If Krugman is to be believed, the state of global sovereign nation balance sheets must be excellent as there are now 12 major nations with 2Y interest rates below 1.00% with 4 of those nations having joined the Negative-Interest-Rate-Policy (NIRP) club. Canada, Sweden, USA, UK, Japan, France, Austria, and Finland are all currently below 1.00%. Holland, Germany, Denmark, and Switzerland are all currently negative.
Today's June CPI came and unlike virtually every other print in the past 2 months, wasn't an abysmal miss: printing at 0.0% for the headline and 0.2% for the core, it was precisely in line with expectations. As the chart below shows, there has been one month of declining headline CPI in 2012 - and somehow this is supposed to usher in hundreds of billions in QE and/or the Fed volunteering to destroy the short-term funding market using negative IOER rates. Brilliant.
And so it begins...Last Friday the Spanish government published a proposal to cut government expenditure and raise taxes to reduce the fiscal deficit by 56.4billion euros by 2015. I have outlined why austerity will not work in Europe, but it looks like this is a lesson Europeans will have to learn for themselves--for a second time. The writing is on the wall in Ireland, who ailed in the same ways that Spain is currently ailing, but what Lord Merkel wants, Lord Merkel gets. The immediate malaise from these austerity measures will be large-scale social unrest, which is already being planned by many of the 50% of the country's unemployed young people. Regardless of one's stance on the economic merit of austerity, what is indisputable is that riots are real and riots do not end well. With nothing to lose, this round of Spanish austerity protesting has the potential to end in catastrophe.
Goldman Beats Modest Estimates As Prop Trading Revenue Plunges; Avg Employee Comp Slides 16% From Year Ago To $343,003Submitted by Tyler Durden on 07/17/2012 - 07:56
On the surface, Goldman's results, which unlike JPM and Citi do not break out the contribution of DVA, aka the top and bottom line contribution from Goldman's CDS blowing out in Q2, were good because they beat expectations of $6.26 billion in revenue and $1.18 in EPS, printing at $6.63 billion and $1.78/share. Of course, going back 3 weeks and the bottom line estimate would have missed then consensus EPS, but who cares: after tall the firm guided down and all the algos know is that GS beat. The problems arise when one spreads the various top line segments which portend nothing new: Client Flow, a proxy for general credit trading, dropped from $3.5 billion to $2.2 billion in Q2, but better than Q2 2012 when it was just $1.6 billion. However, client flow in equities was an abysmal $1.7 billion, down from $2.3 billion in Q2 and $1.9 billion last year as increasingly less people opt to use Goldman's REDi platform or its equity sales team. But most troubling was the epic collapse in the firm's Investing and Lending group, aka its highest margin, Prop Trading operation, which in the aftermath of the JPM fiasco mysteriously saw its revenue collapse from $1.9 billion to a mere $203 million, down from $1 billion a year earlier, and only the second lowest number in the past 3 years. Did the JPM CIO CDS repricing scandal force all banks to suddenly reevaluate their books and mark mid-market? We don't know, but there were no reason why Goldman's prop traders should have generated only $200 million in a quarter in which the bulk of the heat was focused on JPM and others. And finally, in terms of employee retention, Goldman employees can not be happy: in Q2 average comp to the firm's 32,300 total staff also declined to a multi-year low of $343,003, down from $350,864 last quarter, and down 16% from $408,958 a year earlier.
- Lieborgate fallout: Bank of England Governor Sir Mervyn King faces MPs (Telegraph)
- Yahoo's brand new CEO to seek maternity leave shortly (NYT)
- China’s Foreign Investment Drops 6.9% In June (Bloomberg)
- Falling property investment drives China H1 FDI drop (Reuters)
- German Court Delays Ruling on Fund (WSJ)
- Fed's George Says U.S. Growth May Not Exceed 2% in 2012 (Bloomberg)
- China Echoes 2009 Stimulus Planned Railway Spending Boost (Bloomberg)
- ZEW: Investor Outlook For German Econ At Six-Month Low (MNI)
- Fed Shifts Focus To Jobs As Unemployment Stalls Above 8% (Bloomberg)
- Goldman Builds Private Bank (WSJ) - lock in those deposits asap
- UniCredit, Intesa Among 13 Italian Banks Cut By Moody’s (Bloomberg)
A large blaze has broken out in a 42-story tower block in the center of the Turkish city of Istanbul. Firefighting crews brought the fire under control, rescuing those who had been trapped inside by the flames. Watch footage of the fire here.
When it comes to insight into what is on Ben Bernanke, nobody is quite as capable as the firm that runs not only the NY Fed, but virtually every other central bank in the world: Goldman Sachs. Below we present Jan Hatzius' thoughts on what to expect when Bernanke takes the stand at 10 am today when he delivers the first day of his semi-annual Humphrey Hawkins presentation to Congress. Many expect him to hint at more QE, and lately a tempest in a teapot (to use the parlance of our times) has erupted over the possibility that the Fed will lower IOER to 0 or even negative. Here is what Goldman has to say about that: "we do not expect an IOER cut at this time." In fact, Goldman is rather skeptical Bernanke will hit at much if anything, especially with bond yields already at record lows: after all, how much more frontrunning of the Fed's bond or MBS purchases is there? Instead look for much more grilling on the Fed's role in Lieborgate: congress is now realizing it is woefully behind its UK political cousins when it comes to reaping points from years of global Libor manipulation. More importantly, Maxine et al have finally finished all those "Libor for absolute corrupt idiots" books they ordered almost a month ago so they are truly prepared.
