March 8th, 2012
Being an intrinsically destabilizing force, financialization led to the global financial crisis of 2008. Central banks went into panic mode, printing and injecting trillions of dollars of new infectious material into the global economy in the hopes of sparking a new even grander cycle of financialization. But you can't create a new cycle of plague when the hosts are either dead or already infected. The world has run out of sectors that can be financialized; that plague has already killed or infected every corner of the global economy. Ironically, all the central banks' attempts to reinflate the speculative leverage-debt bubble are only hastening the disease's decline and collapse. The global markets are cheering today because the plague-riddled corpse of Greek debt has been turned into a grotesque marionette that is being made to "dance" by the European Central Bank before an audience that has been told to applaud loudly, even though the ghastly, bizarre spectacle is transparently phony. Greek debt is already dead; it can't be reinfected and killed again, and neither can the debts of Ireland, Spain, Portugal, Italy et al. Housing is also already dead, though the still-warm body is still twitching in certain markets around the world.
As we hear from one government spokesperson after another that the Greek PSI deal is 'going well' which appears to us to be a misnomer as either its done or its not, we note that the price for the Greek CDS-Bond basis topped Par today for the first time. While there is some noise in this (and extremely wide bid-ask spreads), looking at the ask on the bonds and the bid on the CDS which measures more accurately the price at which basis traders can exit the trade (though liquidity is challenging), it would appear that some hedgies are ringing the bell on this trade and covering at better than Par levels. While we would have expected some basis traders to hold through the event horizon, it makes little sense to look a gift horse in the mouth as the trade has met its 'theoretical' limit (and beyond in fact as the add-ons from EFSF and GDP warrants leave some extra on the table). The point is that the basis (the price of buying a Greek bond and fully hedging its 'default' risk) has peaked, implying a credit event is 100% priced in suggesting CACs are on their way later today (despite current 'news' reports'). If the Greeks really have the needed participation then we would expect to see CDS dump tighter as everyone scrambled out - even to the 45% upf that some think 'new' CDS should trade at, this is not occurring.
With less than 4 hours until the Greek PSI deadline (8pm GMT), the time to start spreading rumors has arrived. Sure enough, courtesy of Reuters:
- SENIOR GREEK GOVT OFFICIAL SAYS TAKE-UP IN DEBT SWAP EXCEEDED 75 PCT LATE LAST NIGHT
Needless to say this conflicts with what all other media reports on the topic in this latest headline frenzy. Then again, in the game of the Schrodinger PSI, where the quantum participation state is 0% or 100% depending on whether one collapses the Lie function, the only sure thing is that there will be a Dead Schrodinger Cat bounce before the CAC is triggered shortly and the market tests just how firewalled it is to a Greek CDS trigger.
This entire deal is just stupid. And all it’s done is alert Spain and Italy to the fact that handing over fiscal sovereignty and implementing austerity measures in exchange for bailouts is a waste of time. Indeed, Spain just woke up and smelled the coffee. And it's told the EU to "shove it."
Yesterday we were quite amused to note that following the Hilsenrath leak (pre-backpeddaling as a result of some FRBNY spanking) of a sterilized QE that for supposedly tries to avoid "generating" inflation (hence confirming that QE does in fact stimulate inflation instead of being a tool to lower rates and make housing affordable) the market reaction was... inflationary, with stocks rising, but far less than crude and gold. So much for the Fed's trial balloon to see if it can intervene in the market without costing Obama a few million ballots. Today, Art Cashin observes precisely the same paradoxical response in his daily note.
Two days ago Obama held a press conference in which he openly prevaricated and disinformed the world about the true nature of his meeting with Israel PM Netanyahu. Today we find what was truly discussed, courtesy of Israel's Maariv newspaper, Spiegel and Reuters, which all tell us that it was a simple case of quid pro quo, namely that Barack Obama would supply Israel with bunker-busters and refueling planes if Bibi promised to delay an Iran attack until after the presidential election. The implication is simple - avoid an oil price shock this summer and delay it until next winter when Obama will be safely in his throne for another 4 years, at which point US citizens can fuel their cars with combustible urine following nights of binging on Everclear in hopes of ending their sorrows with alcohol poisoning, or better yet, all be in possession of the heavily subsidized flaming half ton block of metal known as the Obama Pinto, er, Volt.
Lies, damn lies and charts. Why no one in charge dares utter the "F" word (fraud).
