Archive - Jun 12, 2015 - Story

While talking heads have proclaimed any Grexit contagion will be contained... it appears they are wrong (surprise!). The last 2 days have seen sovereign bond spreads soar 25-35bps for Spain, Portugal and Italy. On the yield side, Spain 10Y spread to Bunds is at its highest since August 2014 and Portugal at its highest since Feb 2015.

Perhaps, just perhaps, it was not Dick Costolo's incompetence after all? How long before Dorsey is "resigned" in order to create some more short-term wealth for shareholders?

Preliminary June UMich consumer sentiment data rose from 90.7 to 94.6 as respondents appear very excited about soaring gas prices and far more excited abiout stocks than every other confidence survey recently. Current conditions soared from 100.8 to 106.8 as expectations only rose from 84.2 to 86.8. Where does the hope come from? Simple... income expectations are the highest since 2008 and the most divergent from reality ever.

As the reality of moar record production in a slowing demand world filter through the narrartive of a dropping inventory being dragged away into tanker storage arb, so WTI has dropped back below $60 and Energy stocks have tumbled - giving up all the week's gains. Just when the mainstream media was reconvinced that oil is fixed...

"Senior EU officials have formally discussed for the first time a possible Greek debt default as negotiations between Athens and its creditors have stalled ahead of an end-month repayment deadline," Reuters reports. Or, translated from political correctness into the truth: "EU officials have stopped pretending that no one has discussed a Greek default." 

According to the BLS, after a torrid 2014, in which there was a 24% surge in beef prices which central planners blamed on everything except their policies, in May the Beef and Veal price index just rose to a new all time high of 260.8, up 12.3% from a year ago, and up 30% in the past two years.

The bank runs (and capital controls) begin. Macedonia Central Bank Governor Bogov states:

*GREEK BANKS IN MACEDONIA CAN’T WITHDRAW CASH, MACEDONIAN BANKS PROTECTED IN CASE OF GREXIT: BOGOV

How long before the rest of Europe follows suit and a bank holiday is declared Monday to "Cyprus" depositors?

Producer Prices Final Demand rose 0.5% MoM - the biggest monthly rise since September 2012. With the gasoline index up a stunning 17% (but but but) 80% of the broad-based advance is attributable to prices for final demand energy - which increased 5.9%. In contrast, Final Demand PPI YoY Ex Food & Energy dropped to +0.6% - the lowest on record in the short time series.

Headline hockey remains all that matters if one is "trading" European stocks, bonds, or FX. Today, so far,  no deal... and so Athens Stock Exchange and Greek bank bonds are plunging (for now)...

Once you funnel everyone into risk assets and then mask the risk to generate complacency, you guarantee a bidless market when risk reappears.

On the heels of what appeared to be an ultimatum from EU creditors, Greece remains defiant on pension cuts and a VAT hike, testing the troika's resolve as the countdown to the next maybe-deadline continues. Meanwhile, Germany warns that Grexit could embolden EU "separatist" movements and Dijsselbloem reminds Tsipras that noncompliance isn't an option.

• Razor-edge U.S. Congress vote to decide fate of Obama Pacific trade pact (Reuters)
• EU Readies for Default as Tsipras Drives Greek Finances to Brink (BBG)
• Greece Can’t Plan a Barbecue, Let Alone a Currency, Nielsen Says (BBG)
• IMF quits Greece talks amid ‘air of unreality’ as deal unravels (FT)
• Greece Counts Cost of One Man's Gamble (BBG)
• Merkel urges Greece and creditors to keep pushing for deal (Reuters)
• Fearful ECB starts countdown on Greek funding lifeline (Reuters)
• Greek stocks suffer further pummelling (FT)

Moments ago, the troubled former head of the IMF whose reign at the top of the international bailout organization ended dramatically after an alleged 2011 rape scandal in a NYC hotel the charges for which were later dropped by not before terminating his employment at the IMF, his marriage and his political career, Dominique Strauss-Kahn finally got some good news when a French court cleared him of "aggravated pimping" charges in which he was accused of helping to operate a prostitution ring of seven women out of the Carlton Hotel in the northern French city of Lille.  At his trial in February, Strauss-Kahn calmly fended off the accusations, saying that while he was a libertine who enjoyed group sex, he was unaware any of the women attending the soirees had been paid to be there.

For a sense of what is driving sentiment this morning look no further than the Athens stock market which exploded higher yesterday on a Bloomberg story based on "two sources" that Germany was willing to compromise, only to close just as the IMF pulled a classis bad cop and announced it was halting work on Greece, and before further news from Bild that Germany was preparing for a Greek default while Europe had given Greece 24 hours to submit a final, workable proposal. As a result, it tumbled promptly at the open even as optimism persists and since the opening plunge, Greek stocks have continued to climb and are now back to yesterday's euphoric opening levels.