Archive - Jul 25, 2012

Why a new LIBOR based on Fed Funds (OIS) is determined by back door dealings between government sponsored failures (Fannie/Freddie) and a handful of compromised TBTF banks

When Paul first introduced his bill a decade ago, it was written off as another piece of his far-flung libertarian worldview is how Politico juxtaposes today's (now successful) vote on Ron Paul's Fed Transparency Bill. "I want to appreciate and congratulate Dr. Ron Paul for his tireless pursuit of openness and transparency," said Rep. Jason Chaffetz (R-Utah). "Without his leadership, we wouldn’t be at this point today." Via Bloomberg:

• *FED AUDIT BILL OPPOSED BY BERNANKE GAINS APPROVAL BY U.S. HOUSE
• *FED AUDIT BILL NEEDS SENATE APPROVAL, PRESIDENT'S SIGNATURE
• *FED AUDIT BILL SPONSORED BY REPRESENTATIVE RON PAUL OF TEXAS

"I’m pleased. It’s something I’ve worked on for a long time, and it’s a good first step," Paul told POLITICO. "It’s coming to the floor as a response to the American people, because I don’t have a whole lot of clout around here." Never mind that the Fed audit is dead in the Senate — Majority Leader Harry Reid’s office has said he won’t bring it up.

Even Sandy Weill Says We've Got to Restore Separation Between Banking and Financial Gambling

Ron Paul's Bill Passes ...

Two weeks ago we highlighted the dismal performance (and massively over-crowded momentum factor tilt) of the 2-and-20 crowd relative to a passive equity ETF investment over the past few years. The reality is, in a Central Bank systemically-driven, high correlation, low dispersion world, the herding of hedge fund cats (with expert networks now dead) leaves them massively over-exposed and chasing the same relative returns as their mutual fund index-tracking peers - for fear of the career-limiting (Tilson-esque) miss of the great bull market's next leg. Apropos of this, Goldman's index of the most-widely-held stocks by hedge-funds is back to levels not seen since March 2009 and down a whopping 7.2% in Q2 of this year as all that momentum fades. Interestingly JNJ is the most widely held (by $ amount) short among hedge funds and of course Apple is the most widely held long.

Every day the Fed's control of all capital markets becomes greater and greater, and every day ordinary investors, and even habitual gamblers, realize they have had enough with participating in a rigged casino, in which the now completely meaningless and irrelevant level of the S&P or the DAX or Nikkei or the 10 Year bond is nothing but a policy tool in the global devaluation race to the inflationary bottom. And while we have shown the week after week of relenltess equity outflows as aging baby boomers call it quits and instead opt for return of capital (than on), the full impact of this boycott on Bernanke's usurpation of capital markets, in which a simple WSJ scribe can move the market more than the deteriorating fundamentals of the world's biggest company-cum-gizmo maker is best seen in trading volumes. Which as Securities Technology shows, are now down 19% in the first half of 2012. Of course, if one were to exclude the robotic presence in stock trading, which is anywhere between 50 and 70%, it would be a miracle to find any human beings still trading with each other.

The guy who openly admitted he was getting notification from the BOE to manipulate Libor, and was advising his traders appropriately, Barclays' COO Jerry del Missier, and who quit the same day as his boss Bob Diamond, has finally had his pay package revealed. The payoff to get him out and shut him up? £8,750,000.

My my, how the canaries start to sing when the words "hang em" are bantered about in the MSM...

And another country falls to the Egan Who juggernaut.

Synopsis: Italy and its regional governments need to rollover approximately EUR183B in 2012 and EUR214B next year and is likely to experience increasing yields and restricted access without external intervention. Yields on the 10 year bonds are near 6.5%; rates have been rising despite prior ECB purchases. Future intervention by the ECB and IMF will provide some liquidity but might subordinate existing creditors. Italy cannot support all of its debt if the EU economy falters. Debt/GDP will continue to rise and the country will remain pressed. We are downgrading from " B+ " to " CCC+ " , with a neg. watch

Look for the "reputable" raters such to follow suit in downgrading Italy in 2-3 months.

