Archive - Jun 15, 2011

BARCLAYS'S JENKINS SAYS `SERIOUS' PROBLEMS IN EUROPEAN UNIT

For those who may have forgotten, back in the summer of 2007 Bear Stearns had some problems with some of its own units as well...

Manipulation is the beating heart of Federal Reserve and Central State policies. The centrally planned economy has failed to respond as expected, and so the response is to put more cocaine-laced pellets in the feedbox and encourage the poor starved rat inside the cage to press the bar labeled "debt" to get another pellet of addiction and highly profitable enslavement. Welcome to Manipulation Nation, a.k.a. the unlimited debt experiment. Think rat cage, one bar to press, and unlimited cocaine-laced pellets.

At this point the Greek bond market is pretty much irrelevant, although it bears pointing out that the 3 Year is now at 28.6%. Also, the price on the 4.6% 30 year just hit 40.5 cents on the dollar. That Cheapest to Delivery physical CDS settlement sure is going to be fun, and for nobody more so than for the ECB, which will suddenly find itself with a basement full of live collateralized grenades that are not only worthless but that will set off the avalanche that annihilates the asset side to the EUR liability side.

Industrial production edged up 0.1 percent in May, the second consecutive month with little or no gain. Revisions to total industrial production in months before May were small. In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent in May and edged down 0.1 percent in April; the decrease in April in part reflected production lost because of tornadoes in the South at the end of the month. Capacity utilization for total industry was flat at 76.7 percent, a rate 3.7 percentage points below its average from 1972 to 2010.

June brings us much more centrally planned stagflation.CPI increased 0.2% in May, higher than expected 0.1%, and up 3.6% Y/Y. This is the 11th consecutive increase in inflation. And so much for the CPI ex-Food and Energy which came at +0.3% on expectations of 0.2%, up from 0.2% in April: "The index for all items less food and energy increased 0.3 percent in May, its largest increase since July 2008. The indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April. These increases more than offset declines in the indexes for airline fare, tobacco, and personal care." More on the Chairman's failure to rein in inflation in 15 minutes: "The food index rose in May as well. The food at home index repeated its April increase of 0.5 percent as four of the six major grocery store food group indexes increased, with the index for meats, poultry, fish, and eggs rising the most. In contrast, the energy index, which had been rising sharply, declined in May. The gasoline index decreased for the first time since last June, although the index for household energy increased. The upward trend among the 12 month increases of major indexes continued in May. The 12 month change in the all items index, which  was 1.1 percent as recently as November, reached 3.6 percent in May. The energy index has increased 21.5 percent over the last 12 months, the food index has risen 3.5 percent and the index for all items less food and energy has increased 1.5 percent. All of these figures have been rising in recent months." But the real action was in the Empire Manufacturing Index which plunged from 11.88, and forget about expectations of 12.00, printing at -7.79 in June. The contraction is now confirmed. This is the first contraction since November 2010 when QE2 began. Hint: QE3 is coming. Also, the future general business conditions index fell thirty points, reaching 22.5, its lowest level since early 2009. And the kicker: margins continued to collapse as prices paid fell less than prices received. This is what stagflation is pure and simple; it has also been Zero Hedge's keyword of 2011 since January.

• Fed Officials Discuss Explicit Inflation Target (Bloomberg)
• No Fed Shift Seen at June Gathering (Jon Hilsenrath)
• China Developers’ Outlook Lowered to ‘Negative’ by S&P as Credit Tightens (Bloomberg)
• SEC probes Merrill CDO sale (FT), Is Andrew Ross Sorkin already drafting explanation how Merrill was not, repeat NOT short anything? Or is Bank of America just not a Dealbook sponsor?
• The Economy Is Now Immune to Keynesian Crack (Peter Schiff)
• Rosenberg '99%' sure of U.S. recession (Forbes)
• China Inflation Heading for 6% Shows Danger for Wen Extending Rate Pause (Bloomberg)
• White House wants business to aid in debt cap fight (Reuters)

• Enhanced uncertainty surrounding Greek debt situation promoted risk-averse trade today
• Moody’s placed France’s top three banks, BNP Paribas, Societe Generale, and Credit Agricole, on review for a possible downgrade
• It is expected that UK’s Chancellor Osborne will endorse plans to “ring fence” retail banking businesses of UK banks today in his Mansion House speech
• ECB’s Stark and Liikanen supported private sector involvement in Greek debt, as long as it is voluntary.
• However, Fitch said an announcement of Vienna type initiative would likely trigger Greek ratings downgrade to 'C'

CPI, Industrial production, more Chinese Treasury outflows, and a few surveys.

S&P lowered its long-term credit ratings to 'CCC' from 'B' on four Greek banks--National Bank of Greece S.A. (NBG), EFG Eurobank Ergasias S.A. (EFG), Alpha Bank A.E. (Alpha), and Piraeus Bank S.A. (Piraeus). "In our view, outflows of domestic deposits could conceivably continue to intensify depending on the public's view of the impact that Greece's deteriorating creditworthiness may have on the banking system. The downgrade also reflects the significant risks to the Greek banks' capital bases that we believe may arise should the government restructure some, or all, of its debt."

The euro has fallen on international markets as the European sovereign debt crisis is deepening and appears to be reaching a dangerous denouement. European stock markets are also weaker due to serious divisions in Greece and in the EU as to how to resolve the Eurozone debt crisis and prevent contagion. Moody's has placed three large French banks on negative review based on their exposure to Greece. The problem looks increasingly intractable meaning that contagion appears more likely every day. Gold is higher against the euro, pound and Swiss franc and lower against the U.S. dollar, the yen, Kiwi and Aussie dollar. Demand continues to be very strong especially from China and India where the World Gold Council said that there is a “tidal wave” of “gold demand coming”. The dollar is firmer despite yesterday’s stern warning from Bernanke that America’s credit rating is at risk. Bernanke urged policy makers to again increase the debt ceiling – this time to over $14.3 trillion – in the hope that this will prevent a U.S. downgrade.

Meanwhile, in Athens…

Greece's D-Day has arrived: June 15 may soon be the 2011 equivalent of May 6, 2010 when the reaction to the realization that Greece was insolvent hit the population, together with a peak in hostilities, not to mention the US market flash crashing. In addition to a general strike, thousands are already packing the central Syntagma square in Athens, where MPa have started congregating to commence deliberations on the Troica's mid-term fiscal proposal. Already there has been tear gas fired at protesters who are gradually shifting away from their peaceful posture and slowly becoming unruly. Below is a live feed of the square as well as a link to an English live blog following up to the minute events.

Unitholders of TimberWest Forest, the largest landowner in B.C., approved the sale of the company Tuesday to two large Canadian public pension funds...

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

Here is an exclusive interview forwarded to me by German investigative journalist Lars Schall conducted with James G. Rickards. The interview with Mr. Rickards covers a variety of topics including his thoughts on quantitative easing, the currency wars of the past and the present, and central banks’ views towards gold.