It was all ponies and unicorns as the EU-ECB-IMF 'Troika' mission found 'no sign of reform fatigue' in their report today, noting the 'remarkable' nature of the fiscal adjustment. Perhaps they should have asked someone outside of the halls of government as this tragic story from The Guardian notes the Portuguese death rate rising as health and welfare cuts from the 'remarkable' austerity package are biting at the people hard. During February, there were 20% more deaths than normal and the cost cuts are blamed as a visit to the ER has more than doubled. There is a general strike, as we noted earlier, on Thursday as the leader of the unions notes "They are driving the country towards disaster". While the IMF believes that Portuguese debt is sustainable, most practicing market participants who do not have a gun to their head see full well the unsustainable nature of the Portuguese debt load seeing the IMF's position as "wishful thinking". There is a growing tension as Irene Pimentel notes "I worry that democracy is at stake" and on the people's apparent stoicism for now, "I think it will explode eventually, it is impossible for people to remain this passive." At least Portuguese bonds are happy, and accept the culling of the Portuguese population at the altar of the euro, as a worthy supplication, worth at least 250 basis points.
Canada's natural resources minister told delegates at the International Energy Forum in Kuwait that his country was on the cusp of becoming an "energy superpower." Canada ranks No. 6 in terms of global oil production, but much of its crude exists in the form of oil sands. European leaders are considering a measure that would classify oil sands as an environmental issue, prompting Canada to threaten to take the issue to the World Trade Organization. With the U.S. political system in a deadlock over Canadian crude, the Ottawa government is now working to convince the international community that the global market is in jeopardy if polices "discriminate against oil sands."
Turning on the screens this morning to red pixels was an odd feeling for anyone who has traded stocks this year and while the low was put in soon after the US open the slow and steady weak volume limp higher in equities (led by financials and too-hot-to-handle Apple) got ES (the e-mini S&P futures contract) back up to close at 1400 on the nose (-4pts on the day). Investment grade credit was generally an outperformer relative to stocks today (though AAA corporates were net sold perhaps on rotation back into Treasuries) though the roll in credit derivative markets hinders comparisons a little, however, high yield credit dwindled a little (on light flows) into the close. Commodities were the hardest hit of the day - dramatically underperforming the implied weakness of a modestly stronger USD. Silver, which recovered well off its lows of the day, was equal worst performer with Copper as China's slowdown story dominated. Interestingly Oil also fell as increased supply news hit pushing WTI under $106. Gold outperformed (though was lower on the day) and stands down only 0.6% on the week now (less than half the losses of the other metals/oil). Treasuries (as we already noted) broke their record losing streak with a modest 1-2bps compression in yields close to close (after being closed for the Japan session last night). A relatively large jump up in EURUSD near the US day session open was the biggest news in FX markets but that leaked away all day as the USD limped high off that low (helped by AUD and JPY weakness). VIX managed to rise once again.
During the last 31 years of the US Treasury bond rally, the 10Y interest rate has never risen for 10 consecutive days and today's very modest 1.6bps rally ensures that will continue. Yesterday's weakness equaled the previous 9-days-in-row record from 6/26/06. The rise in 10Y rates over this 10 day period equals the Oct 2011 jolt in percentage terms as we hold at those 10/28/11 swing highs in rates. The previous 8 times that 10Y rates have risen for 7 days or more, the next 10 days have seen an average 16bps compression and next 20 days a 31.5bps compression (following the consecutive break). This of course is wreaking havoc with mortgage rates as according to Bloomberg's bankrate.com data, we are back above 4% for the 30Y fixed for the first time this year and this week has seen mortgage rates jump their most in 16 months.
When it comes to predicting consumer spending patterns, especially those of the baby boomers who are traditionally reliant on fixed income (but lately have had to migrate back into the workforce, as retirement prospects diminish, in effect displacing the young 18-24 year old Americans where unemployment is now at a substantial 46%), the following two charts from today's David Rosenberg letter do a great job at explaining the schism between interest and dividend income. The former, as is well-known, has been crippled and is plunging courtesy of Bernanke's ZIRP policy, which makes cash yields on savings and fixed income instruments virtually negligible, and the latter, which while rising, has a long way to rise if it is to catch up to lost annuity potential. It is here that the primary tension for the Fed resides: it has to force investors to switch their mindsets from the capital preservation of fixed income, to the risky behavior of pursuing stock dividends. It is also here that we see the lost purchasing power of the US consumer: interest income is down $450 billion from 2007-2008 levels to roughly $1 trillion, while dividend income has risen to $825 billion, which is where it was at the prior peak. In other words, when all is said and done, Bernanke's ZIRP policy has eliminated $450 billion in purchasing power, even if he has succeeded in reflating the equity bubble. Yet while bonds at least have capital preservation optics, what happens to dividend stocks whose cash flow yields can be eliminated at the bat of an eye, if and when the next flash crash materializes, or the next financial crisis is finally too big for the central planners to control?
In light of the news that Apple is issuing a dividend with the stock flirting with all-time highs, it might be a good time to assess where Apple is with its two products, the Iphone and the Ipad. There is no arguing with the success of these products, but that is not the real story that needs addressing. The real story for Apple is battery chemistry and much like the automakers it fails.
