Time for some more rotation of the titanic's deck chairs with the Princeton labor economist taking over Goolsbee. Unfortunately with Geithner still around, there is no risk America will change its current path heading straight into a Double Dip iceberg.
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -6.7 and -10.1, respectively. The only components rising were materials Inventories (must.restock.always), and CapEx, up 10.7. The most critical Production index declined by 9.7, just barely positive at 1.1, and the second lowest in 2011, with a worse number before that printing all the way back in 2009. Yet the most descriptive are the responses from the survey respondents themselves: two words "peak gloom." And why not: the ISM will print in the mid 40s and the NFP could well be negative. Which of course will send stocks soaring even higher on QE3 being priced in for the 666th time.
The NAR just reported that pending home sales, yet another metric of that long-forgotten housing market, dropped 1.3% in July, on expectations of -1.0%, and down from 2.4% in June. Market reaction is none, because this metric does not matter: all that matters is who and what else petrodollars can bail out next. From the report: "The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June but is 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings." And the soundbite from the always hilarious and massively discredited and conflicted Larry Yun: "The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” he said. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process." Ah yes, mortgage underwriting standards, in other words if banks were to actually do something about mortgage that are delinquent by nearly 2 years. Those standards?
Nobody could have seen this coming. From Reuters: "Zynga, the social games maker may delay its plans for an initial public offering until November because of poor market conditions, the New York Post newspaper reported late on Sunday. The New York Post, citing two sources with knowledge of Zynga's plans, said the company hoped its shares would be listed as soon as possible but is "no longer in a rush because of the rocky stock markets." Another source close to the company said its public debut could be delayed until November but the company will know more after Labor Day, the newspaper said." Maybe Zynga can just find some of those sophisticated buyers of Sino Forest stock who were betting on a dead cat bounce, or all of those distressed funds who were bidding up the bonds at 50. If that fail, it can just approach the Sovereign Wealth Funds which bailed out the biggest (pro forma) Greek and American bank for a few days.
Bank Of America Sells 13.1 Billion Shares In China Construction Bank, Raises Another $8.3 Billion "It Does Not Need"Submitted by Tyler Durden on 08/29/2011 - 09:48
Bank Of America continues to desperately raise firesale capital (which it most certainly does not need).
- BANK OF AMERICA AGREES TO SELL 13.1B SHRS OF CHINA CONSTRUCTION
- BANK OF AMERICA SEES SALE GENERATING $8.3B PROCEEDS
- BANK OF AMERICA KEEPS 5% STAKE IN CCB
- BOFA SEES CUTTING RISK-WEIGHTED ASSETS BY ABOUT $16.1B BASEL
- BOFA SEES SALE GENERATING ABOUT $3.5B ADDED TIER 1 CAPITAL
- BOFA SEES GAIN $3.3B ON SALE
In summary: That's $13.3 billion in new capital in the past week that BofA promises it does not need. At all. As for the buyers: the same sovereign wealth funds that just bailed out the Greek banking sector for a few more days.
Earlier today we speculated that the latest ECB monetization tally of insolvent PIIGS debt would be between €10 and €15 billion. Well, the final number was below the bottom end of the range or €6.7 billion (with €1.3 billion maturing). This follows €22 billion and €14.3 billion in the past two weeks, bringing the total under the ECB's debt monetization facility to €120.3 billion, a number that Germany must be simply ecstatic about. Keep in mind this is debt that local banks can not pledge to the ECB in return for 100 cents on the euro, and in essence removes liquidity from the system. What was hilarious, however, is the immediate defensive posture by the ECB's Trichet who said on the subject of whether ECB taking on too much risk, that the increase in ECB's balance sheet not as large as Fed or BoE. He also said that "Everybody understands that particularly in the present situation that the ECB would maintain a solid anchoring of inflation expectations,” Trichet told the European Parliament’s economic committee during a special session called to discuss the debt crisis. "All countries would be hampered” if they became unanchored, Trichet added. Bottom line - the most modern spin on an old maxim: "the ECB is not the Fed" - we are not sure if that is a good or a bad thing: frankly it is all central planning. What we are concerned about is that contrary to what self-aggrandizing economist PhD's, somehow the ECB did not refute the fact that there is central bank risk. Yes, even with all that fiat printing capacity.
July personal income and expenditures were quite surprising in that while many were expecting the drop in the market to force consumer saving to upshift (lower spending than income), not only was this not true, but expenditures spiked by 1 whole percent from -0.2% to 0.8%, on expectations of 0.5%, even as Personal Income came in line with expectations of 0.3%, up from a revised 0.2% (concurrent with extensive prior data revisions). This was the biggest difference between a monthly change in income and spending since October 209. The net result was a plunge in the savings rate from 5.5% to 5.0%. And while on the surface this would be good news, as in Americans are spending again, a quick look at the PCE components indicates that virtually the entire surge is due to a spike in Energy goods and services. In other words, the entire spike in spending was to... pay for gas and associated energy expenses. Which makes sense: in June this was a drop of -4.5%, it is only logical that the subsequent jump in Brent and WTI forced American savings to drop. All in all: in July Americans continued to max out their credit cards to pay for gas. As for the income side, transfer payments as a % of spending refuse to budge: thank you Uncle Sam.
