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Frontrunning: July 28

  • Fed under Fire over Default Talks (FT)
  • Debt-Crisis Vote Goes Down to Wire in House (WSJ)
  • U.S. Rating Rests On S&P’s View of Washington (Bloomberg)
  • Why the Debt Crisis Is Even Worse Than You Think (BusinessWeek)
  • Japan's Industry Set for Rebound (WSJ)
  • Warren Buffett Is Wrong On Taxes (WSJ)
  • After the debt-ceiling standoff is resolved (blogger extraordinarie Maddy El-Erian)
  • Banks Bracing for Downgrade See Little Panic (Bloomberg)
  • China Regulator Targets Nonbank Entities (WSJ)
  • How to Cut Taxes, Boost Revenue (RCM)


Tyler Durden's picture

Today's Economic Data Docket - Claims, Pending Home Sales And Lots Of Headlines

Just two economic datapoints today, jobless claims and pending home sales, which will continue confirming deteriorating macro trends, to be largely lost in the headline barrage as today is D-Day on the Boehner plan. The last of this week's bond auction trifecta comes to a close with an auction of 7 Year bonds. Unless there is an imminent debt ceiling hike this could be the last bond auction for a long, long time.



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Gold Near Record USD And EUR High – Eurozone Debt And U.S. Default Risks Global Financial Contagion

Gold is marginally higher against most currencies today and is trading at USD 1,614.40, EUR 1,130.50, GBP 990.08 and CHF 1,294.50 per ounce. Gold is flat against the dollar but remains just less than 1% from the record nominal high reached yesterday ($1,628.05/oz).  The euro is under pressure again today and gold is 0.7% higher against the euro and is just less than 1.5% away from the record euro high of EUR 1,144.80/oz reached last Monday. Investors were made nervous by comments from chemicals major BASF, which said it saw global economic growth slowing as it posted weaker-than-expected earnings, sending its stock down 4.9%. Siemens AG, Europe's largest engineering conglomerate, warned that global economic risks were increasing and posted below forecast results. Its shares fell 1.3%. The Dow to Gold Ratio has again turned down suggesting gold may continue to outperform U.S. stocks and the DJIA, in particular, in the coming weeks. The long term target of below 2:1 remains viable.



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Another European Market Implosion On Weak Italy Auctions, Tremonti Resignation Rumors, Deteriorating Economic Data And Earnings Misses

On the one week anniversary of Europe's second bailout one may be tempted to ask "what bailout" looking at the across the board deterioration in European market metrics: Spanish 10 Year bonds over 6.00% again, Italy CDS surging to 330 bps, Italy Bunds spreads at 331 just inches away from all time wides of 353 bps, EURUSD plunging by over 100 pips overnight, CAC, DAX, OMX all falling by more than 1 standard deviation as VW, chemical maker BASF, and Credit Suisse all missed earnings estimates, and, of course, numerous Italian banks (don't disappoint us UniCredit) once again on the verge of being halted after plunging by a solid 5-6%. Several reasons for the weakness: i) Italy auctioned off €8 billion in 3,4,7,10 and year fixed and floating rate notes generating weaker than expected results with the 10 year bond gross yield rising to 5.77%, the highest since 2000, and just under the all time record of 5.81%, and the 3 year gross yield of 4.80 pushing to the highest since 2008, ii) more rumors of Tremonti resigning, iii) European retail sales declining for a third month according to Markit, and iv) a decline in Euro-area economic confidence more than estimated, dropping from 105.4 to 103.2, below the consensus of 104.0. German bunds are once again well bid with September futures rising 0.2% to 129.63. But not before rumors of ECB buying peripheral bonds via the SMP spooked bunds lower, with the resulting rise being only a result of the flight from Italy. And putting a cherry on top of it all was ECB's Mersch who once again resumed the old party line, saying that fears of a "premature end to euro are unfounded." And to think that just a week earlier the ECB told us we would never have to worry about the end of the euro.



RANSquawk Video's picture

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 28/07/11

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge



Tyler Durden's picture

Guest Post: Ominous Similarities

Dramatic title I realize but look at the charts below and ask yourself if this is purely coincidence or something more telling. Regulars to this site have read posts comparing the current market to that of late 2007. From equities to credit markets to volatility and more the similarities across asset classes has been rather striking. The basis for these comparisons was the belief that at major inflection points markets are more about psychology than they are technicals and or macro data. Since human nature never changes patterns will repeatedly play out as discussed by Jesse Livermore (the following is from a book discussing his trading beliefs). He observed that human emotions collectively had major impacts on the movement of stock prices and Markets in general, ultimately creating patterns that kept repeating.”



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Boehner Releases Revised Plan: To Cut $91.7 Billion Each Year For A Decade, Buys 4 Months Before Next Debt Ceiling Hike

The epic revision in the just revised Boehner plan is to cut a grand total of ... $91.7 billion per year for 10 years (back-end loaded of course: 2012 will see just $22 billion in cuts - can't have any real cuts too early or else). The spin is that this is sufficient because the $917 billion in cuts is more than the proposed $900 billion debt ceiling hike, so all shall be well. Of course that is only part one of the two-part debt ceiling hike process. The next step is a $1.8 trillion cut to "protect programs like Medicare and Social Security from bankruptcy."  The problem is that Boehner continues along the path of a two-step debt hike, a formulation that Obama will never agree to, since it effectively guarantees him no-reelection chance, as the last thing the people will want is the same bickering as we are experiencing every day again some time in 2012, when the current $900 billion in incremental debt capacity runs out. And actually, with the US debt already $300 billion below trendline and with the government's two pension funds already plundered by a like amount (which means they have a net IOU position), it means that the Boehner plan really buys only $600 billion of dry powder. At a burn rate of $150 billion a month, this means the first step of the Boehner plan buys precisely 4 months before the debt ceiling has to be raised again! Oh yes, this plan also guarantees at least a one notch downgrade to the US debt, with more notches coming up before the end of the year when this whole farce is repeated.



