Archive - Jul 16, 2015 - Story

Piling on more debt is the worst possible way to correct structural trade and productivity imbalances, yet that is the Eurozone's "solution" to Greece's debt/ trade/ productivity/ corruption crisis.

"Mr. Jain created an environment by the physical and functional restructuring of the business GFFX division in the year 2005, involving also a change in the seating order of the trading floor in London which he initiated in which conflicts of interest between traders and submitters arose or were strengthened. There is suspicion that Mr. Jain might have knowingly made incorrect statements in his IBOR related Interview with the Deutsche Bundesbank."

Having now passed the anniversary of the “rising dollar”, it is interesting to see the related and continued effects on the stock bubble(s). As should be obvious by now, stock buybacks, funded via corporate bonds and loosely categorized C&I loans, are responsible for the post-QE3 nearly uninterrupted rise. Repurchases are forming a separate “liquidity” conduit, indirect leverage if you will, which has already started to fray. Various broader “market” indices have diverged, starting with the Russell 2000 in early 2014 (with the economic slowdown that was supposed to be an anomaly of weather). At the very least it might imply that the central bank paradigm that lasted since the middle of 2012 has greatly eroded or even ended.

"Read my lips..."

"I would push back against the notion that we are unduly affected by the ups and downs of the stock market"

Spot the NFLX earnings day...

Last Sunday, Eurozone countries submitted yet another ultimatum to Greece: implement a whole round of reforms, from eliminating early retirement over scrapping exemptions from sales tax to opening shops on Sunday, and we’ll start negotiations on providing a new bailout of possibly €86bn from the European Stability Mechanism (ESM), the Eurozone’s bailout scheme, which will carry yet another series of strings attached. As Finland’s Foreign Minister Timo Soini said this week about the idea of a third Greek bailout round: “the Finnish public can’t understand that this is allowed to continue”. Can anyone else?

When oil priced tumbled last year it was supposed to be a major boon for car sales and, indeed, courtesy of car loans whose  rejections rates have never been lower and with LTVs for loans on used cars sold to subprime borrowers now a record high 150%, some such as government-favorite GM benefited greatly, with sales of Chevy Silverado jumping a solid 18.4% June. Others, however, have been struggling: sales of Ford's top-selling and most profitable line, the aluminum-bodied F-150, were down 8.9% last month as Ford's market share of big-pickup trucks dropped to 28% from 33% one year ago.  Ford's response: a huge push to incentivize buyers, in the form of discounts that can exceed $10,000!

Yesterday she faced the wrath of Hensarling and Duffy in her Congressional hearing, today Fed Chair Janet Yellen pops over to The Senate. We suspect the rhetoric will be a little less aggressive as traders are interested to see if she walks back her comments yesterday that appeared to signal more hawkish "sooner" rate hikes. Of course, the main event will be when Elizabeth Warren is unleashed...

Owning gold is saving, which by definition is civilized, i.e. NOT barbarous. Debt, on the other hand, is the exact opposite. It is a lack of savings that shows a complete disregard for the future. It is the modern equivalent of gorging on some wild beast with no thought to tomorrow’s meal… or in this case, no thought of tomorrow’s generation. Debt is the barbarous relic. Not gold. And governments are up to their eyeballs in it, continuing to engage in this primitive, uncivilized behavior with wanton abandon.

Even as Greek banks, severely depleted of cash and eligible collateral they can post with the ECB, stand to fight another day (and potentially face more withdrawals as soon as the Greek banks reopen supposedly on Monday) thanks to another €900 million liquidity infusion, investors in Greek bank shares will be less lucky: "to ensure a new bailout, investors in the country’s banks faced the prospect of their holdings being "wiped out" under the terms of a €25 billion recapitalization plan."

Amid what is being reported as worrying discrepancies between the U.S. and Iranian interpretations of what had been agreed, an Iranian supertanker with 2 million barrels of oil is on its way to Asia after sitting in Iranian waters for months, likely to be the first vessel holding floating excess stocks to sail after the nuclear deal.

In case these "tempting" terms are not seen as sufficient, then Greece can generate some much needed GDP if the enterprising population sets up stands by ATM's selling food, cigs and water...

As with all data, none of these data points suggests that the economy, or the markets, will immediately plunge into a recessionary contraction. However, what is important to consider is that many of these data points are now converging and suggesting that risk is more elevated now than at any point since the financial crisis. It is at least worth thinking about.