Following the gotcha moment from Tuesday, fully documented here and here, in which CME Executive Chairman Terry Duffy basically caught Jon Comminglerzine committing an act of perjury, or lying about the chronology of his knowledge of MF Global's commingled loans under oath, today we get the third and last (for the time being) testimony of the former CEO of Goldman and MF Global, this time to the House Financial Services Committee. Grab your popcorn, the hearing is live, and Jon Corzine is about to sound just like Hank Paulson because this time it will be a little more difficult to "recall" events that happened 6 weeks ago, now that the CME chairman has been kind enough to remind him.
Bloomberg headlines confirm the Chinese export-led growth dynamo is growing dimmer by the day:
- CHINA'S `NOT TOO OPTIMISTIC' ABOUT EXPORTS IN 2012, CHEN SAYS
- CHINA'S TRADE GROWTH MARGIN DECLINED IN DECEMBER, CHEN SAYS
- CHINA EXPORTS 2 PERCENTAGE POINTS LOWER IN EACH MONTH OF 4Q
- CHINA 2011 IMPORT GROWTH RATE 5 PCT POINTS HIGHER THAN EXPORTS
- CHINESE COMMERCE MINISTER CHEN DEMING SPEAKS AT GENEVA BRIEFING
Translation: the next several Chinese monthly surplus reports will not be pretty, and even more importantly, The Chinese trade defict, as predicted by Albert Edwards some time ago, is finally coming (read here, here and here). Lastly, it means the CNY is about to reverse: expect Congress to go nuts once China undergoes several weeks in a row of Renminbi devaluation. The trade war that will follow should be quite epic.
Founder Of $30 Billion Hedge Fund BlueCrest Says Most Euro Banks Are Insolvent; Euro Situation Much "Worse Than 2008"Submitted by Tyler Durden on 12/15/2011 - 12:22
The Founder of one of the world's largest asset managers, the $30 billion hedge fund BlueCrest, Michael Platt, spoke to Bloomberg TV and cut right to the chase, saying most of the banks in Europe are insolvent and the situation in the region is "completely unstable." On how he approaches market risk: ""I do not take any exposure to banks at all if I can avoid it. All the money at BlueCrest Capital Management is in Two-Year U.S. government debt, Two-Year German debt, we have segregated accounts with all of our counterparties. We are absolutely concerned about the credit quality of the counterparties." On investing in illiquid assets, Platt said he "would not touch them with a barge pole" and that "the major opportunities will come post-blowout." Something tells us Russia and China know this all too well, and realize that the best time to "invest" in Europe is after the single (or multiple) bankruptcy. Which incidentally, as Kyle Bass said yesterday, after the "blowout" is when the ECB will finally step in as well, at which point the entire world will go all in on that now infamous 2-7 offsuit. And his view on how that bluff will end: 'In my opinion, what's going on now is significantly worse than 2008."
The truth has a unique sting, and an equally unique ability to heal the destruction wrought by dishonesty, fraud and lies. The truth hurts, because the daylight of truth demands changes that the self-serving and those in denial desperately wish to avoid. But there can be no healing or reconciliation without the truth, baldly stated and plainly spoken without artifice or spin. If we can finally be truthful with ourselves as a nation, then we must admit that our financial system is fundamentally based on lies, fraud, embezzlement, misinformation, perverse filters and incentives, shadow systems that mock transparency and regulation, class privilege and the systemic flouting of the rule of law. This is the truth that hurts because it reveals the financial system as one stupendous exploitative fraud; but it also reveals the complicity and irrelevance of our judicial system and the complete capture of the legislative and Executive processes of governance. There is a system of government in which rule of law is merely a propaganda screen, where financial and political Elites run the show and escape the consequences of their actions: it's called tyranny. The truth is that we live in a financial tyranny. There is no other truthful way to describe the U.S.
