RANsquawk Weekly Wrap - we answer questions that have come to the desk, and we highlight some of next weeks important news and data to look out for.
When we first commented on our expectations about the "efficacy" of the short selling ban instituted last Thursday, we said: "There are those who say the upcoming short selling ban in all stocks in Italy and France, which according to CNBC will take place as soon as after the close today, or in one hour, will be beneficial to stocks. Then there are facts." And the facts are that one short week after the ban, European banks are already unchanged compared to the day of the ban and in France they are now negative! What next: selling is illegal or "Speculation" is a felony? We expect to find out soon...
The funny thing about the boiling frog is that every day, the pot gets a little bit warmer. First they start by fondling 5-year old girls at the airports, then it’s train stations. Train stations become bus stations, bus stations become shopping malls, etc. This erosion of civil liberty and economic opportunity is a slippery slope, and only YOU know your breaking point. Having a plan ensures that, when you reach your breaking point and/or social upheaval hits, you’ll at least know exactly where to go and what to do when you get there. This is not a decision you’ll want to make while packing your suitcase.
Today's hilarious commentary comes from the ECB's own Jurgen Stark, whose blood pressure has obviously peaked and at this point it is just a matter of the realization that ECB (and other Central bank lies) no longer work filtering through to reality.
- ECB'S STARK SAY NOT CENTRAL BANK'S JOB TO FUND DEFICITS (but, but, MMT says debt, and hence central bank monetization thereof, does not fund deficits. Heck, MMT says monetization does not exist...hmm)
- ECB'S STARK: UNRESPONSIBLE TO CALL ECB A `BAD BANK' (right: the correct word is "overdue")
- ECB'S STARK: ECB HASN'T TAKE ON AS BIG RISKS AS OTHER CEN BANKS (right: the risk the ECB has taken does not even fit on the same axis compared to other banks)
- ECB'S STARK SAYS NOT CENTRAL BANK JOB TO LOWER RATES FOR DEBT
- ECB'S STARK SAYS ECB BOND BUYS DON'T CREATE INFLATION RISKS
- ECB'S STARK: BANKS USING PSI HAVE FULL GUARANTEE OF NO LOSS
And the kicker
- ECB'S STARK: ALL DEVELOPED ECONOMIES HAVE PUB FINANCE PROBLEMS- said otherwise, it's everyone else's fault
I think if we had the global leader app functioning, we would find that most are on vacation somewhere, making it highly unlikely we get any big intervention over the weekend. Merkel and Sarkozy just finished a summit. Obama is definitely on vacation. I just don't think they feel the level of urgency the market wants them to have. Trichet has done a lot already, more than any other entity in the past couple of weeks. What more can he do? When does he get replaced? I don't see the ECB announcing anything new. And what about Ben? He seems to like Jackson Hole, and he has been far less keen on making weekend announcements anyways.
Note to the future participants of Bretton Woods III – fiat currencies can only be floated with extremely tight and transparent banking laws, nothing like what we have today and this includes central banks. And if you decide to go down the gold standard path, same thing applies, transparency and low leverage are keys to long-term stability. Banks should operate like utilities with tremendous amounts of transparency, low levels of leverage and huge limitations on market size; read: granularity. How we are stumbling around today with the same banks that almost crashed in 2008 with even greater market shares and low-visibility accounting is beyond my understanding. Read the quote above to understand why the status quo is so eager to defeat anything that would reign in these black holes. It was as true then as it is today.
There are daily lies by the HFT defenders that all little innocuous HFT does is provide substantial liquidity for capital markets. Then there is reality. Courtesy of this latest catch by Nanex, we have now witnessed a $10 bid/ask spread (!) on a $14 stock. And with that we can cross out the assumption that HFT is i) beneficial for stocks and ii) tightens bid/ask spreads.
Yen surges, USDJPY plunges to a new record low of 75.97 (yes, YNoda is looking, looking, looking although better word is panicking, panicking, panicking), and the ES soared promptly. So... did someone finally leak it? Does the market still not get that it has to be lower the day of Jackson Hole for QE3 to work? Frontrunning any QE3 announcement merely makes it redundant. Bernanke needs stocks around 1000 on August 26, not higher. In the meantime, buy that Sony flat screen today. At this rate of Yen appreciation, the company may not exist in a few months.
