June 10th, 2011
- Germany Digs In On Greek Debt Restructuring (Bloomberg)
- Libya emerges as Opec's big winner (FT)
- Athens approves four-year austerity package (FT)
- Germany sticks to demand for Greek bond swap (Reuters)
- Fed said to consider expansion of capital reviews (Bloomberg)
- Ally Financial delaying IPO (Reuters)
- Tokyo Riot Squad to Safeguard Tepco Meeting (Bloomberg)
- Christine Lagarde's victory a "done deal" says IMF rival (Telegraph)
- Jamie Dimon's faulty capital requirement math (Simon Johnson)
Sometimes we wish the oil minister of former OPEC member Saudi Arabia ("we can supply any amount of oil"), Wikileaks ("Saudi Said To Have Overstated Crude Oil Reserves By 300 Billion Barrels or 40%"), and now Saudi Arabia's very own electricity company would coordinate their story. In a little noticed comment by Abdel Salam al-Yamani, head of the Saudi Electricity Company, in Al Mashka, which so far has been captured by only El Economista magazine, has provided the most recent insider confirmation of peak oil: a very troubling development for those who still naively believe that Saudi Arabia has any marginal boosting capacity, or more importantly, is willing to risk pumping more than possible. Yet, caught between a revolutionary rock and various other cartel nut cases, Saudi will soon be forced to sell as much oil as it can in order to placate it increasingly angry population with ever greater and ever more frequent "gifts" buying the transitory admiration of its people.
Gold has risen to new record nominal highs in British pounds and is consolidating just below recent record nominal highs in U.S. dollars, euros and other currencies. The ECB’s rate decision and Trichet’s ‘signals’ saw the euro fall sharply against the dollar and against gold with gold in euro terms quickly rising from €1,050/oz to over €1,065/oz. The fact that these new record highs are just nominal and not more important adjusted for inflation highs is a crucial fact not acknowledged by many commentators and analysts. As ever, it is important to realize that the inflation adjusted high for gold in 1980 is over $2,400/oz. When interest rates do rise, central banks will have to make them very gradual. With inflation and stagflation deepening, negative real interest rates are likely to remain with us for some time which bodes well for gold (and silver). The Titanic analogy grows increasingly apt. The various major currencies all face real challenges and are like various floors on the Titanic. The massive ship is holed and water is flowing into it, gradually affecting all floors of the boat. Gold represents the lifeboat.
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
The first Western downgrade of US government debt is a fact!
It appears that Asia is not done tightening. In a surprising move South Korea's central bank on Friday raised its policy rate by a quarter point which was against market expectations and comes after rates were held steady for past two months. From Bloomberg: "South Korea’s Kospi Index (KOSPI) fell 0.7 percent, erasing a 1.1 percent gain, after Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3.25 percent from 3 percent, following quarter-percent increases in January and March." In other news, the beancount for China's GDP appears to be slowing following a smaller than expected trade surplus: "The Shanghai Composite Index slid 0.4 percent after China’s customs bureau said exports rose 19 percent from a year earlier and imports climbed 28 percent. The compared with the median forecasts for a 20 percent gain in overseas shipments and a 22 percent increase in exports" (we will have a full breakdown of the Chinese trade numbers tomorrow). Too bad the inflation in China is not slowing to go with its GDP, and the latest CPI print is now expected to be a record 5.5%. And completing the pain out of Asia was the deplorable Indian IP number which tumbled to just 4.4% YoY. As the chart below shows futures are definitely not liking this latest set of data (but, but, the services ISM was not a total disaster...) and the EURUSD is back to intraday lows. Europe opens next and Europe will not be happy.
