Remember "What Is The Upside In Chesapeake?" from 3 weeks ago, where we said, "one thing is certain: the company has lots of good assets, as well as quite a few legacy liabilities, combined with an industry environment that is as bad as it has ever been. And sure enough, in betting that the environment might actually improve for a change, there are quite a few big firms which may be happy to onboard the assets and the liabilities, knowing they wouldn't impair the right side of their balance sheet, while acquiring some good real estate and substantial reserves on the left, at a valuation that is the cheapest in the industry. Because in finance, once central planning is (finally) stripped away, valuation is all that matters." Today we read in the FT: "Sinopec, the Chinese oil and gas group, is considering bidding for billions of dollars worth of assets owned by Chesapeake Energy, the US gas producer. Fu Chengyu, head of Sinopec, was in Oklahoma in the US this week in connection with the company’s due diligence on the Chesapeake assets, according to people familiar with the move."
If there was any confusion whether Obama is in fact Bush, or maybe even Nixon, this has now been squashed. From Fox:
President Obama has granted an 11th-hour request by Attorney General Eric Holder to exert executive privilege over Fast and Furious documents, a last-minute maneuver that appears unlikely to head off a contempt vote against Holder by Republicans in the House. The House Oversight and Government Reform Committee is expected to forge ahead with its meeting on the contempt resolution anyway.
Holder, whose guilt is implicitly proven by this action, is now likely absolved of everything as the TOTUS has effectively onboarded all of his "balance sheet risk." And why not. The Fed does it for everyone else every day.
Congrats Greece: you are no longer Belgium, even if the new leader is the same as the old leader
- GREEK NEW DEMOCRACY LEADER SAMARAS SWORN IN AS PRIME MINISTER
Now: we eagerly await the list of Greek bailout renegotiation "conditions" to Germany.
The always pragmatic Art Cashin summarizes today's 12:30pm FOMC announcement. In summary: "look for the Fed to dangle a big carrot - some semi-specific course of action that would be put in place if the labor markets continue to worsen. Net/net, he needs to keep the door wide open and maybe outline certain milestone “triggers” that will allow the Fed to act later in an election year without being accused of being overtly political." Said otherwise, the happy ending will likely be deferred one more time. The market may not be very happy.
Volunteering to join the military has always been a process rife with internal and external conflictions. A vital aspect of one’s ultimate decision to do so often depends greatly upon the era in which one becomes eligible. U.S. citizens leaped at the chance to defend their country at the onset of World War II because the enemies were indeed a legitimate and obvious threat to the freedom and sovereignty of all nations. During Vietnam, the waters were muddied (at least in the view of millions of citizens), and many Americans did not see the fight as their own. The line between our system, and the enemies we were supposed to despise, had become progressively more foggy and disjointed. For any wise and honorable man to go out of his way to risk his life, the fight must be clearly just, otherwise, he may feel that his death will serve no purpose. No matter what era of war an American soldier happens to take part in, his desire is usually simple and honest; most seek to defend the underlying principles of freedom which have guided the soul of this country for generations. They seek a righteous cause, and transparent leadership. Unfortunately, for decades, sincere leadership by our government, from Washington D.C. down to the good-old-boy networks of county politics, has all but been erased. Not even a trace of truth permeates the bedrock of our legal or bureaucratic structure anymore. The system has become so corrupt, so leprous and putrid, that it now actually influences originally honorable men and women to do great evil just to survive and to thrive. Our administrative structure encourages and even breeds thieves, murderers, and tyrants. It is a self-perpetuating monster machine.
There are those (such as the entire world) who have in recent months ganged up on Germany, see "In The Case Of The World Vs Merkel, The Broke Prosecution Proposes Eurobonds Lite", and are now openly demanding that the German population shoulder even more of the broke continent's bailout costs, and not only that but implicitly foot the lowering of the French retirement age from 62 to 60. Nowhere is there any discussion of how Germany should go about achieving this: by raising its own retirement age to 100 maybe? Nor is there any discussion that Germany is now very actively engaged in bailing out Europe one day at a time to the tune of €2 billion each 24 hours via TARGET 2. Well, it was only a matter of time before Germany, having long kept radio silence, lashed out at its accusers. Spiegel summarizes: "Merkel was certainly in the hot seat, once again, as many nations pressed her to do more for the euro -- at a time when many Germans feel their country has already done too much." And finally the instigator of it all, TurboTaxCheat Tim Geithner, gets exposed: "It is rather hypocritical when the Americans and the British, whose own mountains of debt have reached a high point, try to lecture the Europeans. One number is sufficient to reveal what a bad tactic this is. At a time when the budget deficits of the US and Great Britain are about 8 percent, the euro-zone members have almost managed to bring their deficits as a whole down to 3 percent." And they are spot on: Europe may be going through a painful time but at least it is doing something to address its problems. America continues to rely on one simple, and very much transitory thing: reserve status. Newsflash: reserve status ends. And when it does: run.