A highly correlated market - both across asset-classes and across individual stocks within the equity indices - is now well known. It's a stockpicker's market is the refrain. Well, as Goldman points out, a dramatically narrow leadership is running the show in S&P 500 performance this year. 20 companies (22% of market cap.) account for 55% of 2012 YTD return for the S&P 500. Pick away (and by the way CRAAPL accounted for 17% of the S&P 500's YTD performance until last night) as while correlation removes alpha so concentration removes liquidity.

In sharp contrast to the "WTF" 10 Year auction from 2 weeks ago, which smashed virtually every record, and saw a record 45.4% direct take down, today's $35 billion in 5 Years was a pale comparison. Yes, the bond priced at a new all time low yield of 0.584% which tailed the When Issued of 0.578% at 1 pm, but that's as good as it got. The Bid To Cover was 2.71, far below the TTM average of 2.90; the Directs were just 5.2%, or the lowest since the 2.9% in November 2009, resulting in Primary Dealers once again forced to buy up more than half of the auction or 52.2%, leaving just 42.6% for the Indirects. In many ways the auction was a replica of yesterday's unimpressive 2 year auction. Tomorrow we have a 7 year which concludes this week's latest bout of bond issuance, and will show just what the appetite for the curve belly is. What is strange is that the EURUSD algobot took the flashing red headline of the results, and without even pretending to think about it, sent the pair 20 pips higher on what was effectively a weak bond auction, in the process pushing stocks well higher as well. We bring this up just to show what a joke a broken, centrally-planned market is.

For the last two weeks here in the UK, TV stations have been running a documentary series called “Bank of Dave“, in which down-to-earth businessman Dave Fishwick attempts to establish his own bank. The premise sounds plausible: offer depositors 5% interest (as opposed to zero), and lend to credible small businesses that are otherwise ignored by the majors. But as the irrepressible Dave soon discovers, getting a new banking licence in the UK isn’t easy. ‘Bank of Dave’ has obviously been, albeit inadvertently, deliciously well-timed, arriving on television and computer screens accompanied by increasingly shrill coverage of interest rate rigging in the LIBOR manipulation scandal. Granted, the news of the world’s biggest banks colluding to manipulate interest rates to their own benefit has spark a major debate about banking. But what’s frustrating about the banking debate is how narrowly focused most contributors are.

In the last year, consensus EPS for 2012 among those oh-so-smart equity analysts has been crushed from over $113 to under $104 but multiple expansion has held the index together on the back of the hopes and dreams of a hockey stick recovery in Q4 thanks to a 'this-time-is-different' response to NEW QE at some point. Goldman has a different perspective. The Earnings Revision Leading Indicator points to a dramatic drop in ISM as micro data not just comfirms macro data but notably points to further weakness. Of course this will be eaten up by all asunder as bad-is-good but worse-is-better, but we worry that the scope of the drop is extreme and given a far more 'aware' market (as Stephen Roach alluded to) that this hole might just be too large this time.

Up until this point, Europe has been transfixed with severing the linkage between the sovereign and the banking system. This has been a particularly big issue in Spain because as is now well known, its banks are insolvent, yet the country is trying to pass off as not needing a bailout. Of course, if RBS is correct, that is all going to change very soon as the entire country demands a formal bailout. Yet link that has been largely ignored is the link between the sovereign, the financial sector and the broad corporate sector. Because if the first two are imploding, it is only a matter of time before the latter is also dragging into the maelstrom. As of minutes ago, this has just happened, following an announcement by Telefonica, Spain's second largest company, that it has cancelled its dividend and share buyback for the entire year.

• TELEFONICA SAYS CANCELS DIVIDEND AND SHARE BUYBACK FOR 2012

Why is Telefonica doing this? Simple - to conserve cash ahead of what may be a sovereign default which will have a huge adverse impact on all Spanish corporations.