Archive - Jul 18, 2013

The odds of an out-of-court settlement between Detroit's emergency manager and its creditors are "extremely slim," as the WSJ reports that the troubled city's D-Day draws ever closer to becoming the largest muni default in US history. The last straw on Detroit's camel's back of bankruptcy was following discussions last week between Kevyn Orr (Detroit's emergency manager) and the White House as any hope of a federal bailout to evert bankruptcy fizzled. Folowing Detroit's default in June - demonstrating its insolvency - and its "negotiations in full faith" with creditors set the scene for a pending day in court. The current plan (for now rejected by creditors) means a 90% loss for muni-worker retirees, 81% loss for unsecured creditors, and a 75% loss for secured creditors leaving a "free fall" bankruptcy filing - one without a clear plan or much agreement beforehand with creditors - the most  likely outcome "because there is no other way out of here if we don't reach consensus."

CEOs have a primary job: manipulating up the stock of their company. But why they now wallowing worldwide in 2009-like gloom about the economy’s future?

Raise your hand if you think Bernanke can keep everybody drunk while simultaneously pulling away the punch bowl!!!!

One of the better exchanges today, discussing a topic near and dear to Bernanke's heart - gold:

• BERNANKE SAYS GOLD `IS AN UNUSUAL ASSET'
• BERNANKE SAYS SOME SEE GOLD AS DISASTER INSURANCE
• BERNANKE SAYS `NOBODY REALLY UNDERSTANDS GOLD PRICES'
• BERNANKE: GOLD MAY BE LOWER ON LESS CONCERN OF EXTREME OUTCOMES

Or, even simpler, gold may be lower on more paper gold sellers than paper buyers. In the meantime, gold continues to be in backwardation, but that too "nobody really understands" Bernanke would likely attest.

Banks are NOT looking to hang onto REO property.  Read Basel III.  150% risk weight for distressed... 

He said what?

2007 - "The subprime mess is grave but largely contained"

 

2013 - "The amount of US Student Debt is large, but not particularly likely to cause macro-economic instability."

Oh yeah, nothing to worry about here at all (or here or here or here).

On one hand restaurants and bars have been a boon to the US economy. As first reported in June, and updated two weeks ago, America's waiters and bartenders (increasingly more of which are part-time) have made up a disproportionately large portion of job creation in the nation, rising by more than 50,000 on average each month in the last three, and hitting an all time high of 10.34 million workers in July, accounting for 9% of all private-sector payrolls. The surge was enough for Joel Naroff of Naroff Economic Advisors to conclude that "Apparently, people are eating out again like crazy." It turns out this conclusion was 100% wrong. According to this week's very weak retail sales report, Food-service sales fell 1.2% in June, the largest decline since February 2008 and the year over year change in "eating out" rose by just 3.1% - the lowest annual increase since June 2010. But at least all those empty restaurant seats have a record number of waiters catering to the non-existent clients which on the surface should mean the speediest service in history.

It would appear that as we passed new all-time highs this morning in the exuberant pre-Bernanke spurt, more than a handful on wonkish non-believers were piling into protecting their equity portfolios...

Unfortunately for Ben, rates are already rising around the world. Rates on Portugal’s ten-year are over 7%. Rates on Greece’s ten-year are back over 10%. Japan, the country of zero interest rates has seen a spike in its rates since April. Even Treasuries are surging higher, despite the Fed buying $45 billion worth of them every month.

The UK's Aviation regulator has found that Honeywell's emergency locator beacon was responsible for the fire in the Ethiopian Airlines 787 at Heathrow last week. The AAIB is calling for the disabling of the ELT from all 787s and a review of the use of lithium ELTs on all other plane models. While this might, at first, seem like a negative for the stock price of Honeywell (and indeed was), given the surreality in which we live, it did not take long for the price of HON shares to not only rebound but to rally above where they were when the news hit. What could possibly go wrong?

Despite the actions and protestations of the central-planners, Chinese home prices have now risen year-over-year for the sixth month in a row and June (at +6.8%) is the fastest rate since January 2011. As Reuters reports, the incessant rise in property prices across 70 major cities hides the real bubbles in Beijing (+12.9% year-over-year) and Shanghai (+11.9%) which, as we noted in detail previously, reflects the apparently unstoppable exogenous hot money (credit) flows that the rest-of-the-world's-central-bankers are pumping into the markets. China's near four-year-old campaign to temper home prices has also been partly undone by strong demand and short supply, and by a rush of efforts by local Chinese governments to sell land to raise revenues but things could escalate as one analyst notes, "faced with the dilemma of how to lower housing prices without exacerbating the economic slowdown, the Chinese government may assess second-quarter results before introducing tougher measures."

Bernanke's prepared remarks to the Senate in the second day of the bi-annual presentation monetary policy presentation will be identical to those from yesterday. The only difference will come in the Q&A, which is not so much Q&A as political grandstanding and a calming tone from the printer-in-chief that good is good and bad is better.

Presented with little comment... aside to ask "will those pesky oil vigilantes stall this central-bank-inspired 'recovery'?"

When we reported on the Initial Claims print we said that "we will have to see the Philly Fed today, where we expect either a huge beat or huge miss to both be catalysts for fresh all time market highs." Well, we just got the all time highs, first in the DJIA for moments ago in the S&P cash as well, following news that the Philly Fed soared from 12.5 to 19.8, slamming expectations of a modest decline to 8.0, and despite a drop in New Orders from 16.6 to 10.2, and a crash in Inventories from -6.6 to -21.6, the headline print coming at the highest since March 2011.

Macro disappointments? Earnings and revenues missing? Outlooks being slashed? No worries, we have Ben... and a Dow that has risen 1000 points in 17 days to just hit a new record intraday high 15,552.70 (and the S&P 500 has risen 8.3% in 17 days to a new rdord high of 1,688.58).