Don’t be fooled by the IMF’s announcement that Greece will get a new round of money. This bailout is merely to give a couple of months for the parties to seriously negotiate what haircuts and debt extensions investors need to take in Greece, and Ireland and Portugal. Virtually all the comments made by the parties involved fit in with the view that we are now in a phase where people are negotiating how much they will write off and what else they will do. Almost none of the comments indicate that anyone is really trying to put together a plan that is going kick the can down the road for a long time. I am fading this rally as only the most optimistic investor can believe that this problem doesn’t lead to real default/restructuring with haircuts in the next couple of months.
Yesterday's ominous selloff (today's very temporary EURUSD, and 100% cross-asset correlation, bounce notwithstanding: after all the data just got even worse courtesy of the Philly Fed, meaning much more pain for the S&P before QE 3 comes) got you a little jittery, with Flash Crashy overtones? You are not alone. Market veteran Art Cashin recounts that yesterday's market action was not so much reminiscent of 2010, or even the 2008 uber-volatile market, but really 1987.
It is becoming evident to many that the March nuclear catastrophe at Japan’s six reactor Daichi Fukushima complex has dealt a huge, possibly fatal, blow to the nuclear industry’s hopes of a revival. A year ago even global warming enthusiasts reluctantly embraced nuclear power as a carbon-free energy generating system, and the industry was ramping up for glory days as a result. The triple whammy against nuclear power beginning with the 1979 partial meltdown at Three Mile Island, followed by 1986’s Chernobyl disaster and now Fukushima, effectively present a “three strikes and you’re out” call against civilian nuclear energy power generation for the foreseeable future.
Update: according to sources, L-Pap has taken the smart way out and has decided to reject the offer to replace G-Pap #2.
According to Greek TV, and this is not confirmed by the Greek government yet, Lucas Papademos ("L-Pap", or "The Plant") will replace "Goldman employee of the year" Giorgios Papaconstantinou, (or G-Pap the Second as he is known on Zero Hedge) who is now the sacrificial lamb of the complete failure that is the PASOK government in Greece. A quick glance at L-Pap's resume explains why the European banking cartel is delighted with this nomination: "He followed an academic career at Columbia University, as well as
serving as Senior Economist at the Federal Reserve Bank of Boston in
1980. He joined the Bank of Greece in 1985 as Chief Economist, rising to
Deputy Governor in 1993 and Governor in 1994. He was Vice President of the European Central Bank from 2002 to 2010." Take a wild guess whether The Plant will be on the side of his "constituency" or of the Criminal Banking syndicate in the upcoming plunder of Greece. And yes, this is quite bullish for the Ensolventzone Central Bank (and its currency) which was about to be saddled with tens of billions of defaulted debt pledged in its nether regions as cash collateral.
The ES-Risk spread, so closely followed by so many recently, has now closed. Following the major divergence yesterday when the ES plunged but was not nearly followed as closely by the broader risk basket aggregates. Well, following today's relief rally in the S&P, the spread has now closed as always seems to happen eventually. What happens next is anyone's guess as ES appears fairly priced from a 3 day regression perspective (although very rich on an intraday basis).
Per Reuters, the "Greek Prime Minister George Papandreou said on Thursday he would stick to the course of reforms and would continue to seek wider consensus among Greece's political parties. "I seek and will continue seeking wider consensus," he told Parliament in an address. "Our response to the challenges we face is stability and to stay on our course of reforms." Apparently, the man who is now without any credibility, also announced during a live televizied appearance that the Cabinet shuffle, announced yesterday to placate the masses has been postponed according to Sky News. Curiously he also said,to a standing ovation, that he would reshuffle his cabinet before putting it to a vote of confidence by the parliament. In other words, everything has been kicked down the street and there is even less confidence about what is about to happen than before. This is increasingly starting to smell like a (hopefully non-violent) government overthrow in the making, especially now that G-Pap officially has less than the 151 votes needed to pass any PASOK proposal following recent party defections.
The firm, whose only job now as in 2010, is to pave the way for QE "Oliver Twist" 3, pulls one of the crutches used by the depression apologists, and makes the secular decline case that much stronger. To wit: "Weakness in the Philly Fed cannot be obviously explained by
supply-chain disruptions or other special factors, as we argued in
yesterday's US Daily. For example, the latest Beige Book comments on
Philadelphia Fed district manufacturing activity said "declines in
orders broadened from producers of apparel and rubber products to
include producers of electronic equipment and instruments. Failure to
pass a multiyear transportation infrastructure reauthorization bill and
the ongoing real estate slump were cited by five different manufacturing
sectors as hampering the recovery" (these comments refer to May rather
than June). Slowing in "electronic equipment and instruments" could be
related to supply-chain problems, but otherwise the weakness looks
related to other factors." As to whether this means that the next stimulus is another payroll tax cut as Obama is hoping the republicans will allow, or more 2 Year rate caps, is unclear. What is certain is that the Keynesian monster must be fed.
