• Pivotfarm
    04/20/2014 - 17:08
    As the audience went from laughter to applause, Vladimir Putin responded to the question that he had just read out on a televised debate in Russia. What was the question?

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Rosenberg On Why "Things Are Getting Interesting" And What Is Ailing The Market

David Rosenberg provides the key bulletized market observations that have marked the broad capital markets over the past few months.

  • $950 billion of paper equity wealth has been wiped off the map in the past six weeks.
  • The Dow is below 12,000 for the first time since March 18th.
  • The Transports are down more than 8% from the nearby highs and are down for the year as well
  • The Transports/Utilities ratio has broken down to its lowest level since November 9th of last year.
  • The Nasdaq is now down for the year (-0.3%)
  • The Russell 2000 index is also down for the year (-0.5%).
  • The S&P 500 is just 1.1% away from seeing the same fate.
  • The S&P 500 has declined in each of the past six weeks, the longest losing streak since June-July 2008.

...And much more

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Greece Gets Triple Hooked: S&P Downgrades Country To CCC, Outlook Negative

And there goes the EUR again. Furthermore, "Outlook Negative" on CCC means CC is next, then C, and lastly, D. "The downgrade reflects our view that there is a significantly higher likelihood of one or more defaults, as defined by our criteria relating to full and timely payment, linked to efforts by official creditors to close an emerging financing gap in Greece. This financing gap has emerged in part because Greece's access to market financing in 2012 and possibly beyond, as envisaged in the current official EU/IMF program, is unlikely to materialize. This lack of access, in our view, creates a gap between committed official financing and Greece's projected financing requirements. Greece has heavy near-term financing requirements, with approximately €95 billion of Greek government debt maturing between now and the end of 2013 along with an additional €58 billion maturing in 2014... and this "based on recent statements made by the German government ahead of the June 20, 2011 Eurogroup meeting, we believe some official creditors will see restructuring of commercial debt as a necessary condition to such additional funding. We believe that private sector burden sharing could take the form of a debt exchange offer or an extension of debt maturities. In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria. In that event, under our criteria, this would result in the rating on the affected instruments being lowered to 'D,' while Greece's credit rating would be lowered to 'SD'(selective default)."

Moreover, the downgrade reflects our view that implementation risks associated with the EU/IMF program are rising, given the increasingly complicated political environment in Greece coupled with its current difficult economic climate.

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Guest Post: Where Is The Recovery? I Cannot Seem To Find It

Ask a fund manager with $5 billion in assets under management (AUM) if the economy is recovering and they will say yes. They will say this soft patch is transitory, it is a function of Japan and the revolution in MENA (Middle East and Northern Africa). They will tell you Greece is contained. They will tell you housing is bottoming. They will tell you stocks are cheap. Do they believe that? Aside from group think I certainly hope not but if the group says that red shirt you are wearing is in fact blue well dammit that shirt is blue. No one believes they are a lemming, that they are part of the herd. The word sheeple does not include them. Then why does history always show the majority to be wrong? As the market rolls over investors are beginning to question the color of that shirt. Perhaps it is red after all. The Federal Reserve has a horrible record at economic forecasting, absolutely horrid yet with each new forecast we are expected to believe "this time it is different." With each passing day more data tells us they are wrong yet again. As investors we must be diligent in our work, diligent in understanding the issues. We must think for ourselves, beyond the noise, beyond the pressure to conform.

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RepoClear Hikes Portuguese, Irish Bond Margins Yet Again

Time to push out even more cash bond shorts:

In accordance with the Sovereign Credit Risk Framework and in response to the yield differential of 10 year Portuguese government debt and 10 year Irish government debt against a AAA benchmark, LCH.Clearnet Ltd has revised the risk parameters for Portuguese and Irish government bonds cleared through the RepoClear service.  The additional margin required for positions of Portuguese government bonds will consequently be increased to 65% for long positions.  The additional margin required for positions of Irish government bonds will be increased to 75% for long positions. These amounts will be adjusted for the current bond price*.  Short positions will pay a proportionately lower margin.

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Bove Scrambles To Prove He Is Not Just Another Goldman Pawn: "Goldman Has Not Paid Either Me Or Rochdale Securities Anything For Years"

