Remember when Jamie Dimon showed the Fed who's boss and preannounced it was starting a share repurchase program? Turns out the Chairsatan will have the final laugh:
- DIMON SAYS JPM IS SUSPENDING SHARE REPURCHASES
- DIMON SAYS SUSPENDING REPURCHASE PROGRAM ISN'T RELATED TO LOSS
- DIMON SAYS SUSPENDING REPURCHASE PROGRAM ISN'T RELATED TO LOSS
- JPM'S DIMON SAYS THERE'S UNREALIZED $8B IN PROFIT FROM CIO
- JPM'S DIMON: DOESN'T SEE INVESTIGATION TO UNVEIL BIG SUPRISES
- DIMON SAYS LOSS IS AN ISOLATED EVENT
And the joke of the day:
- DIMON SAYS FORTRESS BALANCE SHEET REMAINS
Three years ago, the government in all its glory and sound central-planning decided to provide a fully-FDIC-backed facility to allow banks to raise capital at ultra-cheap cost of funds in the middle of the crisis. The Term-Loan-Guarantee-Program (TLGP) has not been far from our thoughts but the next month or so is going to be increasingly anxiety-inducing for the banks that took advantage of that bailout. By the end of June 2012 (i.e. the next six weeks) there is almost $60 billion of TLGP debt that matures for US banks (and will need to be refinanced we assume). This $60 billion has an average cost of funds of 0.3% (that is yield NOT spread) which when compared to the 3.5% - 4% cost of funds for mid-dated US financial debt currently (average CDS around 230bps) means a more than 10x increase in funding costs for this segment of their debt. Of course there are yield-hungry ETF-buyers to be satisfied (note LQD can soak this up and few retail investors realize just how exposed LQD - the investment-grade ETF - is to US financials) and so we expect them to get this off but it can only pressure spreads wider as supply dominates demand in this risk-averse market environment.
The Spanish government has promised to reform the public sector to make it thinner and more efficient. In practice, however, the political machinery based on spoils is being kept intact while some very critical public functions are coming apart at the seams. This results, for example, in overcrowded courts with insufficient staff and resources that bear no resemblance to a developed nation's judiciary. Angry and less motivated public employees feel robbed of their dignity and pockets while the general population’s dissatisfaction with tax-draining, yet increasingly inefficient, public services grows. Public workers fear a new wave of cuts in their salaries as a result of the debt-laden regional governments’ asking for more "solidarity" from those who have a secure job. Naturally, in a nation with almost 6 million unemployed, public servants will not find much support from society if they opt to go on strikes to protest additional salary cutbacks. Just how far is the government willing to make itself redundant, especially in a time of economic crisis? Does Spain need state-journalists working for state-owned radio and television stations (there are 48 public television stations across the country)? How about the double, triple and sometimes quadruple existence of government officials and agencies due to layers and layers of local, regional and central government institutions? Unions and political parties sustained with taxpayers' money? As far as public servants are concerned, more and more are realizing that a false concept of merit astutely devised by mediocre politicians secured them not a job for life, but a lifetime of serfdom.
The policy responses and hints of policy responses are starting to come out. What will they be, how big will they be, and what will they accomplish remains to be seen, but the market is due to rally on almost anything. We expect some announcements out of Europe. A policy shift towards “growth” and some new ECB plans. We don’t think they will work well, especially if they don’t address the root of depositor fear in Spain, Ireland, Portugal, and Italy, but with so many indicators pointing to oversold conditions, the markets could snap back, and that is the way Peter Tchir of TF Market Advisors is leaning.
Up until 26 minutes ago, $38.00 was the most important number for Facebook. That is no longer the case. Below, courtesy of Grant Stevens and Things That Make You Go Hmm are a few more numbers that readers may be interested in.
About Face(book) took all of 24 hours. The FaceBook $38/share support freebie courtesy of Morgan Stanley is now gone. As of moments ago the stock was well below its IPO price and sliding. The humiliation for a Zuckerpunched Morgan Stanley, which is now funding its $70 million IPO fee with hundreds of millions in sales and trading losses, and which is scrubbing any mention of the FaceBook IPO from its pitchbooks, and of course the NASDAQ, is just soaring by the minute.
Gold Has Fallen Due To:
- Gold’s recent weakness is in large part due to a period of recent dollar strength. While gold in dollar terms has fallen by 25% ($1,920 to $1,540), gold in euro terms is only down by 14% (from €1,374/oz to €1,210/oz).
- Oil weakness – since the end of February, oil has fallen from $111 a barrel to below $95 a barrel (NYMEX) today. Gold and oil are often correlated and many buy gold to hedge inflation that comes from higher oil prices.
- Gold’s weakness may also have been due to wholesale liquidation in all risk markets due another bout of "risk off" which has seen global equities and commodities all come under pressure.
- Physical demand from retail investors in the western world has slowed down as did demand from India in recent weeks due to the increase in taxes on bullion (since removed).
- Much of the selling has been technical in nature – whereby more speculative elements on the COMEX who trade gold on a proprietary basis have been selling gold due to the recent price weakness and the short term trend clearly being down. This has led to speculative longs now having their smallest positions since December 2008.
