Archive - Jun 14, 2011 - Story

A day ahead of the general Greek strike coupled with major Parliament blockade protest, it is useful to remember just why it is that Greeks are so pissed. Well, besides the obvious increase in the retirement age from 61 of course. So below it is in chart format. While we previously presented the UK "misery index" which back in March hit a 20 year high for the first time, here is the same appropriately titled index for Greece. And if the UK is at a 2 decade "misery" high, then Greece is roughly at a 10 billion year high. It really may all be uphill from here... Unless of course the Greek population decides it is happy with the status quo.

The slow, steady, very predetermined and methodical depletion of Comex silver, which recently entered 6-sigma range for a perfectly random event, or is the preparation for a Hunt Bros squeeze, now that there is 32% less silver (27.9MM vs 41MM on April 19) than there was 2 months ago, is starting to become disturbing to anyone who can identify a flat line pointing northeast at -45 degrees. Contrary to promises from virtually everyone that the ongoing decline in registered silver is something very temporary, the perfectly diagonal chart below begs to differ with this naive and now disproven hypothesis. The culprit for today's decline to a new record low is Brink's warehouse, where there was a 9% draw down in both registered and eligible silver. In the meantime, registered silver has not posted an uptick in over 3 months. Amusingly this is happening even as the price of spot and futures silver continues to trend lower. We wonder at what point will the general public wake up to what is happening: 25MM oz? 20MM oz? 10MM oz? 0?

While S&P appears to have completely forgotten about the country of Belgium, Moody's has realized that should Greece default, which is now inevitable, there may be aftershocks. Today, it focuses on France, and its three main banks Credit Agricole, SocGen and BNP, all of which it has put on downgrade review with a one notch maximum downgrade potential (except for SocGen which is two). Moody's also refreshed those who care that its downgrade review of Belgium's Dexia is ongoing and could result in a two-notch downgrade. The announcement comes just as it seemed that the EURUSD was about to shake off its late afternoon swoon, and instead is now near the day's lows.

While last night's republican debate was at best a complete waste of 2 hours, and at worst something not even fit for the pages of Zero Hedge (and we have very low standards - Zero "low hanging fruit" Hedge is what we are often been called), there was 20 minutes worthy of popular attention, and all of them belonged to Ron Paul. The Texas anti-Fed crusader presented his rational opinion, substantiated by actual fact and, more shockingly, math, glaringly standing out from the herd. Alas, since America always and without fail elects precisely the candidate it so rightfully deserves, it pains us to conclude that Paul has zero chance at the presidency. That said, we hope to convert at least one additional human to his cause by presenting the complete highlight reel from yesterday. Yes it is commercial- and other candidate-free so the signal to noise ratio is not seppuku inducing.

A week ago we suggested that the second Greek "bailout" was Dead on Arrival. Gradually, the market is starting to realize just that, as schisms are appearing not just between the core and the periphery, but between the two main players: Germany and the ECB, both of which have realized Plan B is doomed to failure. Late in the day, we got another confirmation from the Luxembourg finance minister who just did what the CFTC is now doing with Frank-Dodd implementation - announce indefinitely delays until some miraculous machine from god appears. Well, no machine is coming now or any time in the future. So ahead of tomorrow's day which is shaping up to be critical for Greece, the Eurozone and potentially the entire developed world, here is SocGen's summary take down of all of today's events in preparation for tomorrow.

After surviving the start of the Second Great Depression, and living in its first great bear market bounce/short squeeze, where now all the attention is focused on a collapsing Europe, many could be wondering how, if at all, it would have been different to have lived through the first Great Depression. Luckily, courtesy of the recent release of the BIS's full annual reports, history buffs can now replay, year by year, the events in world capital markets from 1931 onward. We have put particular emphasis on the dark days of the 1930s. Below we present the first several such years as seen from the perspective of the BIS. Note the endless similarities - in fact one could say the only difference between then and now is the lack of "liquidity providing" algos (soon, there will be an iPad app for that) to front run slow and stupid retail/pension/mutual fund money. Pay particular attention to the role of gold in the crisis period, the amusing reference to FDR's confiscation of gold in 1933, and how the mood of insecured optimism shifts to one of endless gloom, and ends, as everyone knows, with World War 2.

All aboard the we'll make it up as we go along Titanic:

• AGREEMENT ON NEW GREEK AID MAY BE DELAYED TO JULY, FRIEDEN SAYS
• FRIEDEN SAYS CONDITIONS HAVE TO BE RESPECTED IN GREECE
• FRIEDEN SAYS NEED TO ENSURE NO CONTAGION EFFECT
• FRIEDEN SAYS SEVERAL GREEK OPTIONS STILL HAVE TO BE STUDIED
• FRIEDEN SAYS GREEK DEFAULT WOULD HAVE GREAT CONSEQUENCES
• FRIEDEN SAYS GREEK DEFAULT WOULD AFFECT `ALL OUR BANKS'
• FRIEDEN SAYS PRIVATE SECTOR INVOLVEMENT FOR GREECE `LIKELY'