In what can only be described as a case professional jealousy directed at NYT's DealBook, which as is now known has been quite well compensated by Goldman Sachs well in advance of Andrew Ross Sorkin's recent spirited defense of the mega hedgefund, Dick Bove once again confirms than when it comes to sellside research it is all about (very, very bruised) ego, and instead of attempting to articulate his first original thought since his second Buy rating on Lehman (hey, we said original, not correct) two weeks ahead of the biggest bankruptcy in history, the Rochdale analyst who for some incomprehensible reason continues to get air time says the following: "In response to the claims being made about me I can only offer the following comments. First, I am not aware of making any statements about Goldman and the SEC in what I wrote. Second, Mr. Cohen did not point out that Goldman lost $13.5 billion in its Investing and Lending division in 2008. Third, Goldman has the right to protect itself against changes in the mortgage or any other market. Fourth, I still have a Sell recommendation on the stock. Most important, from my perspective, is that Bloomberg is suggesting that I received something – i.e., “Goldman got to Bove” for writing the paragraph above. This may be unfair since Goldman Sachs has not paid either me or Rochdale Securities anything for years. The company is not a customer and for whatever reason it will not pay for my research." And who can blame them: from August 28, 2008: "Richard Bove is really hammering home a point about Lehman Brothers...“I repeat, that if Lehman does not take these actions it is likely that
an outsider will do this for the firm through a hostile takeover,” Bove
said.  ”This saga is not likely to continue much longer,” Bove wrote. But he
added that he believed the result will be a “positive one,” keeping his
“buy” rating on the stock
." For once, Goldman's decision is spot on.

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More Postcards From A Pre-Revolutionary Greece; Presenting "Goldman's Employee Of The Decade"

Last night's major anti-IMF rally at Athens Syntagma square was one of the largest peaceful protests in Greece to date. There was one notable highlight: the dubious distinction of Greece's George Papaconstantinou as Goldman's employee of the decade (speaking of Goldman, whatever happened to that Fed investigation into Goldman's use of "derivative arrangements" with Greece. Reminder: "We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece" Bernanke said in testimony before the Senate Banking Committee). Below is a photographic gallery of last night's events courtesy of Preza.tv

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Following Major Losses, Norway Sovereign Wealth Fund Hits "Infinity" Pares Exposure To Greek Debt

Back in September 2010, Norway's sovereign wealth fund, the second largest in the world, decided to be contrarian for contrarianness' sake, and announced it had "stocked up on Greek debt, as well as bonds of Spain, Italy and Portugal. Finance Minister Sigbjoern Johnsen says he backs the strategy, which contributed to a 3.4 percent loss on European fixed income in the second quarter, compared with gains on bonds in Asia and the Americas." The explanation was one that not even the high priests of obfuscation and lies back in the US, which only invest in "maturity" could come up: "“The point is, do you expect these guys to default?” said Harvinder Sian, senior fixed-income strategist at Royal Bank of Scotland Group Plc, in an interview. “Norway has taken the view that they will not. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default. Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said in an Aug. 27 interview. “It is important when you look at the time scope of the fund and the investments that there should be a portion of active management." Less than a year later, infinity appears to have finally arrived. The FT reports that the fund "recently announced plans gradually to reduce exposure to Europe, which currently accounts for half its equity holdings, as part of efforts to increase diversification but Mr Slyngstad said the fund remained bullish about the region in the long-run. However, he acknowledged the “enormous challenge” facing eurozone policymakers and voiced concern over the potential repercussions of a possible restructuring of Greek debts. “It is difficult to see all the secondary effects of such a move and therefore I think there will be a lot of caution before any such decisions will be taken,” he said." But, But... Didn't they say just 9 months ago that there was no risk of Greek default? Perhaps it is a good thing nobody actually holds these gentlemen, or anybody else for that matter, accountable for the outright stupidity they tend to spout on way too many occasions.

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JPM Sees Incremental Saudi Crude Supply Offset By Declines In Iraq, Iran Production

While the market appears to be happy with promises for incremental crude output by Saudi Arabia which has now broken off from the broader OPEC cartel and is doing its own pro-US thing, JPMorgan, which at last check still had a Brent target of $130/bbl, once again introduces an unpleasant dose of reality in the crude story by noting that any increase in crude output by the rogue OPEC state may be offset by production drops in Iraq and Iran. Will Saudi now promise to offset even that drop and hike output to 11 mbd or some other more unbelievable number? Stay tuned for more lies from the "peak oiled" kingdom.

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The Week Ahead In Beltway Drama: June 13-17

All the key events in this week's beltway soap opera.

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Migrant Worker Riots In Southern China Intensify

In an indication of the prevailing popular mood among the key marginal economic force in China - its migrant worker population - hundreds of protesters rioted in the southern China city of Gunaghzou after a young pregnant street hawker was harassed by security guards, media reports said Monday. From Reuters: "Hong Kong television showed seething crowds of migrant workers from the southwestern province of Sichuan running through the streets of Zengcheng, smashing windows, setting fire to government buildings and overturning police vehicles. Riot police were shown firing tear gas Sunday night, deploying armoured vehicles to disperse the crowds and handcuffing protesters. Witnesses said there were more than 1,000 protesters and at least one government office had been besieged. "People were running around like crazy," a shopowner in the area told the South China Morning Post newspaper. "I had to shut the shop by 7 p.m. and dared not come out." While China reported slowing monetary conditions, with a miss in both the M2 and loan issuance in May, it is unclear what the Chinese equivalents of Bernanke's 15 minutes to Inflation: OFF is: as a reminder the upcoming CPI print is expected to come at a record 5.5%, which is the only piece of data that truly matters in China. If inflation continues its runaway rise, whether due to climatic conditions, or importing Bernanke's monetary policies, expect to see many more stories of violent popular unrest.