As reported earlier, Consumer Reports has concluded its analysis of the New iPad's running temperature. The results, based on a live CNBC update:
- New iPad runs up to 12 degrees warmer than the old iPad2
- New iPad warms up to 116 degrees
- This is not as hot as some of the warmest laptops which hit 120 degrees.
Naturally, much of this was to be expected from a product that has more advanced equipment, which also happens to generate greater power output. It is also unclear if this will provoke a recall, accelerate global warming (and thus facilitate economic "beats") and/or whether one will now have the iSkillet in a twofer special.
Moments ago we saw headlines flashing of a major 7.6 magnitude earthquake swaying Mexico City. It turns out the earthquake was even stronger, and according to the USGS is now classified as 7.9. From Reuters: "MEXICO CITY, March 20 (Reuters) - A major 7.9 magnitude earthquake struck near Acapulco on Mexico's Pacific coast, the U.S. Geological Survey said on Tuesday. Earlier it had been reported at 7.6 magnitude." Luckily, as Al Jazeera's Alan Fisher notes, "Mexican TV reports no major damage in the State of Oaxaca" citing the local governor.
Mortgage bondholders are threatening legal action over the $25 billion national mortgage settlement, which will give the five largest servicers credits for principal writedowns that the bondholders may be forced to take. As American Banker notes, the investors in those trusts were not a party to the settlement agreement, and now they are objecting to being forced into taking losses - to the banks' benefit - as a result of it. The government is forcing investors to take losses even though they were not responsible for the foreclosure process abuses that led to the banks' settlement with state and federal officials. "The banks are trying to pay these fines with our money," says Vincent Fiorillo (of DoubleLine). Chris Katopis, the executive director of the bondholder trade group, says it is considering its legal options, including filing a friend of the court amicus brief or suing servicers individually..."Banks are shifting their liability to first-lien investors that were innocent of robo-signing,". Bondholders are especially concerned about writedowns from Bank of America, which has privately securitized more than $285 billion worth of mortgages originated by Countrywide Financial Corp.
Some curious headlines just out from the ICE via BBG:
- ICE TO LIMIT BRENT, WTI PRICE MOVEMENT $1.25/BBL FOR 5 SECONDS
- ICE TO SET INTERVAL PRICE LIMITS ON CRUDE, GASOIL FROM APRIL 1
- ICE TO LIMIT GASOIL PRICE MOVEMENT $10 A TON FOR 5 SECONDS
Either SkyNet is about to take over the last bastion - the commodities market, or the ICE knows something we dont... Or this is just a completely coincidence.
We hear a lot of the impending flood of money on the sidelines that will avalanche into the equity market to take us to Dow 20000 as retail sells low and buys high. Besides the arguments over the generally nonsensical argument of where the money comes from, who sold so you could buy stocks and who bought your 'safe' vehicle so that you could use that cash for 'risky' instruments, we note three interesting charts from Nomura today on recent fund flows and technicals that suggest perhaps we should not all be holding our breath for the proverbial money-flow (especially as we see outflows in the last week or so from some of the real high-beta darlings of the rally such as high-yield bond ETFs).
A few days ago we noted that the Fed's propagnda is slowly encroaching into the 8-12 classroom with "Fed To Take Propaganda To The Schoolroom: Will Teach Grade 8-12 Students About Constitutionality Of... The Fed" in which the Fed's appointed class agenda would allow "students to use their knowledge of McCulloch v. Maryland and the necessary and proper clause to consider the constitutionality of the Federal Reserve System." You know - just in case kids get ideas early on. And now that Grades 8-12 are covered, it is time to take the propaganda tour to college. From the Fed: "In March 2012, Chairman Ben S. Bernanke will deliver a four-part lecture series about the Federal Reserve and the financial crisis that emerged in 2007. The series begins with a lecture on the origins and missions of central banks, followed by a lecture that will discuss the role and actions of the Federal Reserve in the period after World War II. In the final two lectures, the Chairman will review some of the causes of, and policy responses to, the recent financial crisis, focusing specifically on the actions of the Federal Reserve. The lectures are being offered as part of an undergraduate course Leaving the Board at the George Washington University School of Business." Watch Bernanke as he shifts from the default CTRL+P mode to CTRL+SPIN. Also, we are taking bets on how many times the Chairsatan will use the words "Andrew" and "Jackson" in the same sentence: making a market at zero and under.
Obama Advisor, And Goldman Sachs Client, Gene Sperling Filibusters CNBC With "Shared Sacrifice" Speech In Response To Ryan BudgetSubmitted by Tyler Durden on 03/20/2012 - 11:28
Earlier we shared some perspectives on the just released Ryan 2013 budget. Shortly thereafter it was the turn of Obama aide and National Economic Council director Gene Sperling to give his spin. In what can only be characterized as an epic filibuster of none other than CNBC, Sperling spoke in length, literally, about shared sacrifice, about how math fails to matter in a new normal (and nominal) world, how trillions and trilions in underfunded welfare benefits (which even Goldman sees as untenable) are really just a matter of perspective, but mostly about how net tax revenues running below debt issuance (as reported here yesterday) are 'viable.' We leave our readers to make up their own minds. We just want to add the following highlights from a Bloomberg October 2009 article, which just may provide some more color on where and what Mr. Sperling's true allegienaces are.