Archive - Jun 2011 - Story

Despite Bloomberg calling the vote in favor of G-Pap, it seems the immediate response in the EURUSD is to dump the euro currency.

Final Vote: 155:145

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/06/11

In a previous thread readers can watch what is happening on the square in front of the parliament, which for now is secondary and will likely be determined by the outcome of the G-Pap vote of confidence due in just over an hour. Readers who wish to watch the ongoing debate in the Greek parliament can do so at the following link. Currently Samaras, the leader of the opposition is speaking. The real fun should begin in about 40 minutes. After the vote passes successfully, we suggest you switch back to the outside camera.

Just like back in January when rumors of tax repatriation holiday started creeping up, the past week has seen a surge in speculation that the Homeland Investment Act part 2 may be coming back. Unfortunately, neither now, nor in January, nor during the original HIA back in 2005, did this tax repatriation of billions in cash do absolutely anything to stimulate the economy, and in fact the waves of layoffs that followed likely added to the weakness that would become apparent with the December 2007 transition into the Second Great Depression. Yet that will not stop big multinational companies from lobbying for this one time gift which will allows management teams to buy back shares, and lock in individual profits on their insider holdings (certainly expect an unseen wave of insider selling in the aftermath of a HIA 2 should one be implemented). As for the economic rationale, there is none. We discussed this back in January and February extensively, but for hose who may have forgotten, here is a good recap courtesy of David Rosenberg's latest leter to clients.

Two weeks ago we broke the story that the bulk of the excess reserves, and thus cash, generated as part of QE2 has gone not to US banks, but to foreign banks operating in the US. One of the generic rebuttals of this observation was that it is naive to assume that European banks have been buying up the Treasurys issued by the Fed (and flipping these to their clients) which would also leads to a contemporaneous increase in excess reserves (over $630 billion since the start of QE3). This was a good question and we did not have a ready answer. Luckily, Stone McCarthy has come up with a resolution. In a just released note to clients, SMRA hints at how these banks have loaded up on cash without having to also see domestic assets surge (and instead just have just seen the net liability owed to foreign offices increase). The answer: Eurodollars.

• SEC TO HOLD CONFERENCE CALL TO DISCUSS ENFORCEMENT VS JP MORGAN
• JP MORGAN TO PAY $153.6M TO SETTLE SEC CHARGES
• JP MORGAN TO SETTLE SEC CHARGES ON MISLEADING IN CDO ON HOUSING
• SEC CITES MISLEADING INVESTORS IN CDO TIED TO HOUSING MARKET
• KHUZAMI: JPMORGAN FAILED TO DISCLOSE MAGNETAR'S ROLE, INTERESTS
• KHUZAMI: JPMORGAN HAS REIMBURSED INVESTORS IN TAHOMA CDO
• KHUZAMI SAYS SEC MISLED INVESTORS IN SQUARED CDO

Done and done. And now JPM is off the hook for ever and ever. In other news JPM made $153.6 million in profits since you clicked on this post. Of course, that's irrelevant as Bear Stearns will be stuck with the bill.

In other news, www.bangbus.com shares are surging on a rumor of an imminent $153.6 million investment from an unknown source

Greek crowds which have already started to congregate at Syntagma square are probably not celebrating today's summer solstice. In fact, they are probably not celebrating anything, since after today's vote in which 155 ruling PASOK party members are expected to vote in favor of G-Pap's government reshuffle, all of them will end up far worse off than if they could merely devalue their currency and tell Europe's bankers and the ECB to shove it. Alas, courtesy of living in a quote unquote democracy, this vastly popular decision will likely never happen in a peaceful setting. So will today's latest protest session in front of the Parliament do anything to change an outcome which the market has already decided is certain and favorable? Below are is a live Greek webcast which may provide clues.

On the day when the flawed euro experiment will get its first popular pseudo-referendum, it is only logical that prominent euroskeptic Nigel Farage would sound off on how he sees things for Greece, Europe and the currency union, and why he believes the current situation is nothing short of slavery: "Listen to Borges state: "We really believe that many of the current problems result from incomplete integration. In the process of developing monetary union like the United States, which is a fully integrated monetary union, you have obstacles that magnify the problem." What he seems to forget is that final fiscal and monetary union in the US only happened after the then bloodiest war in history, in a country that was already united by language law and customs. It is extraordinary that the IMF is suggesting that this economic crisis is in any way synonymous with what was happening in the US in the 1840s. The only slavery here is of the people to the Eurocrats dream. For without democratic control, we are left with something akin to slavery."

