Ben Bernanke will provide brief prepared remarks at the Fed's systemic risk conference starting any minute. Watch it live below. Nothing new is expected to be revealed even though the speech is less than a week away from the FOMC meeting, and will be watched by many.
It may be time to scrap this morning's Empire Fed Data, because if the Average Employee Workweek data is wrong, which it glaringly is, then who knows what else is totally mistaken in the report.
Just the summary for now:
- CPI: 0.4%, Core 0.2%, consensus for both was 0.2%; Inflation higher than expected
- Initial Claims, +428, Exp. 411K, up from 417K (414K was revised upward of course); 22 out of 21 400K+ prints; Employment looking bad again
- Empire Index: -8.82; Exp. -4.0, , decline from -7.72 previously; 4th consecutive decline; Manufacturing continues to look ugly
- Q2 Current Account: -$118 billion, exp. -122.4 billion; Previous revised lower from -119.3 billion to -$119.6 billion. Irrelevant for current GDP data, and only relevant for the final Q2 GDP revision.
Some may find it odd that afer all the measures taken to resolve the threat of a Greek bankruptcy and Eurozone explusion, it is just Greek CDS that are actually wider on the day. We suggest those "some" forget about reality and enjoy the latest massive short covering squeeze which will end only when it does and not a moment sooner.
- An article in the Imerisia newspaper said that participation in the Greek debt rollover has exceeded 82%
- UBS shares fell more than 8% in early trade after news emerged that a trader at its investment bank unit has caused a loss of around USD 2bln
- GBP received a boost following higher than expected retail sales data from the UK, together with a rise in the BoE's 12-month inflation forecast
- SNB said that it will continue to aim for 3-month LIBOR at 0, and is aiming to defend a EUR/CHF target of 1.2000
Those wishing to blow $2 billion on rogue, or just stupid, trades, will have ample opportunity during today's event extravaganza which sees the CPI, the current account, the Empire State Index, Initial Claims, Industrial Production, the Philly Fed, a POMO for good measure, and tops it all off with a Bernanke speech. Also, the relentless lie-flow from Europe will be a constant and lurking wildcard at every step of the way.
The myths of this market continue breaking one after another. After two substantial and long overdue trading blow ups in the past 24 hours, we next turn to that other momo miracle: Netflix, which at last check had plunged 12% to about $180 following an update from the company, in which it said it subscriber growth will come in below plan. Of course, the only ones surprised by this move, are those who are actually long NFLX (and those who bought into Goldman's topticking upgrade which brought the stock to over $300 however briefly). We expect "value investor" of very high conviction, Whitney Tilson, who lately has been known best for shorting low and covering higher, to soon resume his bearish position in the name. And yes, we still expect that the company will very soon come to market with a dilutive equity offering to raise cash and stench the relentless real cash burn.
Yesterday when discussing the blow up of Goldman Global Alpha blow up we predicted, "If 2007 was any indication, and it was, every terminal event for Global Alpha is a harbinger of many, many bad things coming. What is just as ominous is that if Goldman's quant fund has now blown up, then there are tens if not hundreds of other quant funds, and otherwise, that are completely defunct and liquidating, but simply choose to keep quiet. Look for many more such stunner announcements in the days to come" Sure enough not even 6 hours later, we discover that SocGen part two has struck, this time via a UBS' ETF trader (the same as Jerome Kerviel), who has been identified by the FT as 31 year old Kweku Mawuli Adoboli. The trade in question that resulted in the $2 billion loss and forced the arrest of the trader is unknown but very much irrelevant: he was over his risk profile and nobody had stopped him: this reflects very badly on UBS. Look for the bank's Libor rate to surge yet again, as the interbank market struggles to price in the risk of further such trade blow ups in a time of uber volatility. And, as yesterday, we are certain that even more blow ups, at prop desks and otherwise, will now come out of the woodwork.