Something quite disturbing happened during today's latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale. Suddenly, the Fed's attempts to sale piecemeal portions of the $31 billion Maiden Lane II portfolio that was offered to be repurchased by AIG, and subsequently was offered for open auction as Zero Hedge first suggested, is starting to backfire, after a month ago several traders complained that instead of "dribbling" out small piece of the portfolio (the previous average auction block notional for sale was under $1 billion). As per Housing Wire from May 17, which cited a complaint by an MBS trader: "if you charge ahead and bleed out one or two lists a week for the next
10 to 12 weeks, prices will continue to go lower, and in the interest of
maximizing value for the taxpayer, I think it is time to re-engage the
large portfolio bid you had or make available to other counterparties
the ability to bid large chunks of what you have left to sell." Well, the trader got what he wanted... And in the process may have blown up the credit market. As Bloomberg reports, "Federal Reserve auctions of mortgage securities that the central bank assumed in the rescue of American International Group Inc. are fueling a selloff in credit markets as Wall Street rushes to hedge against losses on stockpiled debt." Sure enough, someone focusing on the equity market may be completely oblivious to the devastation that has been unleashed on HY and IG traders: "Declines in credit-default swaps indexes used to protect against losses on subprime housing debt and commercial mortgages accelerated this month, reaching almost 20 percent in the past five weeks as the cost of the insurance climbs, according to Markit Group Ltd. The plunge this week started infecting everything from junk bonds to the debt of financial companies." And while as Bloomberg points out that there is a confluence of technical and fundamental factors affecting credit sentiment, "You almost have a perfect storm of events,” said Shah of AllianceBernstein. “You have both the fundamental justifications for the market going lower and you have the technicals being created by Maiden Lane” there is a far scarier implication. If dealers and funds are unable to handle a mere $31 billion MBS portfolio disposition, and its weekly sale (think of its as a reverse repo) is starting to cause massive ripples in the bond market, just what will happen when dealers are forced to hold back the tens of billions in weekly bond auctions they freely flip back to the Fed now. In other words, is the credit market on the verge of a oversaturation implosion (hence the title)?
Former Bailout Inspector General Neil Barofsky: "You Should Be Scared. I'm Scared. You Can't Not Be Scared. You Can't Look At What Happened In The Run-Up To 2008 and See How It's Not Going to Repeat Itself, Given What We've Done"Submitted by George Washington on 06/10/2011 00:53 -0400
Sigtarp speaks truth to power ...
Stocks outperformed credit at the index level today but there was a significant shift in internals in corporate credit that provides the context for continued weakness in risk assets.
This is where things get downright bizarre...
In 2007, Shai Agassi starting a company called Better Place. The concept behind it was changing out batteries that power a car, instead of filling your car with gasoline. Shai Agassi looked at the problem correctly. He saw transportation fuel as a never ending relay race. But what if there was a technology that could do the same thing, without changing out the battery?
About a year ago Zero Hedge posted an article titled: "Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash" after a report by Fidelity uncovered that "plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier." It is now time to revisit this very important topic because if recent press reports are true, last year's record number has just increased by another 50%. "On "The Early Show" Thursday, financial journalist and Newsweek
columnist Joanne Lipman said, "Right now we have 30 percent of people
who have 401(k)s have loans against their 401(k)s, which is a historic
high. And the problem is, it's growing like crazy: By 2014, we're
expecting to see 30 million people take loans against their 401(k)s." The raiding of the last ditch piggybank is on, and who can blame them? With banks setting the example of always reverting to the Discount Window (or the Excess Reserve stash as is now trendy) when in trouble, ordinary working Americans are merely following in the footsteps of their financially more "literate" betters. Unfortunately, unlike the "depositor" institutions, nobody will replenish these funds should they not be repaid and the retirement money is gone for good.
It's Official: "Nuclear Fuel Has Melted Through Base Of Fukushima Plant" ... "Far Worse than a Core Meltdown"Submitted by George Washington on 06/09/2011 18:04 -0400
"Nuclear Fuel Has Melted Through Base Of Fukushima Plant" ... “The Findings of the Report, Which has Been Given to the International Atomic Energy Agency ... Described a 'Melt-Through' as Being 'Far Worse than a Core Meltdown' and 'The Worst Possibility In a Nuclear Accident'"
Update 2: State Department official says Clinton would not even take World Bank job if it was offered - CBS News
Update: NBC WIRE: From Philippe Reines, a Clinton spokeman: "It's 100% untrue, Reuters is wrong. That's on the record."
Phew, that was scary...
We are surprised that the "recidivist rapist" post-DSK PR backlash took so long. Yet it is now here. From Reuters:
- Secretary of State Hillary Clinton has been in discussions with the
White House about leaving her job next year to become head of the World
Bank, sources familiar with the discussions said Thursday.
Far more importantly, another rat leaves Obama's sinking ship. In the meantime, feminists everywhere rejoice, because, you know, Hillary, extremely experienced in economic, bankruptcy, and other financial issues is a woman. Next up: Oprah seeks to run the Bilderberg group, in order to give it a more "streamlined", humane appearance and Rachel Maddow in rumored to run the Trilateral Commission. Obviously, Erin Burnett is a shoo in for the CFR. And yes, the world has now officially gone crazy.
I hope not ... But Bennie, Timmy, Bammy and the boyz keep pushing on the wrong strings ...