Archive - Apr 3, 2013 - Story

"This is the nationalization of the elite," is how one ex-Kremlin-ite described Putin's new policy. "For [years], the elite saw Russia as a hunting ground - they would keep their money and live somewhere else," but no more, as the FT reports, Putin has moved to inject some moral fibre into the country’s top-level bureaucrats and state employees by giving them a three-month deadline to close their foreign bank accounts and divest themselves of offshore assets – or face the sack. "There is a sort of algorithm [in Russia] for civil servants. You stash a lot of money abroad, send your family to live there, and then when you retire, you join them. This new legislation will put a question mark next to the career plan of a generation of top-level people." Putin's new decree makes it clear, "There are no untouchables and there cannot be any."

It appears the Korean 'rhetoric' is being taken a little more seriously than the (always knows best) market - as we noted here with the last inter-Korea cooperation breaking down. Chuck Hagel just announced that the US will be moving missile defense batteries to US bases in Guam (an American territory southeast of Korea). Bloomberg adds:

• *HAGEL SAYS WORKING WITH CHINA TO DEFUSE N.KOREA SITUATION
• *HAGEL SAYS CHINA SEEKS TO AVOID A NORTH KOREA 'WAR SITUATION'

The market dipped on the news of the mobilization and Hagel's comments that North Korea "poses a 'real, clear danger' to US Allies."

When wondering why AAPL disappoints once more on its next earnings release, please pull a Bill Gross and look in the mirror, dear broke consumer, because it is your fault. At least that is the spin by the CEO of France Telecom, who says that iPhone sales are now being threatened by, drumroll please, "frugal buyers." That's right: in France "frugal" is now a dirty word. Not socialism, not 75% taxes, not budget ministers charged with rooting out tax fraud and lying about their Swiss bank accounts, not movie legends who can't wait to get Russian passports - it's "frugality" that is at fault. Because how dare French consumers not load up on cheap, government subsidized credit card debt and splurge like good old Americans who can't wait to pledge their shotguns as collateral for clunkers, and who haven't paid their mortgage in years courtesy of pervasive debt forgiveness for deadbeats, spending on iCrap instead? The France Telecom CEO demands answers now!

A trade is officially deemed "crowded" when everyone is rushing into the market with eyes only on the upside and little concern for the downside--for example, buying homes as rentals.  Why could the buy-to-rent housing party be running out of air? The basic reason is the difference between buying real estate as rental housing, which is a speculative market, and the rental property market itself, which is grounded in real-world supply and demand. Simply put, if the supply of rental housing exceeds demand, rents (the cost of renting shelter) decline. That jeopardizes the fat returns the speculative buyer was counting on. Crowded trades are often described as boats with everyone on one side. Boats loaded in this fashion tend to capsize once exposed to the slightest volatility (wave action). The buy-to-rent boat is looking rather overloaded, and the bullish side's gunwales are only a few inches above the water for these six reasons.

Well that escalated quickly... Builders -5% on the week, TBTF banks -7-10% post-Cyprus, 10Y at 1.81%, Commodity liquidations, and S&P futures down 16 points from the overnight highs...

Presented with no comment...

Yesterday it was all fixed, Cyprus was storm in a teacup, and as Barroso noted "the worst of the crisis over." It appears reality sunk in today as PMIs continue to disappoint and Europe's banking system implodes. Credit markets and financials have been flashing warning signals for a few weeks and once again European stocks (led by financials - mostly Italian - cough BMPS cough) were limit down and halted everywhere (with the broad EU bank index -3%). Italy's FTSEMIB is now -0.8% on the week (giving back all of yesterday's exuberance and some) and Spain is close behind. European sovereign bonds retraced their gains and ended slightly wider on the day. Swiss 2Y rates dropped (on safety bid) to -2bps (ahead of Bunds at 0%). EURUSD bucked the 'weak' trend and strengthened on the day back up to 1.2850 while Europe's VIX pushed back up to 21%.

UPDATE: Another Dutch bank - Rabobank - is apparently having 'technical' issues now

Following yesterday's discussion of the brink-like nature of the Dutch economy (and banking system), it is perhaps just a coincidence that ING is suffering from a major failure in its Internet Banking. It is unclear how many customers are affected but judging by the scale of responses on Twitter (#ING) it is widespread. Some customers are reporting overdrafts, and incorrect balances; and are reporting cards not working at supermarkets. We are sure this will just bolster confidence in uninsured depositors at the bank - especially since, as Ad.nl reports, no one at ING was reachable for comment.

We have repeatedly observed and commented on the painfully yet hilarious, thanks to Ben "the Fed will not monetize debt" pattern of the Fed monetizing the OTR just auctioned off bond in its daily POMOs so there is little we can add here suffice to say that the one CUSIP accounting for over 80% of today's $3.7 billion POMO targeting the 01/31/2019 - 03/31/2020 range, at precisely $3 billion, was 912828UV0. What is 912828UV0? This is the 7 Year bond that was auctioned off last Thursday, and which saw $13 billion going to Primary Dealers (make that $10 billion now). In other news, the Fed Chairman does not, repeat not, perjure himself under oath. Ever.

