We are sure President Obama must be happy that the European leaders finally stepped in line behind him and layered new goldilocks sanctions on Russia. With business leaders on both sides of the Atlantic urging him not to, for fear of the dreaded 'boomerang' from Putin (which has already been targeted at MSFT, IBM, MCD, INTC, AMD, and car manufacturers), President Obama is set to explain how his new-new sanctions (which include several Russian banks including VTB, Russia's second largest ) and will be the message that Putin needs to leave, fold to NATO, handover everything, and retire to the Gulag. Yet, oddly enough, Gazprom is once again missing from the sanctions list. The whole market is sliding heading into his speech (including the Russian ETF). We await the retaliation.
With 77 million Americans having debt past due and the average household owing more than $15,000 in credit card debt, it appears the Fed's supposed plan to 'help Main Street' is not working so well. As the following chart from NewEdge's Brad Wishak shows, despite Fed Funds at practically zero, US credit card variable interest rates continue to rise - now at their highest since July 2001.
With hours to go until Argentina's grace period runs out and default occurs, investors are less than frantically selling Argentine bonds and pesos. They are lower but do not appear in full panic mode as we presume investors cling to hope that Argentina folds and pays off the holdouts (though there has been no sign of that so far). ARG 2033 bonds are down 3 points to 81 and the black-market peso is modestly weaker at 13.0 (near its record lows). Argentine CDS tightened modestly (as BofA warns the facts surrounding Argentina’s bond payments continue to be unique and deciding if CDS are triggered could take longer than expected) but 1Y CDS are holding at 4600bps (equivalent) - a 52% probability of default. Paul singer continues to defend himself (and the holdouts) from claims they are "dangerous fundamentalists" hell-bent on making it impossible for foreign sovereigns to restructure their debts.
With the NY Fed already warning of "significant operational risk," and former Fed officials proclaiming Deutsche Bank is "horribly under-capitalized," along with Barclays 'dark pool' and gold manipulations, it is perhaps not a total surprise that, as WSJ reports, New York's banking regulator is pushing to install government monitors inside the U.S. offices of Deutsche Bank and Barclays as part of an intensifying investigation into possible manipulation in the foreign-exchange market. These two banks were selected because they had the 'greatest potential problems' based on a preliminary investigation.
We have been warning for years that as a result of the Fed's disastrous policies, America's middle class is being disintegrated and US adults are surviving only thanks to insurmountable debtloads. But not even we had an appreciation of how serious the problem truly was. We now know, and it is a shocker: according to new research by the Urban Institute, about 77 million Americans have a debt in collections.
If yesterday's 2 Year bond auction was a snoozer, today's 5 Year was anything but. First, the pricing was solid, and while the high yeild of 1.72 was the highest since May 2011, it stopped 1.2 bps through the 1.732% When Issued. The Bid to Cover was also solid, rising from 2.74 to 2.81, the highest since March and now appears to have decisively broken the downtrend in BTCs seen through the end of 2013. The most notable features of today's auction however were the internals, where we saw the Direct takedown soar from 9.3% to 25.9%, the second highest on record and only lower than the 30.4% in December 2012. And while Indirects were again flat like in yesterday's auction at 48.2%, it was the Dealers who had to make space, and the resulting Dealer allotment of 25.9% was far lower than the 38.2% in June, and the lowest in auction history.
Earlier today we wondered, rhetorically, if the CDC was wrong when it stated, with confidence, that there is "little risk" for the Ebola virus to leave the African continent, and cross the Atlantic, landing in North America. We may have gotten the official refutation less than 6 hours later, when moments ago Canada's CTV reported that a Canadian doctor is in self-imposed quarantine after spending nearly a month in West Africa treating patients in the deadly Ebola outbreak that has claimed nearly 700 lives. "Dr. Azaria Marthyman of Victoria, B.C. was among a handful of Canadian health-care workers who traveled to Liberia, where the Ebola epidemic is currently raging. He was part of a North American team from the Christian relief organization Samaritan’s Purse." This is the same charity organization whose two US citizen members were previously reported to have caught the virus.
Yesterday saw something quite unusual in the New York trading session. The Hong Kong Monetary Authority bought $715 million (selling HKD) in the FX markets to manage its currency peg, injecting the money into the banking system (and expanding its balance sheet) to prevent HKD from rising above its permitted range. HKMA projects its balance sheet to grow to the end of July, but as Simon Black (of Sovereign Man blog) notes, this could well be the start of a bigger shift - an end to the US Dollar peg..."The US is no longer the undisputed superpower it once was. The US dollar is dragging them down. Hong Kong is easily strong enough to stand on its own."
To China housing is like the stock market to the US: both mission-critical bubbles designed to give a sense of comfort and boost the "wealth effect"
After unleashing a 10-page report of the death and destructive economic impact they could have on Russia via sanctions, the European leaders have agreed to issue travel bans, some asset-freezes, and trade curbs on various new individuals and business entities. The Goldilocks sanctions... just enough to please Washington, not enough to infuriate Putin into 'boomerangs'.
While headlines are flashing red about how exuberant the consumer is, there appears to be some 'new normal' oddness under the covers. Projecting this positive news into the future (as every talking-head is) does not add up with the fact that "plans to buy a car" and "plans to buy a major appliance" both tumbled in July. But the biggest problem for the 'recovery', "plans to buy a home" collapsed to its lowest since Feb 2013... perhaps not a total surprise when 77 million Americans have debt past due. Welcome to the new normal definition of confidence.
On the heels of UMich confidence tumbling to 4-month lows, the Conference Board's consumer confidence exploded higher to the highest since October 2007. This is the 3rd monthly rise in a row and the biggest beat in 13 months all led by a spike in future expectations to its highest since Feb 2011. The Conference Board proclaims this is due in part to a "brighter outlook for personal income," though reality of falling real hourly wages suggests that is simply false. The last time the conference board confidence diverged this much from UMich confidence was June 2007 and that did not end well...
With all other operating holdcos having already declared bankruptcy, the anxiety over Banco Espirito Santo is growing (despite DE Shaw and Goldman Sachs recommending investors buy the shares). Despite Bank of Portugal reassurance last night that "BES is able to raise capital), the stock is plunging on news of "unexpected facts" this morning...
*BANCO ESPIRITO SANTO SAYS SHAREHOLDER MEETING WAS CANCELLED DUE TO "UNEXPECTED FACTS''
*BANCO ESPIRITO SANTO FALLS MORE THAN 13% IN LISBON TRADING
Remember, this is systemic (as the Portugues President has warned), and the contagion is potentially global... not "contained."