Today is supposedly the day. The initial deadline for Greek PSI will occur later today (unless of course it is extended somehow - but will be released here) and while CAC activation (and hence eventual 90% participation) is the consensus most likely outcome for bonds under Greek law (but not for all bonds under English law) - which the market appears to be very comfortable with given overnight trading - there are still risks, as BofA notes, that a number of low risk but high impact events unfold with extremely negative connotations. Clarifying expectations and market implications, it does seem that while BofA is a little more sanguine than us on this initial deadline, that the market's complacency is extremely high.
Presented in all its incredulous glory, SocGen's EM desk's shock at the sheep-like ignorance of investors heading into the PSI and NFP... "I have tried my best to remain relatively bullish towards global emerging markets (GEM) over the recent period despite the global risks, but even by my bullish bias standards, today’s move is simply stupid. EM assets are rallying with a vengeance today, but the timing of that move is just wrong, in my view. Why now, ahead of a massive event risk, namely the results of the PSI released tonight? So unless EM investors know something I don’t—which would indeed make me stupid—today’s move is at best premature and quite a bit far-fetched."
Consumer spending in the Netherlands has been weaker than other countries in the eurozone for the past ten year and is currently also lower than during the severe economic crisis of the early 80s according the Dutch Central Bank (DNB). They continue that the low spending is an important factor in the recession the Netherlands is now in. Dutch spending patterns have deviated from other European countries which is noteworthy since the Netherlands had one of the highest rates of eurozone countries between 1992 and 2001.
Initial claims print +362K, missing consensus of 352K, and up from a upward revised, (of course) 354K. As a reminder, last week's print was expected to be 355K, instead coming at 351K spiking the market far higher. Needless to say, the response would have been far more muted had the number come at its true final print of virtually on top of expectations, but who cares anymore - everyone appears to enjoy lying and being lied to. That this miss comes ahead of a critical NFP print will likely have some scratching their heads especially since this is the first time we have seen three consecutive weeks of rises since August 2010. Also keep in mind next week, today's 362K will be upward revised to 365K. Hence the immediate if not sooner need for more, more, more QE. Continuing claims also missed at 3416K vs exp. of 3400K, and rising from an upwardly revised 3406K. Finally, EUCs and Extended benefits rose by 27K. Finally, when it comes to comparing before and after, we think it always makes sense to see the full picture, not just initial claims, and account for continuing and extended. Here is what it looks like for all those who tell us that the labor situation is as good as it was in 2008.
Update 2: This about summarizes it: "We have no Plan B. Having a Plan B means to admit defeat"
Update: Draghi says LTRO has been an "unquestionable success" but does not answer if there will be future LTROs. Bookmark this statement. Also says that ECB has to do things "together" when asked about Jens Weidmann criticism, with whom he says his relationship is excellent.
Will Goldman-alum Mario Draghi further infuriate German central bankers and announce additional easing steps by the ECB, whose balance sheet has become a "bad bank" punching bag for everyone who wishes to divert attention from their own problems, or will he, after flooding the world with €1 trillion since coming to power a few months ago, be satisfied for the time being and not preannounce another LTRO? Also, will he mention the previously noted collateral margin calls that have appeared recently like hairline fractures in the ECB's balance sheet, discussing the specifics of why, how and where these come from, or will he conveniently skip this rather problematic issue? Find out during the Draghi press conference starting at 8:30 am Eastern.
The German criticism of a mess they themselves have enabled (and benefit from via peripheral current account deficits funded via TARGET2 as shown previously here) at the ECB continues, and following public protests by Bundesbank head Jens Weidmann about recent ECB activity, it is the turn of former ECB executive board member Juergen Stark to take center stage. In an interview with the Frankfurter Allgemeine, warned that following the massive expansion in the ECB's balance sheet, in which it is clear to anyone that the ECB will accept used candy bar wrappers as collateral, that "the balance sheet of the euro system, isn't only gigantic in size but also shocking in quality."
European stock futures have trended higher today in relatively light volumes as the market awaits key interest rate decisions (BoE & ECB) and with the deadline for the Greek debt swap deal looming. The latest talk this morning has been that the participation in the PSI deal has been well received and coupled with speculation of a Chinese RRR cut overnight and stops tripped in the E-mini S&P and Eurostoxx futures earlier this morning, contributed to a large portion of the move higher. As a consequence, the USD index has weakened (-0.5%) which has lifted the EUR/USD pair back firmly though the 1.3200 level to the upside and Brent/WTI crude futures are seen higher ahead of the NYMEX pit open. Looking ahead we await the ECB press conference as well as the latest jobs data from the US due at 1330GMT.