Detroit To Default Today, "Shared-Sacrifice" To Follow

And so the next casualty of the inevitable municipal collapse appears, which is, as expected, that one-time symbol of all that was right with a (once upon a time) manufacturing America, having since been replaced with the anti-symbol of all that is broken: Detroit. DETROIT BEGINS MORATORIUM ON ALL DEBT SERVICE PAYMENTS FOR UNSECURED FUNDED DEBT; DETROIT TO DEFAULT ON CERTIFICATES OF PARTICIPATION DUE TODAY. And, true to from in the New Normal America, where the "fairness doctrine" rules supreme under Big Brother's watchful eye, the premise of the upcoming glorious recovery is a well-known one: "the shared-sacrifice." To wit: "The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring.  Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City." The punchline: "Detroit's road to recovery begins today"... By defaulting.

Bill Gross Opines On Fed's "Deep Throat"

Gross: Fed’s “Deep Throat” stops delevering for now. Markets await main man next week. Hilsenrath’s focus on policy rate VERY interesting.

— PIMCO (@PIMCO) June 14, 2013

Guest Post: How Does It End?

The days of reasonable economic forecasting are over. Today, an economic forecast is more like the analysis of a criminal mind than the evaluation of economic data. The dominating role of government overpowers markets intentionally. In the short-term that will continue. Reactions to Federal Reserve minutes referencing continuation, alteration or cessation of quantitative easing cause stock markets to move by over 100 points. Other markets are affected by government interventions, just not so noticeably. Long term, markets will overpower government. Welfare states can no longer maintain their level of spending, services and welfare. However, they dare not stop lest civil unrest and violence break out. The bind they are in has no solution. Governments around the world are doing whatever is necessary to survive. Lying, stealing and outright confiscation will begin in order to support their bankruptcies. Cyprus was a minor precursor of what is coming.

Treasury Sales By Foreigners Hit Record High In April

The monthly TIC (foreign capital flows) data gets less respect than it should. Perhaps it is because it is two months delayed, or perhaps due to the Treasury Department labyrinth one has to cross in order to figure out what is going on. Either way, for those who do follow the data set, will know by now that in April, foreign investors, official and private, sold $54.5 billion. Why is this number of note? Because it is the biggest monthly sale of Treasurys by foreigners in the history of the data series. The TSY revulsion was somewhat offset by a jump in MBS purchases, which saw $23 billion in acquisitions, while corporate bonds were sold to the tune of $4.5 billion. Finally, looking at equities, foreigners were responsible for some $11.2 billion in US stock purchases. The great rotation may not be working domestically, but it seems to be finally impacting foreign investors.

WTI Crude Tops $98 - Highest In 9 Months

Amid the Syria debacle (or growth 'hope' if you are a true believer), the price of a barrel of WTI crude oil just topped $98 - its highest since September of last year. The bad news for all those that 'consume' is that this level of crude suggests the price at the pump will be hitting $3.80 - that elusive P/E expansion-ending level - very soon.

Welcome To The "Policy-By-Whim" Environment

Sometimes you see something that is from a credible source and you are so dumbfounded you don’t know what to think. Yesterday's raly-inducing WSJ' Jon Hiselnrath is one such example. If the Fed believes the market is worried about a rate hike, it would be downright terrifying how out of touch the Central Bank. Our explanation for the move in short rates is the loss of confidence in the Central Bank and its policy making process. The Fed’s balance sheet and Quantitative Easing program has become a Frankenstein monster over which the Central Bank is losing control. QE1 started during a crisis and was either incredibly successful or well-timed. It is often forgotten that the S&P 500 dropped another 22% in the first 3 months of QE1. QE1 had an Exit Strategy, a plan, a time frame and a reason. QE3 has no Exit Strategy, no plan, time frame, no expected level of job creation and no known end. As such, forecasting is nearly impossible in a policy by whim environment, especially when the key decision maker is likely to leave.

Chinese Cash Squeeze Leads To First Failed Liquidity-Draining Debt Auction Failure In 23 Months

It was less than 24 hours after we warned that the Chinese "liquidity shortage" had hit an all time high, as a result of the PBOC's intransigence to inject liquidity into a financial system roiled by Bernanke's and Kuroda's offshore hot-money flows, that things got worse when early in the Chinese trading session we learned that the PBOC experienced its first liquidity drainage failure in 23 months, when the Chinese Finance Ministry failed to sell over 30% of the debt offered at auction - the direct result of a cash squeeze currently ravaging the country's banks. The ministry sold 9.53 billion yuan ($1.55 billion) of 273-day bills, less than the 15 billion yuan target, according to Chinabond, the nation’s biggest bond-clearing house. Agricultural Development Bank of China Co. raised 11.51 billion yuan in a sale of six-month bills last week, less than its 20 billion yuan goal.