Archive - Mar 2011

...who have reached a level of complete disgust with equity markets in a period of unprecedented central planning. Here is Peter Tchir of TF Market Adivsors asking some very critical questions, which would probably be best directed to the Great Chairsatan.

Stress test results are out. Ireland now has the ammunition to get real. For those who don't think an Irish haircut is realistically on the table, just remember that this was a campaign platform for the new government. This is what they used to get into office. In addition, the Danish lopped a sizable bang of hair off of its banks bondholders, and Denmark is still on the map. Yes, you can cut your lender's head and survive. Governments have a history of it. If Ireland goes that route, the "Euraclypse" (yeah, I stole that one from Tyler) floodgates are open.

The market took one look at the stress test results... sniffed around the latest bail out plans (after taking 15 minutes to download the stress test pdf from a server capable of handling at most 5 simultaneous requests)... and slammed the 2 Year to the lows of the day. Good news though, it is not at 10% yet. Give it 12 hours.

To those who think that buying food in the corner deli is becoming a luxury, we have five words: you ain't seen nuthin' yet. U.S. consumers face "serious" inflation in the months ahead for
clothing, food and other products, the head of Wal-Mart's U.S.
operations warned Wednesday talking to USA Today. And if Wal-Mart which is at the very bottom of commoditized consumer retail, and at the very peak of avoiding reexporting of US inflation by way of China is concerned, it may be time to panic, or at least cancel those plane tickets to Zimbabwe, which is soon coming to us.

And so the Irish bank sector is about to nationalized.

• IRISH REGULATOR SAYS FOUR BANKS NEED EU24 BLN MORE CAPITAL
• BANK OF IRELAND NEEDS TO RAISE 5.2B EUROS OF NEW CAPITAL
• IRISH LIFE NEEDS TO RAISE 4 BILLION EUROS, CENTRAL BANK SAYS
• EBS NEEDS TO RAISE EU1.5   BLN IN CAPITAL, REGULATOR SAYS
• ALLIED IRISH BANKS NEEDS TO RAISE EU13.3 BLN IN CAPITAL

In 15 minutes it is possible that we will get the first guest of wind to topple the European house of insolvent banking cards, just in time for the pro forma cruelest month to upshift into the real one. Readers can watch the Live press conference: "Publication of Capital and Liquidity Results by the Central Bank of Ireland" at the link below.

And so, Portugal flatlines, and in fact is inverted in the outer years. The bond market is waving goodbye to Portuguese paper which is now effectively trading on the Pink Sheets.

While we await the thousands of pages of discount window data to hit the public docket, below we present to our readers the historical borrowings on the Fed's Discount Window, which consists of the Primary Credit, Secondary Credit and Seasonal Facilities. Borrowings across all three peaked at $110,753 million according to the Fed. There is of course, no indication of what type of collateral is used against these borrowings although as Zero Hedge first disclosed over a year ago, many of the stocks pledged by failing companies were those of bankrupt companies. There will hardly be much if anything revolutionary in this incremental disclosure, but it will confirm just how many times Goldman and JPM may have accessed the discount window following repeated claims they did not need to do so. The reason banks no longer use the discount window as can be seen on the chart below, is that with $1.4 trillion in excess reserves there are no liquidity constraints any more as all the capital comes in the form of electronic money allocated as reserves by the banks, which money is fungible and thus banks no longer rely on actual lending by the Fed. Incidentally, combined borrowings across all three Discount Window facilities in the week ended March 23 was $13 million: the lowest since 2004.

After years of threats about untold destruction should the Fed release discount window borrowings by both the Fed and the Clearinghouse Association (read the bulk of the Primary Dealers), the Fed today released "thousands of pages" of discount window borrowings. And while we are waiting for the docs to be uploaded in a publicly disclosable and legible format, we observe that not only has the market not plunged, but the Dow is in fact higher at this moment, confirming yet again that not only is each and every threat by the Fed that if it does not get its way hollow and baseless, but the whole TARP rescue which pledged over $20 trillion in taxpayer capital to prevent the apocalypse was likely just as much of an empty threat, whose sole purpose was to prevent the bankruptcy of bank management and shareholders. We will release the documents with our analysis as soon as we get them, but in the meantime, here is the summary on this event from Bloomberg, whose employee Mark Pittman was responsible for this lawsuit, and won.

Chicago PMI was released, printing  at 70.6 on expectations of 69.9 and a decline from the prior 71.2. As Japan's PMI released earlier, look for this data series to drop substantially once the impact from the Japanese tragedy is felt in the US. Among the more amusing series in the index was the Order Backlog which hits the highest since February 1974, and the Employment index which hit a ridiculous 28 year high, and the second highest since February 1973. Most notably Price Paid, rising to 70, was the highest pring since July 2008 A few more points here and this index will be the highest since 1980. The followign surve response says it all: "1. It seems like it's time for everybody to jump on the "price
increase" bandwagon, justified or not. 2. Disasters in Japan will cause
inventory to blip upward as contingency plans are placed into effect. 3.
Challenges remain for offsetting any price increases incurred during
2011." Nothing else to be added.

For those wondering how much the latest intervention in the Yen cost to the BOJ, we now have our answer. According to the Japanese Ministry of Finance, Japanese authorities intervened in the foreign exchange markets to the tune of Y692.5 billion in March. Market News elaborates: " The data from MOF confirmed that the Japanese authorities intervened in the markets from March 18, although MOF did not confirm the actual dates the Bank of Japan intervened on its behalf. However, Japan Finance Minister Yoshihiko Noda had already announced intervention had started on that Friday."

Pimco's El-Erian is doing his latest daily media tour, this time holding a live chat with Reuters' Chrystia Freeland. The live interview can be watched live here.

For all those still confused...

Two rather unpleasant headlines for the Old World from Reuters:

• There has been disagreement in ECB governing council over new liquidity facility
  
• ECB will not announce plans for a new liquidity facility to help Irish banks on Thursday

EURUSD has now erased all of the CPI-beat gains. Bond selling picking up.