EU: "Greek Eurozone Membership Is At Stake" And Greece Must Agree On Tough Measures Or Return To DrachmaSubmitted by Tyler Durden on 05/25/2011 - 09:24
The loudest warning to date. From Reuters:
- EU Commissioner Damanaki says Greece's Eurozone membership is at risk
- EU Commissioner Damanaki says Greece must agree on tough measures or return to Drachma, according to state news agency
Incidentally, Greece would like nothing more than to return to the Drachma. And here are the next steps...
We knew it was only a matter of time before Albert Edwards would follow up to Russell Napier's call for S&P 400 with his own rejoinder. Sure enough, the SocGen strategist (who previously called for an S&P target in the same neighborhood) has just released the following: "Let me re-emphasise our 400 S&P forecast with sub-2% US bond yields" in which he says: "Amid the equity market enjoying yet another Fed induced mega-rally, many commentators have been left grasping (gasping?) for explanations for the continued low level of global bond yields despite the ruination of the public sector balance sheet. Most have latched onto QE2 as the explanation and hence expect a sharp rise in yields from June onwards as the Fed’s buying programme ends. We expect new lows in bond yields." The reason for that per Edwards, is an imminent bout of deflation, which is precisely what the Fed is hoping to create, in order to get the green light for the Jim Grant defined "QE 3 - QE N". Edwards, naturally recognizes this too: "Despite fully acknowledging the ruination of the government balance sheets as years of excess private sector debt are transferred to the public sector, we still expect to suffer another deflationary bust that will take government bond yields to new lows BEFORE government profligacy and the Fed's printing presses take us back to both double-digit inflation and bond yields. For now, we remain heavily overweight government bonds." In other words, just as we have been claiming for a long time courtesy of the Fed's so predictable Pavlovian reaction to always print more in response to deflation, enjoy 2% bond yields... just before they hit 20%.
Without giving away trade secrets or getting too option wonky, we’ll just say a few things. How does Mr. Kass know it is a single buyer? This is a dangerous and sensationalist thing to say as if it were fact. It is a mistake to assume that unless you have empirical evidence or at least do some work to back up your statement. For our own part we are pretty sure it is a single buyer. How did we come to this conclusion? We did the math. We studied and saw the orders as they hit the markets. We noted how all other gold options behaved in their respective venues. We looked at how the order was placed, the volumes, the timing, the times of day, and the total volumes traded on the day. In short, we read the tape and gathered intel.. And still we are not 100% sure it is a single buyer. It may be a single executor for multiple buyers. How did Mr. Kass come to this conclusion, we don’t know. But like other things he says, we can cover them all with this quote, “You have eyes, plagiarize!”- Ed Young
Durable Goods Plummet: -3.6% On Expectations of -2.5%; 8% Monthly Swing From 4.4% Prior Print; Ex Transportation Consensus Missed By 2%Submitted by Tyler Durden on 05/25/2011 - 08:37
At this point there is no need to even highlight the stagflationary crunch the US economy has entered, although the just released Durable Goods number seals the deal: -3.6% on expectations of -2.5%, an 8% revised swing M/M! Ex transportation -1.5% with consensus of +0.5% (down from 1.3%). Q2 GDP now trending sub 2%. Absent the BOJ flooding the market with trillions of fresh Yen, QE3 is now inevitable.
In the boardrooms of corporate America, profits aren't everything - they are the only thing. A JPMorgan research report concludes that the current corporate profit recovery is more dependent on falling unit-labor costs than during any previous expansion. At some level, corporate executives are aware that they are lowering workers' living standards, but their decisions are neither coordinated nor intentionally harmful. Call it the "paradox of profitability." Executives are acting in their own and their shareholders' best interest: maximizing profit margins in the face of weak demand by extensive layoffs and pay cuts. But what has been good for every company's income statement has been a disaster for working families and their communities. Obama's lopsided recovery also reflects lopsided government intervention. Apart from all the talk about jobs, the Obama administration never supported a concrete employment plan. The stimulus provided relief, but it was too small and did not focus on job creation.
- France's Lagarde launches IMF bid, BRICs complain (Reuters)
- Greek assets could go to ‘fund of experts’ (FT)... and gold "could" go to central banks
- U.K. Economy Grew 0.5% in First Quarter (Bloomberg)
- OECD cuts Japan GDP forecast again, urges easy monetary policy (Reuters)
- Kan targets structural issues after quake (FT)
- Shanghai Composite down 10% in six weeks, officially enters correction territory (FT)
- Banks Face $17 Billion in Suits Over Foreclosures (WSJ)
- EU Juncker: Still In Favor Of 'Reprofiling' Greek Sovereign Debt (WSJ)
Only important data point today is the durable goods number which, will be another material drop, and merely the latest confirmation that US economic growth is coming to a complete halt.