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Berkowitz, Heebner And Miller Are Worst Stockpickers Of 2011 As Permabullish Groupthink Bus Crashes

It's time for the permabullish broken clocks to move back to their default position. Very much in line with common sense, Bloomberg reports that Bruce Berkowitz, Kenneth Heebner and Bill Miller, "three of the best-known U.S. stock pickers" (perhaps, if one equates daily CNBC appearances with popularity), are competing for last place this year after their bets on an economic expansion backfired. More: "Funds run by Berkowitz of Fairholme Capital Management LLC, Heebner of Capital Growth Management LP and Miller of Legg Mason Inc. (LM) are the three worst performers among large diversified U.S. mutual funds in 2011, according to data from Chicago-based Morningstar Inc. The funds lost 11 percent to 12 percent through June 9, compared with a gain of 3.4 percent for the Standard & Poor’s 500 Index." Ironically, this "totalitarian troika" would not even be in business, if the government had not bailed out the permabull brigade whose entire career has been based on doubling down first on the Greenspan and then on the Bernanke put, and decided to implement central planning along the way. But that is obvious: "People assume because certain managers have had good streaks that they are always going to be a step ahead of the market,” Russel Kinnel, director of mutual fund research at Morningstar, said in a telephone interview. “It never works out that way."

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Frontrunning: June 13

  • US banks to cut Treasuries use (FT)
  • Obama Seeks to Win Back Wall Street Cash (NYT)
  • Banks battle over US tax law (FT)
  • In Greece, Some See a New Lehman (NYT)
  • Treasury Strips Emerging as Wall Street Favorite as U.S. Recovery Falters (Bloomberg)
  • Lagarde strengthens IMF bid with Indonesia backing (Reuters)
  • Why Not Go For 5% Growth? (John Taylor)
  • ‘Perfect Storm’ May Threaten Global Economy: Roubini (Bloomberg)
  • Powerful quakes rattle New Zealand city, six injured (Reuters)
  • Syrian forces take border town as inhabitants flee (Reuters)
  • Flawed Titan of the Fed (Newsweek)

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On Market Streaking, And On HFTs Constantly Bidding Stocks Higher

Has there been a meaningful increase in the activity of macro and/or trend based funds? Has much of the market started following the same momentum or trend or charting strategies that they become self-fulfilling and last longer than in the past? Have the algo's or HFT programs helped push the market in one direction at a time? In their attempt to 'earn' trading rebates from exchanges desperate to pump up volumes, do they employ strategies that purposely or inadvertently push the market in one direction? Do they go through extended periods where the buy first then re-offers up a fraction of a cent to earn a little bid/offer in addition to the rebates? Is it possible they adapt and have found revenues increase at times when they short first and buy back later? The advent of HFT's seems to coincide with the phenomena of increased streaks, so maybe this should be examined in more detail. Sorry if this has added to the annoyance of listening to how long the market has run in a certain direction, but I did find this interesting, and so much talk of streaking makes me want to watch Old School again.

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Allied Irish Banks Has Officially Defaulted - ISDA

By unanimous vote, the ISDA determinations committee (which also includes such hedge funds as DE Shaw, Citadel and BlueMountain...and Goldman Sachs) has agreed that Allied Irish Banks PLC has officially experienced a Restructuring Event. CDS settlement to proceed next. And yes, thanks to daily variation margin on CDS this means absolutely nothing, and should the cash/physical settlement auction clear tight of prevailing prices depending on where CTD bonds trade, it means CDS sellers will (gasp) receive daily margin cash at the end of the day. Yes, contrary to AIG-related stigma, selling CDS on an entity does not mean an automatic default for the sellers of protection. But that won't prevent those who have no idea how the CDS market operates to spread more BS stories, especially as relates to Greek, then all other PIIGS, CDS.

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Today's Economic Data Docket - Nothing: A Few Speeches, One POMO And BOJ Begins Two-Day Deliberations

European holiday, blank US economic data docket and just two speeches from a few Fed officials today:

  • 9:30: Richmond Fed President Jeffrey Lacker on “Manufacturing in the New Southern Economy”. Event will include media Q&A.
  • 11:00: POMO buying $4 - $5 billion in bonds due 08/15/2018 - 05/15/2021; $55 billion left in remaining 13 POMOs.
  • 19:00: Dallas Fed President Richard Fisher on “Federal Reserve Functions and Economic Update”. Mr. Fisher is a voting member of the FOMC this year.
  • The Bank of Japan Policy Board began a two-day meeting last night. The Bank will maintain its bias towards easing, but further measures to provide liquidity -- if any -- will probably be confined to the areas that directly felt the impacts of the earthquake and tsunami.

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