Archive - Jul 22, 2011

The global economy may be collapsing but at least companies are making out like bandits right? Wrong. While America is enjoying yet another above average earnings season when it comes to multinationals (and certainly not financials- those have had an abysmal earnings season), Europe, which has had a very lousy week despite the makeshift triage for the EUR which will last exactly a few months, as confirmed by both yesterday's PMIs and today's German Ifo survey, is on track to experience its worst earnings season in a decade! As Bank of America summarizes, of the 49 companies that have reported so far, 36.7% have beaten and a massive 53.1% have missed. And even more surprising is that the sectors which have outperformed in the US are precisely those that are doing the worst in Europe, specifically discretionary, industrials and staples. But such is life in a relative value fiat world. Surely, Europe's corporations are now lamenting the fact that its idiotic feudal lords will do anything in their power to keep the EUR artificially high for no other reason that to rub their vanity in that special place... ignoring that this experiment in vanity massage is now costing Germany tens if not hundreds of billions in almost guaranteed economic output loss. How long before Europe's corporatocracy screams enough and starts demanding that the USD take its place as the most overvalued currency? Of course since all such complaints will end up in Trichet's inbox, we expect every such lament to be met with the usual broken parrot response: "the euro is a ‘Solid, Strong, Credible Currency."

And the answer is...the Dollar Index is going lower!

Dramatic footage of a post-bomb explosion Oslo comes via Reuters. Presented without comment.

The question is will the extreme heat bring us big storms. There's a good case for that to happen.

Time to put on the boots. The shit is getting thick...

For all you twits who think the law will protect your "gold-plated" pensions...wake up already!!!

If we knock down all the flimsy screens of artifice and obscuring complexity, what we see in Europe is a continent of debt-serfs, indentured to the banks under the whip of the European Union and its secular religion, the euro. What else can we call the stark domination of the big banks other than Neo-Feudalism? In one way or another, every one of the 27-member nations' citizens are indentured to the big international banks at risk in Europe, most of which are based in Europe.
We can clear up much of the purposeful obfuscation by asking: exactly what tragedy befalls Europe if all the sovereign debt in the EU was wiped off the books? The one and only "tragedy" would be the destruction of the "too big to fail" banks, not just in Europe but around the world. As the big European banks imploded, then their inability to service their counterparty obligations on various derivatives to other big banks would topple those lenders. While the political vassals call that possibility a catastrophe, it would actually spell freedom for Europe's 500 million debt serfs. From the lofty heights of the Manor House, then the loss of enormously concentrated power and wealth is indeed a catastrophe for the Lords and their political lackeys. But for the debt-serfs facing generations of servitude for nothing, then the destruction of the banks would be the glorious lifting of tyranny.

From Hank the Mutual Assured Destruction bomb dropping Tank "failing to raise the debt ceiling would do irreparable harm to our credit standing, would undermine our ability to lead on global economic issues and would damage our economy."

Well, it looks like there will be no debt ceiling hike enacted prior to August 2 at which point the money really does run out. From The Hill: "The No. 3 Republican in the House said Thursday night that he didn’t expect any surprises in the deficit debate over the weekend. “I do not see something springing this weekend,” Republican Whip Kevin McCarthy (Calif.) told conservative radio host Hugh Hewitt. McCarthy pooh-poohed reports that the White House and Republican leadership are closing fast on a deal on the budget deficit and raising the debt ceiling. “There is no deal,” McCarthy said, using the same phrase used by the White House and House Speaker John Boehner (R-Ohio) following reports they were nearing a deal on Thursday. McCarthy said Republicans would not rush to push a bill through in order to meet the Treasury Department’s Aug. 2 deadline. According to McCarthy, House Republicans will seek to follow their own “three-day rule” in order to allow members of Congress to debate the plan. Now the reason why this is bad is because as Stone McCarthy calculates, "we expect Treasury to have less cash in early August than we thought previously." And here is where it gets very tricky since the money generating machinery won't be in place on time: "we now show Treasury with a negative cash balance of $15.5 billion on August 15, which implies that Treasury wouldn't have the resources to pay $30.6 billion in interest on that day." Translation: the money runs out, and the US is in default. Not selective. Not transitory. The real deal.

The market’s reaction to a rumored settlement on the debt ceiling was a great “tell” on the short term direction of the financial markets. There is a 100% chance that we get an agreement on the debt ceiling by the August 2 deadline. The republicans have unwisely painted themselves into a corner. So deal they must, and very soon.

No deal... for now. From Reuters: "Speaker of the U.S. House of Representatives John Boehner told fellow Republicans on Friday there's still no deal to avert a debt default, but that talks continue, a senior party member said. Boehner's message at a closed-door House Republican meeting was: "There's no deal, and we'll continue to work to get resolution to the problem," said Republican Congressman Tom Latham." They have less than 14 hours now.

Just out from Reuters:

• OSLO EXPLOSION BLOWS OUT MOST WINDOWS OF GOVERNMENT BUILDING HOUSING PRIME MINISTER'S OFFICE-REUTERS WITNESS
• Several people injured in explosion at Norwegian Government building in central Oslo
  

more as we get it

Yesterday was a big day in the market for EFSF and Sovereign CDS. The announcements were big enough that some junior associates must be scrambling to update their pitchbooks. Here are my thoughts on what changes need to be done to the pitchbooks and the trading ideas that come as a result.

Some unpleasant developments for the 'Risk On' crowd have emerged in the past few hours, after gold and silver have both surged, with gold once again approaching recent all time highs, and is now once again at $1,605/oz. And the worse news is that after yesterday's bazooka bailout, the EURUSD is again in tumble mode. What else will Europe pull out of its hat? Was this the most shortlived "rescue" in history? We certainly would not be surprised, as it conforms to our understanding that the halflife of central bank interventions is getting shorter and shorter. And with the USDJPY expect yet another pronouncement from Noda how the Yen's moves are "one sided"... yet the BOJ will do absolutely nothing about it. Simply said the world is getting habituated to central planning rescues. That said, expect another tumble in gold following an imminent announcement of a debt ceiling deal. After that, the euphoria will be about 1 hour, 2 tops, at which point the reality of a global economic contraction will once again have to be faced only this time coupled with [X] trillions in fiscal cuts over the next several years. And that will be it for the upside catalysts.

It is D-Day in Washington. While all of this week we have witnessed numerous red herrings by both parties on a final debt ceiling solution, today the gloves will finally have to come off as July 22 is broadly seen as the final day by which a law will have to be proposed and agreed upon in order to be implemented by the August 2 deadline. Should there be no debt deal today, even if one is ultimately reached at some point next week it may be too late for that critical period between August 2 and when money actually starts running out (more on that shortly). Expect the cadence of news headlines out of DC to hit a fever pitch, hopefully with at least one of them sticking. In the meantime, here is Goldman's summary of what is formally on the docket.