Archive - Jul 8, 2011

• IMF Greek Loan Decision May Counter Its Policy Guidelines (WSJ) good thing the IMF's policies are made to be broken
• Murdoch Closing Tabloid Linked to British Hacking (NYT)
• News Corp.’s BSkyB Bid Facing Delay on Review (BBerg)
• High-frequency trading adding risk, Haldane says (FT)
• Countrywide Wages Victorious Tranche Warfare Against Investors (Bloomberg)
• Obama expects "bottom lines" on debt limit on Sunday (RTRS)
• European regulators under fire over stress tests (FT)
• No plans to drop Strauss-Kahn charges, no plea deal (RTRS)
• Eurozone governments warned on bail-outs (FT)

A reference for the rest of us...from Planet Doughnut [WARNING: THIS IS A BANZAI7 DESIGNATED ZERO COFFEE ZONE]

Three days ago, and 30 basis point tighter, we said Assecurazioni Generali "one of Italy's largest insurers, is a highly levered windsock for Italian and other PIIGS stress, and better yet, can be played in either equity or CDS" concluding that "anyone who wishes to play the developing contagion and awakening bond vigilantism via either equity or CDS, this is without doubt the best proxy." When we wrote that the CDS was at 177 bps. Thre days later it is at 205 bps, virtually at its all time wide, which is about to trigger the buy to cover stops, and surge to a 3-handle any second, a move which will only be catalyzed if and when Tremonti bails.

If you are a resident or large asset holder in one of these countries laden with excess bailout debt that it can never repay, watch your back! As Malcom X once said, "If you plunge a knife in my back 9 inches deep, and pull it out 3 inches... That's not progress!"

Only one thing matters in today's economic docket: an overly priced-in NFP beat. Whisper number now is at 140k even as the median forecast has pushed up just modestly to 105K. The reason is that the key Wall Street banks are well above the median, and for some reason they are the ones that matter. Citi's Steve Englander summarizes the data as follows: "
About 20% of the forecasters polled by Bloomberg changed their forecasts today and the median forecast for those with a July 7 timestamp is 125K vs. 100K for those with a July 6 or earlier timestamp. So the true consensus is probably somewhat above the median of 105K that includes both revised and unrevised forecasts. Citi expects 100k, private sector jobs forecasted to rise 130K. The range for the July 7 forecasts is 85K to 175k and is well distributed in this range. It is probably the case that an above 150K outcome will be regarded as a positive surprise and below 115K as a negative. The rates moves of a couple of bps higher in – and 10-year yields is consistent with a modest upside shift in expectations but no wholesale change."

There is a perfectly trimodal head and shoulders formation in today's histogram of sellside NFP forecasts. What that means for the actual number is that nobody has any clue what it will be. One thing we do know: that far right outlier, that's Joe LaVorgna... The same JoLavorgna who predicted 300K on the May NFP, only to see the final number come at 54K. For those asking, yes, he is still employed.

Another day, another implosion in Italy, this time focusing on core bank UniCredit, which earlier dropped by 6.5% resulting in a stock halt, only to reopen just modestly higher. There was no immediate catalyst, just more of the same: rumors that FinMin Tremonti is resigning, especially following the arrest of Marco Milanese which indicates the fallout is imminent (see below), rumors that Italian banks are failing stress tests, rumors that Italy has the most exposure to Greece, and other generalized fears which today coalesced around the bank that was the most active today on the European version of Sigma X.In other news, 2 Year government spreads are once again surging as GDP-weighted EU sovereign risk is at fresh all time highs (probably to make company to the Dow Jones Transportation index).

While the debate is getting better, there are far too many myths being perpetuated by those worrying about the "Pension Ponzi." I'm far more worried about Pension Poverty...

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