Here we go again. As we reported yesterday, Greece was due to present to the Troika "how to cut a massive 150,000 public sector jobs: a move which will result in an immediate surge in public unrest, and an exponential jump in strike activity.... Greece is locked in talks with international creditors in Athens about shrinking the government workforce by enough to keep bailout payments flowing. Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro ($3.6 billion) aid installment due this month. More than a week of talks on that has so far failed to clinch an agreement." Fast forward to today when we learn that any hopes a last minute solution would materialize, allowing the monetary spice to flow and the €2.4 billion loan to be paid, were just dashed following a breakdown in talks between Greece and the Troika. Deja vu all over again.
On March 3, we said that Bitcoin is interesting technology, and a useful currency, but it's not money. Yesterday it crashed to $37. What happened??
Kyle Bass, addressing Chicago Booth's Initiative on Global Markets last week, clarified his thesis on Japan in great detail, but it was the Q&A that has roused great concern. "The AIG of the world is back - I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp - $5bn at a time... and it is happening in size." As he explains, the regulatory capital hit for the bank is zero (hence as great a return on capital as one can imagine) and "if the bell tolls at the end of the year, the 27-year-old kid gets a bonus... and if he blows the bank to smithereens, ugh, he got a paycheck all year." Critically, the bank that he bought the 'cheap options' from recently called to ask if he would close the position - "that happened to me before," he warns, "in 2007 right before mortgages cracked." His single best investment idea for the next ten years is, "Sell JPY, Buy Gold, and go to sleep," as he warns of the current situation in markets, "we are right back there! The brevity of financial memory is about two years."
The eye of the hurricane over Southeast Europe may soon be shifting, exposing Greece to the same 150 mph gale turmoil everyone has grown to love and expect over the past three years as soon as this month, when a new proposal by Greece is due on how to cut a massive 150,000 public sector jobs: a move which will result in an immediate surge in public unrest, and an exponential jump in strike activity. As Bloomberg reports, "Greece is locked in talks with international creditors in Athens about shrinking the government workforce by enough to keep bailout payments flowing. Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro ($3.6 billion) aid installment due this month. More than a week of talks on that has so far failed to clinch an agreement."
With their crackpot monetary ideas, central banks have been robbing Peter to pay Paul without knowing which one was which. And a problem here is this thing behavioral psychologists call self-attribution bias. It describes how when good things happen to people they think it’s because of something they did, but when bad things happen to them they think it’s because of something someone else did.... When we look around we can’t help feeling something similar is happening. The 99% blame the 1%; the 1% blame the 47%. In the aftermath of the Eurozone’s own credit bubbles, the Germans blame the Greeks. The Greeks round on the foreigners. The Catalans blame the Castilians. And as 25% of the Italian electorate vote for a professional comedian whose party slogan “vaff a” means roughly “f**k off ”, the Germans are repatriating their gold from New York and Paris. Meanwhile in China, that centrally planned mother of all credit inflations, popular anger is being directed at Japan, and this is before its own credit bubble chapter has fully played out. (The rising risk of war is something we are increasingly worried about…) Of course, everyone blames the bankers (“those to whom the system brings windfalls… become ‘profiteers’ who are the object of the hatred”).
Just like a week ago, when the futures experienced an unprecedented event when they actually slid overnight (only to recoup all the losses and then some, in the US trading session), so today sentiment appears to be driven by China which over the weekend once more posted its worst economic numbers to start the year since 2009, with purposeful economic weakness telegraphed by the politburo coupled with higher than expected inflation in what is a harbinger to the end of the global reflation, just as it was in 2011. The Shanghai Composite closed down 0.3%, while the Nikkei was in a world of its own, closing up 0.5%, tracking nothing but the USDJPY nowadays. Additionally, while the US stock market took Friday's downgrade of Italy in stride, and in fact Getco's algos used it to catalyze a late day ramp to close the DJIA just around the "psychological" 14,400 (just like Dow 36,000 is apparently psychological), Europe is less sanguine, and so far Italian bonds have been pressured compared to the rest of PIIGS, rising with yields rising to 4.65%, hitting 4.694% earlier. That's ok though: as we reported over the weekend, there is nothing for widening BTP spreads that a few hundred billion in Fed reserve reallocations to European banks can't fix. And with no macro events or news on today's calendar, perhaps the most notable event so far is the lack of the overnight ramp, which we have all grown to love and expect almost as much as the mysterious 3:30 pm intraday clockwork DJIA ramp.
