It may not be a big rise, but the €1 billion increase in Italian bank borrowings from the ECB, from €270 billion to €271 billion in Apirl as just reported by the Bank of Italy, is still a record, and not one Italy should be proud of. The Spanish bank update is pending and will be out in a few days, although if the recent about face by Rajoy, admitting the Spanish banks are about to be nationalized, which today is no longer sending the markets higher, is an indication, it won't be a vast improvement. Sure enough, the fact that the market's attention is once again drawn to an indicator of the PIIGS financial sector insolvency is not good for sovereign spreads and at last check everyone was wider, core and periphery together, as Spain was+5.3 bps, Italy +3.8 bps, Netherlands +0.3 bps, and France 1.8 bps. Even the futures are shocking not green on more bad news.
"The traditional political elites are losing control of the system they once dominated." 12 of the 17 member states of the EMU have seen their governments collapse or been voted out in the last two years. As Stratfor's Kristen Cooper notes, this is testament to the near political impossibility of implementing austerity and maintaining popular support. The tough truth is that while voters initially turn to the mainstream opposition they soon realize that they have little to offer that is different and so radical, extreme, or previously marginalized political parties will, and have done in Germany (Pirates) and Greece (Golden Dawn) already, see an increasing share of the popular anti-establishment vote and implicitly hamper any political solutions to the crisis that Europe awakens to every morning.
One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central bank unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY's red phone hotline goes directly to Citadel's ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, "The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date... The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday." Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: "the move failed to prevent a sharp fall for the Tokyo equity market." But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.
All this talk of promoting growth rather than austerity misses the point entirely. Who is going to give the Greeks, or the French for that matter, the amounts of money they would need to fill the almighty hole in which they find themselves along with most of the rest of Europe, the UK and dare I say it the US? If your answer involves a central bank don’t pass Go and head straight for jail which is where the banksters and their politico/media fan club should all be anyway.
"In less than two years, we are now up to a total of seven European leaders or ruling parties that have been forced out of office, courtesy of the spreading government debt crisis — tack on France now to Ireland, Portugal, Greece, Italy, Spain and the Netherlands. Even Germany's coalition is looking shaky in the aftermath of the faltering state election results for the CDU's (Christian Democratic Union) Free Democrat coalition partner. This is quite a potent brew — financial insolvency, economic fragility and political instability."
This afternoon the CBO reported a number that in itself is quite remarkable: in April, a preliminary estimate of US receipts and outlays showed that the US Treasury posted its first budget surplus in 42 months, or since September 2008. At $58 billion, the surplus was nearly $100 billion more than the the $40 billion deficit from a year earlier. Unfortunately, while superficially this number would have been worthy of praise, digging underneath the surface as always reveals 'footnotes'. Sure enough, in the aftermath of February which saw a record US deficit of $232 billion and March's $198 billion in net outlays, there was a "catch." As the CBO admits: "This April, the Treasury realized a surplus of $58 billion, CBO estimates, in contrast with the $40 billion deficit reported for the same month last year. The results in both years were influenced by timing shifts of certain payments; adjusted for those shifts, the surplus in April 2012 would have been $27 billion, compared with a deficit of $13 billion in April 2011.... The federal government incurred a budget deficit of $721 billion in the first seven months of fiscal year 2012, $149 billion less than the shortfall reported during the same period last year. Without shifts in the timing of certain payments, however, the deficit so far this year would have been only $92 billion smaller." In other words, without various temporal adjustments, the April surplus of $58 billion would have been completely netted out by the cumulative $57 billion in deficit time shifts. However, in an election year, every beneficial item such as this is an extended talking point as the president will gladly take the praise for a number which is indicative of anything but the underlying US financial "health." After all, others can bother with the explanations.
