Much has been made recently of the government's renewed efforts to spark the housing market from its dismal slide, however we fear there are yet more unintended consequences lurking just around the corner. The various ideas being posited for a broad REO-to-rental program is one of these steps as BofA points out in accommodating the dramatic shift from ownership to renting (with 4.2mm new renters and 1.2mm fewer homeowners since the end of 2006). Of course removing foreclosures from the for-sale market reduces competition for voluntary sellers - which should help to support prices for non-distressed homes but here is where the crux of the unintended consequence lies. We have a squatter epidemic. There are millions of 'homeowners' currently living mortgage-payment-free (by choice) who will soon be forced (as the foreclosure process ramps up post-settlement) to pay rent (since they will not qualify for a mortgage). This will have the double whammy effect of reducing overall discretionary consumption spending (as rent is greater than 'free' - unless the cardboard box is preferable) and driving inflationary forces into rental costs (something we are already seeing). Of course these are the much larger second-order effects and we will only be told of the primary benefits of clearing foreclosure inventory, but at the margin (along with gas prices) the household will have less discretionary iPad-buying ammunition as opposed to more.
Today, the metals space is abuzz with a CFTC "comment letter" posted on its website by an alleged "current JPM employee." There is only one problem - this letter is either a complete fraud or simply a total mockery, as it provides absolutely nothing new, and merely regurgitates existing manipulation claims already out in the public domain, and backed by precisely zero evidence. How about attaching a signed trade confirm, or a daily internal P&L report, or even a blotter entry? No? Because they don't exist? Needless to say, anyone can submit such an alleged insider letter, and since there is no name associated to it, we would advise everyone to merely enjoy this a prank attempt. Unfortunately, what more such repeated faux "whistleblower letters", which are likely forthcoming, from other "current JPM employees" will do is simply dilute the effect of any real such disclosure that may come in the future. For that purpose, we strongly caution anyone who considers submitting such disinformation attempts from doing so as it will merely impair and discourage any just intent of validated and justified whistleblowing, either at JPM or elsewhere.
We have previously discussed the substantial, and growing, threat to the German economy that is the Bundesbank's negative TARGET2 balance, which we have formerly dubbed Europe's €2.5 trillion closed liquidity loop, which just rose to a new record over €550 billion (in "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?", "Goldman's Take On TARGET2 And How The Bundesbank Will Suffer Massive Losses If The Eurozone Fails", and most recently in "Dear Germans: Bring Out Ze Checkbooks") which in turn merely represents the taxpayer funded capital flow to insure that the Eurozone remains solvent for one more day as Germany's peripheral trading partners receive rescue capital every day in the form of recycled German current account surplus. It now appears that the Bundesbank president has taken to these allegations of monetary instability strongly enough to where he has just released the following response on Target2 in "What is the origin and meaning of the Target2 balances?" Full letter below.
Remember when the Chinese PMI posted both a contraction an expansion for the month of March, with Markit showing a sub-50 contractionary print, while the Chinese version showed 51, or expansion, in other words China was both stagnating and growing at the same time, merely the latest indication of our modern day Schrodinger-ness macro insanity? Well, we just got the US version of this Heisenberg Economic Uncertainty principle, when as part of the just released Philly Fed index (which also printed better than expected despite a drop in New Orders and Shipments), we saw Priced Paid.... tumble from 38.7 to 18.7!!?? Why the surprise? Because 90 minutes prior to this, we just got The New York Fed telling the world that prices paid in fact soared by virtually the highest amount in real terms on record! In other words, in New York survey respondents are experiencing soaring inflation, while 90 miles Southwest, manufacturing firms were awash in deflation. Do they even try to manipulate the data anymore?
As Whistleblowing Becomes The Most Profitable Financial 'Industry', Many More 'Greg Smiths' Are ComingSubmitted by Tyler Durden on 03/15/2012 - 09:47
Minutes ago on CNBC, Jim Cramer announced that Greg Smith will never get a job on Wall Street again as "one never goes to the press. Ever." Naturally, the assumption is that the secrets of Wall Street's dirty clothing are supposed to stay inside the family, or else one may wake up with a horsehead in their bed. There is one small problem with that. Now that compensations on Wall Street have plunged, and terminations are set for the biggest spike since the Lehman collapse, the opportunity cost to defect from the club has also collapsed. And if anything, Greg Smith's NYT OpEd has shown that it is not only ok to go to the press, but is in fact cool. So what happens next? Well, as the following Reuters article reports, 'whistleblowing' over corrupt and criminal practices on Wall Street is suddenly becoming the next growth industry. Yes - people may get 'priced out' of the industry, but since the industry will likely fire you regardless in the "New Normal" where fundamentals don't matter, and where the only thing that does matter is the H.4.1 statement (as Zero Hedge incidentally pointed out back in early 2010), why not expose some of the dirt that has been shovelled deep under the coach, and get paid some serious cash while doing it?
As Goldman's Muppet-Gate moves from the pink sheets to the Today Show, the Fed-ignorer-in-chief has sent down the message to the holier-than-thou throng at JTMarlin JPMorgan that thou shalt not use the word of Greg Smith in vain. While GS once did God's work, Jamie Dimon's message to his people that "I want to be clear that I don't want anyone here to seek advantage from a competitor's alleged issues or hearsay - ever. It's not the way we do business," Reuters is reporting that Dimon's memo has been distributed to a wider audience with JPMorgan after initially being for the global operating committee. Unfortunately, as every sell-side competitor and buy-side client or prospect knows, its sheer hypocrisy since every dealer is just as likely to fall in the eat-what-you-kill, manipulate-the-Muppets, take-em-on-the-exits camp as this (now described as disgruntled) employee from Goldman so bitterly recounts. Keep up the good work and the next time we want to unwind those CDS, please don't stretch the bid-ask too far, pretty please.
