Archive - Jul 2011

For a day that was supposed to be full of drama, fury, margin calls and overall bloodshed, newsflow is so boring, for a second we wanted to demand our money back from management, or the kleptocracy, whoever it is that prints these things nowadays. However, some excitement may yet be salvaged now that Boehner has just called for a news conference precisely on the closing bell at 4pm. We assume this will be to present details of his two-tiered plan, which we touched upon earlier, and which Fox News now provides some additional details on. Suffice to say, if Obama were to accept the terms contained herein it would be complete embarrassment for the head executive, as Boehner is literally demanding everything, up to and including a balanced budget amendment, that Obama swore he would not cede.

It doesn’t matter what terms the President offers. It’s that simple. Boehner can’t deliver the votes...That's why Boehner is always crying--Alan Grayson

Given the ridiculous number of rumors (and ridiculousness of some of the rumors) related to the US and EU debt talks that are circling the financial community, I thought it best that we confront the realities these two economies face. 

Citing the most hilarious explanation we have ever heard for not daring to approach the capital markets, Dow Jones reports that following a comparable announcement from Austria earlier, none other than clutch euro Domino Italy, whose bond yields surged by about 40 bps today, has decided to take a sabbatical from accessing capital markets, and will not issue medium and long-term bonds in August. Of course, the real reason is that the spreads are prohibitively high but that's a story for another reason. The problem for Italy, however, is that it will end up burning through a lot of cash over the next 45 days and then far more will depend on the successful passage of the country's auctions in the following month, when the next scheduled medium term auction is on September 13 (full auction schedule is here). Amusingly, while all of Europe complains that the Greece, Ireland and Portugal have no capital markets access, some of the better of PIIGS make the voluntary decision to avoid price discovery. We fail to see how this can possibly result in anything than another loss of credibility in the eurozone rescue package.

Slowly details of the shape of Boehner's two-step plan are emerging:

• BOEHNER'S FIRST STEP WOULD BOOST DEBT LIMIT INTO FEBRUARY
  
• BOEHNER PLAN SAID TO SEEK DEBT BOOSTS OF $1 TLN AND $1.6 TLN
  
• BOEHNER'S PLAN WOULD HAVE COMMITTEE IDENTIFY SPENDING CUTS
• BOEHNER'S PLAN REQUIRES HOUSE AND SENATE TO VOTE ON BALANCED BUDGET AMENDMENT BETWEEN OCTOBER AND THE END OF 2011

It is unclear if this approach is a non-starter considering that every democrat has made it clear in the past 24 hours that a partial debt increase of $1 trillion would not even be discussed as it would reach just through February or March at the current cash burn rate.

You know, it's downright frightening how clearly this was able to be anticipated well over a year ago, yet it appears as if the EU politicking behind the bailout bonanza STILL leads down the road to perdition.

You read about it previously on Reuters, now here, as per your 1^st amendment protected right, is the full text of the statement issued by the Chinese Propaganda Department seeking to prevent broad dissemination and distribution of the news of the two high speed trains from Saturday. To wit: "The latest directives on reporting the Wenzhou high-speed train crash: 1. Release death toll only according to figures from authorities. 2. Do not report on a frequent basis. 3. More touching stories are to reported instead, i.e. blood donation, free taxi services, etc. 4. Do not investigate the causes of the accident; use information released from authorities as standard. 5. Do not reflect or comment." Obviously, that failed spectacularly, and as was reported earlier, has generated a broad wave of discontent among the population for this glaring attempt to put bureaucratic incompetence and corruption over human life. One thing is certain: at least America's own version of the DOT(ruth) is modestly more subtle... For now.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/07/11

China continues to flex its wings, in this case literally. The FT reports that last month two Chinese Su-27 jets crossed the middle line in the Taiwan Strait to repel a US spy aircraft. "This marks the first known encounter between US and Chinese military aircraft in mid-air since a US reconnaissance aircraft collided with a Chinese fighter jet in 2001 and was forced to land on Hainan island, sparking a crisis that severely damaged bilateral relations." And while this is certainly not the first such incident, it is the first one disclosed publicly, with the sole purpose of humiliating the US. Furthermore, recent tensions in the South China seas (profiled previously here) have become a big sticking point for the US administration so it should not be surprising that China will do everything in its power to embarrass America before the global community, a task in which it has just succeeded.