Last week it was Bank of America. This time it is the bank once again known as Margin Stanley. From the 10-Q: "In connection with certain OTC trading agreements and certain other agreements associated with the Institutional Securities business segment, the Company may be required to provide additional collateral or immediately settle any outstanding liability balances with certain counterparties in the event of a credit rating downgrade. At March 31, 2012, the following are the amounts of additional collateral, termination payments or other contractual amounts (whether in a net asset or liability position) that could be called by counterparties under the terms of such agreements in the event of a downgrade of the Company’s long-term credit rating under various scenarios: $868 million (A3 Moody’s/A- S&P); $5,177 million (Baa1 Moody’s/ BBB+ S&P); and $7,206 million (Baa2 Moody’s/BBB S&P). Also, the Company is required to pledge additional collateral to certain exchanges and clearing organizations in the event of a credit rating downgrade. At March 31, 2012, the increased collateral requirement at certain exchanges and clearing organizations under various scenarios was $160 million (A3 Moody’s/A- S&P); $1,600 million (Baa1 Moody’s/ BBB+ S&P); and $2,400 million (Baa2 Moody’s/BBB S&P)." As a reminder, on February 15 Moody's warned it’s considering downgrades of US banks and may cut Morgan Stanley as much as, you guessed it, 3 notches. Needless to say this explains why "CEO James Gorman has met with the ratings firm more often than usual in the past quarter." Net - if the firm sees a 3 notch downgrade as warned the hit will be an AIG-shudder inducing $9.6 billion, or one third of the company's market cap, and enough to leave all shareholders wishing they had exposure to Greece, and no exposure to Morgan Stanley.
While the theatrics of the Greek parliamentary elections are all good and fine, keeping the masses distracted, and will most likely provide an encore performance in just about one month as no government will likely be formed under the current configuration of elected parties, the reality is that unless something drastically changes for the better in the Greek economy, the political situation will only get more and more chaotic until finally the country succumbs to outright anarchy, and possibly far worse. Unfortunately, as history has shown us, economic depressions usually become toxic death spirals where absent major external shocks, there is no hope of recovery. Sure enough, the latest news of Greece confirms just that. As Ekathimerini reports, the real news is that while superficially change may be coming to Greece, beneath the surface absolutely nothing is improving and in fact things are getting worse as measured by two key indicators: i) vacant Athens office space, which has soared to 20% in Q1 2012 compared to 15.5% a year earlier, which means far less corporate tax revenues and business spending, and ii) the lifeblood of the Greek economy - foreign tourism - is drying up, plunging by 12.5%, as foreigners suddenly have better things to do than go to countries better known for the Syntagma Square riot cam than the beaches of Santorini. Not surprisingly, the biggest source of foreign tourists, Germany, has seen its share dry to a trickle from 15% to just 3% - one can't imagine why those called Nazis by the neo-Nazis would have reservations about spending 2 weeks in the former tourist haven. The result: far less tax revenues, far greater reliance on debt as source of cash, and an economic collapse in 2012 that will put 2011 to shame. So much for the IMF estimate of an unchanged GDP print in 2013 on which the entire second Greek bailout package was based...
In case you hadn't noticed, Facebook is set to IPO very soon but, courtesy of BackgroundCheck.org, we have a breakdown of the dismal truth behind the next best thing since sliced bread - Groupon. Between their 'dodgy' growth and desperately poor governance, the SEC is showing a keen interest (or maybe just angling for a handout of IPO allocations). With a timeline from its 2007 inception through its November 2011 IPO to its recent plunge (now 70% below IPO-day highs), the events and ongoing uncertainty make for fascinating viewing.
Three important things occurred today: 1) US equities converged down to high-yield credit's less sanguine view of the world; 2) US equities converged to US Treasuries hope-less view of the world; and 3) Gold was the leading indicator for where risk assets should be today - as its stability was the only rock upon which to anchor expectations of intervention once again. The equity market fulfilled every technical analyst's wet dream today with a low volume gap-fill - which notably left today's VWAP at almost exactly the closing price from Friday (i.e. gave bigger players a chance to get out without losing their short - which was exemplified by the sell-off into the close on much bigger than average trade size). Never have we heard just whimsical exuberance at the market closing practically unchanged (ES +2pts) but critically risk markets in general did nothing but revert ahead of tomorrow's real action as the UK (and that means the European credit market) comes back from a long-weekend. Broadly speaking - US equities outperformed risk-assets modestly until the late-day give back dragged them back to reality but overall - IG credit underperformed, HYG outperformed (inflows dominant), and HY and S&P 500 e-mini futures (ES) stayed in sync.
The entire bogus recovery is again being driven by subprime auto loans being doled out by Ally Financial (85% owned by the U.S. government) and the other criminal Wall Street banks. The Federal Reserve and our government leaders will continue to steer the country on the same course of encouraging rampant speculation, deterring savings and investment, rewarding outrageous criminal behavior, purposefully generating inflation, and lying to the average American. It will work until we reach a tipping point. Dr. Krugman thinks another $4 trillion of debt and a debt to GDP ratio of 130% should get our economy back on track. When this charade is revealed to be the greatest fraud and theft in the history of mankind, Ben and Paul better have a backup plan, because there are going to be a few angry men looking for them.