At the beginning of the week, European equities are seen modestly higher in the major indices with underperformance noted in the peripheral markets. Markets have sought some solace in the G8 summit over the weekend, with leaders agreeing that the optimal scenario would be Greece remaining within the European Monetary Union, and have furtively agreed that further measures may be necessary to return Europe to growth. The disagreements, however, continue to rollover as leaders fail to commit to a specific growth strategy. The tentative risk sentiment is reflected in the fixed income markets, with the German Bund remaining in negative territory for much of the session and 10yr government bond yield spread between the periphery and the German benchmark tighter on the session. Touted bids by domestic accounts helped support BTPs (Italian paper), especially in the short end of the curve, where the spread between the German equivalent is trading tighter by around 3bps. From Tokyo, comments from Fed’s Lockhart have drawn attention, who commented that with the downside risks emerging from the Eurozone, it would be unwise to take QE3 off the table.
- Is Insider Trading Part of the Fabric on Wall Street? (NYT) ... uhm, next question
- Nasdaq Says Glitches Affected Millions of Shares; IPO System to Be Redesigned (WSJ)... it's all the robot's fault... And the weather... And Bush
- Special Report: The algorithmic arms race (Reuters)
- Barclays to Sell Entire BlackRock Stake (WSJ) ... but they don't need the money... and it's not a market top.
- BoE's Posen: some European banks need more capital (Reuters)... some?
- Limbo on Bankia Undermines Confidence in Spain's Handling of Crisis (WSJ)
- JPMorgan CIO Risk Chief Said to Have Trading-Loss History (Bloomberg)... a guy called Goldman, blowing up JPM... the irony
- Pentagon's tone softens on Chinese military growth (China Daily)
- EU summit to raise pressure on Merkel (FT)
- Romney Super PAC raises less, still tops Democrats (Reuters)
- JPMorgan’s Home-Loan Debt in Europe Increases Anxiety: Mortgages (Bloomberg)
In continuing with the 2011 deja vu theme which has become the norm at this point, nearly half way into 2012, the key overnight events driving sentiment and futures higher (if not the EURUSD which despite a record number of shorts appears to have once again decoupled with the US stock market), were a statement following the latest G-8 summit (penned in the brief time when the world leaders were not watching soccer) that Greece should stay in the Eurozone (as opposed to?), and yet another promise from China's Wen Jiabao that the world's fastest growing economy would focus on growth (what a truly radical shift in policy for the country which needs GDP growth over 8% just to avoid riots and civil unrest). And in continuing with the "summit" theme so well exhausted back in 2011, and mocked by David Einhorn (see below), let's recall that there is yet another summit on May 22, this time where the European heads of state will sit down and also decide that, shockingly, they want Greece in Europe, in response to which stocks will surge, then be very confused just why they surged, and promptly tumble. Sadly, by now we have seen it all since 2012 continues to be a carbon copy replica of last year. We can only hope the powers that be infuse at least some originality before we are forced to start recycling headlines from the summer of 2011. In the meantime, futures are green, especially since Dennis Lockhart unleashed the QE bomb hours ago in Tokyo, saying that more easing should not be ruled out amid European risks. Wink wink.
The last time we looked at the Greek tourism industry or what's left of it, ironically so very reliant on German tourists, we observed that receipts from this very critical to Greek tax receipts industry would likely drop to under €10 billion - a big hit to government revenues just when they are most needed. Needless to say, ongoing political chaos, a rise in anti-German sentiment, and a resurgent neo-nazi political power are not helping things. Sure enough Ekathimerini reports that German bookings continue to be in free fall: "German bookings for holidays in Greece have slumped by almost a third so far this year, a German Sunday paper quoted a Thomas Cook executive as saying. "By the beginning of the Summer season, booking numbers for holiday in Greece in the German travel industry have been 30 percent below the year-earlier figures," Euro am Sonntag cited the head of tourism at Thomas Cook's German unit, Michael Tenzer as saying in an excerpt of an article made available to Reuters on Saturday."
Whether or not the European deterioration is real or not, one thing is certain: FX traders aren't sticking around to bet on a rebound. As of Friday, the net non-commercial position in the EUR currency was at -173,869 contracts or the biggest net short in history, surging by 30k contract over the prior week, and by a record 70k contracts in the past two weeks as things in Europe unwound rapidly. The short position is greater than the last such record hit back on January 24, when the net short was -171K, and the LTRO effect was yet expected to take hold. Naturally, with such a massive surge in shorts in a short period of time, this means that the likelihood of major short squeezes is substantial on even the most innocuous of news, such as a G8 summit which promises much but delivers nothing, or China once again saying it will gladly focus on growth (as opposed to what? non-growth?), or some DieBold-inspired leadership change in the Greek pro/anti-bailout polls. Our advice to FX trading readers: be very careful with EURUSD stops: it is very likely that in their pursuit of short covering squeezes, (BIS) algos will take the pair substantially into the offer-side stop limit buffer just to force short hands out, which in turn may initiate short-term covering ramps. Which would be great for Europe - after all what better indication of the viability of the continent than some algos tripping over each other and generating momentum.