Archive - Sep 2011

Speaking at a briefing Rome, Germany's economy minister Philipp Roesler has been dropping truth-bombs this morning. These have perhaps been responsible for the decompression in European credit spreads (SENFIN 9bps off tights). The most unequivocal, and most ultimatum-like is his noting that "Merkel and Sarkozy will send a 'clear signal' to Greece tonight on the need to meet deficit cutting goals".

Everyone, especially various textbook "schools" of postmodernist Keynesianism which (in addition to apparently never having actually been in the real world) believe there is such a thing as a free lunch as long as a reserve currency can issue infinite debt, and stubbornly fail to see the creeping currency devaluation which ultimately represents itself in hyperinflation, should read the following note from SocGen's Dylan Grice who explains pretty much... everything, including why in world starved for honesty, gold is the benchmark, and is now worth $10,000. To wit: "Gold might be a mere lump of dense, useless shiny metal, but it’s one which crackpot central bankers can’t print. Indeed, benchmarked against the printing of The Ben Bernak, the price of gold at which the US dollar would be fully gold-backed is now $10,000. You might think such a ‘price target’ is far-fetched (and I might agree with you). But bear in mind that the last time honesty was perceived to be so scarce – in the 1970s gold mania – the dollar was over-backed by gold (see chart below). If it happened then, why not again?"

The market has become dominated by rumors. The primary rumor is of China supporting Europe. We saw similar rumors in 2008 for Wall Street banks. Those purchases all resulted in massive losses for the funds in question. And yet we are seeing similar rumors inciting large rallies in stocks today, this time the rumors pertaining to China and Japan buying Europe.

Policy Madness (inconsistency) in Muniland.  Some bullets.

Apparently the market finally woke up: seconds ago SocGen shares, completely out of nowhere, just took a massive spike lower, tumbling a good 8% on no news. There is a goal seeked version that attributes the move to remarks by Noyer discussing French bank stability may have caused this but this makes little to no sense, as they were supposed to be favorable for banks. It appears like a major block was dumped as someone realized they have had enough with the rollercoaster. Now the question is: "why?"

As if one admittedly market manipulating clown interviewing another admittedly tax challenged clown is not the biggest time waster in the world, here is an actual moment of honesty from at least one of the clowns (the other one should be completely ignored: after all it was him who said that there is no chance the US will be downgraded three months before it was... why anyone listens to this pathologically wrong liar is beyond us). So... without further ado here is Cramer's 2008 rant on Tim Geithner: "If Tim Geithner, the much praised and ballyhooed NY Fed Chairman gets to be Obama's Treasury secretary, and he looks like a shoo in for the job, let me just tell you something, we are done, we are kaput, we are finished, we are completely and royally hosed as a nation... Geithner should be facing a senate investigation, not a senate confirmation...I am predicting he will be a total disaster as he has been as a New York Fed Chairman. Please I am beginning you: don't hire Tim Geithner, he is an academic and all he has going for him is that he is a democrat" For once we agree with at least one of the two clowns.

Nothing good on the US economic front as usual. After all, this is fact and data driven, not based on headline and rumors (even though the BLS does enjoy fudging the data to an extent to make a Chinaman blush). PPI came at 0.0%, in line with expectations, but PPI ex food and energy increased just 0.1%, missing expectations of 0.2%, down from July's 0.4%; it was also tied for lowest since November 2010. The 12 month change in the PPI for finished goods was up 6.5%, the lowest since March 2011. And while finished goods still retained their inflation power, it was in the intermediate space that we saw a major drop of 0.5%, the biggest in over a year and the first decline since July 2010, mostly due to energy goods: "Most of the August decline can be attributed to lower prices for intermediate energy goods, which dropped 2.3 percent. The index for intermediate materials less foods and energy also contributed to this decrease, edging down 0.1 percent. By contrast, prices for intermediate foods and feeds advanced 1.7 percent. On a 12-month basis, the index for intermediate goods moved up 10.3 percent in August." Overall, this gives more leeway for Op Twist and an IOER cut to be announced in one week by Bernanke. Which according to the Fed will be needed: Advance retail sales printed at 0.0%, below consensus 0.2% and down from a downward revised 0.3% in July. Retail ex sales and autos was the lowest since December 2010. Some comments from Bloomberg on this latest miss: Clothing sales down 0.7%, department stores down 0.3%; consumers likely cut purchasing due to rising cotton, other materials costs, says Bloomberg economist Joseph Brusuelas. "Sales disappoint as households deleveraging, real incomes decline." And scene.

• World Must ’Get House in Order,’ Not Rely on China: Wen Jiabao (Bloomberg)
• Merkel bids to quash Greece default talk (FT)
• Moody’s cuts two French banks’ ratings (FT)
• Geithner Takes Tougher Tone on Europe (Bloomberg)
• Obama to propose Medicare and Medicaid cuts (FT)
• Biggest Brokers Consider Banning Market Orders (Traders Mag)
• Grifters of 'Al Saud, Inc.': How Saudi royals get their wealth (Wikileaks)
• Emerging Giants Look at Europe Aid (WSJ)

"Look at what I say, not at what I do! We have no liquidity problem." Listen, if you have to sell $96 billion of mismarked assets when you DON'T need liquidity, imagine what needs to be done if you have a liquidity problem!

• Moody's downgraded long-term debt and deposit ratings for Societe Generale and Credit Agricole by one notch each, whereas extended its review for a downgrade on BNP Paribas ratings. However a French government spokeswoman said that French banks' ratings are still very good despite Moody’s downgrade
• EU's Barroso said that the European Commission will soon present options for the introduction of Eurobonds
• An unexpected decline in the jobless claims data from the UK provided support to GBP

Retail sales, producer prices and business inventories. Also get the final of this week's bond auctions in the form of a $13 billion 30 Year

No, Greece will not be allowed to default. Pinky swear.

Europe must be hoping that the Dutch aren't sensitive people.  We are all waiting for the outcome of a conference call between Germany, France and Greece.  Holland isn't on the call, yet they are the 3rd largest AAA country in Europe and are responsible for 10% of EFSF's AAA rating.  Germany has taken the time to mention Finland's demand for collateral.  Finland is only 3% of the AAA portion of EFSF, but everyone is paying attention to them, yet Holland seems to be taken for granted.  Holland has their own problem bank, ING, and came out yesterday with a statement that the Dutch government considers a Greek default as unavoidable. Today the Ministry is saying they are making all possible efforts, but didn't say that they still think the efforts will fail and a default is inevitable.  Look for the next snag in the bailout to come from growing opposition in Holland.  If I was them, I would be annoyed that their invaluable contribution seems to be taken for granted and that no one is reaching out to them in spite of their importance.

Volatility and wild gyrations in all financial markets continues due to a confluence of negative data, news and fundamentals. French banks have been downgraded and Chinese Premier Wen’s call that Europe get its own house in order quashed the unsubstantiated and unsourced rumors regarding massive Chinese intervention to solve the Eurozone debt crisis. European banks are hemorrhaging deposits as savers and money funds pile into other perceived havens such sterling, dollar and Swiss franc deposit accounts. Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months.  A tiny fraction of these European deposits has gone into gold with the majority going into other fiat currency deposits. It is not just the saver of periphery nations who are opening non euro deposit accounts - many German savers are opening up deposit accounts in Switzerland. Greece’s inevitable default is being prepared for despite the usual denials. A conference call among Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel is set for 16:00 GMT.