Something interesting happened on the way to China's bailout of Europe. After recently China stepped up its Eurosupport rhetoric, and even put a token amount of money where it mouth is, €1.1 billion in directly placed Portuguese bonds specifically, and who knows how much in secondary market purchases, many of the clouds over Europe, and specifically the Euro, have been lifted temporarily, resulting in a modest jump in the EURUSD from just under 1.29 last week to nearly 1.32 today. Which makes sense: after all the EU is China's second biggest trade partner, and as a habitual importer, China needs the EU's currency as strong as possible to preserve its imports. Yet what is odd, is that over the past 24 hours we have received numerous notifications that it is none other than Chinese banks that have been selling the EURUSD! Which makes one wonder: is China's European "rescue" just one big bait and switch distraction?
The market tone is mixed today as the onslaught of sovereign headlines has expanded from Europe to the broader market. Moody’s issued commentary on the US, UK, France and Germany that illustrates concerns on the countries’ debt ratings, while reiterating the current AAA status for now. Following a mutedly optimistic Beige Book yesterday, today will feature weekly jobs data as well as PPI for December. The weekly data are likely still in their holiday downdraft, but we should see some return to normal trends over the next two weeks.
December Foreclosure Filings Slump By Biggest Annual Amount In History As Fraudclosure Clampdown PersistsSubmitted by Tyler Durden on 01/13/2011 - 06:59
RealtyTrac has reported its December foreclosure data: at a total of 257,747 default notices, foreclosure auctions and bank repossessions, total foreclosure activity dropped by 1.8% in December and 26.3% from a year earlier, "the biggest annual drop in foreclosure activity since RealtyTrac began publishing its foreclosure report in January 2005 and giving December the lowest monthly total since June 2008." Specifically, December Default notices (NOD, LIS) decreased 4 percent from the previous month and were down 35 percent from December 2009; Scheduled foreclosure auctions (NTS, NFS) decreased 3 percent from the previous month and were down 20 percent from December 2009; and bank repossessions (REO) increased nearly 4 percent from the previous month — thanks in part to substantial month-over-month increases in some states such as Nevada (71 percent increase), Arizona (52 percent increase) and California (47 percent increase) — but were still down 24 percent from December 2009. As a result total Q4 foreclosure activity was 2,871,891: an increase of 2% from 2009 and 23% from 2008.
After literally the entire world came together to prevent the collapse of the Eurozone by purchasing Portuguese and Spanish bonds, the Portuguese bond auction yesterday, and Spanish today, were a "smashing success." After three days of direct bond purchasing by the ECB, a direct placement of Portuguese bonds to China, and Japanese purchasing of billions of bonds as well, the market is stunned by the fact that Portugal and Spain did not have bond auction failures. From Bloomberg: "Spain sold 3 billion euros ($3.9 billion) of five-year bonds, meeting its target, at an average yield of 4.542 percent, lower than secondary-market yields of 4.630 percent. Italy, the euro region’s second-most indebted nation, aims to issue as much as 6 billion euros of debt due in 2015 and 2026 today." Specifically, the bid to cover of 2.1 was a little higher than the 1.6 previously, while the yield surged sequentially from 3.576% to 4.542%, which was followed by the requisite lie by the Spanish finance minister that Spain "definitely" does not need a bailout. The fact that it is being bailed out by three (plus one) central banks is irrelevant. In other words: can has been kicked down for another week or two, and the cost to the global central banking cartel was just a few billion pieces of freshly printed linen.
RANsquawk European Morning Briefing - Stocks, Bonds, FX – 13/01/11
Is there a VIX index of climatic and/or geologic activity? Cause in 2011 it is off the charts. Breaking News shares pictures showing that the Etna volcano has just erupted. As of now, it is unclear if millions of birds, crabs, or fish have fallen out of the sky surrounding Vesuvius. Conveniently this occurs hours after we presented Nigel Farage rather glass half emptyish outlook on Italy's prospects.
It must be that 0% Chile unemployment leading to zero economic slack, and resulting in surging inflation that is the reason for the most recent deadly escalation borne from surging prices. Because otherwise it would mean that the chairman was either blatantly lying when he said he was 100% confident global inflation would not run out of control, or, as usual, the Princeton academic with no real world experience had absolutely no idea what he was talking about. From Business Week: " Protests over gas price increases of 17 percent are intensifying in
far southern Chile. Already, two women protesters have been killed and a
baby was among those injured when a truck smashed into a barricade and
knocked them into a bonfire. About 21 people have been arrested. Police say the trucker fled the scene in Punta Arenas early Wednesday. He had been driving without lights on. The protests are the first major political challenge to face
Chilean President Sebastian Pinera this year. He made a campaign promise
that gas prices wouldn't rise, but the state-owned petroleum company
has had trouble maintaining supplies. Chile imports 93 percent of its
Today, some Fed member, arguably of a Dovish persuasion, made headlines by saying that inflation was tame in all but food and energy. We are confident he is right. So for all those readers who are lucky enough to not have to eat, fill up with gas, or heat their homes, the following video from the NIA on suddenly surging prices in virtually every vertical, is probably irrelevant. All others may be advised to watch it...
