Archive - Jul 2011 - Story

Following the two theatrical speeches eaelier, we are absolutely nowhere closer to a resolution now than we were 2 hours ago. Perhaps this is why the market is not too happy and as of minutes ago, the USDJPY tumbled to new all time lows (except for that illiquid print from March 17) of 77.89, with the market set to test Noda's repeated bluster that he will finally do something against the "one way Yen." We are not holding out breath. And to confirm that a perfect storm of sorts is on the horizon, adding to the increasing illiquidity in the US and Europe, is the news out of China that 7 day repo rates just surged by 160 bps overnight, the most since July 5, to 6.80%, as the market awaits the selling of CNY 1 billion in 1 year bonds at 10 am Chinese time. If $155 MM of a liquidity outflow can move the needle in China by almost 2%, then we are in deep trouble. Update: the BOJ may have just intervened. Just look at that chart. Update 2: perhaps not an intervention as we are now getting reports that Macau has been hit by a blast according to Xinhua

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We just heard two very useless speeches by two very useless Wall Street muppets. Both were, naturally, completely irrelevant. Now comes the important stuff, courtesy of a press release a few hours ago from the CME. Up until today, the collateral haircut on a T-Bill was 0.0%. Beginning Thursday it will be 0.5%. All other classes of Bonds, Notes and Strips will see their haircuts raised by 1% across the board. Same with Agency debt. Only foreign debt will see an increase of 2% in the Bill space, and 0.5% in Notes and Bonds. Translation: the CME just telegraphed what the rating agencies are terrified to do - keep up the charade, and the haircut will keep rising by 1% until it hits 100%. Give or take.

My fellow Americans... blah blah blah... stalemate.... blah blah blah... runaway spending... blah blah blah... all Bush's fault.... blah blah blah... compromise.... saving money from ending illegitimate wars.....blah blah blah... ceiling must be raised or America will be destroyed...blah blah blah... no more social security for anyone... blah....god bless you all...  is the camera off? Where are the Camel lights?

Earlier it was our turn to suffer a series of subdural hematomas courtesy of the $1 trillion in "savings" from wars yet unfought as per Harry Reid's plan "proposal." Now, it is Paul Ryan's turn.

The decline of the Roman Empire is captured by the simple concept of bread and circuses. Rather than focusing on the issues, the leaders tried to placate the masses.  The disdain in the simple phrase 'let them eat cake' so clearly brings to mind all the reasons for the French revolution. Rather than placating the masses, the aristocracy almost took pleasure in flaunting their wealth and privilege.  I am not convinced America has reached it's apex and is in decline, but more and more I believe that if we have peaked history will equate our decline with two simple words - "the market".

Today the IMF released its complete Article IV Consultation report, focusing on US economic development and policies. While there are 70 pages or so of textual fluff (it comes from the IMF after all), where the report excels is in presenting the complete picture of the "bipolar recovery" in the United States, in about 50 or so charts, which is a recovery for some and an outright recession if not depression for most. Furthermore, the report corroborates that when it comes to the economy, the US "recovery" has been one of two stories 7 quarters following the business cycle trough: a contraction in virtually all key non-business segments, including real GDP components, fixed investments, and the business sector, and a flourishing renaissance for the business sector and for financial firms, profits and financial conditions. In other words, from the very beginning the whole purpose of the orchestrated recovery was one and one only: not to improve the general economic situation, but to pander to corporations and to the wealthiest. It is no wonder that rumors of social disobedience and discontent are getting ever louder: by now even the most average American has understood that the administration has betrayed them. However, we do not want to delve in the ethics of it all. Others will do that. Instead, here are all the charts that tell the story of America's recovery. Or, more specifically, lack thereof as the case may be and is.

At last check Netflix' stock was down about 10% following an earnings report that was about as ugly as they get. While the company beat Q2EPS consensus of $1.12, coming with a number of $1.26, it missed revenue estimates of $790.5 MM at $789 MM. What's worse, it forecasted Q3 EPS of $0.72-$1.07, far below the $1.23 consensus, while it sees revenues of $780-$805 MM on consensus of $842 MM. And digging deeper, the rot was pervasive in virtually every line item. But don't worry: according to NFLX, it is now bearing the Pirate Bay scourge. Not. But at least Jim Cramer loves it.

The conference the market has been waiting for. We expect nothing concrete. We will get it.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/07/11

"Mr. Venizelos I presume? The name is Jeethner. Tim Jeethner."

The only real solution to the Eurozone end-game is massive debt forgiveness and the resulting destruction of "too big to fail" banks, and a return to national currencies, which will enable structural imbalances to be resolved via currency devaluations. This will of course destabilize the German export economy; but that is inevitable. "Extend and pretend" is an endgame, not a fix.

Following hot on the heels of the proposed Boehner rehashed plan, we get the first details of where the bulk of the $2.7 trillion in proposed savings will come from. Are you ready for this? REID PLAN SAID TO HAVE $1 TRLN SAVINGS FROM WINDING DOWN WARS. That's right. In some parallel galaxy far, far away, lack of expenditures, on America's 6 front wars to be sure, is now considered a "saving"? Front lobe hemorrhage to commence in 5 seconds. And the other migraine-inducing details of the Reiid plan are...

For a day that was supposed to be full of drama, fury, margin calls and overall bloodshed, newsflow is so boring, for a second we wanted to demand our money back from management, or the kleptocracy, whoever it is that prints these things nowadays. However, some excitement may yet be salvaged now that Boehner has just called for a news conference precisely on the closing bell at 4pm. We assume this will be to present details of his two-tiered plan, which we touched upon earlier, and which Fox News now provides some additional details on. Suffice to say, if Obama were to accept the terms contained herein it would be complete embarrassment for the head executive, as Boehner is literally demanding everything, up to and including a balanced budget amendment, that Obama swore he would not cede.

Citing the most hilarious explanation we have ever heard for not daring to approach the capital markets, Dow Jones reports that following a comparable announcement from Austria earlier, none other than clutch euro Domino Italy, whose bond yields surged by about 40 bps today, has decided to take a sabbatical from accessing capital markets, and will not issue medium and long-term bonds in August. Of course, the real reason is that the spreads are prohibitively high but that's a story for another reason. The problem for Italy, however, is that it will end up burning through a lot of cash over the next 45 days and then far more will depend on the successful passage of the country's auctions in the following month, when the next scheduled medium term auction is on September 13 (full auction schedule is here). Amusingly, while all of Europe complains that the Greece, Ireland and Portugal have no capital markets access, some of the better of PIIGS make the voluntary decision to avoid price discovery. We fail to see how this can possibly result in anything than another loss of credibility in the eurozone rescue package.