I am sorry to tell you that whatever door that had been opened is now closed. America has turned the corner from the self-sufficiency of an individual to a new ideology for this country which is that incomes and life-styles should be equalized by taxes in the name of patriotism and for the greater good. The Socialism of much of Europe has arrived at our shores and spread from sea to shining sea and the safety net of decades past for our less fortunate citizens has been raised to a harmonization of social/governmental benefits regardless of hours worked or income earned. Stock markets rise, Treasury yields decrease, other bonds compress because there is no place off-world to invest money and it must be put somewhere. We are living in a fantasy world of the voters’ making and, I predict with some certainty, that we will all suffer the consequences of our decisions. The problem is extremely serious, answers are frustrating and aggravating and great care must now be exercised because this cliff is exceedingly steep.
China Narrowly Averts Credit Bubble Pop With Latest Government Bailout Of First Domestic Bond DefaultSubmitted by Tyler Durden on 01/23/2013 - 09:58
A Chinese solar firm which nearly produced the country's first domestic bond default will complete an interest payment on schedule after a local government intervened on its behalf. Investors say the latest instance of a government riding to the rescue of a troubled Chinese firm has led to moral hazard and inefficient credit allocation. In previous near-defaults, local governments had stepped in directly to arrange bailout funding. But as in past cases, the deal flouts legal notions of debt seniority by allowing one group of creditors - bondholders - to get paid in full, even as a pre-existing default remains un-cured. Analysts say the market does not effectively price in risk because investors assume the government will never allow a default.
From 11-inch subways to under-quality coffee and from watered-down beer and fake beef, food fraud is on the rise. So what is food fraud anyway? Well, it’s sort of what you would expect. It’s when companies label food one way, but the truth turns out to be completely different. I have been predicting an escalation in this trend for years, since it was obvious that as inflation led to increases in food prices, companies would resort to this type of behavior to keep margins inflated. So in their latest study, the non-profit food fraud detectives at the U.S. Pharmacopeial Convention (USP) show us the extent of this extremely dangerous trend.
One can only hope that mild concussion has not entirely wiped the frontal cortex from Secretary of State Clinton's brain and that we get some answers today. Prepared testimony (below) shows no use of the words 'take the fifth' or 'recollection'...
Oldest Bank In The World Plunges, Halted As Chairman Resigns In Aftermath Of Latest Derivatives FiascoSubmitted by Tyler Durden on 01/23/2013 - 08:41
Last week, following documentation from Deutsche Bank (and Nomura), it became clear that Italy's Monte Paschi (BMPS) bank (the oldest in the world) has engaged in derivatives with the German and Japanese banks in order to save itself during the financial crisis. The derivatives, according to Bloomberg, were done off-market and allowed the booking of large upfront gains which covered losses optically that the bank faced as European liquidity dried up completely - the offsetting 'losses' are now coming due. Today, amid growing outcry over the 'deal', the former head of BMPS has resigned. Bloomberg reports that Giuseppe Mussari, now Italy's top banking lobbyist, was the Chairman of BMPS during the derivative deal period. BMPS shares were halted after plunging dramatically as investors are still unclear of the extent of losses it faces on derivatives. If that was not enough chicanery, there is a twist in that none other than Mario Draghi, as Director of the Bank of Italy, would have had to vet Mussari (and his banks' regulated books) during this period - as BMPS accumulated what is obviously undocumented derivatives positions to intentionally obscure losses. Once again, years later, it seems the truth comes out - and of course we would expect no-one to go to jail - and the lying in Europe (then and now) continues unabated - as the reality of financial system health remains hidden from view.
With the most recent Spanish economic data in retail sales, house prices, manufacturing, and bad loans all confirming depression-level activity, or lack thereof, there was just two major metrics still missing: GDP and employment. Today we got Q4 GDP, which declined 1.7% Y/Y, and 0.6% from Q3. This was the worst year over year deterioration in the overall economy since Q4 2009 when the country was reeling from the Lehman bankruptcy global aftershock. We just need to get the unemployment number, which will be well north of 26%, for the picture of how the country with the ECB-backstopped and thus soaring bond curve is truly doing.
Heading into the North American open, equities are trading in minor negative territory, led lower by banks as markets look forward to the first LTRO repayment, as well as lingering concerns that losses from derivatives contracts by Monte Paschi (entered with Nomura) may undermine the lender’s earnings. Monte Paschi shares opened 8% lower and were halted by the exchange to prevent a further slide in share price. As a result, even though EUR/USD is trading higher and peripheral bond yield spread are tighter, Bunds are trading in minor positive territory. Of note, Spain’s Iberian neighbour Portugal opened books for its 2017 bond and books are said to be around EUR 10bln, with guidance at MS+395bps (down from original MS+410bps). EUR/USD has also benefited from the decision by the Portuguese Treasury to tap capital markets only a day after a successful placement by Spain yesterday. Looking elsewhere, even though USD/JPY has bounced off earlier lows, implied vols continue to trade heavy as option decay and re-positioning post the BoJ decision weighs on prices. So much so that R/R has slipped to Sep levels, but still favours bets on further JPY depreciation.