Think the Fed will pump more today? You are not alone: an implicit 7 out of 10 market participants do so too (and have for the past 70 or so S&P points, urged by nothing more than hopes of more easing as economic data after economic data has come in worse than expected). Which naturally means the pain trade today will be one of disappointment. But fear not: everyone will be able to sell ahead of everyone else if and when the Fed disappoints. Or so the thinking goes. Others like Citi, Deutsche and now SocGen, believe that a real policy intervention will come in only following a market crash. Bottom line: nobody knows anything. Correction - we know one thing. Absent central bank intervention everyone now agrees that the economy would be a complete disaster, so at least we can stop pretending that the word "recovery" makes any sense.
Everything today is all about the Fed, which at 12:30 pm will release its standard statement. The publication of Fed officials' forecasts and Chairman Bernanke's press conference will follow at 14:00 and 14:15, respectively. Some, like Goldman are convinced the Fed will announce new easing measures, which could take the form of a new LSAP, more Twist as well as a lengthening of short-term rate guidance beyond 2014, potentially going as far as announcing a Flow-based form of QE, while others such as BofA are fairly certain nothing will happen. Then at 2:00 pm the Fed will release its new economic projections, in which it is roundly expected that the Fed will revise its GDP forecasts for 2012 and 2013 lower, and unemployment - higher. Finally at 2:15 pm Bernanke will address Steve Liesman and a few other members of the fawning captured media. By then the market will be either much higher or much lower, although with about 5% of the recent market move driven entirely by pricing in of more QE, the risk is to the downside. In other words the hopium phase is over. It is now make or break for the Fed.
- Prepare for Lehmans (sic) re-run, Bank official warns (Telegraph)
- Fed Seen Extending Operation Twist While Avoiding Bond Buying (Bloomberg)
- US Watchdog Hits at ‘Risky’ London (FT)
- G20 Bid to Cut Cost of Euro Borrowing (FT)
- Romney Says Rubio Being Examined as Possible Running Mate (Bloomberg)
- Hollande Says Worth Exploring ESM Bond Buys (Reuters)
- US Upbeat After Eurozone Debt Crisis Talks (FT)
- BOJ Members Say Japan Could Be ‘Adversely Affected’ by Europe (Bloomberg)
- China Steps Said to Grow Bond Market, Add Issuer Scrutiny (Bloomberg)
- How Asia Will Fare if Europe Cracks (WSJ)
And off to largely irrelevant Greece, where former minister of virtually everything Venizelos has just announced that the country has a government.
- VENIZELOS SAYS CONDITIONS FOR COALITION BEING MET
He adds that the key issue will be to form a bailout renegotiation team. In other words we have merely days before Germany says no and it is back to the drawing board for the beggars who almost could be choosers.
Two days ago, when noting that Italy is on collision course with technical insolvency should its bonds remain at current levels for even one more week, we wrote that "As Italy Hints Of Subordination, Did Rome Just Request A "Semi" Bailout?" Of course, yesterday's big market moving rumor was just this - namely that "supposedly" Germany had agreed to provide the underfunded EFSF and non-existent ESM as ECB SMP replacement vehicles, and implicitly to launch the bailout of not only Spain but also Italy. This turned out to be patently untrue, as we expected, despite speculation having been accepted as fact by various UK newspaper and having taken Europe by a storm of false hope, leading peripheral spreads modestly tighter (and Germany naturally wider). Of course, even if Merkel were to allow the ESM/EFSF to effectively replace the ECB secondary market bond buying, which is what this is all about, nothing will be fixed, and in fact it would lead to even more subordination and more bond selling off of positions which are not held by the ECB or ESM. But that is for the market to digest in 4-6 weeks as it appears nobody still understands how the mechanics of the flawed European rescue mechanism works. In the meantime, now that Italy has tipped its hand, it has only one option: to push full bore demanding that someone, anyone out there buy its bonds. Sadly, Germany just said nein. Again.