Dominoes, Anyone?

The consequences of the Fed's decision tosses hand grenades into the wind with tumultuous reverberations. Shrapnel is ensuing. More blood will be spilt. Dominoes, anyone?

Guest Post: Gold's Under-Valuation Is Extreme

The price of gold fell last week to the $1,200 level. The lemming sentiment in capital markets is uniformly bearish, yet every price-drop brings forth hungry buyers for physical gold from all over the world. Even hard-bitten gold bugs in the West are shaken and frightened to call a bottom, yet it is these conditions that accompany a selling climax. This article concludes there is a high possibility that gold will go sharply higher from here. There are three loose ends to consider: valuation, economic and market fundamentals.

What's Next For Portugal?

The Portuguese government is on the rocks. The junior coalition partner the People’s Party (CDS-PP) will hold a meeting this afternoon to determine whether to support the government, if it withdraws support in parliament, elections seem inevitable, although they could be delayed for some months. Such a move would seriously hamper Portugal’s economic reform program, which is already off track. Portugal has only met its deficit targets due to one-off measures while competitiveness adjustments have slowed and contingent liabilities remain a hidden risk. With the country on the cusp of an unsustainable debt burden any delays would likely be the final straw which pushes Portugal into needing some form of further assistance. Things must be getting serious in Portugal, they just announced a short-selling ban on select banking stocks - how long before capital controls?

Stocks Soar On Egypt Coup News, Ongoing Portugal Crisis

Update: The melt up on no volume insanity continues

One has to laugh. Following overnight news of an ongoing collapse in the Portuguese government and an epic surge in Portuguese bond yields, not to mention the ongoing military coup in Egypt, the S&P just hit highs as trading volume disappears and the BTFD algos take over.

What Do Egyptian Bonds Know That Stocks Don't?

Presented with little comment aside to note that Egypt's 2020 bond yields are up 42bps today to a record 10.65%, the 5Y CDS has surged to 925bps and yet the last few days have seen egyptian equity markets jump almost 10%. Is the thinly-traded local market being driven by US ETF-driven news-algo flows or is it all going to be ok after all?

Market Update: Surveying The Damage

The algos could have a problem getting out of this one. From Mrs.Watanabe (JPY -170pips, NKY -500 points from highs) getting hammered (and the Hang Seng -5%) to European sovereign bond spreads exploding (Portugal +170bps - biggest spike in 2 years to 8 month highs) and financial stocks collapsing (-4%), safe-havens are heavily bid from gold and silver (+3% from lows) to US Treasuries (10Y dropped 8bps) and global equity markets are taking it on the chin. Not pretty...

Frontrunning: July 3

  • Portuguese bond yields soar amid political turmoil (FT)
  • Portugal Resignation Rocks European Markets (WSJ)
  • Portugal, Greece risk reawakening euro zone beast (Reuters)
  • Egypt’s military chiefs hold crisis meeting as Mursi snubs ultimatum (Al Arabiya)
  • Egypt Crisis Deepens as Mursi Refuses to Step Down (BBG)
  • Hidden microphone found in London embassy: Ecuador (AFP)
  • Health Law Penalties Delayed (WSJ)
  • Rise in mortgage rates cut into homebuyer demand last week (Reuters)
  • Bolivia angered by search of president's plane, no sign of Snowden (Reuters)
  • Olympus ex-chairman gets suspended sentence (FT)

Europe In Turmoil: Spreads Explode On Portulitical Crisis; Egypt Ultimatum Nears

And just like that things are going bump in the night once more. First, as previously reported, the $100+ WTI surge continues on fears over how the Egyptian coup will unfold, now that Mursi has a few short hours left until his army-given ultimatum runs out. But it is Europe where things are crashing fast and furious, with the EURUSD tumbling to under 1.2925 overnight and stocks sliding on renewed political risk, with particular underperformance observed over in Portugal, closely followed by its Iberian neighbor Spain, amid concerns that developments in Portugal, where according to some media reports all CDS-PP ministers will resign forcing early elections, will undermine country's ability to continue implementing the agreed bailout measures. As a result, Portuguese bond yields have spiked higher and the 10y bond yield spread are wider by over a whopping 100bps as austerity's "poster child" has rapidly become Europe's forgotten "dunce." The portu-litical crisis has finally arrived.

Pivotfarm's picture

A wicked web of deceit, with just a good measure of theft and forgery thrown in for old time’s sake! Most of the time when we read about history, the biggest this or the fastest that related to the stock exchange it’s (so we are told) so that we don’t make the same mistakes twice and then some bull gets spun about how we need to learn from our mistakes

The Real 'Roller-Coaster' Of Investing In Stocks

We have discussed the apples-to-unicorns comparisons of returns between stocks and treasuries in the past making the critical points that a) risky corporate equity returns should be compared to risk corporate equity yields/spreads (as opposed to Treasuries), and b) they must be adjusted for risk. However, as we also pointed out, and in no way suggesting one is better than the other, there is one other major real risk that is so often overlooked it is remarkable. That risk is 'drawdown'. As the following chart summarizes over the past 33 years, it's been quite a roller-coaster ride for those anchoring-biased human beings looking at their account statements. More interestingly, it is exactly this drawdown of recent days in bond markets that is supposedly setting off the great rotation - even though the order of magnitude relative to stocks is dramatically lower.

The Fed Is Paying Banks Not To Lend

It should come as no surprise to most ZeroHedge readers but sometimes the facts and data need to be reiterated to ensure the message is not getting lost. As Michael Snyder rhetorically asks,  did you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us?  We were always told that the goal of quantitative easing was to "help the economy", but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system.  Instead, most of it is sitting at the Fed slowly earning interest for the bankers.  Our financial system is a house of cards built on a foundation of risk, leverage and debt.  When it all comes tumbling down, it should not be a surprise to any of us.

Portuguese Spreads Soar As Cabinet Unravels, "There Are Reasons To Be Concerned" JPM Warns

Following finance minister Vitor Gaspar's resignation, the foreign affairs minister Paulo Portas has just added to Prime Minister Coelho's problems and quit in light of who the PM chose as replacement for Gaspar. Gaspar was one of the key Portuguese policy makers to oversee the country’s bailout program, and in his letter of resignation, noted that he had lost the public's support to continue with the deeper-than-expected recession and above-target public deficit developments. Mr. Gaspar's replacement will be the current treasury secretary, Maria Luís Albuquerque, and that is what sparked the Portas to exclaim, "the Prime Minister decided to follow the path of mere continuity at the Finance Ministry. I respect that but disagree." Coelho is due to make a statement at 1900GMT but in the meantime, Portugal's bond market has spiked its most in 10 months relative to its risky neighbor Spain back above 200bps.

Tuesday May Be The New Tuesday As Asian Euphoria Spills Over Into The US

The first news overnight came from the RBA which kept the target cash rate at 2.75% and following a warning that the AUD remains at a high levels (despite falling 10%), saw various AUD pairs slide. Which meant that all those correlation desks which had linked their rising ES signals to the AUDJPY and AUDUSD, would have to promptly recalibrate and find something else to "carry" them higher. That something was the Yen, as the USDJPY once again rose to just shy of the 100 resistance area, in the process pushing the Penikkeistock higher by 1.8% and above 14k, to 14,099 to be precise. Supposedly the Yen carry trade is back and all good again, or until such time as the 10 year hits 1% and the entire farce is repeated once more. However, at least Abenomics has bought itself a few weeks reprieve for the time being.