Today's ramp in stocks, courtesy of the ES, was purely an attempt to force technical short covering at the 150 DMA which was just retaken, as was the April 18 swing low, as well as 1.44 on the EURUSD. Yet on the other hand, the dispersion between ES and the broader risk index is now at a 2 day wide, or about 10 S&P points. It seems that stocks are once again doing their headless chicken dance certain that either the Greek vote of confidence will pass, or Bernanke will announce QE3 tomorrow, or both, while everything else is reacting in a far more subdued. The two technicals heading into the close will be the push to close the spread on one hand, and the ongoing short covering from the 150 DMA on the other, as well as the second consecutive day in a row with a 150 pip move higher in the EURUSD on Chinese buying.
While the fact that its former head is an alleged rapist caught some by surprise, the observation that the IMF has no credibility whatsoever has been well known for a long time by all market skeptics. It is therefore gratifying to discover that the IMF's own internal audit committee has just concluded that the International Bailout Fund is full of it: "policy conclusions from International Monetary Fund research don’t always follow the underlying analysis, thereby potentially harming the institution’s reputation, according to an internal audit. “Many staff indicated that they often felt pressure to align their conclusions with IMF views,” the institution’s Independent Evaluation Office said in a report released today." And not only is the IMF lying, it also happens to be incompetent: "The office found that from 1999 until 2008 the “relevance” of research was hampered by insufficient consultation with the topic countries, the evaluation office said in a statement. The technical quality of working, regional and background papers was “quite uneven,” the study found." The culprit: the IMF's endless brown-nosing to Ben Bernanke: "An audit released in February found IMF economists missed signs of fragility that led to the 2008 financial collapse, partly because agency staff were “in awe of” monetary authorities in the U.S. and other major economies." We can't wait for the Tweet pics released from the tete-a-tete sessions behind close doors between Bernanke and "in awe of" Lagarde.
If permabullishness is contaguious, Joe LaVorgna may well be typhoid Mary, with the distinction that the LaVorg exhibits all the symptoms and then some.
The Federal Reserve is playing a game of Pretend: Let's pretend that if interest rates are near-zero, we'll always be able to borrow more. Hey, what's a trillion dollars at zero interest? You and I could make the interest-only payments each month, because they're zero. But shoving "free money" into banks and Wall Street doesn't filter down to John Q. Citizen: it simply incentivizes massive speculation in stocks, commodities, seaside resorts, empty cities in China, you name it. This is the basis of the current stock, bond and commodities booms in the global economy: push trillions of dollars in "free money" to financial players, and guess what, that hot money flows out seeking a fat return. The Keynesians and other economists have no ideas for confronting the reality of a post-consumerist debt economy and society. Like frenzied rats in a cage, they only have one lever to push to release the cocaine-laced pellets, and so they've been pushing it for 40 years. Now they're hitting the bar with frantic energy, hoping the crazed and addled rats around them can dredge up some "demand" for more pellets to "consume." But the consumer-rats are bloated and lethargic; they've consumed so much debt-drug that they're near death. Like a star which has expanded and now cannot maintain its grand state, the debt-based consumerist economy is now poised to experience a supernova implosion.
More lies from the discredited, conflicted and data manipulating NAR which for some stunning reason continues to move the market, even more paradoxically after the existing home sales number came at 4.81 million on expectations of 4.80 million: if there ever was a Gargantuan beat of expectations, this is it. But courtesy of a prior downward revision which took down the April number from 5.05 million to 5.00 million, the decline was 3.8% instead of the expected 5.0%. Total housing inventory at the end of May fell 1.0 percent to 3.72 million existing homes available for sale, which represents a 9.3-month supply4 at the current sales pace, up from a 9.0-month supply in April. Somehow this sends futures up nearly half a percent. And from the master of mendacity, the one and only Larry Yun, the weakness was due to "Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May." Obviously there is never a simple explanation for deteriorating economic data such as people don't actually have money...
Courtesy of GTAA's latest fixed income update, we wanted to present a curious chart which looks at the correlation between US social demographics (in this case, the ratio of retirees to savers) and the 10 year yield. As the chart demonstrates, the two data series have a strong correlation of 0.91 since 1960, and based on predicted social dynamics, corroborated by various independent budgeting organizations, the demographic ratio is expected to continue growing at the current rate and hit highs last seen in 1981. The obvious question: does this mean that the 10 year, now once again close to all time record low yields, will follow through and revert to 1980 Paul Volcker levels, or will the Fed attempt to offset not only the impact of the business cycle and record systemic leverage, but also take on nature and aging directly?
