Archive - Jul 27, 2012
The Channel-Stuffed GDP Report
Submitted by Tyler Durden on 07/27/2012 22:25 -0500
There was not much in the GDP report that was unexpected, except durable goods. The decline in durable goods was comparable to Q2 2011, right down to the primary driver of that weakness - motor vehicles. However, there was no earthquake in Japan this year to disrupt supply chains, production schedules and brand availability. Just like last year, marginal economic growth overall seems to be backfilled with a tide of inventory. The trouble with inventory at the margins of growth is that it is essentially a build-up of forward demand, and therefore susceptible to reversal should overdone production move out of alignment with final demand. Both monetary and fiscal policies actively seek to pull forward demand, meaning this inventory-driven activity conforms to policy goals. It's almost like the 1960's and 70's, with motor vehicles and government spending driving the marginal economy again. All that’s missing is for Ralph Nader to show up and write about how cars are dangerous.
War Of The Central Banks?
Submitted by testosteronepit on 07/27/2012 18:31 -0500“If the ECB continues like this, it will soon even buy old bicycles.”
Guest Post: The Absurdity Of Sandy Weill
Submitted by Tyler Durden on 07/27/2012 18:02 -0500Any contrition on the part of Weill for his role in repealing Glass-Steagall might as well be an attempt to close the stable door after the horse has bolted. It’s like trying to uninvent the atom bomb after Hiroshima. Weill was the guy who — above anyone else — was responsible for the damage done. Coming out and claiming that reimposing Glass-Steagall would fix the problem is inadequate. If he wants to be taken seriously he should match every dollar he spent trying to get Glass-Steagall repealed with new lobbying funds to reimpose a separation between banks that accept deposits and the shadow banking and derivatives casinos.
Why Do Progressive Liberals Fall for “Humanitarian War”?
Submitted by George Washington on 07/27/2012 17:25 -0500“Humanitarian” War Contradicts 200 Years of Liberal Thought
#FF: A Truth-Telling Financial TV Talk Show? Lew Rockwell Interviews Lauren Lyster and Demetri Kofinas of RT's Capital Account
Submitted by EB on 07/27/2012 17:00 -0500Discussing the bull market in alternative media, a Grecian return to the Drachma, and how savings empower the individual (as opposed to state confiscation)
All The Olympic Charts That's Fit To Print, And More
Submitted by Tyler Durden on 07/27/2012 16:12 -0500
Update: a perfectly-timed release by S&P: S&P AFFIRMS UNITED KINGDOM 'AAA/A-1+' RATINGS; OUTLOOK STABLE.
In honor of today's commencement of the Olympics here are some entertaining charts that for once have nothing to do with an insolvent Europe or America, China's RAND() function, or much hated, non-magic based math, and instead have everything to do with the Olympics, and sport in general.
Weekly Bull/Bear Recap: Jul. 16-20, 2012
Submitted by Tyler Durden on 07/27/2012 16:05 -0500While it would appear that all news is good news; good news (or no news) is better news; and old-news is the best news; here is your one stop summary of all the notable bullish and bearish events in the past seven days.
Faith, Hope, And Draghi
Submitted by Tyler Durden on 07/27/2012 15:29 -0500
What can we say? From the better than expected GDP this morning Gold and the USD (and Treasury yields) diverged from the QE hope trade - but stocks didn't. Then came the statement of the entirely sublime obvious from someone somewhere about Draghi's normal pre-meeting meetings and we were off to the races to test recent highs. Treasuries exploded higher in yield, Gold popped, USD weakened (as EUR popped), and stocks ripped. But...Treasuries reverted back to pre-Draghi-levels, EUR tumbled and the USD ended near the highs of the day, Gold gave back most of its spike gains and closed in the middle of its day's range as stocks just wouldn't give up the dream. For a 2% rally in S&P 500 e-mini futures, VIX fell only modestly by 0.9 vos to 16.7% - which is above last week's close (while stocks end almost 2% above last week's close). Amid the heaviest volume in over a month and the largest average trade size in over a week, ES closed at almost 3-month highs. It appears to us that unless Draghi and Bernanke - who now seem engrossed deep in the inter-continental thermonuclear currency war - both do their bit next week (which the market has now more than fully priced in given the dismal fundamentals) then this is becoming farcical but as Maria B said "a rally is a rally, right?" Ask the ZNGA and FB buyers of the rally on IPO day. Stocks ended the day notably decoupled from risk-assets amid Treasuries worst day in 9 months.
