Did the first (of many) European LTRO buy just one month of marginal improvement? According to a compilation of analyst views by Bloomberg, who looked at today's mixed Spanish auction results when the country sold €4.56 billion of three-, four- and five-year government bonds, the easy money may have been made. Because while average yields fell for all three lines at the auctions, maintaining the trend at Spanish debt sales so far this year, it was the internals that showed weakness and could indicate that the marginal benefit from the first LTRO is now ending, even as the real task - the longer-dated bonds 10 years and great - still have to see much if any carry trade benefit at auction. Lastly, anyone hoping for a full carry flush from the European banks has to give up all hope: ECB announced its deposit facility usage rose to €486.4 billion, up €14 billion overnight. And with that we now know what the LTRO half-life is.
After a relentless upward session in yesterday's trade exasperated the EURUSD bears, it is time for the bulls to be punked, not once but twice, the first time coming overnight when some errant headlines out of China, suggesting it could be involved in the ESM, sent the pair soaring only to slide right back down on clarification this was not really happening. The second time it originated ironically enough, with Eurogroup muppet and Luxembourg Prime Minister Jean Claude Juncker, whose comments to in an interview with Deutchslandfunk were shockingly open and realistic. Among these were that the measures from the January 30 summit were "largely insufficient" and that Greek PSI talks were "ultra difficult." So apparently what Dow Jones said about the deal being done in hours may have been a modest fabrication. And something else that will certainly inflame German tensions once again, is his comment that the issue of a Greek budget commissioner is "off the table" and that there is no need for a "special Greek commissar." Thanks Jean-Claude, but we will wait for the real boss, Ms. Merkel, to voice on that one. Finally, apparently in a text message, Juncker's spokesman said no decision has been reached on possible talks next week. Great - so the Greek hard deadline of March 20 is now less than 50 days away, with the full exchange offer needing at least two months to be concluded, and there is still absolutely nothing on the table. Yup, sounds like Europe. In the meantime, the EURUSD has remember just what it represents: the total chaos, insolvency and disunion of everything European.
One of the major factors in the Central Banks of the world having stepped up the pace of flushing the world with increasing amounts of freshly digitized cash is writ large in the contraction in credit availability to the real economy (even to shipbuilders). Anecdotal examples of this constrained credit are everywhere but much more clearly and unequivocally in tightening lending standards in all of the major economies. As Bank of America's credit team points out, bank lending standards to corporates have tightened globally in Q4 2011 and the picture is ubiquitously consistent across the US, Europe, and Emerging Markets. Whether it is deleveraging, derisking, or simple defending of their balance sheets, banks' credit availability is becoming more constrained. While the Fed's QE and Twist monetization and then most recently the ECB's LTRO has led (aside from self-reinforcing short-dated reach-arounds in BTPs and circular guarantees supposedly reducing tail risk) to nothing but massive increases in bank reserves (as opposed to flowing through to the real economy), we suspect it was designed to halt the significantly tighter corporate lending environment (most significantly in European and Emerging Markets). The critical corollary is that, as BAML confirms, the single best non-market based indicator of future defaults is tightening lending standards and given the velocity of shifts in Europe and EM (and very recent swing in the US), investors reaching for high-yield may be ill-timed at best and disastrous credit cycle timing at worst (bearing in mind the upgrade/downgrade ratio is also shifting dramatically). Liquidity band-aids are not a solution for insolvency cardiac arrests as the dual vicious cycles of bank and sovereign stress remain front-and-center in Europe (with EM a close second) and the hope for real economic growth via credit creation kick-started by an LTRO is the pipe-dream the market is surviving on currently.
In the past, when discussing the goalseeking C-grade excel jockeys at the Congressional Budget Office (or CBO), we have not been technically full of reverence. After all when one uses a phrase such as this one: "What do the NAR, Consumer Confidence and CBO forecasts have in common? If you said, "they are all completely worthless" you are absolutely correct", it may be too late to worry about burned bridges. We do have our reasons: as we pointed out last year, following the whole US downgrade fiasco when the Treasury highlighted the CBO's sterling work in presenting a US future so bright, Timmy "TurboTax" G had to wear shades, we said "according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion." As we know now they were off only by a modest $17.5 trillion on that debt forecast. Yet we never attributed to malice and bias and outright corruption, what simple stupidity and gross incompetence could easily explain. Until today that is, when following a WSJ article, we are left wondering just how deep does the CBO stench truly go and whether its employees are far more corrupt than merely stupid?
