Archive - Jun 2012

For our Spanish-speaking viewers, here is the webcast during which the final results of the Oliver Wyman et al consultancy report identifying insolvent Spanish bank capital needs will be presented. This conference is not to be confused with the July 2011 stress test which saw all Spanish banks passing with flying colors. We know very well that the cap at this conference is €100 billion even if the final need will be far higher. The only question is how much of its credibility will Oliver Wyman sacrifice to create a short term bounce in Spanish bonds by undercutting the real number, even as the real bailout needs creep ever higher.

"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.

'Risks are all to the downside for Asia' is the view of UBS' global macro team. It appears the markets are pinning their optimism on growth and earnings over the next year on three hopes: that the US will not fall off its 'fiscal cliff'; that Europe will 'muddle through'; and that China will pull Asia out of the current morass. Duncan Wooldridge takes on each of these 'hopes' noting that he expects Asian exporters to be far more likely to pull back on investment and take a wait and see attitude than simply ride into the breach.

"We are recommending a short position in the S&P 500 index with a target of 1285 (roughly 5% below current levels) and a stop on a close above 1390."

The chart below, courtesy of Stone McCarthy, shows monthly exports to Europe. It says enough.

Greece's newly confident coalition party has issued a list of zee-demands, via Bloomberg:

• GREECE TO PRESS TROIKA ON NO JOB CUTS IN PUBLIC SECTOR
• GREEK COALITION PARTIES WANT TO RETRACT CUT TO MINIMUM WAGE
• GREECE TO PRESS TROIKA ON NO FURTHER WAGE CUTS FOR 2013-2014

And of course TROIKA will be happy to comply, in exchange for some of that shiny yellow stuff (as we noted here). Though we have a response already:

• DE JAGER: THERE WILL BE NO SOFTENING OF CONDITIONS FOR GREECE

One word to explain the Philly Fed which just printed at -16.6, or the weakest since August 2011, on expectations of an unchanged print: abysmal. Basically every subcomponent of the index was negative except for number of employees, although luckily we already know that US jobs (even part-time ones) are collapsing too. In short: if this horrendous print does not boost stocks higher, nothing can.

Overnight, the WSJ had an interesting article starting with "Italy, France and Spain are trying to take a united stand against Germany in finding new ways to fight the euro-zone debt crisis." This merely confirms what Greece has been trying to tell us for months: that beggars can be choosers. Well, turns out they can't, because at the end of the day, the only thing that does matter is the Golden Rule as Mark Grant reminded us earlier. Which is why trying to force Germany to do anything will backfire massively - as a reminder: it is in Germany interest to keep Europe weak, the EURUSD low, and the periphery on the edge of insolvency (just memorize the bolded sentence - it is all you need to know about Europe). Case in point: "Germany's constitutional court said on Thursday it will need time to study the euro zone's permanent bailout mechanism after its expected approval in the German parliament next Friday, which could delay its scheduled start date on July 1." In other words, the bailout fund on which Europe's entire rescue dreams lie (and which will gladly subordinate European creditors) and which still does not exist, is now being delayed. You are welcome Europe. Love, Germany.

With West Texas Intermediate crude oil trading with an $80 handle, near two year lows, while stocks remain within a few percent of their four-year highs, one has to question just what it is that stocks believe about our bright new future of growth and demand that the all-important energy markets do not. Between Europe's recession, last night's dismal China PMI, and a significantly trending rise in US unemployment claims, it seems more likely that the global demand picture painted by the oil market is a better reflection of reality than the earnings/multiple picture painted by the nominal price of US equities. We know that bad is good when it comes to the front-running of Bernanke's print button but wouldn't bad being good raise the USD-nominal price of oil also?

The middle class has a gut feeling they are being screwed by somebody, they just can’t figure out who to blame. The ultra-wealthy elite keep up an endless cacophony of propaganda and misinformation designed to confuse an increasingly uneducated and willfully ignorant public while blurring the facts for those educated few capable of understanding the truth. They have been able to keep the masses dumbed down through government run education; distracted by sports, reality TV, Facebook, internet porn, and igadgets; lured by mass media messages of materialism; and shackled with the chains of debt used to acquire the goods sold by mega-corporations. We’ve become a society oppressed by a small faction of ultra-wealthy masters served by millions of impoverished, uneducated, sedated slaves. But the slaves are getting restless and angry. The illegally generated wealth disparity chasm is growing so large that even the ideologue talking head representatives of the elite are having difficulty spinning it. Even uneducated rubes understand when they are getting pissed on.

Europe's approaching "Madoff Moment"...

All you need to read.

There are only a few funds in the credit markets who are big enough to help manage a position the size of JPM's CIO office and, according to Bloomberg Businessweek, BlueMountain (one of the biggest) has helped JPM unwind their position by entering the market to take positions that it then sold on to the bank. This agency role is helping the bank to cover its tracks (and reducing the effectiveness and transparency of any and all DTCC data in the course of it), which argues perhaps once again for the exchange trading of these instruments (but that is another topic). While we would be sure that Blue Mountain took a wider than market bid-offer out of the middle of the brokerage move, it is nevertheless clearly a backdoor bailout of the bank's position by what is likely one of its major counterparties anyway (and why not). The activity pick-up this week makes perfect sense (as we noted yesterday) given the single-name CDS roll (and index options expiration) and as Bloomberg's Childs and Harrington note "If you were to need to move a large position, there should be greater liquidity around those days than other days, all else being equal," but as we have noted it remains unclear as to whether the original tail-risk position has been taken down at all (if so then doesn't that make JPM more risky implicitly?) or just the hedge of the hedge that got so out of hand thanks to Iksil's excess.

Two days ago we noted with muted disgust that Europe has legislated to scrap the use of rating agencies, who were everyone's best friend during the up-phase in the global ponzi, but now that deleveraging is accelerating and ratings downgrades are coming, are like the drunk guest who refuses to leave the insolvent party at 4 am. Sure enough, the time has come to enact rules to kick them out. But wait, there is much more. Moments ago Reuters reported that the European Central Bank is discussing a medium-term plan (as in indefinite) to scrap rating rules on euro zone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment, central bank sources said. You read that right: the ECB itself will decide what the collateral value is of pieces of paper it accepts, in exchange for other pieces of paper with the faces of famous dead people on one side (even if technically the whole operation takes place electronically). And to think that for some odd reason allowing drug addicts to write their own prescriptions is illegal. Apparently all is fair in love and breaking all rules of sinking monetary systems.