Goldman's business model is designed around the exploitation of secrecy. Secrecy is organizing principle that governs modern credit markets. Credit default swaps, privately placed structured securitizations (e.g. CDOs), and hedge funds have all flourished-- they dominate the debt markets--because they are all designed to exploit secrecy. They all create extraordinary profits by keeping the rest of us in the dark. So in late 2006, if you wanted to find out what was happening in this newly created synthetic RMBS market, you couldn't find out much of anything. You couldn't find out anything about who bought or sold any CDO, or what was in any CDO, or how any CDO performed, unless Goldman or some other CDO underwriter deemed you sufficiently worthy of their selective disclosures. You couldn't learn anything from the sales or trading activity of mortgage bonds, because the related trading in credit default swaps was kept hidden beneath the surface. You didn't know anything about the trading activity related to the ABX indices, since that, also, was kept secret. And since the privately-held company that owned the ABX, CDS IndexCo LLC, operated in total secrecy, and since the privately-held company that published the price of the ABX, Markit Group Limited , operated in total secrecy, you had no way of knowing the extent to which the price of the ABX was manipulated through round-tripping, side deals with synthetic CDOs, or anything else. The only thing you knew, your only link to the illusory "reality " of market sentiment, was the quoted price of the ABX. And you might happen to know that the Chairman of CDS IndexCo was Brad Levy, a managing director at Goldman, which, along with a handful of other banks, controlled CDS IndexCo and Markit Group. Both the FCIC and the Levin subcommittee disclosed a wealth of information that others with a more skeptical bent can scrutinize in depth. This information poses a direct challenge to Goldman's dissembling, and to the moral hazard of access journalism, which is no substitute for the full transparency of a free and open marketplace of ideas.
Update: As expected, this is a hoax. Someone is very pissed with the Muddy Waters boys.
Instead of taking another long hard look at its own practices, following the blow up of the biggest ponzi scheme since Madoff, the SEC has decided to instead target.... Carson Block and Muddy Waters. "The Securities and Exchange Commission has charged Carson Block and Muddy Waters LLC in a stock manipulation ring that allegedly published false information, causing a drop in the market prices of at least three stocks and generated more than $240.2 million in illicit profits when they sold shares short then repurchased the shares after a significant decline on the market." Bottom line - in Communist Amerika, if you publish research that is proven true, and profit on it, you are a criminal. That said, there is a chance this could be a hoax as it is only hosted by Briefing Wire, so take it with a pinch of salt: it very well could be the work product of a former buy or sell-side Chinese forest "analyst" with a lot of free time on their hands.
As we pointed out the day after we broke the news that Paulson is about to suffer a historic loss on the Sino Forest Chinese fraud (a loss that has now been realized), the Paulson analyst who suggested this humiliating investment for the man who is now best known for hiring Paolo Pellegrini, have long since seen the pink slip. The story however does not end there: below we present again the sell side analysts who had Buy and Outperform ratings on what is now the biggest financial ponzi fraud since Madoff. In order to protect the reputation of such host firms as Raymond James, Dundee Securities, TD Newcrest, Credit Suisse, RBC, BMO and Scotia Capital, we urge the management teams to immediately terminate the following sell-side "analysts" whose work on TRE.TO was nothing but piggybacking on groupthink, doing absolutely no actual due diligence, costing clients billions in losses, and whose names will now forever be enshrined in the pantheon of "most worthless sellside analysts" ever.
A few weeks ago we pointed out what may be the most troubling (and Marxist) observation in America's labor arena, namely that the labor's share of national income has dropped to the lowest in history as a record number of Americans now focus on wealth creation through assets (i.e. owners of capital) instead of labor. In his just released latest letter (below) Bill Gross piggybacks on this observation in what is one of the most scathing notes blasting the traditional of higher education, and in essence claiming that college, as means of perpetuating a broken employment status quo whcih redirect labor to a now-expiring Wall Street labor model, is now worthless: "The past
several decades have witnessed an erosion of our manufacturing base in
exchange for a reliance on wealth creation via financial assets. Now,
as that road approaches a dead-end cul-de-sac via interest rates that
can go no lower, we are left untrained, underinvested and overindebted
relative to our global competitors. The precipitating
cause of our structural employment break is both internal neglect and
external competition. Blame us. Blame them. There’s plenty of blame to
go around." And why college graduates have only a 6 digit loan to look forward to: "American citizens and its universities have experienced an ivy-laden ivory tower for the past half century. Students, however, can no longer assume that a four year degree will be the golden ticket to a good job in a global economy that cares little for their social networking skills and more about what their labor is worth on the global marketplace." And some very bad news for the communists in the White House and the chimpanzees in the San Francisco Fed who continue to believe that unemployment is anything but structural: "The “golden” days are over, and it’s time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street."