Presenting Kyle Bass' Analysis On Shortening Collateral Chains; Or The Gradual Evisceration Of Shadow BankingSubmitted by Tyler Durden on 12/15/2011 - 11:16
Kyle Bass presented us with a preview of what to expect in his monthly letter in a David Faber interview yesterday; today he delivers the full monty with his extended analysis of "shortening collateral chains" in his latest investor letter - a topic that we have been discussing broadly ever since we starting focusing on Shadow Banking two years ago (and why, as we have been pounding the table, it is the central bankers' primary prerogative to offset the collapse in the shadow banking system more than anything), and narrowly, since the realization of how tenuous the rehypothecation system is. The below analysis leads Bass to come to the one logical conclusion: "As European leaders press forward with failed attempt after failed attempt to suppress borrowing costs, control spending, reduce deficits and prop up what the markets have already told us is a broken monetary system, the data tells us that the citizens of the most troubled and profligate nations are losing confidence in the Euro dream. Trust has been lost, confidence in the system is being lost, and the ultimate consequence of this break down - sovereign defaults —are imminent. We continue to move ever closer to a great restructuring of sovereign debt."
IMF Says Europe Crisis Escalating, Needs External Assistance; Russia Will Use Proceeds From Sale Of US Treasurys To Help EuropeSubmitted by Tyler Durden on 12/15/2011 - 10:53
And so risk assets go to the OFF position following the latest statement from the IMF's Christine Lagarde, who until very recently was France's FinMin, and thus personally responsible for the current economic crunch:
- IMF'S LAGARDE SAYS EUROPE DEBT CRISIS `ESCALATING'
- IMF'S LAGARDE: CRISIS REQUIRES ACTION BY COUNTRIES OUTSIDE EU
Well, we know the UK is now out, courtesy of idiotic statements such as this one by Christina Noyer. So who will step up? Why Russia it seems.
- RUSSIA CONSIDERS PROVIDING UP TO $20B TO IMF, DVORKOVICH SAYS
Why's that? Because like China (more on that in a second), Russia just dumped US bonds for the 12th straight month and instead both Russia and China are now focuing on making Europe their vassal state. So now we know where the money is coming from - sales of US debt of course!
The US economic outliers continue. Following a barrage of far better than expected economic data earlier, we now get the Philly Fed which printed at 10.3, a spike from the previous reading of 3.6, and 3 standard deviations above the median estimate of 5.0, beating all economist forecasts but one (that of Sean Incremona of 4CAST). From the report: "The diffusion index of current activity, the survey’s broadest measure of manufacturing conditions, remained positive for the third consecutive month and increased from 3.6 in November to 10.3 (see Chart). The percentage of firms reporting increases in activity (25 percent) exceeded the percentage reporting decreases (15 percent). The index for current new orders showed a similar improvement, increasing 8 points. The shipments index, at 6.7, was mostly flat. Twice as many firms reported declines in inventories (30 percent) as reported increases (15 percent) and the current inventory index fell 22 points to ?14.9." And the less than outlier news: "Labor market conditions continue to show overall improvement, but indexes edged down this month. The current employment index remained positive at 10.7, only 1 point lower than in November. The average workweek index also remained positive but fell nearly 9 points." Have fun reconciling that with earlier sterling claims data.
One of the more curious dynamics for those who follow the gold market closely, has been the relentless grind lower (or higher if looked at on an absolute value basis), of gold lease rates (defined as Libor - GOFO), which recently hit all time record lows (i.e., negative), for the 1 month version, although the more traditional 3 Month (as it is based on the benchmark 3M USD Libor) was also quite close to breaching historic low levels. And while we have discussed the nuances of Libor-GOFO, or the gold lease rate extensively before, a good summary was presented by Jesse's Cafe Americain yesterday, who correctly suggested that record lease rates are a primary driver for the near historic sell off we experienced yesterday. In a nutshell, negative lease rates mean one has to pay for the "privilege" of lending out one's gold as collateral - a prima facie collateral crunch. The lower the lease rate, the greater the use of gold as a source of liquidity - and since the indicator is public - it is all too easy for entities that do have liquidity to game the spread and force sell offs by those who are telegraphing they are in dire straits and will sell their gold at any price if forced, to prevent a liquidity collapse. Said otherwise: to force a firesale. Well, we are happy to announce that the selloff spring clip potential that is embedded in a near record negative lease rate has now been discharged courtesy of the $100 dump in the past two days, which may have happened for a plethora of reasons and nobody can tell why precisely, but one thing is now sure: the underlying tension in the supply and demand for gold as a source of liquidity has collapsed. That said, the next time we approach the previous thresholds we will advise readers as it will likely indicate another gold-derived liquidity rubberband "breach" is imminent.
