Archive - Jun 2013 - Story

While we usually think of a butterfly's wings flapping as the cause of chaotic tornadoes around the world, in the case of Greece, it appears Samaras' comments that he "won't tolerate the sacred cows of Statism," after his closure of the nation's TV broadcaster ERT, has sparked much more widespread angst than many could have known. Amid the coalition, the 'opposition' party Tsipras has called for a "no-confidence" vote. A fascinating development given that the Greeks quietly folded when they took away their pensions - but remove the TV and revolution is around the corner.

• *KOUVELIS SAYS UNACCEPTABLE FOR ERT TO BE SHUT DOWN
• *VENIZELOS SAYS ERT ISSUES SPARKED INSTITUTIONAL PROBLEM
• *SAMARAS SAYS WE'RE SEEING FINAL SPASMS OF OLD SYSTEM

And the tension is rising since Samaras is adamant that "there is political will to change," and the ERT decision is a "symbol that wastage has ended." This is not going away.

It’s clear now that the system has turned on the very people who invest their faith and confidence in it. We can see the obvious effects of decades of morbidly destructive policy. We can see how the way of life we grew up with has become a distant memory, replaced by a cheap masquerade. We can see the debt, the money printing, the police state, the utter collapse of justice and rule of law… and the shiny facade of mindless entertainment and wanton consumerism as an attempt to cover it all up. And yet… it’s still so hard to turn one’s back. Deep within ourselves there’s still a quiet voice that says “This can be fixed. It’s going to get better.” This is the voice of hope. Hope, along with loyalty, is one of the most admirable traits of humanity. And it’s certainly honorable to want to rebuild what has been lost. But please consider these few points...

The search for more clues about Edward Snowden's life and motivations inevitably led the mainstream media to his longtime girlfriend Lindsay Mills, 28, who until recently described herself as "world-traveling, pole-dancing super hero." Why past tense? Because as of today, her blog, L's Journey, no longer exists. Of course, this being the NSA-controlled internet, there is always a cached (we use the term loosely) version of everything somewhere, and the full blog can be found at the following link. However, as the saying goes, one picture is worth a thousand words. So we have managed to track down quite a few pictures. Of Lindsay that is, courtesy of her all too public Flickr profile (it appears her boyfriend did not warn her about posting too much of yourself online). All we can say is Edward had very good taste.

Following yesterday's ugly 3 Year auction, some were worried the bond market weakness could spill over to today's benchmark 10 Year reopening of $21 billion in paper. It prices just through the When Issued of 2.210%, or at 2.209%, a little better than expected, although the highest yield since October of 2011. So while the demand on the surface was sufficient, the Bid to Cover, which dropped to only 2.53, below last month's 2.70, well below the TTM average of 2.92, and the lowest since August of 2012 when the BTC came at 2.49. Nonetheless, the downward slope in the BTC curve in both the 3 and 10 Year auctions is quite visible. In terms of takedown, there was a surprise as the Indirects took down a whopping 51.7%, the highest since December of 2011 when they were left with 61.9%. And while Dealers ended up with just 36.6% it was the Directs that had the smallest allocation, or 11.7%, since September of last year. Perhaps Dealers are now masking as Indirect. Either way, the good news is that with the reopening, dealers should have some additional collateral for a while, or at least until the Fed monetizes it. Look for this CUSIP - VB3 (On The Run) to remain on the POMO exclusion lists for white a while.

Is there a legitimate security need to monitor the entire world's communications? There are reasonable arguments to be made for and against this proposition, but what's missing is the sense that the nation's citizenry should have a say in these policy decisions. We're supposed to be satisfied that a handful of thoroughly corrupted-by-the-corporatocracy congresspeople have been spoon-fed a thin dribble of intelligence gruel and told to rubberstamp it in the name of democracy. This calls to mind the notion that authorities inoculate the public with carefully measured doses of the operative master agenda and narrative.... By carefully releasing bits and pieces of the program, authorities inoculate the public against outrage or political action; the citizenry soon habituates to the master agenda and internalizes it to the point of self-management: we're spied upon for our own good.... This is precisely the mindset that fueled the 1950s witch-hunts of suspected Communists: guilt by association.

A month ago, Bill Gross stirred up a storm in rates with his tweet that the "Bull bond market was dead" which caught us by surprise because just in the preceding month, PIMCO's flagship Total Return Fund raised its allocation to government-related (read TSY) bonds to the highest in three years, with a net exposure of 40% of AUM, or about $117 billion. Of course, the data was backward looking so it was possible that the firm had changed its opinion entirely and in the following two weeks proceeded to purge its TSY holdings. It didn't. In fact, as of the May TRF holdings update, PIMCO's TSY holdings, which many expected to collapse, declined by a whopping... 2% of total from 40% (net of agency and swaps) to 38%. So much for the great Newport Beach rotation.