So Italian banks have issued about $100 billion of these ponzi bonds and even in this day, that is a big number. Banks issue bonds to themselves. Then they get an Italian government guarantee. Then they take those bonds to the ECB and get money, which I assume they use to pay down other debt mostly. The Italian banks and Italian sovereign debt markets are essentially becoming one and the same. The sovereign has added 100 billion of risk to the banks (that today no one is focused on) and the banks and ECB would have to come up with some new gimmick if the sovereign had problems. The circularity has been powerful during this rally, but it seems too clever by half. It is an all or none strategy, and the ultimate double down. If it all works, then it is genius. If we see another round of weakness, we have the start of a death spiral.
UPDATE: As Apple Crosses $600, Dan Loeb Rejoices
Two weeks ago we first reported that Dan Loeb was the latest entrant into the Apple hedge fund hotel, which at last estimation has now risen to nearly 250 hedge fund holders in the name, having made the company a top 5 position in his hedge fund Third Point at some point during the month of February. According to his latest monthly update, Apple is now the second best performer for Third Point, having been held at most 45 days. And considering that the vortex of Hotel Applefornia is now actively snaring every single "asset manager" starving to outperform the market, it is very likely that today's latest gap up in the name, is about to take out $600 as the company proceeds to add many more billions in market cap as somehow the launch of a pipeline of products that was known a year ago, is priced in over and over and over each and every day.
South Africa's gold output fell again in January and was down a very large 11.3% in volume terms in January. Annual gold production is set to be close to 220 tonnes which is a level of gold production not seen since 1922 (see chart below). The falls were seen only in the gold market with production of other minerals holding up with total mineral production down only 2.5% compared with the same month last year. South Africa as recently as two decades ago was the world's largest producer of gold by a huge margin. Only 40 years ago South Africa produced more than 1,000 tonnes of gold per annum but will only produce some 220 tonnes in 2012. Production peaked in 1970 and has been falling steadily and sharply since. The nearly 80% fall in South African gold production has led to it being recently overtaken by China, Australia and the U.S. It is now even at risk of being overtaken by Russia. The massive 11.3% decline in South Africa was more than even that seen in December when gold output fell by 8.2%. The continuing output decline is due to many of the country's biggest gold mining operations having reached the ends of their lives and having closed down.
Today's Full Economic Data Dump: Claims, Empire Manufacturing And PPI, Where Prices Paid Literally ExplodesSubmitted by Tyler Durden on 03/15/2012 - 08:33
Here is today's full data dump, presented in summary form
- Initial claims: 351K vs 356K Expected, Previous revised higher of course from 362K to 365K, just as we predicted last week.
- Empire Fed: 20.21, Exp. 17.50, up from 19.53 previously
- New Orders 6.8 vs 9.7
- Prices Paid explodes to 50.62, 25.88 previous. One of the highest rises on record
- PPI: 0.4% vs 0.5% Exp, 0.1% Previous
- PPI ex food and energy: 0.2%, Exp 0.2%
MF Global's creditors (and clients) in Europe, and everywhere else, have many reasons to be furious. Now those in Europe have one more to add to their list of grievances: a complete and totally public disclosure, courtesy of KPMG, of not only how much they are owed, but their mailing, and in many cases, home address. In other words, not only will these individuals not receive their full claims in the insolvent entity whose primary specialty as it turned out was rehypothecating what little assets it did have, but now have to worry about the taxman coming after them.... As well as promptly changing their home address. One party, however, that will hardly mind, is JPMorgan which is supposedly owed just over €100 million. Luckily for them, they already quote unquote collected the (client) money.
Without a doubt, retail has fallen in love with corporate bonds. Fund flows were originally into mutual funds, and have shifted more and more into the ETF’s. The ETF’s are gaining a greater institutional following as well – their daily trading volumes cannot be ignored, and for the high yield space, many hedgers believe it mimics their portfolio far better than the CDS indices. The investment grade market looks extremely dangerous right now as the rationale for investing in corporate bonds – spreads are cheap – and the investment vehicles – yield based products. With corporate bonds spreads (investment grade and high yield) already reflecting a lot of the move in equities, it will be critical to see how well they can withstand the pressure from the treasury markets.
I have suggested for weeks, I suggested in my piece yesterday, that you take some money off the table, sell some of your bullets, and re-deploy. Quantitative Easing is coming to an end and there will be ramifications for the bond markets and, eventually, for the equity markets. The days of free money, newly printed money, are coming to a close as America begins to right itself and as our banking system is mostly out of the woods. The longer end of the curve, hit hard yesterday, is heading to higher yields in my opinion. We will also begin to see inflation creep in for a variety of reasons and I point specifically to the price of gas at the pump which, while no one was looking, has hit its all-time highs this week as each penny of increase adds $1 billion to household spending and gasoline has risen thirty cents in the last month.
Busy day with the usual Thursday fare of Initial claims, as well as Empire Manufcaturing survey, PPI, and the Philly Fed, which will reflect just two things - the reflation in global capital markets courtesy of non-Fed balance sheet expansion, and soaring gas prices courtesy of the same. Average regular is now $3.821, an all time high for this day in history.