Should we be surprised, frightened, disgusted or simply say "we knew it", that in the informal mixer just after Texas Governor and Republican presidential candidate Rick Perry spoke at a Politics and Eggs breakfast in Bedford, New Hampshire, an unknown gentlemen approaches a casual Perry like an Ian Flemming character, and proceeds to dead drop the following: "Bank of America... We will help you out"... and silently moves on. At least we know now who is funding what, and whose interests potential future president Perry will be paid to defend.
First Apple overtook Exxon as the biggest company in America, now its market cap just hit 75% of the market cap of the entire European bank stock index (that's right: one maker of phones and fads is worth almost as much as all of Europe's banks). We expect parity within a few months. Since Apple's cash generation of about $10 billion per quarter, and growing at ~100% each quarter, means that the firm will have more than a trillion in a few short years, and not a penny in debt on the other side, we are going to go ahead and say what everyone is thinking: Steve Jobs for lifetime Federal Reserve chairman.
For today's chart of the day we once again look to Bloomberg, which has compiled a fascinating dataset looking at the frequency of 4 sigma+ events in the S&P500 since 1951. The trend is unmistakable, as is that the cumulative total now looks glaringly like a swan itself (paging William Banzai). What is also glaringly obvious is that all those claiming central planning under a monetary authority leads to market stability need to have their head examined: what the central bankers of the world do is merely push back ever more disastrous events into the future. Sorry: physics can not be circumvented with a printer, and a crash deferred today, is double the crash that can not be deferred tomorrow. Yet for all their brain power, all those Hewlett Packard fans in the Marriner Eccles building still can not comprehend this one so simple fact.
More on the biggest market moving story from last night. According to a blast from Bloomberg, minutes ago SNB spokesman Werner Abegg announced that a bank sought USD through the SNB FX swap with the FRBNY, via a repo operation. Abegg added that the repo has already been unwound. But, but, it was only $200 million so what's the big deal? There is no stigmata to micro amounts... Oh wait there is stigmata to any amounts. And sorry, this is just the first of many times that not only the SNB but all other central banks will very soon be scrambling to the Fed to bail out their dollar collateral short banks. Unfortunately, the 2008 redux is only just starting.
Today, Sandra Pianalto, president of the most irrelevant Fed in the US, the Cleveland one, confirmed why when it comes to economic predictions, one may want to take anything uttered by the rocket scientists at the Fed with a pinch of salt... and why in general anytime an economist speaks it is best to run away. Specifically, in her prepared remarks to whoever it is that is dumb enough to listen, she just said that she expects the US economy to grow by 2% in 2011. Funny, because a simple google search reveals the following glaring headline from those long ago days of June 1, 2011...
- Inflation May Embolden Foes of Fed Stimulus (Bloomberg)
- July inflation spike won’t stop QE3 (Reuters)
- Clamour for amendments to Italian austerity (FT)
- Biden seeks to reassure China on U.S. debt (Reuters)... fails
- Japan Forex Chief Meets BOJ Officials to Talk Yen (WSJ)
- BofA’s Moynihan Says to Expect 3,500 Job Cuts (Bloomberg)
- France Eases Ban on Short Selling Before Index Futures Expire (Bloomberg)
- European equities remained under pressure during the session weighed upon by growing signs of a faltering global economic growth together with August options expiry in the European indices
- CHF and JPY remained the major beneficiaries of risk-aversion, whereas commodity-linked currencies generally traded lower
- After breaching the key USD 1,800 per ounce level yesterday, spot Gold continued its ascent towards the USD 1,900 technical level amid risk-aversion
- EU's Rehn said the EU may draft legislation for joint Eurobonds, however gave no timetable for the draft legislation
- EU Commission said collateral agreement between Finland and Greece is being examined by the Eurozone, adding that Finland is the only country to request Greece collateral. Meanwhile, Austrian finance minister said the Finnish deal to get a 20% cash collateral on Greek loans is unacceptable