Draghi, we have a problem. Despite the omnipotent buying power of the all-knowing ECB, peripheral European bond spreads are blowing out again (and stocks dropping) as Grexit fears start to spread contagiously across the continent. As Greece's cash crunch looms ever closer (with capital controls looming) and bulls "throw in the towel" on the "nuts" Greeks, the IMF has come out and rubbed Mediterranean salt into that wound by telling the Eurogroup that Greece is the most unhelpful country the organization has dealt with in its 70-year history. As Bloomberg reports, in a short and bad-tempered conference call on Tuesday, officials from the 'Troika' complained that Greek officials aren’t adhering to a bailout extension deal leaving Dijsselbloem hinting at Cypriot templates for Greece.
Well that escalated quickly. What gains were achieved yesterday in equity markets (or v-shaped recoveries) have been dismissed this morning as stocks test Tuesday's lows tumbling as Europe got into swing and Greek fears surged (along with peripheral bond spreads). Treasury yields are pushing on lower past 5Y maturity (10Y approaching 2% again) but 2Y higher, as the dollar limps lower. WTI Crude remains in the low $42s after last night's API inventory build. All in all, it appears markets are starting to be resigned to the impatient Fed's actions today.
The only news that matters to algos today is whether Janet Yellen will include the word "patient" in the FOMC statement as a hint of a June rate hike, even though the phrase "international developments" is far more important in a world in which everyone (such as the 25 or so central banks who have cut rates in the past 80 days) is now scrambling to export deflation to everyone else. And with carbon-based traders recuperating from St. Patrick's day, few will notice that the oil tumble continues as WTI touches new 6 year highs after yesterday's shocking 10MM+ API build, and is now openly eyeing a collapse into the $30s. Just as nobody will notice that even as futures in the US and European stocks are looking a little hungover ahead of the Fed and perhaps on the latest bout of anti-austerity out of Europe, the China levitation has gone full retard, with the SHCOMP up another 2.1% yesterday and now in full-blown parabolic mode as housing data confirms the Chinese housing bubble has truly burst, and as shadow bankers dump all their funds into stocks in hopes of making up for losses due to regulatory intervention.
All Good Things Must End... this may not be the end of the world exactly. But the end of the fiat money system President Nixon gave birth to in 1971... when he cut the dollar loose from gold. And it may feel like the end of the world, because of the social chaos it will provoke.
Things are not going well for the Greeks. Bond yields are at post-default highs, implicitly shutting them out of the capital markets; stocks are cratering; and deposit outflows continue as the cash crunch looms. Even ex-Goldman silver-lining-finder Erik Nielsen stated this weekend that he is "throwing in the towel," on Greece, adding, as Bloomberg reports, that things have gone "plain nuts" in Athens. However, things are going great for the Germans - borrowing costs have never been lower, and the stock market is at record-er highs every day, as Draghi's money-printing fiasco has succeeded in one thing (and one thing only) dividing an already fragile 'union' into ever-greater 'haves' and ever-lesser 'have-nots'.
While investors have grown to used to knife-catching heroics in equity markets, the Energy credit markets have been a poster child of yield-reaching, bottom-guessing, dip-buying exuberance in the past six months. As every leg lower in oil was met with more Oil ETF buyers and bond buyers (or loan financers) as "the bottom is in," so each low has failed and new lows are made. The last few days have seen credit risk soar the most in 2015 in the energy sector as numerous firms enter bankruptcy or approach it with huge looming coupon and principal due. What is even more telling is the news of a huge liquidation sale of energy heavy equipment which will be the 'tell' for the entire industry if it is weak...
The Bond bubble is not only an overcrowded trade, a bubble of historic proportions but it will cause the entire crash of the financial system.