"While we are sympathetic to the desire to avoid wasteful and duplicative litigation, the source of the unnecessary proceedings in this case was not an overly wooden application of the rules, but US Bank's failure to abide by them."

Yep. As expected volume just died, which means the algobots are in control and the vaporvolume melt up is imminent. Obama's horribly mistimed plan to crash the market has just been foiled by a few trillion vacuum tube equivalents courtesy of Getco.

In a posting on his blog, Boehner just managed to snag any progress in the debt ceiling negotiation, saying that the president "is trying to set up a no-win situation for taxpayers: either he gets his $2.4 trillion blank check, or America defaults", generatinged much despised PTSD visions of Hank Paulson' staccato threats in Congress, and in doing so making any compromise he may have been pursuing with the Tea Party virtually impossibly and certainly nearly unpracticable with just 3 days before the absolute legal deadline this Thursday. Perhaps that is just the reason why bonds suddenly ripped. Remember: bonds will be bought if sendng is curtailed and no incremental debt will be layered... to a point. Should the US default, buying will turn to selling, first very slowly, then very fast.

Only now, after three years of roller coaster markets, epic debates, and gnashing of teeth, are mainstream financial pundits finally starting to get it. At least some of them, anyway. Precious metals have continued to perform relentlessly since 2008, crushing all naysayer predictions and defying all the musings of so called “experts”, while at the same time maintaining and protecting the investment savings of those people smart enough to jump on the train while prices were at historic lows (historic as in ‘the past 5000 years’)....Those who instead listened to the alternative media from 2007 on have now tripled the value of their investments, and are likely to double them yet again in the coming months as PM’s and other commodities continue to outperform paper securities and stocks. After enduring so much hardship, criticism, and grief over our positions on gold and silver, it’s about time for us to say “we told you so”. Not to gloat (ok, maybe a little), but to solidify the necessity of metals investment for every American today. Yes, we were right, the skeptics were wrong, and they continue to be wrong. Even now, with gold surpassing the $1600 an ounce mark, and silver edging back towards its $50 per ounce highs, there is still time for those who missed the boat to shield their nest eggs from expanding economic insanity. The fact is, precious metals values are nowhere near their peak. Here are some reasons why…

Ah, it sure is good to have good old Mr. Pink back "The budget is not the only thing in deficit today, as a paucity of leadership has left the country without a stable framework in which businesses can conduct business, investors can invest, and consumers can consume without a high degree of uncertainty and fear. Politically charged statements and brinkmanship have served to deepen divisiveness between the parties and led to confusion and fear among citizens. There has been much said about who is allegedly the "adult in the room," but President Obama has yet to speak to Americans as adults, insisting instead on his preferred technique - stirring up class warfare. Scaring senior citizens about the possibility of not receiving their Social Security and Medicare checks, lambasting the corporate jet industry, and calling for higher taxes on managers of private partnerships is not a constructive approach to handling a complex multi-trillion dollar problem that will have a multi-generational impact." Read on below.

Intesa may be halted for trading on the MIB, but that sure doesn't mean that Goldman's Sigma X clients are prohibited from dumping their shares on the hedge fund's dark pool, which incidentally is always happy to accept and match client orders. Sure enough, as the puke fest in European banks resumes (and both Italy and German CDS are now materially wider on the day, the Italian 2-Year Note yield rising 30 bps to 3.95%, and the 10-Year up 20 to 5.60%), the top traded names on Goldman's dark pool once again is the who's who of insolvent European banks, starting with Italy, passing through the UK and rounding up the top 5 with Germany. But, but, the second European bailout was supposed to work? What happened?