Archive - Jul 2015

China's PBoC-assisted plunge protection program got off to a rather inauspicious start on Monday after an early bid to ramp the SHCOMP fizzled fast.

France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010. The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected.

Perhaps the more important catalyst for asset price changes of late is Chinese economic slowing rather than fears of Grexit?

"Wake up people of the world and investors. Greece will come to your neighborhood very soon, maybe not this year, but next year or whenever it is, because the world is over infected," Marc Faber warns, in an interview on Bloomberg TV. Faber also discusses the collapse in Chinese equities and the prospects for a Fed "liftoff."

Problems... "solved"

April 10th 2014 will live on as a day of infamy as hopes of Greece's 'recovery' were proven 'correct' as it issued a 5Y bond in the public markets in what some commentators called a "triumphant return." As recently as last Friday that bond still traded at aroun 70c on the dollar (a 300% collapse from the issue price) but for all those who stuck to their guns and denied-denied-denied reality, today's collapse shows that a 'No' vote was anything but priced in...

Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.

The Fed understands that economic cycles do not last forever, and we are closer to the next recession than not. While raising rates would likely accelerate a potential recession and a significant market correction, from the Fed's perspective it might be the 'lesser of two evils. Being caught at the "zero bound" at the onset of a recession leaves few options for the Federal Reserve to stabilize an economic decline. The problem is that they may have missed their window to get there.

Wondering who was buying the market with both hands and feet this morning? Questioning the rationality of sucvh voracious dip-buyers? We have the answer to 'how' the market soared to Friday's highs...

While the folks clogging the US tattoo parlors may not have noticed, things are beginning to look a little World War one-ish out there. Except the current blossoming world conflict is being fought not with massed troops and tanks but with interest rates and repayment schedules. Germany now dawdles in reply to the gauntlet slammed down Sunday in the Greek referendum (hell) “no” vote. Germany’s immediate strategy, it appears, is to apply some good old fashioned Teutonic todesfurcht — let the Greeks simmer in their own juices for a few days while depositors suck the dwindling cash reserves from the banks and the grocery store shelves empty out. Then what? Nobody knows. And anything can happen.

Should markets fret, and ECB action becomes necessary then we think the markets will price ECB action well before highly stressed levels. If we for instance take it view of the monetary policy stance impact seriously then market moves that take real yields to levels that persisted before the ECB started easing policy (negative rates started in Jun 2014) may be a trigger point.

Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.