Archive - Mar 2012 - Story

In part driven by the 'regime uncertainty' of "authorities having dispensed with the rulebook in trying to shore up the tottering edifice of Western finance" and in part "a defensive response" to the crushing liquidity suck out of the credit crisis, as Sean Corrigan notes this week, money is distinct by virtue of the fact that 'it flows' and this transmission mechanism is clearly broken. US non-financial corporates hoarding of a $630bn mountain of money in 2.5 years (or 85% of retained earnings) have retarded the most incendiary effects of the Fed's extraordinary actions. The key issues will be whether these same corporates will begin to spend this cash, or whether they will simply rediscover an appetite for alternative, non-money assets (and the Fed should certainly take the opportunity to trim its swollen security portfolio by helping satisfy this reawakened urge, should it arise) and then, if they do, what those to whom they redirect the funds will do with them in their place. If the upshot is that there is a sizable remobilization of this money, things could quickly get very hot on the inflationary front if the transition is not managed well.

In an interview with Louis James, the inimitable Doug Casey throws cold water on those celebrating the economic recovery. "Get out your mower; it's time to cut down some green shoots again, and debunk a bit of the so-called recovery."

It's Friday afternoon. Given today's 'Epic Farce' of an equity-trading environment - It's 2pm, do you know where your sense-of-humor is? "Elmo has no idea what he is saying but Elmo hopes he is friendly."

Angela Merkel stepped up to mic, absent the blue face-paint and kilt and announced to world that debt is slavery. While William Wallace Mel Gibson told his 'overlords' that "They may take our lives, but they'll never take our FREEDOM!", it appears Ms. Merkel is telling her serfs that is exactly what she can do (remind us again how much more debt Greece just ended up actually owing after their restructuring?): Via Bloomberg: *MERKEL SAYS RUNNING UP DEBTS ROBS A NATION OF ANY FREEDOM; and at the same time she noted: *MERKEL SAYS TOO MANY GERMANY STATES ARE STILL SPENDING TO MUCH

In only three more years you're talking $20 trillion in public debt for the USA and a GDP going nowhere fast. Add to this that demographics are not encouraging and taxes of all sorts will have to rise. Cuts will be symbolic because the political pain will be unbearable. Without productive new investment, then debt service soon outstrips income growth and the economy enters a death spiral of declining productive investment, ever expanding debt and ever higher debt service costs.

Pulling no punches and as irreverent as we can imagine, Mr. Panos - the Greek 'Borat' - explains (with a somewhat shocking sense of reality) just what the European crisis - most specifically the Greek 'angle' - is all about. From taxes, tourists, shadow economies, war retribution, and german-union realities -  after watching this clip, everything about Greece will be henceforth clear...except perhaps whether Greece has higher exports of Potassium than Kazakhstan. Enjoy.

...of New One Family Homes for Sale (source) which at 150,000 is the lowest print... Ever. And no, "it can only go up from 300,000, 250,000, 200,000, 150,000... 0" does not work with us.

SkyNet is now sentient, and has commenced rebelling against its creator, following the BATS exchange announcement of self help against.... Itself.

• BATS BYX Exchange has declared self-help against BATS BZX
• March 23, 2012 11:07:25 ET

• BATS BYX Exchange has declared self-help against BATS BZX per Rule 611 of Regulation NMS. Routing to BATS BZX has been suspended as of 11:07:04 ET.

Having been on a two-week vacation from their Europe-wide buying spree of everything that is red for the day, it would appear that the ECB is back. As Italian bonds started to accelerate to the downside today, and the 10Y bond touched EUR99, suddenly the yield-rising trend reversed and nine (count them nine) gappy surges later, BTPs are in the green with their yields heading back towards the safety of 5% very rapidly. Perhaps reflecting on the points we have raised before on the CDS markets being a cleaner 'market-reflective' indication of risk is increasingly important as we note...drum roll please...10Y Italy CDS are +21bps at 382bps, near the wides of the day as 10Y bond spreads are now tighter by 2bps and 20bps off their worst levels of the day!

