November 12th, 2012
Despite the protestation from Juncker that all-is-well and that the Troika report is positive, Europe is not happy. Bonds and stocks across most of the region's continue to weaken. The sacrosanct 2Y Spanish bond yield has leaked back to one-month highs, 10Y Spanish bond spreads are holding above 450bps (as the yield presses back towards 6%), Greek stocks broadly have given back almost 40% of their recent much-aggrandized dead-cat-bounce (remember our Eastman Kodak analogy), as Greek banking stocks are hammered on the day as recaps (as expected) are much worse than it seems hope-filled investors expected... EURUSD is sliding back towards its swap-spread implied reality. Europe's macro data is breaking lower and while some note US' decoupling, we reiterate (below) this is a lag, not a decoupling.
By blaming this week's sell off on the coming fiscal cliff is another belief by market participants that Washington can fix our economy and our markets.
For all our UK readers, who hope some day to collect pension benefits, we have two messages: i) our condolences, and ii) you won't. Why? The answer comes straight from the ONS:
The new supplementary table published by ONS in Levy (2012)10 includes the following headline figures for Government pension obligations as at end December 2010:
- Social security pension schemes (i.e. unfunded state pension scheme obligations): £3.843 trillion, being 263 per cent of gross domestic product (GDP) (£3.497 trillion at end of December 2009)
- Centrally – administered unfunded pension schemes for public sector employees (i.e. unfunded public service pension scheme obligations): £852 billion, being 58 per cent of GDP (£915 billion at end of December 2009)
- Funded DB pension schemes for which government is responsible: £313 billion, being 21 per cent of GDP (£332 billion at end of December 2009).
In summary, the estimates in the new supplementary table indicate a total Government pension obligation, at the end of December 2010, of £5.01 trillion, or 342 per cent of GDP, of which around £4.7 trillion relates to unfunded obligations.
With JCP's delayed reaction plunge-tastic drop today, it seems shareholders are waking up to the cash-burn and worries implied by the credit market...
It’s a safe assumption to make that the reelection of Barack Hussein Obama to the office of the United States Presidency will be talked about for decades to come. Like Franklin Roosevelt, Abraham Lincoln, and other “transformative” presidents before him, Obama will be praised for keeping the country together in the midst of economic difficulty. The lavishing has already begun with prominent voices on the left like Paul Krugman declaring the “new America” has made Obama their champion. Like most of what passes for accepted history, this is downright propaganda. The country as a whole wasn’t frightened over sudden change by throwing out the incumbent. It wasn’t a declaration of a new, more diverse America. There is a rational explanation for the President’s reelection which doesn’t invoke a deep or complex meaning. The only way to explain the outcome is in the simplest and direct prose: the moochers prevailed.
There was one, just one, country that escaped the bankster Mutually Assured Destruction singularity force field in 2009 and after destroying the financial overhang and starting from scratch, has become a paragon of growth in the New Global Depressionary Normal. Iceland (profiled most recently here). As such, what Iceland says is signal, and what the legacy masters of the abovementioned New Normal repeat day after day, is recurring noise. Here is the signal: when Icelanders were asked if they should join the EU, this is what they responded:
- YES - 27.3%
- NO - 57.6%
With AAPL's share price 'off the lows', hope is re-emerging that the company-that-can-do-no-wrong is back (23% decline aside). However, a funny thing happened on the way to the AAPL store. Digitimes is reporting speculating (via China Times) that the tech giant is preparing for trial production of the iPhone 5S in December with an iPad update shortly after. It would seem to us that Apple is scrambling - how does a three-month upgrade-cycle sync with a two-year non-free upgrade contract from the telecoms providers? It appears clear that few will participate and upgrade-cycle take-up estimates will have to be reduced. Furthermore, following in the footsteps of Bernanke's some-is-good so more-is-better strategem, we wonder whether the public will begin to adjust their behavior and delay purchase in an ever-decreasing sales loop since the iPhone 'n+1' is only a few months away... especially as the marginal improvement approaches its zero-limit.
On this day (-1) in 1918, Pvt. Henry Gunther of Baltimore, Maryland thought he saw a suspicious movement in the German trenches across the way. Fearing that the "Huns" were using the mid-morning sun to get some territorial advantage while the peace talks dragged on, Gunther decided to rush the suspicious area. Henry was fast but unfortunately, not invisible. A single shot from a German rifle struck him in the heart and killed him instantly. The time was 11:01 a.m. just 1 minute after the war officially ended, making Put Henry Gunther the final casualty of World War I.
The slow data (and holiday) week will likely keep eyes focused on the 'fiscal cliff' supplying a stiff headwind to stocks as it only reminds investors of the peril which looms directly in front of them. One suggestion I could offer both sides of this debate to avoid any further damage is just to be quiet. Stop making stump speeches. We all know your views. We all know how stridently you will defend them, but your incessant reminders that you have dug in your heels does no good regardless of the negotiating tactic. Instead, hold a joint press conference and admit there are ideological differences, but announce that both parties will do their best to hammer out a deal palatable enough for everyone. Alas, this is wishful thinking. As a result, anytime they open of their mouths, most notably Mr. Obama’s, the words they spew will cause damage to share prices. Unfortunately, the President’s drawing a line in the sand on Friday has guaranteed that a countless number of E-Mini bandits will short the futures in front of his speaking which will erode the conviction among managers trying to put money to work. Ironically, it may take an equity market in free fall that ultimately forces compromise.
