Greece Fulfills Its BoomBustBlog Derived Destiny - Shows This Time Really Isn't All That Different After All!!!Submitted by Reggie Middleton on 08/21/2012 14:33 -0400
If this doesn't piss at least a 20% of you off, and scare the remaining 8% into reading the next installment, then I obviously haven't been doing my job. Alas, I'm pretty good at what I do!
Walls-of-worry; Short-squeezes; money-on-the-sidelines; Everyone's Bearish, right? Well, instead of just listening to the drone of the mainstream media and talking heads, who appear once any rally appears in the hope of garnering some more AUM and taking commissions, we thought it worth a few minutes to look at actual data, positions, and sentiment across equity, debt, and FX asset classes. Sure enough - here are ten charts that show investors are anything but bearish and that the ammunition for the next leg from here can only come from central-banks (and we are concerned that disappointment is due).
Tuesday has see little in the way of macroeconomic data, and much focus so far has remained on speculation over whether the ECB will buy periphery debt. Comments from the German ECB representative Jorge Asmussen overnight that he backs the ECB buying periphery debt as a means to prevent the "disintegration of the Euro", a seeming change in stance given that the Bundesbank continues to opposed such measures, lifted risk assets in early trade. As such, the Spanish and Italian spreads over the benchmark Bund are seen tighter by 12.9bps and 14.4bps on the day. Spain's 12- and 18-month T-bill was also well received, the country selling slightly more than the indicative range at EUR 4.512bln, with lower yields, though only the 18-month had a stronger bid/cover. Both the Spanish and the Italian 2-year yields have declined to lows last seen in May of this year. Similarly, two separate comments from German Christian Democratic Union (CDU) lawmakers concerning Greece and the possibility of making "small concessions" for the country so long as they lie within the existing programme also boosted risk appetite, as the probability of a Greek exit looks much less likely if it has the full support of Germany. Elsewhere, the UK unexpectedly posted a budget deficit in July as corporation tax receipts plunged, though this was slightly skewed due to the closure of Total's Elgin gas field in the North Sea. Today also saw UK CBI orders for August plunge, with the industrial order book balance at its lowest this year led by a weakening in the consumer goods sector.
By now it should be painfully clear to involved that the Greek economy is nothing but a zombie, whose funding shortfalls and other deficit needs are sustained each month only courtesy of constantly new and improved "financial engineering" ponzi creations out of the ECB, the ELA, and other interlinked funding mechanisms which are merely a transfer of German cash into empty peripheral coffers. And while the attention of the world has moved on, at least for the time being, from the small country which has been left for dead with the assumption that Europe will do the bare minimum to keep it alive, but not more, Greece once again reminds us that not only does it still pretend to be alive, but that the zombie is getting hungry, and want to eat.
Why doesn't anyone see this ass contagion?
My point with all of this, is that we’ve just witnessed Mario Draghi’s “bazooka” moment. Remember back in 2008, when Hank Paulson claimed that it he made a big enough monetary intervention threat that the markets would somehow correct themselves? Well, we know how that turned out (the markets called his bluff and the Crash happened).
Buffett Joins Team Whitney; Sees Muni Pain Ahead As He Unwinds Half Of His Bullish CDS Exposure PrematurelySubmitted by Tyler Durden on 08/20/2012 21:42 -0400
Just under two years ago, Meredith Whitney made a much maligned, if very vocal call, that hundreds of US municipalities will file for bankruptcy. She also put a timestamp on the call, which in retrospect was her downfall, because while she will ultimately proven 100% correct about the actual event, the fact that she was off temporally (making it seem like a trading call instead of a fundamental observation) merely had a dilutive impact of the statement. As a result she was initially taken seriously, causing a big hit to the muni market, only to be largely ignored subsequently even following several prominent California bankruptcies. This is all about to change as none other than Warren Buffett has slashed half of his entire municipal exposure, in what the WSJ has dubbed a "red flag" for the municipal-bond market. Perhaps another way of calling it is the second coming of Meredith Whitney's muni call, this time however from an institutionalized permabull.
As Bill Gross has been more than happy to demonstrate on several recent occasions, the recent sell off in US Treasurys has been sharp and violent, wiping out all year to date capital gains in the 10 Year in a few short weeks. The flipside to that is that this is not the first such headfake in the bond market, and it certainly will not be the last as David Rosenberg shows today with a chart summarizing all the "spasms" experienced in the 10 year Treasury since 2007. In fact, based on the average duration and move severity, the 10 Year sell off may not only continue for twice as long (on average it has been 49 days, and we are only 19 days in in the current sell off episode), but the final tally may be a further selloff well into the 2% range (the average decline in yield is 88 bps, double the 43 bps widening to date). At the end of the day will it make much of a difference? Very likely not: after all the deflationary implosion has far more to go before all the central banks engage in coordinated easing, and as a result superglue the CTRL and P buttons in the on position, leading to the final round in the global currency devaluation race.
