Archive - Jul 11, 2011 - Story

It's that time again when almost half a year after his first 2011 presentation to Congress and Senate in the semi-annual Humphrey-Hawkins, Bernanke will update the Hill with his latest outlook on monetary policy. And while the first such testimony earlier in the year was uneventful as it occurred at a time when the flawed belief that the US economy was growing was still prevalent, there is a peculiar sense of deja vu'ness. As JPM's Michael Feroli observes: " it may be helpful to recall last July's Humphrey-Hawkins testimony when, like now, the growth data had been seriously disappointing. Bernanke's testimony fell flat: the Chairman sounded tone-deaf, discussing plans for exit strategies, and markets rolled over, with stocks off over 1% on the day." Feroli continues: "The Chairman does seem to learn from his miscues -- there haven't been any further Maria Bartiromo incidents -- and we expect he will be more mindful of the downward momentum of the recent data." Does this mean that the Chairman may hint at a change in monetary strategy, especially if July regional Fed updates confirm the ugly NFP data? Most say no, but not Bill Gross, who as is well known, expects the first QE3 hints to be dropped in August. Perhaps Bernanke will decide to surprise the market again and pull that forward by one month? Read the full Feroli note below.

First, it was the president's turn to waste a few hundred million in deficit dollars by doing nothing to help the country (though certainly talk about it). Now it is Boehner's time for a retort. We anticipate, with about 100% certainty, that about $150 million in deficit funding debt will be added for the duration of this latest spectacle. And since, debt is not actually being added per se while the US in breach of the ceiling, this is simply the amount that will be plundered "transitorily" from government pension funds until the debt target is finally lifted. Watch the top GOPer's response live here at 1:30 pm EDT.

In the US, the government now requires all citizens to have a passport in order to pass the border, even when driving into Mexico or Canada. Obtaining a passport, however, is neither free nor guaranteed. You must apply, pay an ever-increasing fee, and wait for weeks to be approved and receive it. Naturally, the privacy statement on the application also acknowledges that the responses can be shared with other departments in the government, including Homeland Security. If this proposal passes, then US citizens will have a nearly insurmountable hurdle to obtain a passport and be able to leave the country at will. Even if it doesn’t pass, it’s a clear demonstration of what the people who run the country are thinking. Have you reached your breaking point yet, comrades? Let me know what you think.

After last month, many funds got wiped out after the Brent-WTI spread collapsed from about $20 back to $14 in the span of days following the mid-June market swoon, the subsequent unprecedented rally driven purely by the ISM's inventory build up (which was massacred when last week's NFP confirmed aspirations about the end of the soft patch were proven to be simply naive if not outright moronic) has once again sent crude traders, who had now recalibrated their models to expect a spread in the mid-teens, upchucking (and in many cases negotiating margin calls with their prime brokers) after it just hit a fresh all time wide of $22.14, a nearly 100% move in just two weeks. The last time the max pain trade hit it caused such industry titans as John Arnold's Centaurus to gate, and do everything in their power to not lose LPs. What happens after the last two days move, will be seen shortly. Expect another spike in crude (and commodity) vol when the next big player throws in the towel.

We haven't commented extensively on the recently announced Bank of America $8.5 billion RMBS "non-settlement" settlement because frankly, it is a total travesty, ripe with so many conflicts of interest, it has no chance in hell of being final, and will likely see numerous revisions before it is complete, in the process costing BAC many more billions in legal fees and charge offs. We also expected that it was only a matter of time before politicians swarmed like a flock of crows on this rotting carcass of a deal, which will only make the life of BAC worse (we did share our amazement that BofA's stock rose on the news). Sure enough, here comes the first Congressman to contest that the proposed settlement is not an "arm's length transaction." And while our opinion of politicians is well-known, Miller's conclusion is spot on: "it is important that the American people know that their government is acting on their behalf, not on behalf of powerful financial institutions. It is important that the public and Congress be able to assess whether the enterprises settled claims that would limit taxpayer losses on a tough, arm's length basis, rather than providing another indirect subsidy to the banking industry." Alas, nobody even remotely believes that the government represents anything but the interests of the banks. But a bold effort. One thing is certain: the final BAC settlement, if one even comes to fruition, will not be $8.5 billion.

