Archive - Jun 11, 2013

Equity bulls remain cognitively biased to the belief that a rising interest rate market implies growth expectations (enough to warrant a Fed Taper) that confirm the hope priced into stocks (entirely missing the bubble concerns and technical corruptions in the markets caused by these policies). However, at the very short-end of the interest-rate curve in the US, the market has pulled forward rate-hike expectations from End-2015 to May 2015 in the last month alone. The problem with the velocity of this adjustment is that in order to hike rates - the entire extraordinary asset purchase program known as QE4EVA has to be over... Still think equities are pricing that in?

What assets will the core/Empire protect? Those of the core. What will be sacrificed? The periphery.

it appears the memo about the glorious housing recovery has bypassed the socialist paradise of France. Either that, or the concept of shared property is so advanced there, and the costs of evicting squatters so high, that all a homeless Parisian needs in order to have four walls and a roof above their heads is to find an empty office building and claim it as their own. Which is precisely what is happening. And while squatting is not a unique phenomenon to any paradise, socialist or otherwise, when a group of 16 Parisian families decided to take over a vacant 4-story building, have decided to put a little signature touch: they telegraphed their presence far and wide by placing repeated food orders so the neighbors could see the "comings-and-goings" of the delivery man (supposedly justifying their squatting), but actually went so far as to invite the French housing minister. And got her support! Socialist utopia indeed.

A Roundup of What's REALLY Going On ...

You have nothing to fear, if you have nothing to hide--Joseph Goebbels 

Few analysts know or admit it, but the only thing that held Europe (and ultimately the financial system) together since May 2012 was the promise of unlimited bond purchases from the ECB.

It appears to be rapidly shifting from bad to worse in Turkey...

Moments ago CNBC cued to the its gas-mask clad coverage from a violent Taksim Square, where a crowd of 50,000 was just getting the tear gas treatment from the local police. And sure enough, going back to the question we posed first thing this morning whether with "a big demonstration is due in a few hours: will Taksim Square June 2013 be the "Waddel and Reed/May 2010" Syntagma Square flash crash equivalent?", we got the answer courtesy of the USDJPY which just tumbled over 80 pips in the span of minutes and dragged down not only the S&P but the Nikkei with it. We hope the NSA has a read on just where Waddell and Reed is located exactly this moment or else things may get very Syntagmaish Squarish circa May 2010 in a hurry...

When even Zee Germans are staring open-mouthed at what they call "American-style Stasi methods" you know things have got a little out of hand. As Reuters reports, German outrage over a U.S. Internet spying program has broken out ahead of a visit by Barack Obama, with ministers demanding the president provide a full explanation when he lands in Berlin next week and one official likening the tactics to those of the East German Stasi. "The more a society monitors, controls and observes its citizens, the less free it is," Merkel's Justice Minister exclaimed, adding, "the suspicion of excessive surveillance of communication is so alarming that it cannot be ignored." While Obama has defended it as a "modest encroachment" on privacy and reassured Americans that no one is listening to their phone calls, the Germans reflect "I thought this era had ended when the DDR fell."

If there is one word to describe today's 3 Year $32 billion auction it would be atrocious. With the When Issued stopped at 0.577%, the closing high yield tailed notably at 0.581%, a dramatic spike from last month's 0.354% and the highest yield since July 2011, indicating substantial turbulence on the surface. Beneath the surface it was the same story, with the Bid To Cover plunging from 3.38 to just 2.95, the lowest since December 2010, driven by a crash in Direct Bidder take down to just 8.4% from 14.6% and a TTM average of 12.9%: this was the lowest Direct interest since August. The result was that Indirects were left with a sizable 33.1% of the auction well above the 26.3% TTM average, and Dealers had to absorb the remainder, or 58.4% of the auction. All in all, a very ugly auction although with investors still demanding only 0.5% to hold 3 year paper it would appear that any fears of an imminent hike in rates (regardless what the Fed does with the longer-end of the curve), is still far away.

Perhaps you have noted in your life, as we have in ours, that denial is often the preface to justification. For the citizens of our country there is no justification, no national security assertion, that will dissuade us from the premise that our current government, in listening to every phone call and reading every transmission on the internet, is violating the fundamental Constitutional rights of American citizens. As Americans we should say, “You have overstepped your boundaries Sir.” Citizens should stand and state, “No one has given you the authority to spy upon me and my fellow Americans and that you are violating the Constitution in this exercise and it should cease immediately.” It should be said to a Democrat. It should be said to a Republican. We should say this to any man that has undertaken to pervert the rights that we have ascribed to ourselves in the formation of our government. This is where we should stand and we should make our voices heard to the best of our abilities.

Because - "It's never too early to start thinking about what you want to be when you grow up."

The lack of a centralized constitutional and monetary union has led to several years of inaction in the process of unification of the Euro-zone.  While it was a "grand experiement" to run the Euro-zone under a single currency the underlying structure to make it effective long term was never achieved. There are currently many promises that have been made to the financial system by the ECB.  The question is whether or not they can ultimately "cash the check." While we do not have certain answers as to the where, the who or the when - we are fairly confident that it will be sooner than many currently imagine. We do believe that the ECB will be able to skirt by the ratification of the ESM this coming week and get some limited funding into place, however, we still believe the bigger problem comes at the end of summer when the German voters begin to voice their concerns - after all it is their money that is being wasted.

Presented with little comment - aside to note the entirely news and fundamentals driven ramp in US equities has an odd correlation with the smash in AUDJPY... (and it's Tuesday and a POMO).  Or maybe it was none of the above, and it was just select Reuters clients reacting to the very early leak of the University of Phoenix Consumer Spying index, which will have just hit a record high when it is released to the broader public in due course...