Archive - Jun 2011

Tired of highly technical and sophisticated gobbledygook from doomers and other realists, talking about the Greek implosion in terms of CDS, liquidity freeze, Main Refinancing Operations (that is coming in the next post just after this one), FX swaps, contagion, etc? Then here is Jon Stewart to explain the Greek situation to everyone in a few short mintues. The fun starts 2 minutes into the clip.

While Bill Gross may be ignored, what a former Fed chairman is saying may be a just a little more important

• BROADDUS SAYS ANY DISINFLATION MAY PROMPT FED TO CONSIDER QE3
• BROADDUS SAYS FED UNDERSTANDING OF INFLATION HAS IMPROVED
• FORMER RICHMOND FED CHIEF BROADDUS SPEAKS ON BLOOMBERG TV

Now what?

(and no, his first name is not Calvin).

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

For 80+ years, the US financial system has operated under the belief that the Federal Reserve could handle any problem. This belief was put to the ultimate test in 2008 when the Fed faced off against the biggest Financial Crisis of the last 80 years. And the ONLY thing that kept us from the brink was the belief the Fed could fix things. It couldn’t. And we’re all beginning to see that now.

Yesterday during his press conference, the Chairman uttered his latest lie: "We have asked the banks to essentially do stress tests and ask, looking at all their positions, all their hedges, what would the effect on their capital be if -- if Greece defaulted...The answer is that the effects are very small.” Enter Aflac to prove that the half life of Bernanke's lies is now under 24 hours. From Bloomberg: "Aflac Inc. (AFL), the largest seller of supplemental health insurance, may issue as much as 100 billion yen ($1.24 billion) in debt as it records losses tied to investments in banks from Greece, Ireland and Portugal. Second-quarter losses on the assets will probably be about
$610 million, the Columbus, Georgia-based insurer said today in
a statement." Additionally, Aflac CEO Amos has added invesments in public utilities and Japanese government debt to minimize the company's exposure in Europe. Yet what is truly hilarious is that as the EFSF's spokesman Christof Roche just announced in commenting on the sale of 2016 bonds from the CDO, "Asian investors bought 46.5% of the bonds issued yesterday." In other words, by transferring exposure to Japan, Aflac is merely gaining exposure to Europe through yet another insolvent government. But such is life in the unwind phase of the biggest global ponzi ever conceived, in which the smallest mark to market event on the global financial balance sheet in which everyone's assets are someone's else liabilities and vice versa, will launch the biggest house of cards collapse in history.

The last time Greece had a full day strike was a week ago on June 15, when labor unions decided to cut another 0.15% from Greek GDP by doing absolutely nothing, and events on Syntagma square reached the highest level of violence so far in 2011. And unfortunately for the Troica, Greece seems to have realized that the best way to make sure the bailout program craters is by continuing to miss all IMF output and production targets. As a result, as Athens News reports, "according to the General Confederation of Workers of Greece (GSEE) and the civil servants' umbrella federation Adedy, the 48-hour strike is an escalation of their recent industrial action comprising 24-hour nationwide strikes in protest of the medium-term programme. A main demonstration will be held on Tuesday, June 28, at the Pedion tou Areos park in central Athens at 11am, while on Wednesday another demonstration will be held in downtown Klafthmonos Square." As a reminder June 28, is the far more critical Greece austerity vote, which unlike the vote of confidence in G-Pap, already has several PASOK members saying they will vote against it.

5 weeks ahead of the day when the debt ceiling "extend and pretend" plan ends, talks have broken down, and in order to hike Congressional Nielsen ratings, this time seemingly terminally. From Reuters: "U.S. Deficit-reduction talks led by Vice President Joe Biden have reached an "impasse," House of Representatives Majority Leader Eric Cantor said on Thursday, adding that he will not participate in the meeting of the bipartisan group that had been scheduled for later in the day. Cantor, a Republican, said the group has identified trillions of dollars in spending cuts, but had been unable to resolve a disagreement over tax increases Democrats sought. A Senate Democratic aide said the two sides "need to continue talking", and were continuing to talk. But an aide to Senator Jon Kyl, a Republican member of the Biden group, declined to comment on whether the senator would attend Thursday's scheduled meeting."

Courtesy of Reuters we have this lovely graphic reminder of what the US Strategic Petroleum Reserve looks like. Also, putting the 30 million barrel draw from the SPR in perspective, the US consumes 21 million bpd, and Canada exports over 2 million barrels daily to the US...

The big question is how many people are long stocks because they played the 200 day moving average bounce?  We have had at least 3 chances in the last week for investors to buy the moving average.  It seems like a lot of people had stopped buying the dip during the relentless march down for stocks, but everyone seemed to jump on the bandwagon that the 200 DMA was a big support for stocks.  I think a lot of investors got sucked in and allocated capital and are now weak longs.  One group waited until Tuesday when the market really seemed strong and 'was destined to test resistance at 1300' before buying in.  The other group of weak longs are those who typically don't play technicals but found the 200 DMA bounce theory too compelling to resist.  It is always difficult to trade when losing money, but the ability to make really dumb decisions goes up when we have positions that were put on for reasons that we don't normally follow.  The technicians are used to these trades, it is what they do.  The 'fundamentalists' are not and are more likely to react badly to losing money here.  People must be scratching their heads a little, since it seems, according the rose colour glasses world i)  Greece fixed, ii) Contagion avoided, iii) economic soft patch is only a soft patch and no risk of double dip, and iv) Bernanke will be there for us.

Just when you thought you had seen it all...

A fascinating look at how US public pensions are betting their future on hedge funds...

Well, it's not quite the negative Bill prints we saw right after Lehman, but the second someone lifts that offer in the 1 Month, Americans will revert to paying the Treasury for the privilege of it holding 1 Month paper. Of course, the last time the 1M was on the verge of being negative, the S&P was at 666. We are now double that. What happens should stocks plummet by 50%, without the Fed withdrawing the massive amounts of liquidity still sloshing out there: -0.5%? -1.0%?

I see we have lots of very very funny entries...but check out Liquid Courage's at the bottom. Maybe he'll put it on Conan.

The much anticipated, and expected, IEA report is here.

• IEA SAYS TO RELEASE STOCKS
• IEA SAYS TO RELEASE 60 MILLION BARRELS OVER COMING MONTHS
• IEA SAYS TO RELEASE STOCKS TO ENSURE SUPPLY DUE TO LIBYA
• IEA SAYS MEASURE TO ALLEVIATE LIBYA UNREST, IMPACT ON SUPPLY
• IEA SAYS 132 MILLION BARRELS LOST TO LIBYA
• IEA SAYS HIGH PRICES DAMAGE ECONOMY OF EVERY COUNTRY; IMPACT WORSE ON DEVELOPING COUNTRIES
• IEA SAYS VOTED FOR EMERGENCY RELEASE FOR ONLY THIRD TIME