Either limited liability should be abolished — corporations could still exist, but their owners and management are personally responsible for any debts and destruction incurred — or their behaviour should be taxed punitively to encourage individual and small business initiatives — the real wealth creators, job creators and innovators — over large scale destructo-juggernauts. At the very least, we should completely stop bailing them out when they blow up. That’s responsibility. Corporations are certainly not free market entities. Their very reason for existence — limited liability — is created through government fiat. Capitalism and markets existed long before the creation of limited liability, and surely will exist for a long time after its demise.
Treasury Responds, Says Very Few Of Its Officials Use Taxpayer Money To Solicit Hookers So You Must AcquitSubmitted by Tyler Durden on 07/16/2012 - 21:11
From the Treasury: "Here are the facts. The Office of the Inspector General (OIG) recently released 11 investigative reports covering conduct that occurred as early as 2000. In four cases, the OIG concluded that there was no evidence to support the allegations. In one case, the misconduct was committed by a private citizen (a Treasury office was burglarized). That leaves six cases in question. Although any misconduct is unacceptable, this is a small number that does not fairly reflect a Department with tens of thousands of employees. None of the employees at issue were political appointees or senior officials, and there is absolutely no evidence of any pattern or trend."
The Northern Hemisphere just experienced the all-time warmest June on record, at 2.34°F above average. The average temperature for the contiguous U.S. during June was 71.2°F, which is 2.0°F above the 20th century average, contributing to a record-warm first half of the year and the warmest 12-month period the nation has experienced since record-keeping began in 1895. Scorching temperatures during the second half of the month led many cities to set all-time temperature records. The nation, as a whole, experienced its tenth driest June on record. Record and near-record dry conditions were present across the Intermountain West. Over 170 all-time warm temperature records were broken or tied during the month. Temperatures in South Carolina (113°F) and Georgia (112°F) are currently under review by the U.S. State Climate Extremes Committee as possible all-time statewide temperature records. According to the U.S. Drought Monitor, as of July 3, 56.0 percent of the contiguous U.S. experienced drought conditions, the most since records began.
Criminal Inquiry Shifts To JPMorgan's Mispricing Of Hundreds Of Billions In CDS: Is Dimon The Next Diamond?Submitted by Tyler Durden on 07/16/2012 - 20:09
On the last day of May, when we first learned via Bloomberg that there was even the scantest likelihood that JPM may have been massaging its CDS marks within the (London-based of course) CIO organization - the backbone of hundreds of billions in notional exposure, and thus a huge counterfeited benefit to trader bonuses and corporate earnings - we wrote, "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we explained precisely how this activity would and did take place, precisely why other traders caught doing the same are on the verge of being thrown in jail, precisely why everyone else does it, and precisely why the biggest CDS self-reporting and client/banker owned-organization (this is where images of Libor should appear), MarkIt, may well be implicated in everything - very much in the same way that the BBA is the heart of Lie-borgate. Because unlike all other allegations of impropriety, most of which rely on Level 2 and Level 3 assets whose valuations are in the eye of the oh so very sophisticated beholder (in this case JPM) who has complex DCFs and speaks confidently when explaining marks to naive, stupid outsiders (in other words baffles with bullshit), when it comes to one of the last places where Mark to Market is still applicable and used: the OTC CDS market, and where daily P&L records are kept, it will take any regulator, enforcer, or criminal investigator precisely 1 minute to find out if there was fraud, or gambling, going on here. Most importantly, it opened up the firm to a criminal investigation. Which as Reuters reports, is precisely what has now happened.
While analogs for periods past have been shown time and time again, the striking similarity of the last four months of this year and the same period last year is becoming extremely worrisome. The rips and dips are of almost perfectly equal size and duration and retail and professional participation is also very similar. July 21st marked the top last year after failing to break the highs of a July 4th week peak (which occurred on low average trade size). It would appear the bulls are hoping that it's different this time - or else it is very scary with S&P 500 set for the magic 1200 Bernanke Put strike very soon.
Senate Throws The Book At HSBC Accusing It Of Massive "Money Laundering And Terrorist Financing", No Comment On NAR Money Laundering YetSubmitted by Tyler Durden on 07/16/2012 - 18:30
Just because there is already an overflow of confidence in the financial system, here comes the Senate's Permanent Subcommittee On Investigations with a 340 page report detailing how HSBC "exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls." Of course, since HSBC is one of the world's largest banks, what it did was not in any way unique, and it is quite fair to say that every other bank has the same loose anti-money "laundering" provisions. What HSBC was likely most at fault for was not providing sufficient hush money to the appropriate powers in the highest US legislative administration. But at least tomorrow we will have yet another dog and pony show, accusing that HSBC did what the NAR does every single day. Because let's not forget that the National Association of Realtors lobbied for and received a waiver for anti-money laundering provision regulations: after all how else will US real estate remain at its current elevated levels if not for the drug, blood, and fraud money from various Russian, Chinese, and petrodollar kingpins, mafia bosses and otherwise rich people who need to launder their money in the US, in the process keeping Manhattan real estate in the stratosphere? But one can't possibly pursue the real truth if it just may impair the fair value of that backbone of honest, hard-working US society: still massively overpriced housing in a world in which those who need mortgages will never get them.