In what could be the biggest merger news of the year, Bloomberg reports that Glencore and Xstrata could be close to a merger:
- GLENCORE SAID TO BE NEAR AGREEMENT TO COMBINE WITH XSTRATA
- GLENCORE, XSTRATA MAY ANNOUNCE DEAL AS SOON AS THIS WEEK
- COMBINED XSTRATA, GLENCORE MAY BE WORTH $82 BILLION
- GLENCORE INT'L RISES AS MUCH AS 4.6% IN HONG KONG
It is unclear if this merger will suffer the same fate as the NYSE-Deutsche Borse, but if successful it will surely have a significant impact on commodity prices across the world as yet another monopoly is formed and changes the layout of the playing field once again. More interesting will be the response by the investment banks which have recently also gotten aggressively into the commodities space.
US Adds $120 Billion In Debt Since Debt Ceiling Hike On Friday, $310 Billion More On Deck In Next Two MonthsSubmitted by Tyler Durden on 02/01/2012 - 19:22
Remember when the US hiked its debt ceiling on Friday courtesy of a formulaic 52 affirmative votes in the Senate, giving the Treasury $1.2 trillion in dry debt powder to attempt to grow the economy one more time according to the algorithmic fantasies of voodoo priests with pieces of Ivy League parchment on their walls? Well, two days later, the dry powder is less than $1.1 trillion. In other words, in the past two days, total US debt increased by $120 billion, along the lines of our expectations, as the Treasury filled up all the G-fund cash it had pillaged to continue issuing debt throughout the month of January even though it was formally above the debt ceiling. What is more concerning, is that as the chart below shows, the trendline of US debt since the beginning of 2011 is no longer a straight line, but has slowly transformed into a parabola, the very same word used as the root in such other infamous words as, for example, parabolic.
The most eagerly awaited IPO of the decade has just filed its S-1 statement (link). Some real time observations:
- Symbol: FB
- Proposed maximum aggregate offering price: $5 Billion
- 845 million monthly active users (MAU)
- 483 million daily active users (DAU)
- Users generated on average 2.7 billion Likes and Comments per day in Q4 2011. Er..."liking" is monetizable?
- 100 billion friendships
- 250 million photos uploaded per day
- FB generated $3.7 billion in Revenue in 2011, up from $2 billion in 2010
- FB generated $1 billion in net income in 2011, up from $606 billion in 2010, a 40% growth rate, compared to the 165% growth rate from 2009's $229MM.
- EBIT margin peaked at 52.3% in 2010 ($1MM in EBIT on $2 billion in revenue), has since declined to 47.3% or $1.756Bn on $3.711Bn in Revenue
- $3.9 billion in cash and marketable securities
- Peaked model? - MAU additions peaked in 2010 when FB added 248MM to a total of 608MM; in 2011 it added 237MM to 845MM
And while the bankers (on both sides of the table) haggle about how to best leech Greece even dryer (with a solution due any hour, day, week now), the actual people are starting to wave the white flag of surrender. Because the opportunity cost of every additional coupon payment is having a direct, immediate and increasingly more dire impact on virtually every aspect of the economy. Kathimerini reports that "about 160,000 jobs will be lost this year in the commerce sector, according to the National Confederation of Greek Commerce (ESEE) as the constant decline in disposable income has led to a sharp drop in turnover and a steep rise in the number of enterprises shutting down." Indicatively, the latest Greek employment figures per the IMF, show that 4.156MM people are employed. So commerce alone is about to lead to a 4% drop in total jobs. As the chart below shows, net of just this sector, Greek jobs are about to go back to 2010 levels. What this means for the Greek unemployment rate, and for GDP we leave to our readers, although the ESEE does a good job of summarizing what to expect: the "ESEE warns that soon Greece will be in a condition of absolute poverty." And that, ladies and gents, is how Europe slowly but surely reentered the Feudal age, and what every other country in the European periphery that has a massive debt load, and no surplus (actually make that every country in the world), has to look forward to: absolute poverty, aka debt slavery.
