Archive - Sep 6, 2012 - Story

Confused by the implications of Draghi's pre-leaked speech? Don't worry, you are not alone. As the following sampling of opinions by Wall Street experts via Reuters confirms, opinions range from the positive to the negative, to the completely clueless.

UPDATE: US equities surge on day-session open (as AAPL hits low of day)

Perception; Independence; Conditionality; Unlimited; Fully-Effective-Backstop. Draghi 'nailed-it' on the drinking game but it seems the world is not amused. The market's reaction to the new OMT is modest EUR weakness (and more JPY weakness), practically no change from US equities (and modest weakness in European equities), Gold and Silver disappointed at the 'conditionality' and not total print-fest; and yet 2Y Italian and Spanish bond yields - which flatlined for a while, are now dropping faster and the longer-dated Italian and Spanish yields are dropping also. US Treasuries are 5-6bps higher in yield. In Summary: "Spanish bonds soaring on hope Spanish bonds will plunge to allow Spanish bonds to soar on ECB purchases" - everything else not impressed.

The ECB has released the details of its SMP 2.0 program, aka the OMT program, which will be pari passu, unlike the SMP 1.0. The full details are a whopping 472 words. Furthermore, we hope that it is quite clear to Greece that if the ECB has bought Greek bonds under the new SMP 2.0 program instead of SMP 1.0, its debt would now be about €100 billion less.

From the ECB:

Even as Goldman's representative to the ECB continues to drone, a few hundred miles east of Frankfurt, one country has rebelled against the new world world:

• HUNGARY REJECTS IMF AID CONDITIONS, PREMIER ORBAN SAYS

What is wrong with them? Don't they know that the globalist central-planning dictators always know what is best for them? Needless to say the Hungaria Forint tanks, just as intended.

It was the best of times, it was the worst of times. A dramatic beat by the ADP jobs number at 201k vs expectations of 140k is the third month in a row of beating expectations for jobs and the highest add of jobs in 5 months. QE-off? Good is bad? Well there is some bad is good in here too - the manufacturing industry only added 3000 jobs. Perhaps, rather ironically, the rise in jobs is due to the election providing a stimulus - someone has to do all that fact-checking and empty-chair-lifting.

At 2:30 pm CET, 8:30 am EST, Mario Draghi will take the podium and either whip out the Bazooka, which may lead to the resignation of Jens Weidmann from the ECB governing council and further unpredictable consequences (the ECB already broke European money markets when it lowered the deposit rate to 0.00%), or a water pistol, in the process destroying any remaining credibility he may have once and for all. More importantly, what today will show is who currently has the upper hand: Goldman, via its assorted money printing muppets, or Germany, for whom Weimar is always one CTRL-P away. Find out as soon as the ECB building fire alarm goes off and when Mario Draghi presents the latest and greatest details of his plans to reporters.

As unemployment (broad and youth) goes from the sublime to the ridiculous in the troubled nation, Reuters is reporting that tensions are rising - even among the Police themselves. "They make us fight our own brothers," one riot-policeman urged with regard the Greek police protesting austerity cuts and preventing riot-police from leaving to secure other demonstrations this weekend. The government plans to slash police pay in a new round of spending cuts worth nearly EUR12bn over the next two years, which the police, firefghter, and coast guards will be prtesting later today in Athens. How soon before TROIKA demands 8 days a week and 99% taxation - as the hair-trigger on the gun they are holding to their own head becomes more and more sensitive.

Despite consensus for a 25 bps cut by the ECB, Mario Draghi decided to leave rates unchanged. To say that this is ominous for the press conference in 45 minutes is an understatement.

The chart below needs no commentary, neither does what it represents. In May Greek unemployment, pre revision, was 23.1%. It was subsequently revised higher to 23.5%, but this is merely to make the jump to the June number more palatable. What was June? 24.4%. In other words, no matter how one looks at it, the unemployment rate rose by 1% in one month.

• Draghi Credibility At Stake As ECB Tries To Save The Euro (Bloomberg)
• Clinton Returns to Back Obama (WSJ)
• Taxi fares up 17% in New York City (Toronto Sun)
• High Speed Scandal: Ferrari Incident Rocks China (Daily Beast)
• China’s Richest Man Benefits From Thirst For Soft Drinks (Bloomberg)
• China August export growth seen weak, imports slow (Reuters)
• Death to PowerPoint! (BusinessWeek)
• Sweden surprises with interest rate cut (WSJ)
• IMF demands greater clarity on Irish austerity plans (Reuters)
• At Abercrombie & Fitch, Sex No Longer Sells (Bloomberg)
• And the best for last: California Treasurer Backs Law to Ban Costly Long-Term Bonds (Bloomberg) -> legislating low, low yields

There is only one event on pundits and traders minds today: the ECB's press conference, during which Draghi will announce nothing material, as the substance of the bank's message has been leaked, telegraphed and distributed extensively over the past three weeks before just to gauge and test the market's response as every part of this latest "plan", which is nothing but SMP-meets-Operation "Tsiwt" was being made up on the fly. And not even a weaker than expected Spanish short-term auction in which €3.5 billion in 2014-2016 bonds were sold at plunging Bids to Cover, sending yields paradoxically spiking just ahead of what the ECB should otherwise announce will be the buying sweet spot, can dent the market's hope that Draghi will pull some final detail out of his hat. Or any detail for that matter, because while the leaks have been rich in broad strokes, there has been no information on the Spanish bailout conditions, on how one can use "unlimited" and "sterilized" in the same sentence, and how the ECB can strip its seniority with impairing its current holdings of tens of billions in Greek bonds without suddenly finding itself with negative capital. Elsewhere, the Swedish central bank cut rates by 25 bps unexpectedly: after all nobody wants to be last in the global currency devaluation race. Ironically, just before this happened, the BOJ's Shirakawa said that he won't buy bonds to finance sovereign debt: but why? Everyone is doing it. Finally, in news that really matters, and not in the "how to extend a ponzi by simply diluting the purchasing power of money" category, Greek unemployment soared to 24.4% on expectations of a rise to "just" 23.5%. This means there was an increase of 1.3% in Greek unemployment in one month.

Earlier we noted Gold's seeming clairvoyance with regard the expansion of the Fed and ECB balance sheets over the last few years. It seems the EUR strength overnight (or stop-run) has provided just enough USD weakness impetus to nudge spot Gold (not futures) back over $1700 for the first time since March 13th.