With so much of the attention once again focused on Europe's periphery (which somehow the efficient market could not be bothered with for about 4 months, even though it was all there, staring people in the face all along), it may be time to recall the Europe's core is just as troubled as everything else. Some may recall that back on December 14, S&P came out with a bit of a stunner (which in retrospect looks rather tame following the now forgotten warning on the US Debt): "And so European contagion is back as S&P, now clearly with a mandate
to remind that Europe is in a heap of trouble every month or so, puts Belgium on Outlook negative, saying that it is basically just a matter of time before the country loses its AA+ rating. The bogey: 6 months, which likely means that around May of next year, just like a year prior, we will see the same fireworks out of Europe, only this time not from Greece, but from the very heart of what is left of a solvent continent. "If Belgium fails to form a government soon, a downgrade could occur, potentially within six months. Should a government be formed but is, in our opinion, ineffective in its fiscal stance or devolution, we are likely to consider rating action within two years." Well, it is now 6 months later, and Belgium still has no government. Time to pull the switch?
The $6.5 trillion lost in the bursting of the housing bubble is not a "paper loss," it is tragically real. Is anyone surprised that housing continues to slide? According to this report, Home Market Takes a Tumble: Turnaround More Distant After 3% Drop, Steepest Quarterly Decline Since 2008, housing has declined in value for 57 straight months, almost 5 years. Since the housing bubble topped in most areas in 2006, and it's now 2011, that makes sense: 2006 + 5 = 2011. American homeowners have lost $6.5 trillion in equity in those 57 months.
SocGen provides a very informative chart on the dramatic dislocation between the EURUSD and PIIGS risk levels, as demonstrated by Greek CDS prices. Whereas in the past the two correlated very strongly, since early 2011, the pair has diverged dramatically, leading many to speculate that just like in the case of Japan, the G-7 did another coordinate intervention to push the EUR higher in 2011 at the expense of the USD and other currencies. Is it time for a "correlated" snapback? SocGen muses: "After reaching a 17-month historical high of 1.4940 last Wednesday, the EUR/USD fell towards 1.4250. The risk of a further drop cannot be excluded short term given today’s climate, even though the 1.4250 support zone appears solid (50-day moving average) and breaking through this level would open the door to a rate of 1.4000."
And once again inflation refuses to accept it is transitory. April Import Price Index was reported up 2.2%, following a revised 2.6% increase in March (previously +2.7%). Notably, the core of the action was in petroleum and food prices. From the release: "Foods, feeds, and beverages prices advanced 1.8 percent in April after a 4.2 percent rise in March. The April increase was driven by a 22.8 percent jump in coffee prices....The price index for nonfuel industrial supplies and materials rose 1.7 percent in April following a 2.0 percent rise the previous month. Both increases were led by higher chemical and unfinished metals prices, which increased 2.4 percent and 1.7 percent, respectively, in April. The rise in chemical prices was driven by a 6.6 percent advance in plastics prices, and the largest contributors to the rise in unfinished metals prices were prices for gold and other precious metals." In a nutshell, the 12-month advance in April was the largest year-over-year increase since an 11.2 percent gain between April 2009 and April 2010.
Zero Sum trading (in which the banks make money and taxpayers lose it) continues: following previous reports of trading perfection at both D-grade trading "powerhouse" Bank of Countrywide Lynch, and FRBNY-lite JP Morgan, Goldman craps the bad by being the only big bank so far to post a trading loss day in Q1 (even if it was for $0-25 million). This is unacceptable. As a result SLP latencies will be cut from 0 nanoseconds to -10, as Goldman will proceed to a Tachyon based trading infrastructure. In beta tests, such "frontrunning to the future" trading has already posted solid results: in addition to the humiliating trading day loss, GS had 32 days with profits of ">$100 million." And it still failed to impress... Now that HFT "girl around the block" Citi is no longer there for the taking by anyone with a growing liquidity rebate itch, this number will plunge.
Goldman on Greece: "We do not see a ‘haircut’ as a viable solution, particularly at this juncture, for a number of reasons: 1. The risk of potential financial ramifications (‘domino effects’) seem too large; 2. the level of debt that is sustainable will be guesswork until growth has stabilized and a primary surplus achieved; 3. the incentives for pursuing adjustment (in Greece and elsewhere) may wane if the debt stock is aggressively reduced; 4. finally, private-sector funding is unlikely to flow back at sustainable levels any earlier than under the current approach of conditional financial support....We still do not expect to see sovereign liability management exercises in Ireland and Portugal. Bonds in these two sovereigns will, however, likely remain subject to higher volatility, reflecting decisions taken on Greece in coming weeks, in addition to local events (e.g., the Portuguese elections, approval of the support package, etc.)."
- Eurozone gesteht Athen weitere Milliarden zu (Handelsblatt) always remember: German is the official language of the Weimar Republic
- Japan's Prime Minister to give up salary until nuclear crisis over (CNN), while Tim Geithner will give up nothing until debt ceiling crisis solved
- Mississippi crests in Memphis at nearly 48 feet (AP)
- New Greek Deal Possible by June (WSJ)
- Merkel Says No Aid Decisions Until Greek Assessment Reports (Bloomberg)
- Japan Unlikely to Get In Yen's Way (WSJ)
- Pressure Put on Pakistan Army (FT)
- Trouble in Syria Sets off Alarm in Tehran (FT)
- Military Draws Up Afghan Exit Plan (WSJ)
One of the most pronounced self-reinforcing features of the silver drop from the last two days, was the outright drop in silver holdings in the SLV ETF, which in the span of 5 days, from May 2 to May 6, lost 760 tonnes of silver. The sheer momentum of this move, as some claim, was the biggest factor facilitating the record rout in silver. Well, as of yesterday this trend has reversed itself, and as of close yesterday SLV has disclosed that it added 311 tonnes of silver, or nearly half the underlying amount lost in the selloff. Nonetheless, the overreaction within the SLV complex was massive, as while silver spot remained well above 2011 lows, the SLV ETF holdings actually plunged to a 2011 low level which had last been seen in November 2010. And with silver rising fast again this morning, printing at $38.50 as we type, look for the downward momentum, which so many eagerly pointed to to indicate the relentless nature of the rout, to reverse itself. Add to this the fact that non-commercial specs are at multi year lows, and very soon the only possible argument for the bubble claimants will be that all silver has merely rotated out of very weak hands into truly strong ones.
