Archive - Sep 2013

Desperation and the sound of hot air hissing out of the Bond Bubble

[9/11 + 12] / [Lehman + 5] = Banzai7 X 6 

Just a little excess liquidity sloshing out there. Here is the full breakdown of the just priced, 8-part $49 billion deal, the largest ever.

The theatrics this time around will certainly be spectacular, but the end result will be the same: after much yelling, screaming, posturing and crying, the US debt ceiling will once again be raised. The next question: what will be the new and improved debt ceiling, since $16.7 trillion in total debt was hit back in May? According to the Bipartisan Policy Center, the minimum required permitted debt at December 2014 will be an increase of $1.1 trillion, or $17.8 trillion in total, or about 105% of GDP assuming current growth rates and assuming no more upward revisions to GDP which magically add $600 billion out of thin air the total number.

Compare and contrast... "The Treasury's perspective of all the wonderful multiple-mnemonic-based bailouts that 'rescued' us from a fate worse than death and any and all counterfactual worlds" versus the $8 Trillion in additional debt - monetized in large by the Fed - that drove 'recovery' in US (and global) equity prices back to where we started.

With Obama's initial punt to Congress backfiring terribly, as there was no way the president's Syrian attack proposal would garner the required majority in the House, the time came for damage control. And the White House, ever expedient, decided to spin the backtracking as Obama's original idea from the offset, and make it seem that a diplomatic "solution" in which the Syrian chemical weapons were contained was the whole point of the intervention. This, of course, ignores some quite blatantly obvious admissions by the White House itself, namely that the ultimate goal was always regime change in Syria. Nonetheless, stuck in a corner, that was the White House' story, and they are sticking with it. What is ironic, is that almost concurrently with the shift in narrative, others promptly came up demanding credit for the "diplomatic "solution." First, it was Poland. And now, not surprisingly, Russia jumps at the opportunity to take credit for what it deems its response to a tiny slip uttered by John Kerry on Monday.

For the 16th of the last 18 weeks, mortgage refinance activity plunged (dropping 20% this week alone). Since early May, when the dreaded word "Taper" was first uttered, refis have collapsed over 70%. With mortgage servicers and providers large and small laying people off, it seems hard for even the most egregiously biased bull to still suggest that the housing recovery is sustainable. Once again, for those that forget - and as we explained in great detail here, it is not about 'absolute' levels of rates; it is all about relative levels as prices of homes adjust to the new 'affordability' of monthly payments as rates drop - any rise in rates (with a stagnant income growth) means home prices (and ex-cash-buyer demand - which looks set to 'controlled') collapses. This is the lowest level of mortgage refinance activity since since June 2009 and lowest total mortgage activity since Oct 2008 - in the middle of the financial crisis.

Imagine a huge, stinking mountain of debt, which represents all of the debt in the world... now look at this chart of student loan debt. Notice anything about this chart of student loan debt owed to the Federal government? Direct Federal loans to students have exploded higher, from $93 billion in 2007 to $560 billion in early 2013. This gargantuan sum exceeds the gross domestic product (GDP) of entire nations—for example, Sweden ($538 billion) and Iran ($521 billion). Non-Federal student loans total another $500 billion, bringing the total to over $1 trillion. Does this look remotely sustainable? Does it look remotely healthy for students, society, taxpayers now on the hook for a half-trillion dollars in potential defaults or the U.S. economy?

The decline in gold coin sales and robust silver coin demand was seen in other mints including the United States Mint, the Royal Canadian Mint and other mints during the month. 

The Royal Canadian Mint last week reported a surge in revenue and profitability for the second quarter of 2013. Revenue increased by 93.8% to $1.05 billion and this represented the first time in the Mint's history that quarterly revenue exceeded $1 billion.

A dozen years have passed. Memory doesn't fade. In some ways, the events remain as vivid today as they were that September morning.

The last time the top 10% of the US income distribution had such a large proportion of the entire nation's income was the 1920s - a period that culminated in the Great Depression and a collapse in that exuberance. As AP reports, the very wealthiest Americans earned more than 19% of the country's household income last year — their biggest share since 1928, the year before the stock market crash. And the top 10% captured a record 48.2% of total earnings last year. Analysis by Emanuael Saez shows that, based on IRS data, in 2012, the incomes of the top 1% rose nearly 20% compared with a 1% increase for the remaining 99%. Economists point to several reasons for widening income inequality including globalization and technology. However, as John Taylor explains in his recent WSJ Op-Ed, using this as a lever for Obama's "middle-out" policies - higher tax rates, more intrusive regulations, more targeted fiscal policies - will not revive the economy. More likely they will perpetuate the weak economy we have and cause real incomes—including for those in the middle—to continue to stagnate.

The man who could barely recall anything at his various Congressional hearings, has no problem with remembering one key aspect of the MF Global bankruptcy: Jon Corzine is innocent! And, as a result, yesterday his lawyers filed a motion to dismiss a civil case brought against him by the CFTC in which the legal team shows that the best defense is a good offense and openly critiques the commodities regulator. DealBook excerpts from the filing: "There is no evidence demonstrating that Mr. Corzine knowingly directed unlawful conduct or acted without good faith," wrote the lawyers from Dechert, Andrew J. Levander and Benjamin E. Rosenberg. "Rather than acknowledge that reality and move on, the C.F.T.C. has clung to its baseless presumptions and manufactured charges of wrongdoing that are supposedly connected to Mr. Corzine." Right: the commingling just happened on its own. Twas but a glitch.

Smashing the previous record $17 billion deal from Apple which is doing so badly (in yield and spread terms), Verizon - in order to fund the mega deal with Vodafone - is launching an 8-part $49 billion deal done at what appear reasonable spread levels (though spreads are dramatically wider than a month ago as one would expect for such a releveraging). With the bulk of the deal ($36 billion) maturing 7 years or longer, it would appear that (and desk chatter confirms) demand was relatively high and BofAML also notes that Verizon will now have a huge $69 to $79 billion of index-eligible bonds. This will make Verizon the 4th largest issuer in the US high-grade market index, right up their with Goldman Sachs and Citigroup. Amid all this exuberance though, something odd popped up:

• *VERIZON POSTPONES EUROPE INVESTOR MEETINGS ABOUT VODAFONE DEAL

Reuters is reporting that with a $101 billion order book already, it appears they had no ned to shop the deal in Europe. Amazing what ZIRP repression will do...

Plastic phones, a gold cover, and no China Mobile deal seems to have disappointed more than a few AAPL investors this morning. Downgrades are a plenty but we await confirmation from Carl Icahn's twitter account of what to do next as the price of the stock has just fallen below his initial tweet level. Oh well, perhaps now that Apple's conversion to a Wall Street darling is complete (despite the downgrades by UBS, BofA, Credit Suisse and JPM) it is time for even more iBonds to reclaim the largest bond issuer ever title from Verizon...