The European Gold Confiscation Scheme Unfolds: European Parliament Approves Use Of Gold As CollateralSubmitted by Tyler Durden on 05/25/2011 - 07:04
Wonder why Europe is pressing so hard for Greece (and soon the other PIIGS) to collateralize its pre-petition loans on a Debtor in Possession basis? Here is your answer: "Yesterday’s unanimous agreement by the European Parliament’s Committee
on Economic and Monetary Affairs (ECON) to allow central counterparties
to accept gold as collateral, under the European Market Infrastructure
Regulation (EMIR), is further recognition of gold’s growing relevance as
a high quality liquid asset. This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities." Luckily for Greece, it has 111.5 tons of gold in storage (somewhere at the New York Fed most likely). Looking down the road, Portugal has 382.5 tons, Spain 281.6, and Italy leads the pack with 2,451.8 tons.
Europe’s debt crisis has seen gold prices climb to new record highs in euros and British pounds at EUR 1,087.80/oz and GBP 944.93/oz respectively. Contagion concerns are mounting due to the failure of the ECB, the IMF and respective governments to tackle the sovereign debt crisis.
The scale of the debt crisis effecting Greece, Ireland, Italy, Belgium, Portugal and Spain is leading to growing concerns of a knock on deleterious impact on European banks and the global banking system. Gold should also be supported today by the OECD’s warning regarding the U.S. and Japan’s very poor fiscal situations and their lack of credible plans to tackle high and spiraling budget deficits. Silver’s fundamentals remain even stronger than gold’s and the recent paper driven sell off due to a series of margin calls and heavy selling on the COMEX appears to be over.
Nobody could have seen this coming: Production in the US motor vehicle sector has fallen by nearly 10% since the beginning of the quarter, reflecting the impact of supply chain disruptions in Japan following the natural disasters there. The setback in vehicle output is likely to shave approximately 4 points off the growth rate of industrial production in Q2. We also think it will take a bit more than 1/2 point off real GDP growth for the quarter, and are lowering our Q2 growth forecast to 3.0%
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
Out of the blue, ES just dropped a good 5 points. Yes, in the good old PCP (Pre-Central Planning) days, this was perfectly normal, but since now we have a whole army of millisecond, algorithmic robots and a whole floor at 33 Liberty dedicated exclusively to making sure things like this never happen, it is rather disturbing. And in tried and true (anti) correlation fashion, the USD/JPY are jumping against all carry crosses. As far as we know this was not predicated by any news: granted, export news out of Japan were horrendous (12.5% Y/Y drop), but those should have been mostly priced in. Having observed the overnight futures every day for the past two years, this kind of thing "just doesn't happen" any more, which is why we are eagerly searching for what may have been the catalyst. If we find one, we will promptly update. In the meantime remember: he who defects first, defects best.
A month ago, we reported that the Japanese public pension fund, which holds JPY152 trillion in total reserves, would for the first time withdraw 6.4 trillion yen in order to cover pension payouts, a process which once started, eventually ends up with the "Illinois" conclusion where it has to issue bonds to pay accrued pension obligations. The reason why the Japanese pension fund is particularly important for japan is that not only does it have implications for the welfare system of the land of the rising sun, any future dispositions will explicitly affect the supply and demand of JGBs, of which pension funds have traditionally been a major buyer. Not only that, but as Dylan Grice reminded us some time ago, a liquidation process would also impair US Treasury holdings: " As Japan's retirees age and run
down their wealth, Japan's policymakers will be forced to sell assets,
including US Treasuries currently worth $750bn, or Y70 trillion "eight
months" worth of domestic financing." Today, another SocGen analyst, Takuji Okubo, presents a realistic outlook of what will happen when one takes government projections to the pension system and applies realistic assumptions. In a nutshell, instead of a build up of JPY100 trillion over the next 15 years, pension reserves will likely decline by JPY36 trillion, a swing of almost 140 trillion, or nearly $2 trillion in incremental and very marginal JGB and treasury demand actually becoming supply. And in a world in which the Fed is suddenly (allegedly) pulling out as the biggest source of sovereign paper demand, this swing factor out of Japan will have substantial implications for the bond market, especially when coupled with a Japanese economy that suddenly finds itself on the rocks.
It may not be directly related to finance or theft via financial innovation, but for anyone who has not turned on The Weather Channel, there is currently a super cell of Tornados impacting Oklahoma state and nearing Oklahoma City, where at least one F5 Tornado is rumored to have touched down and 2 people have died. Follow the livestream of what can only be classified as the sequel to Twister below.
"The ECB Would Like To Thank The Academy" - Here Is What Happens After Greece Defaults: (The PG-13 Theatrical Version)Submitted by Tyler Durden on 05/24/2011 - 19:00
A few days ago we presented a realistic, if somewhat somber, outlook of what would happen when (not if) Greece finally pulls the plug on its vegetative existence, and its paralyzed body will no longer serve as a breeding ground for maggots of the financial innovation variety. Today, we present a far more comedic one, courtesy of the ECB's Christian Noyer, who makes it all too clear: Europe is not in it to bail out itself and its banks which would topple like a house of undercapitalized, under-MTMed, and uber mismarked cards, but only to protect those poor sad souls of Greece from the "Horror" that would be unleashed when a Greek free fall bankruptcy finally arrives. Truly, the humanist ECB is doing god's work on earth. Try not to laugh while reading this.