For Italy, It Is Game Theory Over
Submitted by Tyler Durden on 07/27/2012 14:57 -0500
We discussed the use of Game Theory as a useful tool for analyzing Europe's predicament in February and noted that it was far from optimal for any (peripheral or core) sovereign to pre-emptively 'agree' to austerity or Eurobonds respectively (even though that would make both better off). This Prisoner's Dilemma left the ugly Nash-Equilibrium game swinging from a catastrophic break-up to a long, painful (and volatile) continuation of the crisis. Recent work by BofAML's FX team takes this a step further and in assigning incentives and from a 'do-not-cooperate' Nash-equilibrium between Greece and Germany (no Greek austerity and no Eurobonds) they extend the single-period game across the entire group of European nations - with an ugly outcome. Analyzing the costs and benefits of a voluntary exit from the euro-area for the core and periphery countries, the admittedly over-simplified results are worrying. Italy and Ireland (not Greece) are expected to exit first (with Italy having a decent chance of an orderly exit) and while Germany is the most likely to achieve an orderly exit, it has the lowest incentive to exit the euro-zone - since growth, borrowing costs, and a weakening balance sheet would cause more pain. Ultimately, they play the game out and find while Germany could 'bribe' Italy to stay, they will not accept and Italy will optimally exit first - suggesting a very dark future ahead for the Eurozone and with EUR tail-risk so cheap, it seems an optimal trade - as only a weaker EUR can save the Euro.
"It’s Been A Fun Ride, But Prepare For A Global Slowdown"
Submitted by Tyler Durden on 07/27/2012 14:15 -0500- Bank of America
- Bank of America
- BOE
- Bond
- Central Banks
- China
- Countrywide
- Discount Window
- DVA
- European Central Bank
- Eurozone
- Excess Reserves
- headlines
- High Yield
- Italy
- Market Conditions
- non-performing loans
- Primary Market
- Quantitative Easing
- Rating Agencies
- Reality
- Recession
- SPY
- Volatility
- Yield Curve
While in principle central banks around the world can talk up the market to infinity or until the last short has covered without ever committing to any action (obviously at some point long before that reality will take over and the fact that revenues and earnings are collapsing as stock prices are soaring will finally be grasped by every marginal buyer, but that is irrelevant for this thought experiment) the reality is that absent more unsterilized reserves entering the cash starved banking system, whose earnings absent such accounting gimmicks as loan loss reserve release and DVA, are the worst they have been in years, the banks will wither and die. Recall that the $1.6 trillion or so in excess reserves are currently used by banks mostly as window dressing to cover up capital deficiencies masked in the form of asset purchases, subsequently repoed out. Which is why central banks would certainly prefer to just talk the talk (ref: Draghi et al), private banks demand that they actually walk the walk, and the sooner the better. One such bank, which has the largest legacy liabilities and non-performing loans courtesy of its idiotic purchase of that epic housing scam factory Countrywide, is Bank of America. Which is why it is not at all surprising that just that bank has come out with a report titled "Shipwrecked" in which it says that not only will (or maybe should is the right word) launch QE3 immediately, but the QE will be bigger than expected, but as warned elsewhere, will be "much less effective than QE1/QE2, both in terms of boosting risky assets and stimulating the economy."
Guest Post: 2nd Quarter GDP - Weaker In All The Wrong Places
Submitted by Tyler Durden on 07/27/2012 13:55 -0500
The first estimate of the 2nd Quarter GDP was released at a 1.5% annualized growth rate which was just a smidgen better than the 1.4% general consensus. There has been a rising chorus of calls as of late that the economy is already in a recession. For all intents and purposes that may well be the case but the GDP numbers do not currently reveal that. What we are fairly confident of is that with the weakness that we have seen in the recent swath of economic reports is that the 2nd quarter GDP will likely be weaker than reported in the first estimate. It is this environment, combined with the continued Euro Zone crisis and weaker stock markets, as the recent rumor induced bump fades, that will give the Federal Reserve the latitude to launch a third round of bond buying later this year. While the impact of such a program is likely to be muted - it will likely push off an outright recession into next year.
Mutiny At The ECB?
Submitted by Tyler Durden on 07/27/2012 13:26 -0500A lot of desk chatter about this move in risk-assets - and the entire reversion to red on the day in EURUSD - as a WSJ report now circulating suggests that ECB members are not backing reported proposals by President Draghi. Specifically, the statement referenced is the following: "Many ECB Members Surprised By Draghi's Comments Suggesting New Bond Buys, Source Tells WSJ". The bottom line here is that Draghi most likely pulled a Mario Monti (and his hanger on Mariano Rajoy), and spoke up before pre-clearing with Buba's Weidmann. Draghi thinks that, like Monti with Merkel at the June 29 summit, he can bluff the Bundesbank into submission, and Germany will agree to monetization, especially if markets have risen enough where nothing out of the ECB next week leads to a market plunge (as the WSJ explains below). The problem is that as we patiently explained, Monti got absolutely no concessions our of Merkel, as was seen in the bond yields of Spain after the June 29 summit, which hit record wides a few weeks later. Expect the same this time around too: i.e., Germany will hardly cave in to the European beggars.
YoU TaLKiN' To Me?
Submitted by williambanzai7 on 07/27/2012 13:22 -0500"The are two types of balls..."--From Snatch
The EU Jerk-And-Smirk
Submitted by Tyler Durden on 07/27/2012 12:58 -0500
Update: it just gets stranger and stranger. With a 40 minutes delay, now the WSJ gets in on the action, with their spin: "Many ECB Members Surprised By Draghi's Comments Suggesting New Bond Buys, Source Tells WSJ"
Normal' - USD has now reverted higher, TSY yields back lower, and Gold off but stocks refuse to give up hope