Wall Street Poised For Another Revenue Bloodbath After Harbinger Jefferies Reports 56% Fixed Income PlungeSubmitted by Tyler Durden on 03/17/2015 10:40 -0400
What Jefferies is best known for among Wall Street shareholders is that, by still reporting a Nov. 30 fiscal year end, 1 month ahead of everyone else, it provides an invaluable glimpse into the fortunes of its Wall Street peers with a 4 week advance notice, especially when it comes to its bread and butter: fixed income trading (recall that CEO Rich Handler was a Drexel bond trader when the firm blew up). The result, just like last quarter, was a disaster and indicative of nothing short of a trading bloodbath on Wall Street in the past three months of trading. The bottom line, and what everyone who is awaiting the latest FICC numbers from the balance of the banks will be focusing on, is the 56% drop in Q1 revenue from fixed-income trading, down to $126 million from $286 million a year ago.
Greece will need to find €2 billion by Friday in order to repay creditors as Schaeuble, others see no way out. With no contingency plan, Athens' day of reckoning may be at hand. Morgan Stanley is out today with a note diagramming what happens next.
Following yesterday's inexplicable ramp in stocks, which perhaps was driven by the collapse in oil (which sent energy companies higher because a 30x energy forward PE is cheap), and by the latest battery of disappointing economic data which made it less likely the Fed will proceed with a tightening move, overnight futures have given up a portion of the gains, and were trading down 0.3% at last check. And yet, if yesterday's weakness was driven by USD weakness, today's jump in the EURUSD above 1.06 (on absolutely disastrous German ZEW investor index print) is now somehow responsible for risk offness? And, adding confusion to insult, the 10 Y is down to 2.05% and in danger of re-entering a 1% handle. Sadly, nothing makes sense any more and today's conclave of central planners in the Marriner Eccles building ahead of tomorrow's 2pm FOMC "impatient" announcement isn't going to make it any better.
With the bond market appearing ripe for a dramatic correction, many are wondering whether a crash could drag down markets for other long-term assets, such as housing and equities. Bond-market crashes have actually been relatively rare and mild. According to our model, long-term rates in the US should be even lower than they are now, because both inflation and short-term real interest rates are practically zero or negative. Even taking into account the impact of quantitative easing since 2008, long-term rates are higher than expected. Regarding the stock market and the housing market, there may well be a major downward correction someday. But it probably will have little to do with a bond-market crash.
Italian Bad Debt Hits Record $197 Billion As Bank Lending Contracts For Unprecedented 33 Consecutive MonthsSubmitted by Tyler Durden on 03/16/2015 13:53 -0400
For the third largest issuer of sovereign bonds in the world, Italy - the country all eyes will focus on once Greece and/or Spain exit the Eurozone - when it comes to NPLs things are going from bad to worse because as Reuters reported earlier, citing ABI, gross bad loans at Italian lenders continued to rise, totalling 185.5 billion euros ($196.5 billion) in January from 183.7 billion euros a month earlier.As the chart below shows, Italy now has over 10% of its GDP in the form of bad debt. And just as bad, even as NPLs rose, total debt issuance contracted once more, lending to families and businesses decreased 1.4 percent year-on-year in February, the 33rd consecutive monthly fall.
In his fiercest rhetoric yet, Germany's angry Finance Minister Wolfgang Schaeuble unloaded at a CDU event today:
SCHAEUBLE SAYS DOESN'T KNOW WHAT TO DO WITH GREECE NOW, NEW GREEK GOVERNMENT HAS DESTROYED ALL THE TRUST THAT HAD BEEN REBUILT
He went on to explain that "no one I talk to sees how Greek approach can work," which perhaps explains why Greek 3Y bond yields spiked back above 20% for the first time since the election today.
Santander, fresh off the largest auto repossession-related settlement in history, finds voracious demand for a $712 million ABS deal backed by loans made to buyers classified as "deep" subprime.
The transparent truthlessness of the Fed’s basic premises go far to explain the chasm between official policy and reality - though it does not explain the appetite for plain lying of the supposedly informed minority cohort of the public, the deciders among us in business, politics, and media. Within th enext few months (between "patient" removal, token rate hikes, and reversals to QE4), the Fed will be completely out of cred. This will be the biggest disaster of all, since the loss of faith in august institutions will rage through every polity in the advanced economies. Nobody will believe any longer in anything they say or do, and especially the value of the papers (or digits) they denominate as money.