Tyler Durden's picture

"On The Beach Getting Tan And Sipping Corona, We Got A Monetary Plan-- And It Involves A Lot Of Toner..."

Yo, we up in the Fed and we living in style
Spending lots of money while we sipping crystal
still making it rain and yeah it be so pleasing
wait, not making it rain-- we be "Quantitative Easing!"

QE1, QE2 QE4, QE3 Dropping IOU's
in every fund that I see
printing the cash inflating the monies
callin up China "a-yo we straight out of 20's!"

in the club we be louding out
while to the market, yeah we be crowding out
on the beach getting tan and sipping Corona
we got a monetary plan-- and it involves a lot of toner...



Tyler Durden's picture

White House Says Treasury Will Be "Running On Fumes" Shortly

Contrary to calculations performed by Barclays and other analysts (including Stone McCarthy first presented on Zero Hedge), which speculated that the Treasury would have enough cash to last it through August 15th due to an increase in tax receipt, the White House's press secretary Jay Carney said that the Treasury will be "running on fumes" if the debt ceiling is not raised by August 2, naturally adding the traditional doomsday phrase that it is a "crisis situation." He had also added previously that tax revenues are not coming at an accelerated pace and that the cash will not last longer than Tim Geithner's original forecast of August 2. As the chart below shows the Treasury had $75 billion in cash as of last night, and will raise another $55 billion in net cash over upon settlement of this week's auctions. In other words, Geithner now predicts that the pro forma cash of $130 billion will last the US just one week. Well, at least we can see what the source of all the problems is.



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Guest Post: In The Land Of Self-Interested Pygmies, No One Advocates For The Nation

The great cold lie at the heart of present-day America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else. The idea has a sleek quasi-free-market sheen, as it borrows the market's "invisible hand" and applies it to social, fiscal and environmental policies. That is a magical-thinking fantasy. If I pursued only my own self-interest, I would dump the toxic effluent from my factory right into the river ( a la China's very laissez faire economy) while I lived far away in an exclusive community far from the stench and poisons. Why pay for costly remediation when the "free" river beckons? After all, it all works out wonderfully if we each pursue our own self-interest with methodical, nay maniacal, single-mindedness. (Recall that rivers in America caught fire in the 1960s, before environmental regulations limited corporate self-interest.) "The good of the nation" is now a code-phrase for "good for me, and to heck with the country at large." Every self-serving fiefdom, every self-serving cartel and every self-serving constituency (a.k.a. special interest) claims that its pathetically obvious self-serving lobbying "serves the national interest." It's all lies, blatant emotional manipulation of the vilest, crassest sort. Yet we as a nation have sunk so low that the entire notion of a national interest which doesn't benefit a powerful lobby or constituency has been lost. We are now a nation of self-interested pygmies, blind to any national interest that isn't devoted to enriching us personally.



RANSquawk Video's picture

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 27/07/11

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 27/07/11



Tyler Durden's picture

ES Volume Surges At Close As $3.3 Billion Sale Hits The Tape

It appears someone rather big just couldn't wait until the debt ceiling resolution was found, and instead decided that defection is the better part of a ponzified game theory. As such, just after the last second of trading, they dumped about $3 billion worth in ES. In the last tick, or just after, over 65k contracts of ES were sold at $50k per. Obama better find a resolution tomorrow or this dumpathon will be a humble appetizer of what is coming up.



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Huge Spike In HFT Packet Stuffing As Market Tumbles To Fresh Lows

Yes, SkyNet, we are watching you. And an odd correlation: every time a resistance level is breached, the computers go apeshit. Truly odd how this happens everytime computers try to outrun each other.



Tyler Durden's picture

Equity Pukefest Picking Up Steam Into Last Hour Of Trading, ES 1300 Taken Out

Anyone who had hoped that the algobots, so good at creating an almost daily levitation rally, at 3 pm would save the day will have to wait. The volume of today's selliff is starting to provide unmanageable even for the HFT crew to stand against. The 1300 support level in the ES was just taken out. And a quick look at packet churning courtesy of Nanex into the last several minutes shows that we may soon get a perfect storm replica of what happened on May 6: all that needs to happen is for quote stuffing to surge and liquidity to disappear and the pogrom will be complete. At least the fund managers (the same ones who relied on S&P and Moody's for so many years to make their investment decision for them), are once again putting their money into Treasurys. You know, the first security to be impacted when the US defaults...



Tyler Durden's picture

Spread Between July 28 And August 4 Bills Hits 12 Bps, Widest Ever On Default Risk

As Bloomberg reports, the spread between the July 28 and the August 4 T-Bills, two instruments that mature within a week of each other, and which differ by absolutely nothing else, has just surged to the widest ever, as investors are happy to roll away from long maturity instruments (even if longer maturity in this case means one week down the road) and dump securities that mature after the debt ceiling deadline for fear they will not get repaid. As for what is happening with the August 25 Bill, see second chart below. Yes: the market is starting to price in the unmentionable.



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