Archive - Jun 2013

"It all began with Greece," and as Mark Grant notes today, "somebody, somewhere is going to take a hit." It appears the 'news' is piling up thick and fast in the 'islands' nation. As Reuters reports, Greece did not receive any binding bids for natural gas producer DEPA. This was part of the asset-sale program demanded by the TROIKA, with Hellenic Petroleum's sale later in the year now potentially on hold. The sad truth is that the country cannot pay their bills, cannot pay their pension obligations, cannot fund social services and is just about out of money to even run their government. The reality is; they are bankrupt again and there is no way out without some form of debt forgiveness and more money. Debt forgiveness, alone, will not cut the mustard now by itself and some kind of end game may well be near. That is increasingly reflected in 2012's no-brainer trade as GGBs are now back below 60 and down over 10% from their highs and the Athens Stock Index just entered bear market territory, down 20% from its highs.

By now it should come as no surprise to anyone that in a Keynesian world in which the aggregate increase in credit levels is the only necessary and sufficient driver for "growth", as admitted repeatedly by Europe which has blamed its longest ever recession on "(f)austerity" and the inability to issue debt like a drunken-sailor, that the only thing that matters is how much credit money (i.e., liabilities) are created in the banking sector, either organically by creating loans, or through the Fed's low-power "reserve" money creation. If there is any confusion, we present Exhibit A: the chart that strips away all the conventional GDP = C+I+G+(X-M) abracadabra and cuts to the chase - US GDP has tracked the change in traditional bank liabilities for the past 50 years on an almost dollar for dollar basis.

After 19 months in the red, yields on the 10Y TIPS have just shifted into positive territory. We saw a similar surge in TIPS yields in Q4 2010 / Q1 2011 which did not end well for stocks. This comes along with the simultaneous drop in the Fed's inflation gauge - five-year forward breakevens - which is now at its lowest in 9 months. This kind of drop has previously led to further QE action by the Fed, and right on cue...*BULLARD SAYS INFLATION IN U.S. HAS `SURPRISED TO THE DOWNSIDE' and *FED'S BULLARD SAYS LOW INFLATION MAY WARRANT PROLONGING QE

You want to invest $100,000 in agency paper but find the yield to be too low. How can you increase your yield without assuming additional risk? Easy, here is how...

What most undermines the claims of the Administration and its defenders about this surveillance program is the process itself. First the government listens in on all of our telephone calls without a warrant and then if it finds something it goes to a FISA court and get an illegal approval for what it has already done! This turns the rule of law and due process on its head. The government does not need to know more about what we are doing. We need to know more about what the government is doing. We need to turn the cameras on the police and on the government, not the other way around... We should be thankful for writers like Glenn Greenwald, who broke last week’s story, for taking risks to let us know what the government is doing. There are calls for the persecution of Greenwald and the other whistle-blowers and reporters. They should be defended, as their work defends our freedom.

Given that the Fed is openly citing the stock market as an indication that QE is working… and given that every other metric shows QE is a total failure…

While the focus of most of the dreadful employment data in Europe is on the surging youth joblessness, there is another growing shift. The jobless crisis is affecting men more than women, according to the EU labor force survey. As Bloomberg's Niraj Shah notes, the employment rate for men fell 0.3 percentage point to 69.8 percent in 2012, while rising 0.1 percentage point for women to 58.6 percent. What is perhaps even more concerning is the growing divergence between employment rates across the union (remembering all these nations are driven by the same monetary policy) from Holland's 75.1% employment rate to only 51.3% of employable citizens working in Greece. It is perhaps no wonder that Germany is having second thoughts over aiding the 'fourth world' nation.

In a confirmation that the S&P is starting to get worried about the drones surrounding the McGraw Hill building resulting from the ongoing litigation with Eric Holder's Department of Injustice, not to mention a reminder that US downgrades always happen after hours, while upgrades must hit before the market opens, Standard & Poors just upgraded the Standard & Poors 500 the US outlook from Negative to Stable. On what "receding fiscal risks" did the S&P raise its assessment of the US - the fact that the US is now at its debt limit, that there is no imminent resolution to the credit issue, or the 105% and rising debt/GDP - read on to find out. And of course, the countdown until the S&P wristslap settlement with the DOJ is announced begins now, as does the upgrade watch by Buffett's controlled Moody's of the US to AAAA++++.

It is perhaps too early to judge the impact of Edward Snowden's confirmation of conspiracy fact, but in Pentagon Papers' Daniel Ellsberg opinion in today's Guardian, there has not been a more important leak in American history. The "executive coup" against the US constitution that has, at first sercretly but increasingly openly, been under way since 9/11 could finally be stalled by the Whistleblower's efforts. Ellsberg notes Senator Frank Church's 1975 comments on the NSA warning of the dangerous prospect that America's intelligence gathering capability "at any time could be turned around on the American people and no American would have any privacy left," noting 'that has now happened'. That is what Snowden has exposed, with official, secret documents. The NSA, FBI and CIA have, with the new digital technology, surveillance powers over our own citizens that the Stasi – the secret police in the former "democratic republic" of East Germany – could scarcely have dreamed of.

Yet another month in which the Ben Bernanke risk managed S&P500 Onshore Fund outperforms 93% of all other actively managed brand name hedge funds, and is on pace for the fifth year in a row in which the 2/20 world will underperform the S&P500. And the best news: PM Ben does not charge 2 and 20. Of course, there is no free lunch, and his dues will come when the world one day realizes just what the cost of reflating the biggest asset bubble in history is, but for now the music is playing and the dancing continues. As for the best funds out there? Those focusing on Japan, if only for a little longer.

The last time we encountered the name Stephane Richard, CEO of France Telecom Orange, he was deflecting poor iPhone sales on frugal customers. While we don't know if French customers have become less frugal in the past two months, we do know that Mr. Richard has bigger problems on his hands than declining top and bottom lines: such as suddenly being embroiled in the Bernard Tapie corruption scandal that previously focused on Christine Lagarde, and which this morning led to the CEO being held for questioning over his role in a 2008 arbitration process that resulted in a large pay-out to businessman Bernard Tapie, a judicial source said. "Richard was at the time head of cabinet to Christine Lagarde, who was finance minister to conservative former president Nicolas Sarkozy before she became head of the International Monetary Fund."

Currency markets are anticipating the conclusion of the BOJ meeting on Tuesday. No changes are expected to the current policy scheme and asset purchase targets, but it is likely that the committee will introduce measures to try to stem JGB volatility.  Based on their recent record, it is unlikely they will succeed. Later in the week, the focal point will shift to the US where the monthly Treasury statement on Wednesday and retail sales data on Thursday will shed more light on how automatic federal spending cuts are affecting the broader economy.

• In Hong Kong, ex-CIA man may not escape U.S. reach (Reuters)
• Backlash over US snooping intensifies (FT)
• Apple to Revamp IPhone Software, Ending Product Funk (BBG)
• Nothing like revising history: Japan revises up Q1 growth to annual 4.1% (FT), just don't look at the trade deficit
• Coffee Exports From Indonesia Seen Slumping to Two-Year Low (BBG)
• Euro bailout Troika nears end of road with patchy record (Reuters)
• Treasuries Little Changed Before Bullard Speaks Amid QE Debate (BBG)
• Schwab Topping Goldman Sachs Presages Return to Stocks (BBG)
• Hedge funds take over another city: London’s Forced Renters Fuel Apartment Investing Boom (BBG)