Whocouldanode? Since August 2011, we have know this painful combination of tax-cut cessations and spending cuts (sequestrations) was due to hit as yet another painful decision 'can' was kicked down the road by the 'super committee'. In February 2012, Bernanke coined the term 'fiscal cliff' for this chaos and since then we have been active in discussing the impact (329 ZeroHedge articles). From pointing out the market's total lack of 'pricing-in' to comprehending the contagion and impact of the 'fiscal cliff' or slope or hill, it would appear the world has been numbed into denial by the monetary policy medicine needed to get an incumbent re-elected. The 'efficient' market is now catching on - as are the 'efficient' headlines as we see searches and news stories surge about this critical event horizon. Between Bloomberg's news story count and Google's search volumes, it would appear the American public is waking up to the reality about to beset them now that re-hope is back.
When we reported yesterday that following "recurring" "provocations" by the Syrian military, which is so very confused who it wants to declare war on first - NATO member Turkey, or best US friend Israel, it is pressing on both fronts, even as it continues to be torn by CIA funded, and Al Qaeda stoked civil war, which saw Israel launch a missile into Syrian territory for the first time since 1973,we said, "It goes without saying that this is merely the first proverbial shot across the bow, or in this case the DMZ. Much more to follow, until finally the UN rules, and the fair and objective media backs it, that the time to invade liberate Syria has come." Sure enough, less than 24 hours later...
ISRAELI MILITARY REPORTS `DIRECT HITS' ON SYRIA TARGETS: AP
With everyone convinced that it is only a matter of time before Larry Fink steps into the office about to be vacated by that walking 1040 disaster, Tim Geithner, thereby allowing the man who many say is the shadow king of Wall Street to define US policy for another 4 years (because Wall Street's complete dominance of US politics since JPMorgan's bailout of the US government is certainly not enough), there is still time to consider alternatives to a position that will make sure the only class to benefit from "four more years" are the uber wealthy (even as entitlement policies keep the uber poor at least content). Today, Bloomberg columnist William Cohan proposes his economic dream team, which far from perfect, will at least, superficially, assure that Wall Street won't come first and foremost when policy considerations are discussed. The names: Treasury Secretary: Erskine Bowles; SEC Chairman: Eliot Spitzer; National economic advisor: Carmen Reinhart.
Another day another sell-off…with equity markets in Europe trending steadily lower after it was reported that the decision on Greek aid will not be taken during the Eurogroup meeting scheduled for November 12. Still, EU official said that there will be no Greek default on November 16th (EUR 4.1bln redemptions) and that this redemption is to be "factored in" decision on disbursement. Separately, analysts at Fitch rating agency noted that while current Spain’s rating is appropriate, further action would more likely than not be to sub-investment grade. Moody’s also commented on the never-ending sovereign debt crisis today, stating that actions taken by the ECB only buying time for Euro region and that a decision on France will be communicated within a few weeks. As a result, bond and credit spreads widen further today, with SP/GE 10s spread at 450 level, which is of particular importance given that this is the level at which the LCH begins to review bonds for margin requirements. Deterioration in Italian paper was linked to next week’s supply. In turn, EUR/USD and GBP/USD trended lower, with the USD index up 0.12% at last check. Going forward, market participants will get to digest the release of the latest U. Michigan Survey (Nov P), as well as macro forecasts from Philadelphia Fed.
Chairman of the LBMA David Gornall told the conference, “When comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction. The country has only 2% of its reserves in the form of gold compared with the U.S. at 75%.” The People’s Bank of China hasn’t disclosed any changes to its gold holdings since 2009, when it said they had risen a whopping 76% to 1,054 metric tons. While the U.S., Germany, Italy and France keep more than 70% of reserves in gold, China’s share is less than 2%. “Prices have recently been supported by official sector buying,” Gornall said today, without listing any central bank. “Will the gap between the amount of gold held in reserve by the developing markets and that of the developed world close?” Brazil, South Korea and Russia have all added gold reserves this year data from the International Monetary Fund show. Nations bought 254.2 tons in the first six months and may increase to 500 tons this year, the World Gold Council said in August, exceeding the 456 tons added in 2011. China has the world’s largest foreign-exchange reserves, totaling $3.29 trillion in September, according to data by Bloomberg.
- Jefferies to be bought by Ian Cumming's Leucadia in an all-stock deal for $3.59 billion or about $17/share (WSJ)
- FBI Scrutinized on Petraeus (WSJ)
- Identity of second woman emerges in Petraeus' downfall (Reuters)
- SEC staffers used government computers for personal use (Reuters)
- Japan edges towards fifth recession in 15 years (FT)
- Europe Finance Chiefs Seek Greek Pact as Economy Gloom Grows (BBG)
- Americans Say Europe Lesson Means Act Now as Austerity Will Fail (BBG) - of course it would be great if Europe had ever implemented austerity...
- Greece battles to avert €5bn default (FT)
- You don't bail out the US government for nothing: No Individual Charges In Probe of J.P. Morgan (WSJ)
- Israel Warns of Painful Response to Fire From Gaza, Syria (BBG)
- Greece's far-right party goes on the offensive (Reuters)
- Don’t fear fiscal cliff, says Democrat (FT)
- Apple Settles HTC Patent Suits Shifting From Jobs’ War (BBG)
- Man Set on Fire in Argentina Over Debt (EFE)
- Iraq cancels $4.2-billion weapons deal with Russia over corruption concerns (Globe and Mail)
- An Honest Guy on Wall Street (Bloomberg)