HSBC has quietly moved into acquiring large amounts of silver bullion. The bank has secured another deal to buy silver bars from KGHM which brings their total purchases of silver from KGHM alone in the last 12 months to $876 million or PLN 3.65 billion. KGHM is one of the largest producers of silver in the world and is the second-largest producer of refined silver in the world. They produce silver bars registered under the brand KGHM HG that are attested to by “Good Delivery” certificates issued by the London Bullion Market Association and the Dubai Multi Commodities Centre. Listed metals producer KGHM signed an estimated PLN 1.67 billion deal on 2013 sales of silver to HSBC, KGHM said in a market filing yesterday. The deal puts the total value of deals between KGHM and HSBC in the last 12 months to PLN 3.65 billion or $876 million, the filing read. KGHM is one of the largest companies in Poland and one of the largest mining & metallurgy companies in the world.
- Doubt Greets Bank of Japan's Easing Shift (WSJ)
- Japan hits back at currency critics (FT)
- Japan upgrades economic view for first time in eight months (Australian) - only to lower them in a few months again
- GOP critics get opportunity to grill Secretary Clinton on Benghazi (Hill)
- Global economy set for ‘slow recovery’ (FT)
- Obama to back short debt limit extension (FT)
- Unfinished Luxury Tower Is Stark Reminder of Las Vegas’s Economic Reversal (NYT)
- Draghi Says ‘Darkest Clouds’ Over Europe Have Subsided (BBG)
- High-Speed Dustup Hits a Clubby Corner (WSJ)
- U.S. Budget Discord Is Top Threat to Global Economy in Poll (BBG)
- Sir Mervyn King says abandoning inflation target would be 'irresponsible' (Telegraph)
- Spain Says It May Cover 13% of 2013 Funding in January (BBG)
With the market basking in glow of good earnings results yesterday, mostly out of IBM, and to a lesser extent GOOG, which missed on the top line but beat on EPS squeezing some recent inbound shorts, S&P500 futures have yet to post a solid move to the upside. Perhaps a big reason for this is the recent recoupling of risk based on not one but two carry signals: the first is the well-known EURUSD pair, while the second is the recent entrant, the USDJPY, and it is the latter that continues to see a cover of the massive short interest accumulated over the recent 1000 pip move higher on what upon ongoing reflection has been a disappointing announcement out of the BOJ. Needless to say, the Nikkei whose recent surge higher was all due to currency weakness has tumbled overnight despite corporate fundamentals, if not economic data, which continues to post substantially subpar prints.
On occasion, truth is stranger than fiction; and in the somewhat surreal world in which we now inhabit, The Onion's perfect parody of where we are headed could have been lifted from any mainstream media front-page with little questioning from the majority of Americans. For your reading pleasure, the 62-year-old with a gun that is the last man standing between the American people and full-scale totalitarian government takeover.
The day Lehman failed saw the launch of the most epic central bank intervention in history with the Fed guaranteeing and funding trillions worth of suddenly underwater capital. However, what Bernanke realized quickly, is that the "emergency, temporary" loans and backstops that made up the alphabet soup universe of rescue operations had one major flaw: they were "temporary" and "emergency", and as long as they remained it would be impossible to even attempt pretending that the economy was normalizing, and thus selling the illusion of recovery so needed for a "virtuous cycle" to reappear. Which is why on November 25, 2008, Bernanke announced something that he had only hinted at three months prior at that year's Jackson Hole conference: a plan to monetize $100 billion in GSE obligations and some $500 billion in Agency MBS "over several quarters." This was the beginning of what is now known as quantitative easing: a program which as we have shown bypasses the traditional fractional reserve banking monetary mechanism, and instead provides commercial banks with risk-asset buying power in the form of infinitely fungible reserves... So how does all this look on paper? We have compiled the data: of the 1519 total days since that fateful Tuesday in November 2008, the Fed has intervened in the stock market for a grand total of 1230 days, or a whopping 81% of the time!
With Gold inching back up towards the $1700 mark once again following yet another central bank's promise to flush the world with fiat currency, we thought some reflection on the history of Gold was useful. From its rareness and malleability to its multi-millenial nature as a store of wealth, Visual Capitalist's infographic takes us from the Egyptians to the Chinese and on through the US Gold Rush to the current 'vaults' of gold being questioned currently.
It would appear that the sell-side is in a full-court-press to convince the world that the levitation of nominal equity prices is indeed the start of something new and secular - as opposed to the inevitable consequence of global monetary experimentation. To wit, Goldman has done an excellent job of divining the seven previous regimes within the volatility (or VIX) cycle and believes (with 89% probability) that we have entered a new 'great moderation'-like eighth regime. They are happy to admit that the ECB 'promise' to remove the left-tail, and the Fed and BoJ's work to open-endedly compress realized volatility is to blame - but the current VIX levels would imply a notably lower (than 2012) realized volatility on average throughout 2013. However, the back-end of the curve remains steep (and unyieldingly less ebullient), the skew is extremely complacent, and as every premium-selling call-writing 'this-is-easy' trader knows picking up nickels in front of the steam roller works well - until it doesn't.