Archive - Jun 2013

Following Putin's colorful description of the no-man's-land that Edward Snowden seems to reside in, Wikileaks has confirmed this morning that "Mr. Snowden is not being 'debriefed' by the FSB. He is well." As Rianovosti notes, there has been widespread skepticism that the presence of the Snowden at a Moscow airport would not have prompted any interest from Russian intelligence officials. Snowden’s ultimate destination is unknown, but Ecuador – which has given refuge to WikiLeaks founder Julian Assange at its embassy in London – has now demanded that, as The South China Morning Post reports, the US must “submit its position” regarding Snowden to the Ecuadorian government in writing as it considers his request for asylum. Ecuador's foreign minister added, "his government could take months to decide whether to grant asylum."

It was bound to happen some might say. We were warned! Chinese banks have stopped lending due to pressure from liquidity deposits. Some branches of the Bank of China and the Industrial and Commercial Bank of China have issued statements in which they announce that they are halting lending for a temporary period.

It is easy to get the impression that the naysayers are wrong on Europe. After all the predictions of Armageddon, ten-year government bond yields for Spain and Italy fell to the 4% level, France which is retreating into old-fashioned socialism was able to borrow at about 2%, and one of the best performing bond investments has been until recently – wait for it – Greek government bonds! Admittedly, bond yields have risen from those lows, but so have they everywhere. It is clear when one stands back from all the usual euro-rhetoric that as a threat to the global financial system it is a case of panic over. Well, no. Europe has not recapitalized its banking system the way the US has (at great taxpayer expense, of course). Therefore, it is much more vulnerable. Where European governments and regulators have failed to make their banks more secure it is because they tied their strategy to growth arising from an economic recovery that has failed to materialize. The reality is that the Eurozone GDP levels are only being supported at the moment by the consumption of savings; in orther words, the consumption of personal wealth. Wealth that is not infinite; and held by those not likely to tolerate footing the bill for much longer.

In what is likely to cause a storm of controversy, the Supreme Court ruled against the 17-year-old anti-gay Defense of Marriage Act:

*DEFENSE OF MARRIAGE ACT PROVISION STRUCK DOWN BY TOP U.S. COURT
*SUPREME COURT VOTES 5-4 ON U.S. DEFENSE OF MARRIAGE ACT
*COURT SAYS MARRIAGE LAW VIOLATES EQUAL PROTECTION GUARANTEE

Kennedy: DOMA "humiliates tens of thousands of children now being raised by same-sex couples"

Scalia: "By formally declaring anyone opposed to same-sex marriage an enemy of human decency, the majority arms well every challenger to a state law restricting marriage to its traditional definition,"

"DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment."

Full timeline and opinion below.

Once again it seems cash is king if the housing recovery is to continue. Despite the surge in prices that we saw yesterday that reflected the long-forgotten days before mortgage rates exploded, the housing recovery meme remains loud and proud. But, mortgage applications are now down for 7 of the last 8 weeks and have collapsed a stunning 29% over that time. - the biggest plunge in 30 months. It appears that the 'rational' buyer has decided that higher rates are not the factor that drives them to snap up that surging priced home? Is it any wonder, as we noted here, in spite of being told every day how 'affordable' housing is with rates this low, their real purchasing power (given a limited budget as opposed to free money-based finance) has plunged by 16% (for now).

The problem here is not so much that the lies are told but that the lies are believed. Every politician on the Continent trumpets and echoes what they want you to hear and believe and then they expect you to act upon what you are told. Every media publication, as an example, repeats the official debt to GDP ratios as a matter of truth because that is what they are told. Then everyone is, "Shocked…Shocked" when the numbers do not add up and the bills that must be paid are so high because what is uncounted or what is lied about still has to be dealt with in the end. Will this ever be really recognized; we have no idea. Will people ever wake up; we cannot say. We can say this though. If they do Dante's Inferno will look like Paradise Lost.

Remember the key component of the Fed's baffle with BS strategy: namely "baffle with BS." Following yesterday's epic trifecta of economic growth when durables, housing and confidence data all slammed expectations, it was up to GDP to be the bad cop. Sure enough, following the already disappointing first Q1 GDP revision which revised the preliminary 2.5% number to 2.4%, today economists were expecting an unchaged print. Instead they got a crash to 1.77%. And on what? Why the collapsing US consumer whose true colors have finally come out in the final Q1 GDP revision: responsible for 2.40% of the GDP print in the first revision, Personal Consumption Expenditures tumbled to just 1.83% of GDP. In absolute terms, PCE plunged from 3.4% to 2.6% on expectations of 3.4%. There goes the buying power of the overlevered, undersaved US consumer.