The most meaningful summary of Obama's most recent (in a long series) speech, which this time was only 14 minutes delayed: the US Deficit increased $112.5 million during the president's latest teleprompted appearance (9m deficit $973 bn ; $108 bn / mo ; $3.6 bn / day ; $150 mm / hr ; $2.5 mm / minute). Since US debt increases at a rate about 30% higher than the actual deficit, the actual new debt incurred was about $146 million. And that's all you need to know about the latest episode in the political tragicomedy charade.

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

Market Recaps to help improve your Trading and Global knowledge

Europe is now closed, which means the ES no volume ramp into the close will likely be next, even as the RISK index trails and allows another 10 point divergence at EOD, for today's pair trade compression opportunity. We will demonstrate it when it appears. Of course, nothing has changed, and in fact things in Europe are getting exponentially worse, with contagion now squarely hitting Italy and Spain, both of which have seen their spreads and CDS blow out in both the past week and YTD. Below is a visual update of the massacre.

This is getting bad. The market, like the good Pavlov dog it is, will start associating the president's now daily appearance with market plunges. Oh well. Some comedy relief nonetheless for those (the majority) that is not watching the Tiger address at the same time.

Update: News Corp. pulls antitrust submission only for BSKYB but the bid remains in effect. Whatever, it's only a matter of time.

Casualty #2.

• NEWS CORP. WITHDRAWS PROPOSED UNDERTAKINGS ON BSKYB
• NEWS CORP. REFERS TO BSKYB COMPETITION COMMISSION REFERENCE
• BSKYB DROPS AS MUCH AS 11% IN LONDON

Next up: the WSJ

Done and done.

Unicredit, which was halted briefly before after hitting its down limit, has reopened, and the investing public welcomes this by total dumpage. Stock down as much as 10.5%. Expect Consob to elevate up its naked short selling ban to a ban of all financial stock shorting.

Oops:

• INTESA SANPAOLO SPA <ISP.MI> SUSPENDED FROM TRADING LIMIT DOWN
• UNICREDIT <UCG.MI> SUSPENDED FROM TRADING LIMIT DOWN

Bank holiday limit up?

The US embassy in Damascus, Syria, wass reportedly scaled by protesters on Monday. A US official says the Obama administration will formally protest the 'attack' on the embassy and may seek compensation for damage caused when a mob breached the wall of the compound before being dispersed by Marine guards, according to the Associated Press. This photo, posted on Facebook, purportedly shows protesters scaling the fence around the US embassy.

The schizophrenic EU once again confirms it has forgotten to take its daily dose of Geodon. Reuters reports that banks in the European Union face curbs on how much they can depend on ratings from credit agencies to calculate the size of their capital safety cushions. Michel Barnier, the EU's financial services chief, said he will make the proposals as part of his reform to bring EU bank capital requirements in line with a global accord known as Basel III that will increase the size of capital buffers. "To limit overreliance, we will be strengthening the requirement for banks to carry out their own analysis of risk and not rely on external ratings in an automatic and mechanical way... We will also make other concrete proposals before the end of the year to limit over-reliance to deal with insurance, asset management and investment fund sectors," Barnier also told the European Securities and Markets Authority (ESMA). Translation: banks will be told to .... police themselves. As for the basis of this move, it is all too clear: remove the influence of the ratings agencies on the fact that the European ponzi is unravelling faster than Lady Gaga's costume at next year's VMA. But wait, what about that AAA rating on the "CDO at the heart of the Eurozone." Oh, well, since that's an AAA, they are fine with that. Of course, if the CRA's say enough, and actually slap a rating that is truly appropriate with this reverse synthetic debt contraption, it's game over.