The easy answer is - well, its those dumb money 'safe' investors finally rotating from bonds to stocks; but what about fund flows provides any evidence for that reality. Alternatively, we suggest, the recent (and somewhat market-unexpected) pop in macro data (surprising to the upside) has seemingly provided a Goldilocks for equities (growth is rising and even if it drops back, Bernanke's got our back) and the inverse for Treasuries (growth is rising and if that's the case then Bernanke's Bond Buying extravaganza is over - mark 'em down). What is stunning to us is the incredibly tight correlation since LTRO2 between macro data (trend and beats/misses) and 10Y Treasury yields. While correlation is not causation, discussion of the macro thesis is strong top-down and suggests more than one person believes this correlation. Our concern - what dominant data is this macro strength based on - NFP/Claims beat? Retail Sales beat? (consider the controversy of the seasonal adjustments in both and what that would do to the macro data index.
A weekend article from Der Spiegel has been the centre of must attention this morning amid a light economic calendar on both sides of the pond. The article reported that the ECB would set limits to the yields of periphery country debt and intervene should these limits be breached. This weighed on the German Bund from the Eurex open and saw the Spanish curve trade lower by 25bps to 35b ps, as well as buoying the EUR currency and riskier assets in early trade. Risk-on moves in EUR and DAX futures were retraced as the ECB denied these reports, saying that it was misleading to report on decisions not yet taken, though it will act within its mandate. A German finance ministry spokesman also denied all knowledge of the reports a short while before hand. Furthermore, the latest monthly bulletin from the Bundesbank that once again reiterated the disapproving German stance toward the ECB's controversial bond-buying programme also dampened the mood.
Buy everything I say without limit. Leverage each purchase to the maximum allowed under the law. The markets will only go up and not down and 100,000 is the next stop for the S&P. It is to be Dow without Jones, assets without liabilities and wealth without poverty. The Middle Class has been evacuated and everyone is wealthy beyond belief. It is just there, of course, that the truth lies in this merry old land, “beyond belief.”
"I like fantasy---it wakes up the brain cells.”
- Dr. Seuss
- Caterpillar warns on global uncertainty (FT)
- Only 3 years behind the curve as usual: Moody’s warns on California city defaults (FT)
- Monti Says ‘Tragedy’ If Euro Became a Factor of Disruption (Bloomberg) - the same Monti whose disruptive comments recently enraged Germany?
- China Home Prices Climb in More Cities Prompting Policy Concerns (Bloomberg)
- China's Big Four boost new bank loans in Aug first half (Reuters)
- EU Leaders Plan Shuttle Talks to Bolster Greece (Bloomberg)
- US rule set to slash cars’ fuel use (FT)
- Spain Seeks Commitment From Central Bank on Bond Buys (WSJ)... and preferably completely unconditional
- Finnish Euro Doubts Hide Business Plea to Commit to Currency (Bloomberg)
We said hours until the latest ECB rumor was dismissed. We meant minutes:
- ECB SAYS BOND YIELD TARGETS HAVE NOT BEEN DISCUSSED BY THE COUNCIL.
- ABSOLUTELY MISLEADING TO REPORT ON DECISIONS NOT YET TAKEN
- WILL ADHERE STRICTLY TO ITS MANDATE
Socialists everywhere crushed. And now, time for Spiegel to cite "unnamed sources" that the EFSF is going to use 3-4x leverage... Just like last year. Because the broke continent can't even come up with new bullshit any more so must recycle.
And to think that the market could have learned its lesson by now. Following the planting of an unsourced, glaringly obvious ECB propaganda report such as that attempted yesterday in Der Spiegel, in which nothing of substance was in fact enacted or even proposed (as rate caps is merely a regurgitation of ideas thrown out previously in the summer and fall of 2011), peripheral bonds once again tightened on absolutely nothing, with the Spanish 10 Year now back in the 6.30% territory, over 100 bps inside where it was a month ago. On not a single enacted reform or actual ECB action. Of course, it was a matter of hours before the German FinMin put an end to this latest rumor, and sure enough an hour ago a spokesman for the German FinMin said they were unaware of any ECB plan to target bond spread. Perhaps because there are none? And of course, if there were, the Germans would promptly put an end to what is my implication an open-ended bond buying program without conditionality: something that worked like a "charm" last summer with Italy. And just to make sure Germany's message was read loud and clear, here is the Bundesbank turning on the "just say 9" machine.
"Greece set a precedent for 'Here's what you're going to get, take it or leave it'" is how the WSJ summarizes an analyst's 'shocked' thoughts on the growing game of 'call my bluff' being played among beggars being choosers. Belize is surprise surprise running out of money to pay its debts and is insisting that creditors forgive 45% of what they are owed - OR allow it to delay any debt payments for 15 years (yes, seriously, read that again) - leaving a default on the country's $543.8mm almost inevitable. Three things stand out to us: 1) the nation's government shunned bondholders by simply posting a note on its website that it would be 'skipping a payment' as opposed to telling creditors directly; 2) none other than 'Long GGBs are the slam-dunk trade-of-the-year' Greylock Capital are "mystified" that yet another trade has gone pear-shaped adding that they are "sure every country could benefit from not paying their debt but this isn't the way to do it!"; and 3) this would be one of the worst restructuring terms ever as the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms - especially given that: "Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay,"