Just as as expected:
4 August 2011 - Monetary policy decisions
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 1.50%, 2.25% and 0.75% respectively.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
To who expected an imminent departure by the one most incompetent man (after Larry Summers) and tax evading man in the current economic administration (that would be Tim Geithner) of course, we have bad news. He ain't going anywhere. In other words, the foreseeable future will be foreseeable for a long time. Politico's Ben Hill reports: "Treasury Secretary Tim Geithner is under intense pressure to remain at his post through President Obama’s re-election campaign next year but still may head out the door if a confirmable replacement can be found. The White House has made it clear it does not want to lose Geithner, the president’s chief economic advisor and trusted crisis consigliere. But the Treasury secretary has said he wants to return to New York this fall where his son is entering his last year of high school. He had hoped to leave after the debt ceiling drama ended and before bruising battles over tax, entitlement and housing reform resume in earnest this fall." Sorry to disappoint Tim. Which also means that Timmy will be at his rightful place when this whole house of cards finally implodes: at the very top. Lastly, it most certainly means that those who bought MF Global's bond issuance yesterday won't have to worry about springing rates for a long, long time if ever, because something tells us the one thing that could send this country formally over the edge is another former Goldman Sachs Treasury secretary.
Here Is What Goldman Thinks Europe Should Do To Save Italy And Spain (Hint - More Bond Buying This Time On The Books)Submitted by Tyler Durden on 08/04/2011 - 06:25
When it comes to its opinion on the shape of the bailout, Goldman is a force to be reckoned with (as in every other endeavor, no matter how self-serving the outcome ultimately is): after all it was Goldman which first proposed expanding the EFSF and using it as a "bad bank" SPV which has the extra benefit of being off the balance sheet, and can issue more debt than virtually any financial institution in the world (see EFSF - Too Small? Too Big? Or Just Wrong?). Which is why when Goldman discusses next steps, you can be positive, this is precisely what will end up happening, and that Goldman is already well positioned to profit from whatever policy recommendations it has imposed. So without further ado, here is Dirk Schumacher's latest outlook on how to perpetuate the European status quo.
• The ECB is expected to keep its benchmark interest rate unchanged at 1.50% as expected
• Analysts will look to see any comments by Trichet on the use of the Securities Markets Programme (SMP)
• Trichet may be asked on the possibility of further extensions to ECB’s 3-month LTRO
While the key topic this morning is the BOJ's intervention in the JPY, which had been selling the Japanese currency virtually all night and was rumored to be constantly on the USDJPY bid (a move which is doomed to failure just like all such previous attempt by a central planner to take on the Bernank), the primary reason why futures are largely in the red is due to yet another very weak Spanish auction which sold €3.3 billion in 2014 and 2015 bonds at the highest yield since 2000. This is despite the rumored resumption of ECB bond buying as was reported by the Telegraph previously, a development which would mean that monetization via currency devaluation has commenced indirectly in Switzerland, Japan and the Eurozone, (soon the UK) in advance of the Fed's own third QE round. As for the Spanish bond auction specifics, the Treasury was expected to sell between €2.5 and €3.5 billion, ending with an amount of €1.111 billion of 4.4% bonds due 2015, a yield of 4.984% and a 2.4 Bid To Cover, and €2.2 billion in bonds due 2014 at a just modestly lower yield of 4.813% (compared to 4.291% in July) - the Bid To Cover was also a very weak 2.14. Once again, all these results assumed the ECB would backstop futures secondary market purchases: should this be proven to be a bluff, look for Spain to follow Italy in a self-imposed bond market exile.
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
According to Credit Suisse, this is just the beginning of Transpacific central banking warfare. Per Dow Jones: "The Japanese Ministry of Finance's JPY-selling operation Thursday may be the first in a series of interventions over the coming weeks to curb further rises in the unit, and may have come Thursday in part as the Swiss National Bank's move Wednesday to weaken its own currency made it easier for Japan also to step in, says Koji Fukaya, director of fixed income and global foreign exchange research at Credit Suisse. "This may be the start of a number of actions, depending on the yen moves in the weeks ahead," Fukaya says. The SNB's move Wednesday means Japan's own move "could be considered as a kind of coordinated action" in response to broad USD weakness, he says. As traders say the MOF has so far sold under Y500 billion, Fukaya says the total size ahead could rise as high as Y2 trillion, though the move Thursday should be enough to send USD/JPY above 79.00 later, where it should stabilize in coming sessions. The pair is now at 78.32, from 77.10 earlier." To anyone trading in these 100% correlated markets, which are now nothing but a battleground for those who yield the global electronic fiat printing presses, good luck.
David Rosenberg released an emergency note today, in addition to his traditional morning piece, in which the sole topic is the upcoming recession, which he says is now a "virtual certainty". He also says what Zero Hedge has been saying for month: that 2011 is an identical replica of 2010, but with the provision of modestly higher inflation, which needs decline before QE3 is launched. Sure enough, a major market tumble will fix all that in a few days, and ironically we can't help but continue to wonder whether the Fed is not actively doing all in its power to actually crash the market to about 20% lower which will send practically flatten the treasury curve and give Bernanke full reign to do as he sees fit. However, as long as the BTFD and mean reversion algos kick in every time the market makes a 2% correction, such efforts are doomed, which in turn makes all such dip buying futile. We give the market a few more weeks before it comprehends this. In the meantime, with each passing day in which "nothing happens", the recession within a depression looms closer, and soon it will be inevitable and not all the money printed by Bernanke will do much if anything (except to terminally wound the dollar). In the meantime, for those who wish to prepare for the double dip onset, here is Rosie's checklist of what to do, and what not.