Presented with little comment - except the irony is simply too much to bear as BATS crashes from $15.75 to $0.038 in minutes...perhaps reflecting the WSJ article on HFT abuse and that BATS is being investigated for HFT abuse (ahem) on the day it goes public. We note that there were some trades executed at $0.00! The reason for the crash apparently is because BATS stock is ony trading on the BATS exchange, where apparently the APPL halt second before also happened. Pretty much tells us all we need to know about the stability of broken market structure. In other news, the stock, and exchange, have now been renamed BATShit - perhaps the VVIX can trade there next or something... And they wonder why nobody trades this farce of a market any more.

UPDATE: NANEX data shows ugly stub quote got caught

When the largest market cap company in the world loses 10% of its market cap thanks to a fat finger from a 100-lot retail-momo-monkey (hitting market order not stop?), questioning your sanity (or the sanity of the hedge fund hotel it has become) is perhaps worthwhile. At 10:57, AAPL was halted as Bloomberg noted: *APPLE HALTED AFTER TRADE AT $542.80/SHR for Reason Code T7 (which seems entirely irrelevant) and then reopened at 11:03 with a small loss. Nothing to see here, move along (except the irony of the fact that the trade occurred on BATS which just IPO'd and the SEC investigation in general on HFT/colos).

Six weeks ago when we first brought the idea of a 'stigma' for accepting LTRO loans, the difference between credit spreads of unencumbered banks and encumbered banks was a mere 50bps. Today it has soared higher to post-LTRO record wides at 100bps as LTRO-facing increasingly-encumbered and increasingly-subordinated senior unsecured credit spreads blow out to near mid-February wides. It was mid-February when we called out Draghi for lying about the 'stigma' - perhaps now the market is realizing he was not telling the truth, the whole truth, and nothing but the truth as all the benefits of the LTRO (fixing short-term liquidity issues for the critical banking system) start to unwind. Whether it is margin calls from the ECB on falling asset prices or rising cost of funds from a market-wide recognition of the massive subordination that just occurred (and will only get worse), we suspect the primary issuance market for EU banks (especially those who took the loans) will be closed (or hugely expensive) for a long time to come.

Moments ago Japan's Kyodo reported that the upcoming North Korean missile launch has entered a "full-fledged state of action." While not immediately clear what this means, it is not all that surprising: after all this is precisely what Un has said he would do, and so he will. What is more important is that according to VOA Japan is now actively preparing for "countermeasures" and is "preparing for contingencies" should the missile veer off course. Because if Fukushima taught us something is that gusts of wind around Japan always somehow point toward Tokyo. To wit: "The Japanese parliament has approved a resolution condemning North Korea's planned missile launch, and the country is also preparing contingencies should the missile veer off course and pose a threat to Japan. Speaking in Tokyo Friday, Defense Minister Naoki Tanaka said the Japanese military will be prepared for any eventuality. Tanaka says he is ordering officials to prepare deployment of PAC-3 surface-to-air missiles and Aegis destroyers carrying a state-of-the-art anti-missile system that could attempt to shoot down the rocket." Of course, by the time the shooting is over, ES will be at least limit up: consider the upside GDP potential resulting from rebuilding the world in the aftermath of armageddon.

Following last night's post on the destruction of the positive trend in macro data (as expectations once again extrapolated to infinity have missed miserably), New Home Sales made it 12 of 14 this morning as they missed horribly. Against an expectation of a +1.3% gain, new home sales fell 1.6% MoM but what is even more shocking (and surely in retrospect would have caused the market to subside aggressively) is the massive revision of the previous month. From a -0.9% 'modest' fall, January's data was revised to a massive 5.4% drop MoM - the largest drop in 13 months! This is the largest downward revision since March 2009. Perhaps KB Home is not the outlier and the 80% rally in the Homebuilder ETF was a little overdone, eh Bob?