Earlier today, we reported about Kozani Alekos Athanasiadis, a member of parliament for the Greek ruling PASOK party, who  in a radio interview said that he would vote against the medium-term program. Next up is Giorgos Lianis who has just tendered his resignation as a member of Pasok's central committee, but is keeping his parliament seat and will continue to serve as an independent, leaving the ruling Pasok party with 155 MPs. Athens News reports: "Commenting on the public anger over the austerity measures on the Alter television channel late last year, Lianis had declared his intention to leave politics in order to be able to safely "walk the streets." It is uncler what the state of the other 155 or so PASOK members will be when walking the streets should they indeed proceed to go ahead and vote on the medium-term fiscal program, whose discussions begin tomorrow and which is expected to see a vote on June 28. Elsewhere both the Communist Party of Greece (KKE) and Radical Left Coalition (Syriza) announced that they will refrain from all Parliamentary procedures that concern the Mid-Term Fiscal Strategy, including participation in the competent committee and the Parliamentary plenary session. A statement issued underlined that "the anti-popular monstrosity is condemned and voted down because it serves the interests of plutocracy and levels off the rights of the workers and the people."

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

Bill Gross released a very troubling tweet earlier:

Why is it odd? Because as David Rosenberg predicted two weeks ago when he expected that Operation Twist could be coming back with the Fed "capping" the 10 Year, Bill Gross, who has Larry "Fed Expert Network" Meyer in his ear and thus knows better than most what is coming, is predicting some "Twisting" though not at the 10 Year mark, but at the very short end. This is very disturbing. Because as we suggested at the end of May, QE3 will in reality be Operation Twist 2...

We know our readers are excited to watch a speech headlining the Chairsatan and moderated by Steve Liesman. Which is precisely what will happen at 2:30pm at the Committee for a Responsible Federal Budget ("bipartisan group of budget experts concerned about this nation's fiscal future."). You can watch the webcast live below. The full chairsatanic speech can be found here.

Japan's attempt to restimulate the economy through consumer spending (something that has so far failed in the US and everywhere else courtesy of a third consecutive year of global household sector deleveraging) appears to be going horribly wrong. Exhibit A: "Japanese safe maker Eiko Co. says sales jumped more than 40 percent after the March earthquake and tsunami, a sign that consumers will hoard more cash at home and restrain an economic rebound...“The television footage of the tsunami destroying everything in its path must have served as a warning for cash- rich people,” said Tsutomu Ishii, head of sales for the Tokyo- based company. “They have cash at home and they don’t want to leave it without any protection anymore."" If economic recovery is based on spending for cash hoarding devices that the BOJ has done an amazing job. Alas, we are fairly confident not even Keynes has a footnote in any of his theories suggesting that consumers buying up safes, mattresses, socks or other cash storage devices is in any way stimulative of GDP. Alas, the bottom line (and as we have been claiming since the beginning of May) is that the BOJ will have no choice but to step in yet again to take the place of Japan's consumers who are not only disenchanted with stock returns, but now have to worry about natural disasters. "Households aren’t ready to help the economy by spending" said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo.

For the last few days, we’ve been having an important discussion about the magnitude of the economic challenges in the west; if you didn’t read yesterday’s letter, I really encourage you to do so before proceeding because it’s important to understand why the west has truly passed the point of no return. Simply put, the United States and much of Europe are borrowing an extraordinary amount of money now just to pay interest on the money they’ve already borrowed. They cannot even self-fund their mandatory entitlement programs without going into the hole, and their options are limited.

Today's POMO had two curious characteristics. The first was that the Dealers tried to put a whopping $28.4 billion in 2-3 year bonds back to the Fed, as ever more are doing all they can to offload existing positions. The deluge in reverse tenders resulted in the highest Submitted to Accepted ratio for all of QE2, after the Fed accepted only $3.2 billion for buybacks, bringing the S/A ratio to a whopping 8.9x. This was the highest Submitted to Accepted ratio since April 13, when the Fed monetized $5.01 billion in bonds following dealer tender interest for $42.9 billion, or an 8.6x S/A ratio. Not surprisingly, that POMO was also one focusing on bonds maturing 2012-2013, confirming that the PDs have far too much exposure in the short end. The second curiosity was that of the just auctioned off QZ6 (or the On The Run 2 year) not a single dollar was bought back by Brian Sack's minions. Since the 2 Year rallied substantially since the May 24 auction date, there is something oddly disturbing about this complete lack of action in what has traditionally been the most actively repurchased security. Alas, we have no explanation for part 2, while for part 1 it indicates that following the end of QE2 we may see some very substantial flattening of the curve if and when the dealer community finds itself short of cash in under 3 weeks. And speaking of the end of QE2, below is a chart showing the countdown to D-Day: $8 billion down (in the last POMO schedule), and just $51 billion to go. There are now just 11 POMO days, and 12 total POMO operations, including the double POMO on June 20. What happens next is all priced in according to Blackrock and CNBC.

Some thoughts by David Schawel at Economic Musings who follows up on our observations from a week earlier regarding the possibility for a major Treasury collateral scramble if and when Basel III is ever implemented, and the implications for US Treasury demand. "In my opinion, the implications of this are crystal clear: banks will obviously need to dramatically ramp up their holdings of these securities (mainly treasuries) in order to comply with the LCR ratio. This could provide a significant tailwind to treasury demand over the near to intermediate term. S&P says it best, “We believe there is a risk that this standard is too conservative- to the point where it could create a shortage of liquid assets…"