Archive - Jun 15, 2011 - Story

European liquidity just went into Defcon 1.

Don't fret: the NYSE has it all under control. If the market plunge continues the market will simply close. Better get it in the next 2 hours though. In the meantime...

And it seemed like such a nice day for idiot momo investors everywhere....

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

Market Recaps to help improve your Trading and Global knowledge

Distraction #1

• NOONAN SAYS IRISH SHOULDN'T REDEEM ANGLO SENIOR BONDS AT PAR
  
• NOONAN SAYS IMF OFFICIALS UNDERSTOOD POSITION ON ANGLO IRISH
• NOONAN SAYS ANGLO IRISH NO LONGER A BANK

Well, don't keep us in suspense... WHAT IS IT? Oh, and the IMF may have some decision-making issues, now that it is facing a European banking system collapse not on one, but two fronts.

For that warm, cushy, emphatic, teargas-induced emphysema feeling of being there... but not quite. Courtesy of Covering Delta, here are some video clips from the heart of the action.

Unlike yesterday's POMO, which as only we pointed out first "curiously" saw not a single monetization of the OTR 2 Year bond QZ6, today things were just as predicted, with the just issued QQ6 amounting to the most monetized issue of all (at $1.6 billion), or a third of the entire $4.7 billion operation, just as expected this morning. Why is this not surprising: because today's operation targeted 5-7 year bonds, or, simply said, bonds to the right of where as we noted yesterday, Bill Gross now believes Operation Twist 2 will take place. Furthermore, as Zero Hedge concluded yesterday, when discussing the 2-3 Year point on the curve, " why sell today at 0.44% when you can wait a month and sell them back to Brian Sack at 0.00%." Well, the 2 Year is not 0.00% yet... But is now at the tightest it has been since November, touching on 0.39% as everyone is now rushing to frontrun the Fed's interest rate cap on the 2 Year, which could possibly be as low as 0.20%. Also, that Operation Twist is nothing short of another unsterilized Quantitative Easing program, we expect that stocks and much more importantly, commodities, will soon begin to price reality in. Expect much more clarity when the June 22 FOMC meeting is released. In the meantime, observe the massive outlier that the 2 Year has been over the past two days, or since the release of the Gross tweet.

Does it seem like we’ve been here before? A barrel of Brent Crude (the truest indicator of worldwide oil scarcity) sits at $118, up from $75 per barrel in July 2010 – a 57% increase in eleven months. In the U.S., the average price of gasoline is $3.69 per gallon this week, up 37% in the last year and up 100% in the last 30 months. The pundits and politicians are responding predictably. They blame the Libyan revolution, the dreaded speculators and that old fallback – Big Oil. When the Middle East turmoil began in earnest in January, gas prices had already risen 15% in three months, spurred by increased worldwide demand and by Ben Bernanke’s printing press. Congressmen have reacted in their usual kneejerk politically motivated fashion by demanding that supplies be released from the Strategic Oil Reserve. Congress has a little trouble with the concept of “strategic.” They also have difficulty dealing with a reality that has been staring them in the face for decades. Politicians will always disregard prudent, long-term planning for vote-generating talk and gestures.

Developments in Athens are to say the least fluid. The latest news out of Athens News states that G-Pap is prepared to step down in order to form an all-party consensus government with the main opposition party, New Democracy. "Prime Minister George Papandreou held talks with main opposition New Democracy leader Antonis Samaras on the telephone on Wednesday, after a round of telephone calls with the leaders of the other political parties in Parliament. Their conversation lasted roughly 20 minutes. While an earlier official announcement by ND had refused to disclose the content of their talks before Papandreou had expressed his position, unnamed sources within the party said that the prime minister had described the situation as extremely difficult and that he was prepared to consider either an all-party government or a broader alliance government. The same sources said that Samaras did not reject the proposal but made it clear that this could not work with Papandreou as prime minister. To this, always according to ND sources, Papandreou apparently replied that he was not concerned about whether he was prime minister." And while the political wrangling is irrelevant for the rest of the world, what is relevant, especially for the ECB which would need a bail out by the Fed should Greece default is the following: "Samaras has apparently made it a condition that there is a substantial renegotiation of the terms of the Memorandum for the loans to Greece, in order to agree to an all-party government." Good luck passing that by the Troica. In other words, Greece is now in a power vacuum and the worst case outcome for Europe appears set to be realized.