Just your ordinary, stomach-churning, price stability-confirming, 600 point intraday swing in the Nikkei June Future contract, which after taking out the 13,000 support plunged by a ridiculous 200 points in milliseconds. Mrs Watanabe will not be happy when she wakes up. It may be time for the BOJ to raise its hilarious assessment of Japanses GDP once again just to completely lose all credibility. Goldman is thiiiis close to being closed out on its buy Nikkei225 September futs reco from Sunday night (stop of 12,750). On a serious note, keep an eye out for BOJ intervention - the time is fast approaching.

Following the dramatic self-revelatory interview/profiling of Edward Snowden by the Guardian's Glenn Greenwald, the media world, and everyone else, has been abuzz about what other revelations the NSA whistleblower may bring to light. Moments ago, the South China Morning Post releases the much anticipated second interview with the 29 year old. While hardly earthshattering, it does provide some additional insight into the mind of the administration's current persona most non grata.

It may come as news to some, but the Fed really has no idea what it is doing (no, really - just read "Fed Confused Reality Doesn't Conform To Its Economic Models, Shocked Its Models Predict "Explosive Inflation" if you don't believe us ). After all, there is a reason for the saying "we are in uncharted waters." Which is why, to help it in its monetary decision-making, every few months, the Fed issues a survey to the 21 Primary Dealers (used to be 22 but MF Global showed that often the PDs also have no idea what they are doing) asking for their feedback on when it should tighten, how big it's balance sheet should be, how big monthly POMO should be, what the Fed Funds target range "may" be, where the GDP and unemployment rate will be, what the likelihood of the 10 Year soaring to 4% by the end of 2014 is, and other pertinent questions that frame the "independent" thinking of the Fed.

Nothing like the smell of a fresh Eurozone (thank you Greece!) crisis in the air, to remind everyone that in an insolvent world, where every counterparty is suddenly once again suspect (and collateral-free), there is only one asset class that has no counterparty risk (although the distinction between paper and physical gold is still a far too complicated lesson for most) - gold.

We have been gently reminding readers for the last few weeks that Greek bonds and stocks have not been dancing to the same tune as the European Union's leaders' proclamations of victory but today it seems the fears are spilling over into other assets. With the closure of the nation's state-owned TV station ERT, it seems the coalition is rapidly coming unglued. The highest of high beta liquidity-fueled momentum dash-for-trash trades are discovering that large crowds and small doors don't mix as the marginal 'flow' is slowing (or feared to slow). Greek stocks are now notably underwater for the year (after being up almost 28%) and Greek bonds are down almost 17% from their highs just a few weeks ago...

It would appear the cleanest dirty shirt is losing its appeal as both bonds and stocks are being sold this morning and the JPY and EUR are rallying as the liquidity washes back home. The USD Index is back at its 10DMA again but it seems the building tension in Europe (Turkey and now the potential for a collapse in the Greek coalition over the ERT closure - which we warned about yesterday) and Abenomics hangover is leading to an unwind of these levered carry trades everywhere around the world.

We showed yesterday the truly dreadful state of this economic recovery had one odd bright (green) spot, US auto production (and sales). While cash-for-clunkers started it, and easy money from the Fed expanded it (via credit for an ever-growing cohort of subprime borrowers), the car companies have now reached back into the bag of old tricks that blew them up before - incentives in May jumped to 8% of market value - or almost $2,500 per vehicle - the highest in over 2 years. If things are going so well in this 'recovery' why are the car makers forced to squeeze margin for volume... The problem, as BusinessWeek reports, is that increasingly rich incentives aren't moving the needle much on sales.

Following last night's revelation that FX trading is the latest addition to the "rigged" column, here is a summary of the known market manipulation scandals (because it can be problematic keeping track of all by now):

• Libor - interest rates (link)
• ISDAfix - swaps (link)
• Platts - oil prices (link)
• WM/Reuters - FX (link)
• High-Frequency Trading - equities (link)

We also know that the Fed and world central banks are engaged in a full blown (and unprecedented) Treasury curve modeling exercise courtesy of both ZIRP (short-end) and QE (long-end), and that courtesy of some $12 trillion in extra liquidity in the past 5 years, stocks are at an artificial "weath effect" sugar high. We can therefore deduce that, following the process of elimination, gold and silver are the only markets that are unmanipulated and where transparent price discovery is allowed to take place without intervention from key players.

"Be lawyered up to the max... and and always check your six," is the warning (advice) that Thomas Drake offers Edward Snowden in this brief interview. "Always make sure you know what's behind you," he adds, "when you offer up information about the dark side of the surveillance state they don't take too kindly to it." Drake, whose life was "essentially destroyed," after being prosecuted in 2010 under the Espionage Act, is now a technical expert at an Apple store, but he still believes what he did was worth it, having no doubts: "Is freedom worth it? Is liberty worth it? Is not living in a surveillance society worth it? You've got to stand up and defend the rights and the freedoms that prevent that from actually happening. [Edwards' information] is validation of this vast, now systemic, industrial-scale leviathan surveillance system."