Thanks to the Fed's ZIRP, the investing world is on a constant reach for yield; and due to the fact that the last bubble of investor largesse (ignoring leverage and reality) was not 'punished' but in fact 'bailed-out', participants in the financial markets learned nothing. Just as the last crisis was formed on the back of an insatiable mortgage-backed security market desperate for new loans (any loans) of increasingly dubious quality to securitize, so this time it is subprime auto loans that have taken over. As a Reuters review of court records shows, subprime auto lenders are showing up in a lot of personal bankruptcy filings. At car dealers across the United States, loans to subprime borrowers are surging - up 18% in 2012 YoY, to 6.6 million borrowers. Subprime auto lending is just one of several mini-bubbles the bond-buying program has created across a range of assets; "it's the same sort of thing we saw in 2007, people get driven to do riskier and riskier things." Of course, with auto production having been the backbone of so many macro data points that are used to 'show' the real economy recovering (despite the channel-stuffing), now that the growth in auto-sales are stalling, it is for the subprime originators "under extreme pressure to hit goals" in their boiler-room-like dealings to extend loans (at ever higher rates) and securitize while the Fed 'music' is still playing. It seems we truly never learn.

In the last 48 hours, the price of the virtual currency has surged by 50% from $94 to $141 as the rate of expansion goes more than parabolic. This leaves us with the question, which line item on the Fed's Balance Sheet is 'Virtual Currency Transactions'... what better way to destroy an up and coming currency competitor than to blow a bubble in it and explode it?

Spot the common thread: Chicago PMI, manufacturing ISM, ADP and now Non-manufacturing ISM. If you said all big misses, give yourself a pat on the back. Because in the New Normal, the recovery apparently goes backward and downward especially when funded by what is now some $400 billion in QEternity. Despite expectations of a modest decline from 56.0 in February to just 55.5, the March Services ISM dropped to 54.4, the lowest since August, and the biggest miss in one year, with the critical New Orders components declining by 3.6 to 54.6, Employment down by 3.9 to 53.3 - the lowest since November, and Exports down 4 with imports up 5 surely doing miracles for GDP. Why the big miss? Three reasons: the post Sandy rebuilding effort is over; the abnormally strong winter seasonal adjustments have phased out and now is the time to pay the piper, and of course, the complete collapse in global trade as we have been hammering for the past year, now that Europe is in the worst depression since the 19th century. But don't worry: there is a POMO for that, and for everything else to give the impression that just because the Bad Bank formerly known as the Fed will onboard every piece of toxic garbage that is not nailed down, one can safely ignore reality for ever and ever.

The story of ex-Goldman's prop-trader Matt Taylor is well known: in November of last year, he was accused by the CFTC of concealing a massive, market-moving $8.3 billion ES position, and was charged by the CFTC, who sought a whopping $130,000 in penalties for what was obviously an attempt to move the market using size and scale (a la Bruno Iksil) on December 13 and 14, 2007. Taylor, who left Goldman in 2008 because apparently his attempt had been discovered amid allegations of "conduct related to inappropriately large proprietary futures positions in a firm trading account" and ended up working as Co-Head Single Stock Derivatives at Morgan Stanley until July 2012, prudently denied all accusations. However, roughly an hour ago, news broke that he had finally turned himself in to the Feds and is now expected to plead guilty to what for now are still unclear criminal charges.

Think only Cyprus is where the government goes after "evil", tax-evading oligarchs? Think again. Overnight news broke that the Italian police have seized a record $1.7 billion in cash and property from a single person, a Sicilian "alternative energy" entrepreneur alleged to have close ties to the Mafia. As Bloomberg reports, Italy's anti-Mafia investigators said in a statement today that Vito Nicastri, a 57-year-old native of Alcamo, near Trapani, was placed under surveillance and must remain in Alcamo for three years. He is accused of declaring for tax purposes a fraction of the value of his businesses. Italian media have dubbed Nicastri the "king of alternative energy" for his vast holdings in wind farms and photovoltaic cell companies. Police said the seizures include 43 companies; 98 pieces of real estate including buildings, homes, stores and land; 66 bank accounts, credit cards and investment funds. And so, in two brief weeks, cash-strapped European nations have declared war on both Russian billionaire oligarchs and the Sicilian mafia. One wonders how long until Swiss authorities follow suit and "impair" Triad and Yakuza savings in Zurich and Geneva, and sets off a global "us versus them" scorched earth war?

EU President Barroso proclaimed this morning that Europe is "through the worst of the crisis" and yet the ECB's policy transmission channels are so fragmented - and the economies of the disparate union so in need to help - that Draghi and his fellow planners are re-discussing ways to directly lower the interest-rate burden for small-to-medium-sized businesses (SMEs). Germany's Die Zeit reports that the concept of the ECB lowering its standards once again to accept SME loans as collateral for lending to its member banks since, as we noted here, the ECB is basically impotent with regard juicing anything in the real economy. So the ECB is willing to step in and sacrifice its balance sheet (and the taxpayers of Europe - Germany - that implicitly backstop it) to ensure SMEs get funded at sub-market rates that banks are unwilling to accept on a risk-adjusted basis? What could possibly go wrong?