Today's Economic Data Docket - Imp/Ex Prices And Wholesale Inventories, Ceiling Busting $32 Billion AuctionSubmitted by Tyler Durden on 05/10/2011 - 07:55
Import prices, wholesale inventories and a few speeches from Fed officials. Ceiling busting $32 billion 3 year auction in tow, and second to last POMO in current schedule also on deck.
Total Confusion Rages Over Greece Which [May|May Not] Get A New Bailout Package, [And|Or] [Kept|Kicked Out] Of EurozoneSubmitted by Tyler Durden on 05/10/2011 - 07:27
This morning the news wires are filled with the now usual contradictory, and full of lies propaganda about a Greece imminent [restructuring|golden age]. Since very likely all are wrong, we will focus on what appear to be the most credible ones: we will start with the Dow Jones story which has been official refuted by Greece, thus giving its extra validity. As Reuters reports: "News agency Dow Jones, citing a senior Greek government official, reported that Athens expects to receive a new aid package totalling nearly 60 billion euros . Greece denied it was discussing a new package..."It's certainly positive for peripheral sentiment and is assisting in the unwinding of some yesterday's safe-haven flows into Bunds," said Rabobank rate strategist Richard McGuire. Senior euro zone policymakers acknowledged on Monday that Athens will need a second bailout package soon to avert a disorderly overhaul of its debt obligations but rating agencies said more drastic measures may be necessary." Of course, this news comes out strategically and just in time for Greece to auction off a fresh 26-week T-Bill for €1.625 BN at a new record yield of 4.88% (compared to 4.80%) before an an even lower bid to cover of 3.58 vs. 3.81 previously. One can only imagine what a flop the auction would have been without the latest rumor (and even China appears to have given up on Greece: "Foreign take up in Greek 6-month T-Bill sale 34.2% vs. Prev. 41%, according to debt agency chief.") Bottom line as some trader summarized it: "It's very difficult to trade as there are so many conflicting headlines about a restructuring being the only way forward or not. Something will have to give." Exactly - here is a hint: a restructuring, in the city square, with a Molotov Cocktail... and damn soon.
Gold and silver continue to rebound from their sell offs as Euro zone periphery worries intensify with real risks of defaults and possible contagion. Gold has risen from €1,010/oz to over €1,057/oz since Friday. The long period of correction and consolidation may soon see a break out above resistance at record nominal highs of €1,072/oz - less than 1.5% below the current price. The recent strength of the euro looks set to end as sovereign debt risks come to the fore again. This will likely see the euro fall versus most currencies and especially against gold. There has been the usual misinformed and non evidence based assertions that the gold and silver markets were ‘bubbles’ and that they have burst. The same simplistic assertions were made after the sharp price corrections seen in 2008 and were proven badly wrong.
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
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China April Trade Surplus Jumps To $11.4 Billion, Well Above Consensus, As Yuan Parity Hits New Record High Of 6.4950Submitted by Tyler Durden on 05/10/2011 - 00:08
The China customs bureau just released its April trade data, which came at a surprisingly strong $11.4 billion, a $11.3 billion jump over March, well over consensus of a $3.2 billion surplus, and was the highest trade surplus posted by China in 2011. Net exports to both the EU and US, the traditionally biggest export partners for China, increased M/M from $9.5 billion to $10.3 billion, and from $13.0 billion to $15.1 billion, respectively. Overall, the key trading partners did not see a major change, and the marginal variable appears to have been the Rest of the World category which in April jumped from a trade surplus of $8.0 billion from $2.9 billion the month before. Of course, with even Europe now disclosing openly it is lying in disseminating data, it would be foolish to assume any of this data is even remotely realistic, and is likely nothing more than a politically palatable smoke screen for the ongoing Strategic and Economic Dialogue (discussed earlier), and will be used to indicate that even as Chinese exports once again pick up, Geithner can not really blame it on the USDCNY, which hit a new record high of 6.4950. No matter the data, this most recent jump in exports, will surely force the peanut gallery to renew squawks for unpegging the currency.
As an attempt to refute the previously disclosed plunge in speculative positions, some have made the claim that it is really retail holders causing the spike in silver via such synthetic CDOs as SLV. While this argument is beyond laughable (although there is some credibility to the claim that there is a feedback loop to ETF buys leading to underlying gains and vice versa, although we expect SLV's silver holdings disclosed tomorrow to once again gain thus ending the selling cycle) and we look forward to debunking it thoroughly when the latest 13F is released sometime on Friday, we did want to point out something just as amusing: the holdings of JPM compared to the price of SLV (incidentally, JPM is the third largest holder of SLV with 5.1 million shares, just behind BofA with 6.8 million shares and Morgan Stanley with 7.2 million). Which begs these questions three: retail or really institutional buying was the primary force behind the move in SLV? Was this merely a case of uber-leveraged tail wagging the dog (since CFTC indicates there was nothing at all bubbly about non-commercial spec contracts)? And, three, if so, why...