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

Market Recaps to help improve your Trading and Global knowledge

Not surprising existing home sales for May fell to 4.81 million units which is now resuming it's downtrend after brief upticks that were caused by government incentive programs that dragged forward future existing home sales. As the consumer has begun to deleverage their household balance sheet both new and existing home sales have decreased. High unemployment, concerns about current employment, stagnant wage growth and uncertainty about future economic conditions weigh on the consumptive attitudes of the consumer...The NAR believes, and continues to hope, that May will prove to be the year's bottom for the housing sector. They will be wrong as they were last year as well, oh, and the year before as the balance sheet recession continues and consumers hunker down to regain stability in a weak economic environment that will continue to plague the housing market for some time to come.

Today's ramp in stocks, courtesy of the ES, was purely an attempt to force technical short covering at the 150 DMA which was just retaken, as was the April 18 swing low, as well as 1.44 on the EURUSD. Yet on the other hand, the dispersion between ES and the broader risk index is now at a 2 day wide, or about 10 S&P points. It seems that stocks are once again doing their headless chicken dance certain that either the Greek vote of confidence will pass, or Bernanke will announce QE3 tomorrow, or both, while everything else is reacting in a far more subdued. The two technicals heading into the close will be the push to close the spread on one hand, and the ongoing short covering from the 150 DMA on the other, as well as the second consecutive day in a row with a 150 pip move higher in the EURUSD on Chinese buying.

While the fact that its former head is an alleged rapist caught some by surprise, the observation that the IMF has no credibility whatsoever has been well known for a long time by all market skeptics. It is therefore gratifying to discover that the IMF's own internal audit committee has just concluded that the International Bailout Fund is full of it: "policy conclusions from International Monetary Fund research don’t always follow the underlying analysis, thereby potentially harming the institution’s reputation, according to an internal audit. “Many staff indicated that they often felt pressure to align their conclusions with IMF views,” the institution’s Independent Evaluation Office said in a report released today." And not only is the IMF lying, it also happens to be incompetent: "The office found that from 1999 until 2008 the “relevance” of research was hampered by insufficient consultation with the topic countries, the evaluation office said in a statement. The technical quality of working, regional and background papers was “quite uneven,” the study found." The culprit: the IMF's endless brown-nosing to Ben Bernanke: "An audit released in February found IMF economists missed signs of fragility that led to the 2008 financial collapse, partly because agency staff were “in awe of” monetary authorities in the U.S. and other major economies." We can't wait for the Tweet pics released from the tete-a-tete sessions behind close doors between Bernanke and "in awe of" Lagarde.

If permabullishness is contaguious, Joe LaVorgna may well be typhoid Mary, with the distinction that the LaVorg exhibits all the symptoms and then some.

The Federal Reserve is playing a game of Pretend: Let's pretend that if interest rates are near-zero, we'll always be able to borrow more. Hey, what's a trillion dollars at zero interest? You and I could make the interest-only payments each month, because they're zero. But shoving "free money" into banks and Wall Street doesn't filter down to John Q. Citizen: it simply incentivizes massive speculation in stocks, commodities, seaside resorts, empty cities in China, you name it. This is the basis of the current stock, bond and commodities booms in the global economy: push trillions of dollars in "free money" to financial players, and guess what, that hot money flows out seeking a fat return. The Keynesians and other economists have no ideas for confronting the reality of a post-consumerist debt economy and society. Like frenzied rats in a cage, they only have one lever to push to release the cocaine-laced pellets, and so they've been pushing it for 40 years. Now they're hitting the bar with frantic energy, hoping the crazed and addled rats around them can dredge up some "demand" for more pellets to "consume." But the consumer-rats are bloated and lethargic; they've consumed so much debt-drug that they're near death. Like a star which has expanded and now cannot maintain its grand state, the debt-based consumerist economy is now poised to experience a supernova implosion.