In the latest stunner of disclosure in what goes on just below the murky surface of the biggest scam market in the world (that would be the multi-trillion residential debt market), we learn that a Cuyahoga County Juvenile Court judge, Peter Sikora, who is facing foreclosure on his million dollar (8 room) home. But that is not what makes him unique: after all the story of your average American who buys iPads and garter belts with money that should be going into mortgage payments is all too well known by now. What is amazing, however, is that the reason for his 12 month delinquency is that according to JP Morgan, who service the loan, the only way Sikora would be eligible for loan modification would be if he were in delinquency, which is what they advised him to do. That's right - a bank formally told a client to willfully default on a mortgage. Now obviously no institution in its right mind would ever tell a counterparty to stop paying it for a service it is providing. Which begs the question: how is it that there is an opportunity cost for JP Morgan that is lower than a person paying a set mortgage, which involves both the cessation of payments and the lowering of payment rates. If there is any smoking gun that JP Morgan makes up for mortgage delinquency shortfalls by dipping in the GSE piggy bank of infinite taxpayer capital, this is it. And since in the aftermath of Ibanez ever more mortgages are about to see a freeze on their payments, it begs the question: just how profound will the Fannie and Freddie rape this year be, if the GSEs end up having to fund hundreds of billions in capital shortfall for the Too Parasitic To Fail?
Think gold is a bubble driven only by animal spirits and speculation? We think not and have consistently maintained the fundamental driver of gold has been the massive accumulation of foreign reserves by global central banks and their need for diversification. Nothing illustrates this better than the chart below. We have included the table to illustrate how much gold China and Brazil would have to buy to get to the same proportional gold position as their fellow BRICs, India and Russia.
Crude oil prices were higher on Wednesday and printed new two-year highs as traders reacted to news that it will require at least five days to build a bypass around the affected portion of the Trans-Alaska Pipeline. The actual construction is forecast to take four days and then it should take another 36 hours to install the bypass. In the meantime, the pipeline will resume limited operation. It will be a temporary restart to prevent tanks from filling completely along the route, which would halt movement altogether. The pipeline also needs to restart temporarily to keep the sections from icing over. This was not the solution that most expected and is more complicated.
Goldman's Henry Bowe recaps today's key action in equities, vol, FX, rates, corporates and commodities. Also, a glance at tommorow's action, and a detailed analysis of the most interesting trading market for 2011: currencies.
What should rates be? My view is that short term rates should be closer to 2%. I'm not Mr. Market so I can't give the exact number. KC Fed chief and long-time critic of the current policy has called for the Fed to reset the short term rates to 1%. Economist Steve Hanke of John's Hopkins suggested 2%. I think even 1% is low because that still doesn't bring the real cost of money above zero. That brings cash onto the balance sheets of banks. That leads me to one of the misconceptions in this crisis. Banks are not just sitting on a ton of cash, they are also sitting on a ton of potential bad debts. They are not cash rich, they are cash poor. The effect of raising rates brings the real interest rate above zero and actually incentivizes people to start saving again. More savings means more cash on bank's balance sheets. Not until we solve the banks balance sheets will they be willing to invest once more.
Now this is just hilarious. After ICI just revised the last two data points of 2010 which were originally inflows, even if modest, to one outflow and one minimal inflow, more importantly it has disclosed the first flow of funds in 2011. And as we predicted looking at last week's inflows in taxable bond funds, the year starts with an equity outflow, confirming that the retail lemmings are really not as stupid as the Fed and the Primary Dealers believe they are. And what an outflow: at $4.2 billion, this was the largest one week outflow since early October! And yes, bond inflows have resumed as we speculated, even as the scariest indication that things are really not well persists: namely that outflows from that next domino to drop, municipal bond funds, accelerate. And when munis go, it is either a wipe out or QE3. Our money is on the latter. Oh yes, for those who have questions on who may have been buying stocks now that it is confirmed that the inflow was a fluke, please address them to Mr Frost, 9th Floor, Liberty 33, the 10th Circle of Hell (reserved for legendary market manipulators).