And another index drops to levels last seen just as QE2 was unwinding. Per the NAHB: "After holding at a low but steady level for the past six months, builder confidence in the market for newly built, single-family homes declined three points in June to a reading of 13 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The last time the index was this low was in September of 2010. "Builders are being squeezed by the continuing weakness in existing-home prices – against which they must compete -- as well as rising material costs," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "In addition to the ongoing impacts of distressed property sales on home prices, appraisal values and consumer confidence, rising costs for materials such as roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs....Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen," agreed NAHB Chief Economist David Crowe. "Meanwhile, potential new-home buyers are being constrained by difficulty selling their existing homes, stringent lending requirements, and general uncertainty about the economy. Economic growth must pick up in order for housing to gain the momentum it needs to get back on track." Yet fear not: Wall Street's econometric lemmings say the economy will surge in the second half on more hope and change. It is unclear what besides hope and change will cause this miraculous surge, although Operation Twist 2, which now seems guaranteed, appears to be the best guess.

BARCLAYS'S JENKINS SAYS `SERIOUS' PROBLEMS IN EUROPEAN UNIT

For those who may have forgotten, back in the summer of 2007 Bear Stearns had some problems with some of its own units as well...

Manipulation is the beating heart of Federal Reserve and Central State policies. The centrally planned economy has failed to respond as expected, and so the response is to put more cocaine-laced pellets in the feedbox and encourage the poor starved rat inside the cage to press the bar labeled "debt" to get another pellet of addiction and highly profitable enslavement. Welcome to Manipulation Nation, a.k.a. the unlimited debt experiment. Think rat cage, one bar to press, and unlimited cocaine-laced pellets.

At this point the Greek bond market is pretty much irrelevant, although it bears pointing out that the 3 Year is now at 28.6%. Also, the price on the 4.6% 30 year just hit 40.5 cents on the dollar. That Cheapest to Delivery physical CDS settlement sure is going to be fun, and for nobody more so than for the ECB, which will suddenly find itself with a basement full of live collateralized grenades that are not only worthless but that will set off the avalanche that annihilates the asset side to the EUR liability side.

Industrial production edged up 0.1 percent in May, the second consecutive month with little or no gain. Revisions to total industrial production in months before May were small. In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent in May and edged down 0.1 percent in April; the decrease in April in part reflected production lost because of tornadoes in the South at the end of the month. Capacity utilization for total industry was flat at 76.7 percent, a rate 3.7 percentage points below its average from 1972 to 2010.

June brings us much more centrally planned stagflation.CPI increased 0.2% in May, higher than expected 0.1%, and up 3.6% Y/Y. This is the 11th consecutive increase in inflation. And so much for the CPI ex-Food and Energy which came at +0.3% on expectations of 0.2%, up from 0.2% in April: "The index for all items less food and energy increased 0.3 percent in May, its largest increase since July 2008. The indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April. These increases more than offset declines in the indexes for airline fare, tobacco, and personal care." More on the Chairman's failure to rein in inflation in 15 minutes: "The food index rose in May as well. The food at home index repeated its April increase of 0.5 percent as four of the six major grocery store food group indexes increased, with the index for meats, poultry, fish, and eggs rising the most. In contrast, the energy index, which had been rising sharply, declined in May. The gasoline index decreased for the first time since last June, although the index for household energy increased. The upward trend among the 12 month increases of major indexes continued in May. The 12 month change in the all items index, which  was 1.1 percent as recently as November, reached 3.6 percent in May. The energy index has increased 21.5 percent over the last 12 months, the food index has risen 3.5 percent and the index for all items less food and energy has increased 1.5 percent. All of these figures have been rising in recent months." But the real action was in the Empire Manufacturing Index which plunged from 11.88, and forget about expectations of 12.00, printing at -7.79 in June. The contraction is now confirmed. This is the first contraction since November 2010 when QE2 began. Hint: QE3 is coming. Also, the future general business conditions index fell thirty points, reaching 22.5, its lowest level since early 2009. And the kicker: margins continued to collapse as prices paid fell less than prices received. This is what stagflation is pure and simple; it has also been Zero Hedge's keyword of 2011 since January.