Archive - Oct 2011

Someone forgot to tell the US Consumer that "Europe is fixed" and that "nobody has heard of Die Welt" according to Jim Cramer, who incidentally said back in May 2008 "how anyone can think housing will get worse from here is beyond me." Because according to the only non-biased and hence non-market moving consumer confidence poll, that of Bloomberg, October Economic Expectations dropped to -45 after -34. Not much to explain here: this was the lowest print since February 2009. As Bloomberg economist Brusuelas says, "Consumer confidence may be better predictor of direction of economy than spending."

They couldn't wait until 3pm. This was code red.

• Senior EU sources say unaware of any plan to postpone Sunday's EU leaders' summit
• Austria finance minister says dates of weekend EU summit fixed, unaware of any postponement

Since EU sources are usually unaware of the simplest things, such as math 101, we really would not put it past them...

Full leaked Summit statement draft on the EFSF via the Telegraph. Assuming, of course, there is a Euro Summit. And assuming of course this is not just another plant.

And the latest:

• GERMAN GOVERNMENT DOESN'T EXCLUDE POSTPONING SUMMIT, WELT SAYS
  
• WELT CITES PEOPLE CLOSE TO THE GERMAN COALITION, GOVERNMENT

If true, epic collapse coming as it means market shock and awe will be required to get everyone on the same page. On the other hand, when the news is reversed at 3:00 pm by the FT, expect the futures to soar by about 100 points.

Chuck Schumer has a new plan to help RE. Actually, its my idea from three years ago

Finally some details of the mythical revised and most certainly Dead on Arrival EFSF program, to be fully announced on Friday, emerge with Retuers bringing the scoop. Here are the preliminary bullets:

• EFSF to be able to grant two types of precautionary credit lines, normal and enhanced, based on IMF instruments.
• Typical size of both types of EFSF precautionary credit lines for Euro-zone sovereigns could be between 2 and 10 % of GDP according to a document
• To be eligible for EFSF precautionary credit lines Euro-zone sovereign must respect EU budget rules, have sustainable debt, external position, no bank solvency problem and seek to reduce macroeconomic imbalances according to a document
• Both types of EFSF precautionary credit lines would be for 1 year, renewable for 6 months twice
• IMF involvement in design and implementation of EFSF precautionary credit lines will be sought in all cases according to guidelines

Of course, if bullet point 3 is actually enforced, nobody would be eligible. Which means the whole framework is a joke. Yet nothing here changes the fact that with €100 billion set aside for bank recaps, a woefully low number and one which will do nothing to assure investors that banks have sufficient capital, there is still not enough cash to "guarantee" all future issuance, as was described in great detail previously. Lastly, it is too late to do much if anything except spike the EURUSD by a few hundreds pips for a day or two.

When we discussed last week's intiial claims number we said, "In today's weekly dose of BS from the BLS, we get the previous week's massive beat of 401K revised to 405K, cutting the 410K estimate beat in half. But what is important is that the expectation for this week of 405K was once again "massively beaten" by a whopping 1K at 404K. Of course, next week this number will be revised to 408K meaning the consensus was  missed but no robots will care." Sure enough, last week's beat was enough for 5 ES points. And even surer enough, we were spot on: last week's 404K "beat" was just revised to a 409K "miss." As for this week's soon to be revised upward number, it came at 403K, missing expectations of 400K, but sure enough, suddenly a "much better" number than last week's revised 409K. Just how dumb does the BLS think everyone is? The bottom line is that claims continue to be persistently higher than 400K, now something like 25 out of 26 weeks in a row, which means there is no hope for any NFP improvements in the future.What is curious is that there was a pronounced deterioration in Texas, New York and California, which all saw a spike in layoffs, by 4,644; 8,568 and 13,882 respectively, due to layoffs in the manufacturing, service, retail and transportation industries. Said otherwise, the recession continues. In other news, continuing claims printed at a soon to be upwardly revised 3,719K, up from an upwardly revised 3,694K and worse than expectations of 3,690K. Last, and as everyone knows by now, the cliff issue is hurting ever more people, with about 68K people dropping off EUCs and Extended Benefits, down 1.6 million from a year ago.

As much as the current round of negotiations are being framed as “France vs Germany” there is more to the story than that. The battle is forming up along the lines of those who are trying to show some restraint and prudence and are willing to deal with the consequences of that decision against those who want to do everything possible, giving the highest chance of “success” with absolutely no downside protection.

Watch it while you still can: very soon the EU will ban any "tendentious" TV originating from bailed out countries.