EUR3.386bn was borrowed at a rate of 2.25% yesterday from the ECB's MLF - the highest in over a month. Whether this is related to UBS, we have no idea, but we await the denials form various French banks that they partook of this expensive funding.
Imerisia reports that the Greeks are assuming success it seems as the current 82% participation will likely rise to 90% once mutual and pension funds are included after the deadline extension. The Greek 2Y jumped from EUR69.5 to over EUR72.5 before dropping back to the middle of that range.
UBS has started European trading off on the wrong track. 'Astonishingly', coming clean to a USD2bn loss on the back of unauthorized trading. No details on whether this was selling Greek credit protection or buying Portuguese bonds (for the yield) but the Bloomberg headlines, UBS equity price crash, and the ES reaction are clear.
In a lengthy, honest, and somewhat gloomy op-ed in The New York Review Of Books, George Soros follows a similar tack to our post yesterday with regard to the current crisis and its origins in and similarities to the 2007/8 subprime crisis in the US. He then steps into discussing possible resolutions and does what any and all Keynesian-clowns are unable to do - think the unthinkable in order to reach a tenable solution. In just four steps, he outlines how the unthinkable could be possible but critically (as we are well aware) explains the German-centric nature of any resolution (and the change of heart required to get there). A bona fide taxing-and-borrowing central treasury under a new treaty seems the approach-du-jour for Mr. Soros and while it may have merit as an 'unthinkable' idea, he ends with the threat that [his approach] "is the only way to forestall a possible financial meltdown and another Great Depression".
While last night's quid-pro-quo from Chinese officials will likely be remembered as the start of escalating trade wars, Wikileaks has uncovered a declassified cable from John Huntsman indicating China's clear understanding of the growing tension and comprehension of the ability of the US to entirely destroy it economically with one swipe of the Presidential pen via a massive devaluation of the USD or repegging to gold. Choice quotes include: "The U.S. has almost used all deterring means, besides military means, against China. ", "United States is determined to beggar thy neighbor", "Chinese must be very clear what the key to victory is. It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds.", and "[when] the new U.S. dollar is pegged to the gold - we will be dumbfounded."
Shadow Banking Contagion Approaches As European Banks Sign Private Repo Agreements With US CounterpartsSubmitted by Tyler Durden on 09/14/2011 - 23:21
In what is probably the riskiest escalation of the second credit crisis to date, IFR has released information that was until now speculated, but not confirmed, namely that European banks not only continue to make a mockery out of LiEbor by posting whatever rates they deem appropriate (for the simple reason they don't use interbank funding), while in the meantime going directly to US banks, using shadow, and hence completely unregulated conduits, in the form of private repo arrangements with "at least three of the five biggest US banks." Now where this is interesting is that as Zero Hedge disclosed three months ago, the bulk of the cash generated for the pendancy of QE2 went not to US banks, but to US-based branches of foreign banks. Which probably means that there is a roadblock to repatriating the US held cash (even in exchange for perfectly legitimate receivable debits). Because one would think that this is where the first source of cash for troubled banks would come from. Assuming it hasn't been repatriated already, or is not stuck in some IOER-GC carry trade that generates virtually no return (and when the Fed lowers IOER even more, absolutely no return). Alas this means that the 3M USD Libor which we update every day is substantially under-representing the true funding squeeze in Europe. Even worse, it means that US banks have lent us tens, if not hundreds of billions of cash, in exchange for collateral that could be virtually anything, and which collateral bypasses traditional Fed supervision. As a result, US banks can and will go hog wild in lending repo dollars (at big collateral haircuts but still) to European banks until everyone suddenly runs out of money, and the Fed realizes it has to not only fill traditional liquidity holes, but a massive shadow banking shortfall, precisely the stuff that none other than the Fed has been warning about over and over. Just like in 2008 when the big hit to the system came not from traditional sources of risk but perfectly innocuous and thus ignored money markets, so the same will happen this time, as the biggest crunch will come completely out of left field. It always does.