Anticipation of the Greek government passing through today's confidence vote successfully witnessed a re-emergence of risk-appetite in early European trade. This provided support to EUR during the session, witnessed strength in equities, and Eurozone 10-year government bond yield spreads narrowed across the board. However, EUR/USD did come under some pressure following much worse than expected German ZEW survey results, whereas Euribor futures received support after the ECB allotted higher than expected amount in its weekly refinancing operation. In other news, GBP weakened following dovish comments from BoE's Fisher, who said that further quantitative easing is still an option. Moving forward, markets look ahead to existing home sales data, allied with API inventories figures from the US later. In fixed income, another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Dec'16-May'18, with a purchase target of USD 4-5bln is scheduled for later in the session. Moreover, any comments pertaining to the Greek debt situation or the vote of confidence will be keenly watched.
Open Europe has released a paper titled "Abandon Ship: Time to stop bailing out Greece?" which recaps all the salient points well-known to everyone on why continuing to bailout Greece is the worst possible decision available to Europe, yet which will come over and over simply to prevent the European banking oligarchy from encountering an Event of Actual Loss (as defined by Encyclopedia Britannica). "Considering Greece’s poor growth prospects and increasing debt burden, the country is likely to default within the next few years, even if it gets some breathing space through a second bail-out. EU leaders should instead be planning for how such a default could be managed in as orderly a manner possible." Yet the main reason why European taxpayers should be concerned about the happenings in Athens, which are nothing but the latest in a now endless series of taxpayer to banker capital transfers, is that as Open Europe says by 2014, almost two-thirds of Greek debt will be taxpayer-owned! "via the bail-outs, so-called official sector (taxpayer-backed) loans are gradually replacing private sector loans. We estimate that today each household in the eurozone underwrites €535 in Greek debt (through loan guarantees). However, by 2014 and following a second bailout, this will have increased to a staggering €1,450 per household. The cost to European taxpayers of what looks like an inevitable Greek default will therefore increase radically in the next few years, making a second bail-out far more contentious than any of the previous eurozone rescue packages." Open Europe economic analyst Raoul Ruparel added: "“A second Greek bail-out is almost certain to result in outright losses for taxpayers further down the road because, even with the help of additional money, Greece remains likely to default within the next few years. Another bailout will also increase the cost of a Greek default, transferring a far bigger chunk of the burden from private investors to taxpayers....Although the uncertainty associated with such an exercise shouldn’t be underestimated, EU leaders should plan for a full, orderly restructuring, which would deal with Greece’s massive debt burden, as soon as possible. However, an honest discussion also needs to be had about whether Greece can realistically remain within the eurozone." But what "honesty" is possible when the only policy is to extend and pretend until it all finally comes crashing down?
- Papandreou Confidence Vote May Decide Greece’s Fate (Bloomberg)
- Fitch sees risk of Greece, U.S. debt defaults (Reuters)
- China’s new bond buying hints at shift to euro (MarketWatch) as was reported on Zero Hedge 3 weeks ago
- David Cameron: We won't bail out Greece (Telegraph)
- Change in China Hits U.S. Purse (WSJ)
- Debtors hail changes to EU rescue fund (FT)
- SEC Should Free ’Fab’ Tourre, Target Big Fish: (William Cohan)
- German energy plan seen as ‘viable’ (FT)
- Kenya Shilling at 17-Year Low on Inflation (Bloomberg)
- China Floods Claim Victims, Crops (WSJ)
Reuters has compiled a useful summary for everyone confused why the S&P may be trading with the volatility of a 3-page Hank Paulson blank check TARP proposal day, based on what a few MPs in Greece decide to vote, or not, for, in just under 10 hours.
- Confidence vote in Greek parliament at 2100 GMT
- Representatives from "troika" of EU, IMF and European Central Bank in Athens for talks through June 22
- European Union summit meeting in Brussels on June 23-24
- Parliamentary vote on more austerity steps tentatively set for June 28
- Main labour unions to launch 48-hour strike on day of austerity vote
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
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