If one thought the schizophrenic lies out of Europe between 2010 and 2013 were bad enough (the bulk of which it now appears were orchestrated by Mario Draghi), here comes China, a country which already has a "credibility" issue so to say, which has no choice but to lie as blatantly as possible in order to preserve some semblance of stability. The reason: as first forecast here months ago, and as has subsequently materialized, the credit/liquidity collapse in the country that lives and breathes on credit creation is rippling through the banking sector and causing unprecedented fallout for a financial industry that is already starved for every marginal yuan. Not unexpectedly following news that various retail and online banking services had been impaired in the early part of the week at China's biggest banks, now Caixin reports that banks are simply shutting lending to both businesses and individuals.

The Financial Times has revealed that Italy is facing losses of €8 billion due to derivative contracts that were taken out in the 1990s and that were restructured during the Eurozone crisis.

• Scalpel in Hand, Chinese Premier Li Stirs Reform Hopes (Reuters)
• Obama Sets Conditions for Keystone Pipeline Go-Ahead (FT)
• World’s Most Indebted Households Face Rate Pain (BBG)
• SAC Probers Weighing 'Willful Blindness' Tack (WSJ)
• Draghi Says ECB Ready to Act, Calls for Investment Over Tax (BBG)
• U.S. Tops China for Foreign Investment (WSJ)
• Basel Presses Ahead With Plans to Limit Bank Borrowing (FT)
• Gillard Ousted as Australia PM by Rival Rudd (FT)
• Japan Economic Strength Will Show in Stocks, Nishimura Says (BBG)

Once again it is all about central banks, with early negative sentiment heading into Asian trading - following the disappointing announcement from the PBOC about "ample liquidity" leading to the 6th consecutive drop in the Shanghai Composite while the PenNikkeiStock index tumbled yet again -  completely erased and flipped as Mario Draghi spoke, although not to explain his involvement with the latest European derivative window-dressing scandal, but to announce that he is, once again, "ready to act" (supposedly through the OMT, which despite the best hopes to the contrary, still DOES NOT OFFICIALLY EXIST) and that while it is up to government to raise growth potentials, growth would "partly come from accommodative policy." In other words, ignore all BIS warnings, for Europe's unaccountable Goldmanite overlord Mario Draghi continues to promise more morphined Koolaid (read record Goldman bonuses) to any banker that comes knocking.

The unintended consequences of a centrally-planned world continue to peek through at the most unexpected of place, as moments ago the Indian Ruppe just plunged to a new all time record low against the USD, with the USDINR rising over 60 for the first time, triggering stops and overriding any potential USD selling intervention that the RBI may have attempted just below the resistance level which took place 59.985 according to Reuters.

It was roughly four years ago when details surrounding such Goldman SPV deals as Titlos first emerged, that it became clear how for over a decade, using deliberately masking transactions such as currency swaps, Greece had managed to fool the Eurozone into believing its economy was doing far better, and its debt load was far lower than it actually was in order to comply with the Masstricht treaty's entrance requirements. As for the Pandora's Box that was opened following the disclosure of just how ugly the unvarnished truth in Europe is, following the Greek disclosure, leading to the general realization that the European experiment has failed and it is now only a matter of time before its final unwind, any comment here is unnecessary - ths has been widely discussed here and elsewhere over the past several years. Now it is Italy's turn. Overnight, the FT reported that "Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis."

UPDATE: Nikkei 225 -360 from US day-session close

Whether some major fund just got another tap on the shoulder or the liquidity cracks are showing up in all asset classes is unclear but just as we saw last night around the China open, gold and Japanese stocks are taking a tumble... while JGBs are relatively calm and JPY is modestly stronger. Chinese stocks, having read the actual report from the PBOC (as opposed to US media who merely guessed that it meant the stick-save was in), are selling off - though only down around 1% for now. Why? Simply put, if the PBOC promises to selectively save banks, how do you know which ones? So sell them all first... US futures are testing down towards day-session lows but not moving as aggressivley as Japan.

Journalists should be protected, but not because of who they are or the title next to their name, but because they are engaged in acts of journalism. At the end of the day journalism is much like porn, hard to define but “you know it when you see it.” Whether you want to call Glenn Greenwald a journalist or not, what he did in the Edward Snowden affair was clearly an “act of journalism” and therefore must be protected and defended at all costs. Mike Krieger, of Liberty Blitzkrieg, is extraordinarily bothered by the manner in which the oligarch gatekeepers in the mainstream media and elsewhere are attempting to discredit Glenn Greenwald by saying he is “not a journalist.” It appears their primary strategy in fighting back against truth-tellers, whistleblowers and journalists in the wake of Edward Snowden’s revelations is by attempting to control the definition of the term “journalist.”  This way they can then proclaim who is a “real journalist” and who isn’t.