As we said regarding yesterday's coordinated commodity dump, there was nothing sinister going on beneath the surface: it was merely a liquidation step in advance of margin calls by various asset managers seeking to lock in profits. And as we will show in a second courtesy of GOFO, the liquidation may be over. But here, explaining things in his patented simple words, is Art Cashin to summarize yesterday's move.
Year end markets are infamous for distorting price action as illiquidity, bank and company window dressing, and risk paring tends to characterize investment decisions and valuation quirks. In this market climate it can be challenging to differentiate between fundamental moves versus liquidity provisioning and the pursuit to flatten books and race to the finish line. In the above spirit, typical year end position imbalances are suspicious as are global finance needs and the apparent dysfunctionality of funding market functioning and an information arbitrage between different markets in understanding of such minutia...The circular nature of worsening emerging and global fundamentals, lower sovereign growth prospects, associated financing challenges, lower asset valuations, regulatory cushions to such catalyzing asset sales, bank balance sheet illiquidity and, hence, funding stains tis the season. Just a DAILY comment to elevate the ebb and flow adjustments of markets and policy makers to such linkages.
And here we go:
- Initial Claims: 366K on Expectations of390K, down from 381K, lowest since May 31 of 2008; Seasonally unadjusted dropped somehow by a ridiculous 95,506. All those thousands of bankers being laid off must not be people - that explains it? And the stunner: those added to extended benefits was a whopping 332K, an unprecedent large number for a weekly change. (Source)
- Continuing Claims: 3603K vs. Exp. 3637K, up from 3583K. (Source)
- PPI November: 0.3% vs. Exp. 0.2% (Prev. -0.3%), inflation picking up (Source)
- US Empire Manufacturing: 9.53 vs. Exp. 3.00, up from Prev. 0.61; New Orders up from -2.07 to 5.10; And bad news for margins: Prices Paid up (from 18.29 to 24.42) - Prices Received down (from 6.10 to 3.49); Number of employees up, average employee workweek down (Source)
- US Current Account Balance Q3: Q/Q -110.3bln vs. Exp. -108.5bln (Prev. -118.0bln, Rev. -124.7bln) (Source)
A friend of mine took note recently that a large portion of activists involved in the Liberty Movement had hit extremely hard times, or had been struggling financially even before the general economic collapse began to take hold. He asked me my theory on why it was that so many of us are always so broke. I could only relate that it is almost always the working class poor in any society that first sees the effects of a corrupt government and a faulty economic system. Those who legitimately hold to the principles of self sustainment, and fair play, are usually the first to be stabbed in the back by the establishment, and so, they are the first to become politically active against it. That is to say, sometimes we have to lose almost everything before we are able to see the bigger picture. While I consider this fact a source of solace in these extraordinarily hard times, it still does little to put food on the table, or survival gear in the bug-out-bag. The overall consensus within the prepper community is that survival planning is expensive, and yes, it certainly can be. Another consensus is that you “get what you pay for”; also true...to a point. My belief is that while no prepping model is free of expense or of quality concerns, perhaps there is a middle road that activists with thin wallets can take which will provide solid gear for less money, and that will serve most of the functions of high-end gear that is ten times as expensive. Let’s examine a foundation list of those items that can help get you started now….
- A downbeat BoJ's Tankan report, together with a below 50 reading for HSBC Chinese manufacturing dampened sentiment during the Asian session
- ECB's Draghi said intensified financial market tensions continue to dampen economic activity in the Euroarea and the outlook remains subject to high uncertainty
- According to reports, the ECB is planning to introduce new capital rules for banks to prevent aggressive deleveraging and a credit crunch
- The SNB kept its 3-month LIBOR target rate unchanged at 0.00% as expected, and said it will stick to its 1.2000 EUR/CHF floor
Today at 8:30 am at least one HFT vacuum tube will short a filament as we get not one, not two, not three, but four concurrent economic data releases at the same time. And then there is a whole bunch of other stuff later in the day... which is not to say that the 3pm rumor will not determine the outlook of the day.