- Japan Intervened in Yen, Nikkei Says
- Japan Intervened to Sell Yen, Finance Minister Noda Says
- Yen Falls as Much as 1.8% to 78.43 Per Dollar After Intervention
- Japan’s Intervention Was Unilateral, Finance Minister Noda Says
- MOF sold under Y500 billion in intervention: 2 dealers
- Noda Says He Hopes Bank of Japan Will Take Appropriate Actions
The EFSF plan to let countries buy bonds at a discount is a true Catch-22 proposition. If they don’t source many bonds, the benefit to the country is too small to make a difference at the sovereign level, and sovereign contagion risk remains in play. But if they are able to buy a meaningful amount of bonds, those bonds will be coming from banks that had been desperately avoiding taking the mark to market hit, potentially triggering contagion among the banks. The narrow window where this program might stop sovereign contagion without triggering bank contagion is too small to think that a bunch of politicians or economists will be able to steer the course accurately and that some other unintended consequence won’t rear its ugly head.
Presenting Why The SEC's Proposed "Market Volatility" Contingency Plan Is A Failure, Even As The SEC Continues To Lie To EveryoneSubmitted by Tyler Durden on 08/03/2011 - 17:25
The rational and efficient market mythbusters at Nanex have made another major discovery, having gone through the SEC's proposed plan to deal with extraordinary market conditions, better known as Limit Up/Limit Down Plan to Address Extraordinary Market Volatility, brilliantly abbreviated to LULD, and find that even if said been had been in place before May 6, 2010 it would have done absolutely nothing to prevent the 1000 swing in the Dow. Cutting through the chase, and partially explaining once again why there has been over $150 billion in domestic equity mutual fund outflows since the beginning of 2010, is that "The SEC has proposed many band-aid fixes since May 6, 2010 in an effort to make investors feel confident again about the equity market. The sad truth though is that none of their proposals so far will prevent another flash crash. Worse, some proposals, such as this one, will likely make things even worse." Bottom line: investors have no confidence that this market is at all better, and in fact it is very likely that the market could crash just as violently as May 6, at any given moment, as the SEC has done nothing to fix the underlying problems, but merely redirect and pretend that it is on top of things, while taking a nip and a tuck at some of the easily remedied symptoms. And as long as this mutually acceptable delusion continues, stocks are in constant danger of another epic wipe out courtesy of the SEC, which will eliminate what little confidence there is, even among those who trade purely with "Other People's Money." We thank Nanex for their ongoing pursuit of the truth behind the SEC's endless lies. Because if the regulator itself is corrupt and incompetent, then there really is no hope for market efficiency and fairness.
Gross US Debt Surges By $240 Billion Overnight, US Debt To GDP Hits Post World War II High 97.2%, Official Debt Ceiling Increase Only $400 BillionSubmitted by Tyler Durden on 08/03/2011 - 17:06
Two things happened when the Senate voted in the "Bipartisan" plan into law yesterday: i) deferred debt on the Treasury's balance sheet finally caught up with reality, and ii) as a result of i) America's Debt/GDP just hit a post World War 2 High of 97.2%. Becasue as the Daily Treasury Statement as of last night indicates, total US marketable debt surged by $124.6 billion, while debt in intragovernmental holdings (Social Security, Government Retirement Accounts, etc), soared by $113.6 billion, for a combined one day change of $238.2 billion, the single biggest one day increase of US debt in history. Obviously this is a result of massive underfunding and disinvestment in the various government retirement accounts as well as due to deferred debt which was to be booked since the debt was breached on May 16. However, how marketable debt could increase by a whopping $125 billion without any actual auction settlement is slightly confusing. Just as confusing is that according to the endnote in the debt subject to limit calculation, the new ceiling is not the $900 billion increase as requested, but only $400 billion more than the $14.294 billion previous, or at $14.694 billion. We hope this is some Treasury type or misunderstanding as this new ceiling will be breached in a month. And the last thing we need is this whole debt ceiling drama back again in September. One thing there is no confusion about, however, is that based on the latest gross debt number of $14.581 trillion, and the just reported Q2 GDP of $15.003 billion, total US debt to GDP is now a post World War II high of 97.2% (and that excludes the GSE off balance sheet debt).
It feels like it was just yesterday that the Whack-A-Mole algo in Earthlink was wreaking NBBO havoc (completely unsupervised mind you: it is not like anyone would expect the SEC to move its little finger to address this glaring Reg NMS 'outlier'). Wait, it was... Which probably explains why the very same algo is back in the very same name, at the very same time.
Of all the dumbest things we heard today, the one that attributes the last minute jump in the market to a CNBC interview with Barton Biggs (or Not-So-Biggs based the meager $547 MM in AUM for his Offshore fund) easily takes the cake. The man whose only recent claim to fame is the following soundbite from last November which conclusively proves that in race for the 100% RDA of Geritol, Charlie Munger may have a serious competitor, ""Bernanke has gotten the stock market up, which is what he wants to do, the stock market is an important symbol of confidence, and Mr. Market is a pretty good forecaster of the economy" appeared on CNBC and told anyone who was not immediately bored to death or hit by a sudden urge to be incontinent, that the market is "grossly oversold" and sees a "significant rally" on the horizon, with a jump of 7-9% in the next three weeks virtually guaranteed. In retrospect this is precisely the idiocy the serves as a market catalyst in the post-11:30 trading block when Europe is closed, when Intesa Sanpaolo does not trade but not due to being halted all day, and when idiots and robots take over. Regardless, we decided to look at the levered beta momentum chaser's soundbite track record over just 2011. To our not so great dismay, Biggs has called at least 6 bull markets in a period of time in which the S&P has gone... negative.