's 3,680K was better than expected. Lastly from the BLS, people claiming EUCs and Extended Benefits increased by about 40K in the week ended March 26 (full report here).
- Bailout a ‘Flawed Plan’ Forced on Irish People (Irish Times)
- Obama’s Debt Plan Sets Stage for Long Battle Over Spending (NYT)
- America Must Give Up on the Dollar (Michael Pettis)
- Banks Forced to Pay Foreclosure Victims as Talks Continue (Bloomberg)
- Budget Rises as Most Important Problem to Highest Since '96 (Gallup)
- Calls grow for Japan PM to quit in wake of quake (Reuters)
- Find the discrepancy of these two headlines:
- Hong Kong Considers More Property Measures (WSJ)
- Glencore seeks up to $12.1 billion in IPO, no chair yet (Reuters)
And just in time to follow up on our previous post about the Chinese real estate bubble pop which speculated that PBoC tightening is over, here comes Goldman confirming that the tightening in the world's fastest growing economy is now over. To wit, from Yu Song Helen Qiao: "There was a clear loosening of monetary conditions in March, despite possible distortions to March monetary data because of various end-of-the-quarter examinations at commercial banks. This loosening of monetary conditions was contributed by a combination of i) more bank lending; ii) change to fiscal deposits; and iii) more FX inflows." So China, which is about to report 5.4% CPI (per a Phoenix TV leak, more shortly) is willing to take the political risk of loosening even as it has been working hard to suppress the Jasmine revolution. And yet people still believe the Fed will not recommence loosening (and with ZIRP that leaves only acronym option) as soon as the marginal credit bubble pops heard around the world (not to mention the supply chain effects from Japan crunch US margins) resonate until they hit the US ten-fold. On the other hand a Chinese loosening, no matter the political risks, is possibly Bernanke's last ditch attempt to export marginal money printing, together with Japan which will soon find that another round of QE is inevitable. Alas, with Europe tightening, the US will be the marginal variable yet again. Just like in China, Expect a few month break between QE2 and QE3 at best.
Could the Chinese monetary tightening be working? The Chinese National Bureau of Statistics has released its latest food price update for the period April 1-10, which shows that while most foods continue to rise modestly, several food products have plunged particularly cucumbers and rapes, both falling 8.8%, and kidney beans down 6.3%. Yet this is nothing compared to what is happening to Chinese real estate: it appears Chanos' long anticipated property bubble may have popped... but the supersonic boom is so loud that nobody has heard it yet.
Gold is tentatively higher against the euro but mixed against other currencies while silver is again higher against most currencies. Both probed higher this morning and are exhibiting signs that they may push higher prior to a much anticipated correction. The Greek 10 year yield has just surged over 13.2% and this is leading to falls in the euro and risk aversion with equities, commodities and oil falling. Both gold and silver are less than 2% from their record nominal highs seen Monday (gold all time and silver 31 year) and are remaining firm due to concerns about the U.S. dollar, the euro and sovereign debt issues in Europe. While markets are not focusing on geopolitical risk in Africa and the Middle East and the Japanese natural and nuclear disasters, these problems remain and will lead to continuing safe haven demand. Silver’s resistance is at Monday’s multiyear nominal high at $41.95/oz. In normal circumstances profit taking would be expected near $42/oz but this is anything but a normal market due to the existence of massive concentrated short positions being investigated by the CFTC. The dollar’s fall suggests that markets are skeptical of Obama’s latest budget proposal to cut $4 trillion off the massive US budget deficit. The US fiscal situation continues to deteriorate week on week and month on month which could potentially lead to sharp falls in the dollar in the coming weeks.
Today's docket: Initial claims, March PPI and the fed Fed speaker obfuscation brigade is back. As usual the Treasury issues debt and the Fed monetizes it.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 14/04/11
Reuters Poll Indicates Up To 60% Of Japanese Companies Impacted By Production, Supply Chain DisruptionsSubmitted by Tyler Durden on 04/13/2011 - 21:23
Even though US companies have yet to step up and indicate just how badly they have been affected by the Japanese quake (which could take a while: one of the benefits of massive inventory stockpiling), Japan is not that lucky. According to a Reuters poll the March 11 catastrophe has negatively affected nearly 60 percent of Japanese companies, disrupting production and supply chains."The special survey of 400 large firms was taken between March 25 and April 11 in tandem with the monthly Reuters Tankan, a poll of corporate sentiment... While Japanese companies are likely to be squeezed by production disruptions in northern Japan, as well as power shortages and supply woes, they may not feel the same pain as after the collapse of Lehman Brothers, when lending markets froze. "The impact of this earthquake will not be on the same scale as the Lehman crisis," said Soichiro Monji, chief strategist at Daiwa SB Investments, a Japanese asset management firm." Considering money markets froze up, stock plunged 40% and the world virtually ended in the months following Lehman, that's probably good news. As for the bad news: "Nearly 70 percent of respondents said difficulty in acquiring materials or parts was the single biggest problem in righting their businesses, a sign that supply chains remained hampered." And considering the bulk of Japanese production is export oriented, it is only a matter of time before these disruptions spread globally.
Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains. Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed. The next chapter in this sad drama will include a rapid rise in consumer prices. At the beginning of this year, we saw the grains – wheat, corn, soybeans and oats – go up an average of 36% within one month. In the same time frame, hogs were up 30.7%. Copper was up 29.1%. Oil was up 14%. Cotton was up 118%. Raw commodities are the first things to move in an inflationary boom, largely because they’re essential to everything. Retail prices are generally the last to move, partly because the labor market will remain soft and keep that component down, and partly because retailers cut their margins to retain customers and market share. There are several alternatives to dealing with the question “What should I do with my money now?” – active business, entrepreneurialism, innovation, “hoarding” and agriculture. There’s obviously some degree of overlap with these things, but they are essentially different in nature.