- IMF SAYS `WE STAND READY TO CONTINUE OUR SUPPORT FOR GREECE'
- IMF SEES `POSITIVE OUTCOME' ON GREECE AT NEXT EUROGROUP MEETING
- IMF SAYS SUPPORT SUBJECT TO ADOPTION OF AGREED GREEK MEASURES
And the EUR surges
That Greek CDS just hit the now meaningless level of 2,050 bps or up 280 bps for the day is now longer relevant: the Greece default is now fully priced in. What however has yet to be priced in is what will happen to liquidity when this now inevitable event does occur. To say that the impact on stocks and the EUR would be disastrous is an understatement. So while stocks are enjoying the worst two day pair of news in years by surging on expectations of yet another Chinese bailout of Greece (because the first two worked so great), here is a snapshot of the FRA-OIS spread we discussed yesterday, and which today hit a 2011 high of 34, since declining modestly to 28. Unless something totally unprecedented appears and manages to once again delay fears of a Greek bankruptcy for another 6 months, this spread will continue making overnight funding for European, and soon US, banks, rather problematic.
If the following surreal justification for why the market is not behaving as a typical Wall Street lemming would like it to behave, does not have the impact of an immediate and surgery-free lobotomy, nothing will.
Pandora's box of relentless selling is now jammed open. The stock which opened for trading at $16 is now a loss for every holder who hasn't sold since the IPO. The half life of the dot come tech bubble is now just over 24 hours. Next stop: $2.
Historic Collapse In Philly Fed Which Prints At -7.7 On Expectations Of 7.0, Weakest Since July Of 2009, Biggest 3 Month Drop EverSubmitted by Tyler Durden on 06/16/2011 - 09:12
As we predicted following yesterday's disastrous New York Fed, we get the second confirmation that the economy is now contracting, courtesy of the Philly Fed, which just printed at negative 7.7 on expectations of 7.0%. This is the lowest number since July of 2009, and is the biggest three month collapse in the history of the series, plunging from 43.4 in March to -7.7 in June, or an over 50 point drop in three months. As expected, the Fed is telegraphing that the economy is collapsing and that stocks needs to plunge another 20% before Operation Twist (QE3) is given a green light. And make no mistake: the downside 3 month momentum in the series at -51.10 is the worst ever: all those buying stocks in advance of more easing are completely forgetting that they will take major losses before the market is low enough to allow actual easing to proceed.
A week ago when we discussed the absolutely guaranteed resignation of Anthony Weiner, we noted the "free money offer from InTrade" which had the Weiner resignation by September 30 contract at $7.50 or at a 75% probability (yes, we were off in our prediction for Weiner's D-Day by 2 days). The free money arb is now gone, following an announcement from NYT that Weiner has just told his friends he will resign. As of this moment the Intrade contract is up to $9.70. To anyone who picked up the 30% return in five days, or roughly 2,200% annualized, congratulations.
With everyone focused exclusively on the Greek balance sheet, where apparently the market has now realized that you don't cure unmanageable debt with yet more debt (something the Troica will figure out just as soon as the eurozone breaks apart), a far more important statement is the country's P&L, or income statement. After all, if a country can not grow into its balance sheet with excess cash at the end of the day, all bailouts are completely irrelevant. Alas, as this historical and projected income from Egan-Jones shows, there is simply no hope for Greece as a "going concern", and if anything should the ECB and IMF continue pursuing bailout after bailout, the end result will be Greek bonds that will be a bigger paradox than Schrodinger's Cat: not bankrupt, yet trading at a price that when lim'ed to ∞ approaches zero. Sadly, there just is no way out, even if China pulls a White Knight for the 3rd time and triple down on good money after bad and worse.
From the Deustche Bank voodoogist who just can't catch a break on any coin toss so far in 2011. Below are Joey La-Vorg's latest thoughts on the unfolding stagflation in the US: "We have trimmed our current quarter growth estimate further based on the most recent economic data which showed higher inflation in the current quarter as well as preliminary evidence that the soft patch is extending into June. Core inflation is presently up 1.5% year-on-year, and we expect it to further accelerate through yearend (2.1%). The larger-than-expected increase in the CPI implies the inflation adjustment to current quarter consumption will be larger than we initially anticipated, thereby softening the profile of household spending in real terms. Furthermore, we expect June to be another dismal month for auto sales. As a result, we lowered our Q2 PCE estimate to 1.0% from 2.0%, which in turn lowers Q2 GDP to 2.3% from 2.7%."