Positive comments from German Chancellor Merkel on her coalition's support towards enhancing the power of the EFSF, together with comments from Moody's that the Spanish proposed fiscal rule is credit positive for the sovereign promoted risk-appetite during the session. European equities traded higher with particular strength seen in financials after European officials dismissed a suggestion by the IMF's chief Lagarde on a mandatory recapitalisation of European banks. Elsewhere, weakness in the USD-Index provided support to EUR/USD, GBP/USD and commodity-linked currencies, however EUR did come under some pressure following lower than expected German states' CPI data. In other forex news, weakness in CHF was observed across the board, however no confirmation of any intervention has surfaced. Meanwhile, according to a document, Finland has proposed the creation of a Luxembourg-based company to hold Greek assets as security for new loans to Greece. The document further said that in case of a Greek default on the EFSF loans, ownership of holding company shares would transfer to the member states.
- Noda Wins Party Election (WSJ)
- Tremonti out? Italy readies austerity changes (Reuters)
- European officials round on Lagarde (FT)
- China to Lock Up More Cash to Tighten Liquidity (Bloomberg)
- Central Bankers Worry Economy Still in Peril (WSJ)
- Italy Tests Appetite for Debt When ECB Is Absent: Euro Credit (Bloomberg)
- As U.S. Households Save, Economy Sputters (WSJ)
Three B-grade economic updates today to serve as an appetizer to the ISM release on Thursday and the NFP data (very likely negative - more shortly) on Friday.
Greece Ups the TBTF Ante With Merger Of Alpha Bank And Eurobank, Creates Largest (Jointly Insolvent) Bank In Southeast EuropeSubmitted by Tyler Durden on 08/29/2011 - 07:49
As of minutes ago, the speculation that Greek Alpha Bank and Eurobank are merging, in the process creating the largest Greek bank, and first TBTF candidate, has been confirmed, leading to a 30% jump in the stock prices of both Alpha and Eurobank. Not only that, but as AP reports, "the news triggered a Greek share rally, with the benchmark General Index on the Athens bourse gaining more than nine percent in early trading. On Friday, it had hit its lowest in nearly 15 years due to concerns over the future of the country's latest rescue package. The banking sector was up nearly 20 percent, while shares in National Bank of Greece, the country's largest lender, were up 29 percent." This move, which is nothing more than an attempt to pool deposit bases at these two very troubled institutions and thus prevent a bank run, needed a back stop to be credible: sure enough here comes the Petrodollar patsy: "Qatar Investment Authority (QIA), which is already an Alpha shareholder, is expected to take a bigger stake in the new bank. QIA holds 5% of Alpha and is expected to take 15% of the merged entity." The new bank will be the biggest bank in southeastern Europe, with assets of 146bn euros ($212bn; £129bn) and 1,300 branches. Eurobank shareholders will receive five new Alpha Bank shares for every seven Eurobank shares they own. And what would a bank merger be without ridiculous talk of synergies: The banks estimate that the merger will create about 650 million euros of synergy saving per year. Naturally nobody cares about this, as long as the first stake in the Greek bid for TBTFness proceeds as planned. That this step only delays the inevitable is irrelevant: for now the buying spree must resume. We fully expect the pro forma entity to eventually subsume all other Greek banks before finally it reverse mergers with the hollow ECB shell.
When the dust settled on gold’s volatile week, despite much “noise” from uninformed commentators, it showed that gold fell 2.96% on the week. This must be put in context. The previous week alone gold had risen 6.2%. Despite the 3% sell off last week gold remains up 11.6% in dollar terms (and by similar amounts in other currencies) so far in August with just three trading days left in the month. Meanwhile, global stock markets are down by similar amounts in August, with the FTSE down 11.7%, the DAX down 21.6%, the S&P down 8.95% and the MSCI World down 10.95%. Thus, gold has again proven its hedging and safe haven status. The data shows that sentiment in the futures market towards both gold and silver remains muted with very little evidence of participants ‘piling in’ on the long side. Indeed, it shows that the sharp margin increases seen in silver and the margin increase seen in gold last week have had the desired effect of cooling sentiment thereby making the fundamentals in both markets sounder. The COT data in conjunction with very robust physical demand globally and especially in China (see news) means that any correction is likely to be shallow and short prior to the primary trend reasserting itself.
Even As Overnight Borrowing From ECB Drops To Zero, Bank Deposits With ECB Soar By €17.2 Billion To €121 BillionSubmitted by Tyler Durden on 08/29/2011 - 07:10
A quick update at the liquidity conditions in Europe comes courtesy of the ECB's posting of data on the Friday Marginal lending facility (aka emergency overnight) as well as the Deposit facility (last recourse cash dump), which paints a mixed picture. Because while the Marginal Lending saw its first zero usage, down from €1 million on Thursday, the lowest since August 5, Deposit Facility usage once again rose from €104 billion to €121.2 billion. The latter is a concern as it means that the only place that European banks would be willing to allocate excess capital, is the safety of the European money printing poliburo. Next up from the ECB we get data on SMP usage, i.e., secondary debt purchases, in the past week: somewhere between €10 and 15 billion, although it could easily be greater.
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