Whether it was FX majors, the Treasury complex, or the economically-sensitive commodity markets, the 'negative' shift from yesterday's open (USD up, TSY yields down, Commodities down) plateaued overnight and retraced throughout the day today. Equities and credit however managed to make new highs (while all these other risk-related assets did not) as they stayed in sync for the afternoon (double-topping on lower volume) as financials outperformed (MS +5% for example) on what we can only imagine was Greek rumors (which later proved as usual to be completely false). Oil dropped markedly into the close, heading for $97 as Gold remains the week's winner (though Silver and Copper won on the day). The USD is flat (leaking higher in the late day) to yesterday's pre-market after trying and failing at 1.32 against the EUR (which is the underperformer vs USD on the week for now -0.48%). Treasuries sold off, adding 3-7bps across the curve (though still lower yields on the week) and while 30Y underperformed, 2s10s30s did not move much as the rest of the curve pivoted. The last 30 mins of the day saw ES pull back from its lonely highs to test VWAP (and IG and HY credit also fell with it) as open to close, credit underperformed, and cheap hedge IG was moving more negatively than beta would suggest. By the close, ES had pulled back (lower) to converge with CONTEXT (proxy for broad risk assets) and fell below VWAP as once again average trade size picked up significantly to the downside.
As a follow up to today's must read letter from Bill Gross, the PIMCO head explains what was the thinking behind the conclusion that is slowly leading him to become a gold bug, the potentially erroneous assumption that the Fed can not drop rates below zero (not if Goldman and JPM have their way), why Bernanke has no choice but to write checks when the Twist ends in June which will lead to bond buying for the next 12-24-36 months. Nothing new. What is new, and absolutely stunning, is Gross' endorsement for president: 'I'm a little Ron Paulish." (6'24" into the clip)... That's right. The bond king endorses Ron Paul for president, apparently on the realization that very soon he will have to pay Tim Geithner for the privilege of holding hundreds of billions in US paper. And now we've heard it all.
While first day jumps in IPOs make for great TV and everyone is anxiously awaiting their allocation to the 'greatest IPO of all time' this week, we thought it might be useful to look at some of the larger and more recent tech IPOs to get some perspective on how close to the moon we will get when Facebook is released. Looking at eight of the larger and more media-promoted IPOs of the last year or two (GRPN, ZNGA, LNKD, P, YOKU, DANG, AWAY, and FFN) we find, aside from the potential for an average 50% pop from the lucky allocation / untradable IPO price, the man in the street that bought the IPO in the market on Day 1 now faces an average loss of 54% with incredibly only 1 of the 8 names (ZNGA) still holding on to gains (+11%) having managed to rally 15% in the last week. We assume that the underwriters will price FB for a nice pop and given the euphoria we hear from talking head after talking head, it doesn't matter where it actually opens, it will be bid to infinity and stay there as unlike all these other well-hyped IPOs (and paradigm changers of the past eh hem YHOO), this one will be different.
The idiot market soared earlier on news that a Grek deal was coming "in hours" courtesy of some French leak. Now we get reality.
- IIF SEES `VARIOUS ELEMENTS' OF PACKAGE COMING TOGETHER IN DAYS
- IIF SAYS IT EXPECTS GREEK DEAL NEXT WEEK
Like we said. Idiot market.
Obama's latest attempt to stimulate the housing sector and inflate home prices "before waiting for them to hit bottom" (which they never will as long as central planning tries to define what clearing prices are) is a noble reincarnation of now an annual, and completely ineffectual, theatrical gambit. There is, unfortunately, one major snag. It is Dead on Arrival (just like every single iteration of the Greek bailout), for the simple reason that it has to get congressional approval. Which it won't. And that's not just the view of biased political pundits. Wall Street agrees.