June 2nd, 2011
Moody's Says It Expects To Place US Rating For Downgrade Review If No Progress On Increasing Statutory Debt LimitSubmitted by Tyler Durden on 06/02/2011 13:31 -0400
From Moodys, which now appears to have been hacked by Greece (in what may or may not be considered an act of war): "If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating....Although Moody's fully expected political wrangling prior to an increase
in the statutory debt limit, the degree of entrenchment into
conflicting positions has exceeded expectations. The heightened
polarization over the debt limit has increased the odds of a short-lived
default. If this situation remains unchanged in coming weeks, Moody's
will place the rating under review." Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.
Number 1 on the Banzai7 charts for one year and running...[Never before played on Zero Hedge]
These seem to be becoming quite popular lately: This particular one was titled: "Let them buy bonds." We are waiting to see how it will be revised following today's wonderful "Bailout #2" news.
The issue now is how far the Fed will let things collapse. When QE 1 ended in April 2010, stocks dived 15% before the Fed stepped in and began hinting at more QE. By today’s numbers this would mean the S&P 500 falling to 1,160 or so. However, given the extreme degree of danger in the world today (the European banking Crisis, the Middle East, China overheating and Japan’s nuclear disaster) there is plenty of room for surprises to the downside
Done Deal: Reuters Reports New Greek 3 Year "Adjustment Plan" Has Been Agreed On, Can Kicked For Another 3 YearsSubmitted by Tyler Durden on 06/02/2011 12:49 -0400
Just out from Reuters:
- According to a source, programme will involve new international funding to mid-2014, apportionment yet to be agreed
- According to a source senior Eurozone officials agree in principle on new 3-year adjustment plan for Greece
- According to a source, private sector involvement will be limited to avoid a credit event
Congratulations Europe: you just screwed your taxpayers, but at least bought your insolvent banks 3 more years of bizarro world existence.
As I travel frequently and spend time in so many different countries, it’s becoming clear to me that there are essentially two categories in the world– police states that are running towards George Orwell’s view of the world in 1984, and countries where you can still feel like a free human being. Unfortunately, the police states are doing their best to corrupt the rest of the world. Homeland Security chief Janet Napolitano recently toured India and met with senior security officials there, undoubtedly trying to influence them to toughen security measures and join the Orwellian order. Back in the US, DHS recently announced its ever-expanding “If you see something, say something…” program, this time at the 2011 Indianapolis 500 race. If you’re not familiar, this is the program that encourages people across the country to become unpaid spies for the federal government and rat out friends and neighbors for anything ‘suspicious’. In eerie Big Brother fashion, Napolitano delivers this message from monitors perched throughout WalMart stores nationwide. The stated DHS purpose for the Indy 500 message this past weekend was to “help ensure the safety and security of fans, employees, and race crews by identifying and reporting suspicious activity” at the venue. Realistically, though, it’s just a precursor to having Homeland Security involved in public sporting events… in addition to airports, train stations, subway stations, bus stations, and eventually shopping malls.
A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
Weakness in CAD evident after mixed Canadian economic data
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As ES Realized Vol Continues Spike, It Is Time For The CME To Hike ES Margins To "Protect Investors"Submitted by Tyler Durden on 06/02/2011 12:07 -0400
The CME's decision to lower ES margins two days ago may enter trader folklore as the most incompetent decision ever made (and we won't get all tinfoily on them: after all we know the CME doesn't see to manipulate markets with margin moves: they told us so themselves). Which is why in order to keep up with the exchange's primary prerogative of "intense focus on risk management" it is now time to not only undo that decision but to actually hike ES margins. Because as the chart below shows, since the margin cut on May 31, realized vols have surged!
Nobel Laureate Robert Mundell and his followers have made some noise of late about the need to achieve a fixed exchange rate between the dollar and the euro. About their desire for an exchange rate fix they're certainly correct, though they're wildly incorrect in suggesting that inflation and deflation can be cured if the U.S. Treasury simply ties the dollar to the euro.
Not at all surprising, the entire commodity complex just swooned, supposedly on the latest DOE inventories data, which saw a surge to 2878K versus expectations of -1600K, up from 616K previously (same surge in gasoline inventories, which surged to 2553K on expectations of 900K). We say not surprising, because crude, and thus all the other uber-correlated commodities, needs to drop at least $10-15 from here before the Fed can then proceed to triple its price once the money from QE 3 start sloshing around. We expect significant more downside weakness in Crude as the realization that QE 3 is inevitable finally dawns on Wall Street. Remember the Catch 22: everything (commodities, stocks, etc) has to go far lower, before everything surges yet again post the next monetary easing episode.
Is a Chinese internet video company that's hemorrhaging cash really worth $4.6 BILLION?
As usual, FX Concept's John Taylor (not the guy with the inflation rule, or the guy with the bass guitar) does not sugarcoat his views, and as disclosed by his latest outlook on the world, things, especially if there is no QE3, are about to get much worse: "Next year is going to be pretty miserable." The reason: the same one that caused us to predict, correctly, late in 2010 when we mocked Goldman's call for a US economic renaissance, namely that with the Fed blowing its wad on QE2 at a time when fiscal "consolidation" was about to become the norm in Washington, that the impact of monetary policy would have an increasingly less pronounced impact. We are surprised by how few people still get it: that cutting deficits at the same time as monetary easing is ending, will be an unmitigated disaster for the economy, and, yes, eventually the markets: "I'm afraid that the cutting the deficit means cutting final demand. It means the economy is going to slow. It might not be a bad thing to cut the deficit, but unfortunately, when you cut the deficit, you're going to get a slowdown. The more you cut the deficit, the worse it's going to be." As a reminder, DC hopes to cut up to $4 trillion in future deficits. And this is happening as the president is entering the fight for his second term. Basically, his only reelection chance, now that Europe is fully austere and China is tightening is some miracle out of Japan (which will not happen), or, cue surprise, the Fed, and QE 3. Ironically, the only hope left for the administration is that "this time it is different" and the Fed can get it right. Which it can't. But it won't stop it from trying. Taylor agrees: "QE 3 will start or not? No. No more? Well, eventually it will start I would argue. I think the fed has to really see the economy printing minus numbers first." So there's the benchmark: contraction, or at least collapsing growth. Which is precisely where we are now. Yes, QE3 is a certainty, and when it is announced, to borrow a phrase, hide your kids, hide your wife, and certainly hide your gold.
All the more relevant today, now that Moody's has downgraded Wells Fargo and Citi on concerns that the Fed will withdraw bailout support.
We're getting fleeced, and the President hires the best fleecer out there as his adviser.