Just out from Reuters:

LIBYA'S GADDAFI DIES OF WOUNDS SUFFERED IN CAPTURE NEAR SIRTE -- SENIOR NTC MILITARY OFFICIAL

All we can say is be careful who you shake hands with. Next up: burial at sea.

While the only market moving events today will come out of Europe, where we will learn just how much of a ponzi scheme the EFSF will be, we will also get largely irrelevant and ignored for anything but HFT kneejerks data on claims, the Philly Fed index, existing home sales, and speeches from several Fed officials.

COT data in the US shows that speculative sentiment has fallen dramatically which is bullish from a contrarian perspective. The Got Gold Report reports that silver futures market data is the most bullish it has been since 2003 - eight years ago. Silver was priced at about $4.40 per ounce then. Large commercial shorts have dramatically reduced their positions after the selloff in recent weeks suggesting that we are likely at or very close to silver bottoming. While the figures for gold are not as dramatic they too show that speculative positions and sentiment has been reduced significantly. Venezuela will repatriate some gold reserves held abroad before December 24th, Central Bank President Nelson Merentes told reporters today in Caracas according to Bloomberg. “I can’t give you an exact date for security reasons,” Merentes said. Venezuela will keep an unspecified portion of its gold reserves in foreign institutions, he said. In August, President Hugo Chavez ordered the central bank to repatriate $11 billion of gold reserves as a safeguard against volatility in financial markets. Venezuela held 211 tons of its 365 tons of gold reserves in US, European, Canadian and Swiss banks as of August.

• France, Germany Split on Crisis Solution (Bloomberg)
• Franco-German deadlock over ECB’s role in rescue fund (Telegraph)
• Merkel Risks Own Downfall to Save Greece (Bloomberg)
• Sustainable debt needed to qualify for EFSF support (Reuters)
• Bill Would Give Residence Visas To Foreigners Who Spend At Least $500,000 To Buy Houses In The U.S. (NYT)
• Couldn't happen to a nicer person: SAC Capital Faces Second Deal Probe (WSJ)
• Bullard Says Fed Policy ‘Appropriately Easy’, Relapse Unlikely (Bloomberg)
• Eurozone leaders meet in Frankfurt (FT)
• Geithner: TARP Refinancing Under Lending Program ‘No Mystery’ (WSJ)

It was only a matter of time before following banning everything else that it could, and that is not under its control, Europe would go after the only thing that matters: the First Amendment. From Bloomberg: "Michel Barnier, European Union. Financial Services Commissioner, wants to give the European Securities and Markets Authority the power to temporarily prohibit credit-rating companies from publishing ratings about ailing countries, Financial Times Deutschland reports. Such a ban could prevent ratings from being published at “inappropriate moments” that could have negative effects on the financial stability of nations as well as on the global economy, the proposal states, according to the German newspaper." Next up: ban on anonymous blogs whose disclosure of the truth could have "negative effects on the financial stability of nations as well as on the global economy." After all the proposal has already been floated by one Todd Martin os Morgan Stanley and currently SocGen fame, with whom, we must admit, we forgot to preclear this post. Full FTD report here. Read it before it has been "filtered" by Europe's commission on truth sterilization.

Following two poor bond auctions in the overnight session from Spain and France, things once again looked set to fall apart in both the stock futures and the FX (EURUSD) markets until the latest deus ex appeared after the latest report by international creditors on Greece’s finances  recommended paying the next installment of aid to Greece as soon as possible. Naturally: after all such a payment is merely passthru funding which Greece hardly sees one sent of, and the bulk of the capital is immediately recycled to creditors in the form of interest expense and debt maturities. Bloomberg quotes “The Commission services recommend the sixth disbursement to Greece to take place as soon as possible: as soon as the agreed prior actions on fiscal consolidation, privatisation and labour market reform, which were announced by the government, have been legislated,” the report by the so-called troika of officials from the European Central Bank, EU Commission and IMF said. Of course, were the Troika to allow full disbursement without any "stern" warnings over the deterioration in the Greek economy, in which nobody works any more, the Finance Ministry is occupied and a general strike is the "new normal", it would have been beyond farcical. Which is why the Troika noted that the Greek debt ratio, which exceeded 140% of GDP at the end of 2010, will remain “at very high levels for many years,” according to a draft report by the Troika. “If fiscal consolidation and privatization targets are respected, and growth responds to structural reforms, the debt ratio may start declining from 2013 onwards...When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated’." And it will continue deteriorating because Greece now knows too well it can demand anything and everything from Europe and it will get it, since nobody at the Troika can ever refuse to fund the insolvent country's monthly pre-alimony payment.