Consensus suggests India is a basket case while China is recovering. We think both views are incorrect and therein lies opportunities for contrarian investors.
The media's ecstatic read through of today's Nonfarm payroll beat can barely end: after all, a print of 236k on expectations of 165K, why that has to be great. Well, it is. Until one looks to the number from February 2012, which happens to be 271,000. And even the Keynesian will agree that February follows January, which in 2013 was a downward revised 119K. January 2012? 311,000. In other words, the first two months of 2012 saw a 582,000 increase in non-farm payrolls. In 2013: 355,000. But something else happened between February 29, 2012 and February 28, 2013... Oh yes, the US government issued some $1,198,397,883,967.30 in debt. Oh, and the Fed monetized about half of this amount, and virtually all of the Treasurys issued to the right of the ZIRP period (i.e., risky debt). To summarize: $1.2 trillion in debt buys the US.... 61% of the jobs created a year ago.
The same pattern we have seen every day for the past week is back - slow overnight levitation as bad news piles on more bad news. What bad news? First as noted earlier, a collapse in Chinese imports and a surge in exports, which as SocGen explained is a harbinger of economic weakness in the months to follow, leading to yet another negative close for the Shanghai Composite. Then we got the UK January construction data which plunged by 7.9% according to ONS data. Then the Bank of Italy disclosed that small business lending was down 2.8% in January. We also got a negative Austrian Q4 GDP print. We also got Spanish industrial output plunging 5% in January (but "much better" than the downward revised -7.1% collapse in December). Capping the morning session was German Industrial Production which not unexpectedly missed expectations of a 0.4% increase, printing at 0.0%, although somewhat better than the horrifying Factory Orders print would have implied. Finally, the ECB announced that a total of EUR4.2 billion in LTRO 1+2 will be repaid in the coming week by 8 and 27 counterparties, about half of the expected, and throwing a monkey wrench in Draghi's narrative that banks are repaying LTRO because they feel much stronger. Yet none of this matters for two reasons: i) the Japanese Yen is back in its role as a carry funding currency, and was last trading at 95.77, the highest in four years, and with Jen shorts now used to fund USD purchases, the levitation in the stock futures was directly in line with the overnight rout in the Yen; and ii) the buying spree in Spanish bonds, with the 10 Year sliding overnight to just 4.82%, the lowest since 2010.
Futures Ignore 13 Year High In French Unemployment, Tumble In German Factor Orders; Rise On Spanish AuctionSubmitted by Tyler Durden on 03/07/2013 07:55 -0400
In today's overnight trading, it was all about Europe (and will be with today's BOE and ECB announcements), where things continue as they have for the past six months: when it is a problem that can be "solved" by throwing bucketloads of money, and/or guaranteeing all risk, things appear to be better, such as today's EUR5.03 billion Spanish bond auction (the 0.03 billion part being quite critical as otherwise how will the authorities indicate the pent up demand by the Spanish retirement fund and various other insolvent ECB-backstopped Spanish banks for Spanish debt). And while events that can be "fixed" with massive liquidity injections are doing better, those other events which rely on reality, and the transfer of liquidity into the real economy, are just getting worse and worse. Sure enough, today we also learned that French unemployment rate just hit a 13 year high. But it wasn't only the French economy that continued to slide into recession: Germany wasn't immune either following "surprising" news that German January Factory Orders tumbled -1.9% M/M on expectations of a 0.6% rise, down from a revised 1.1% in December. The great equalization in Europe continues, as the PIIGS, kept still on artificial life support do everything in their power to drag down the core.
That is how much money the Federal Reserve Bank of the United States is creating as you wake, work or sleep. That is $85 billion a month and the stuff must go somewhere. It pours out like sugar upon the markets, each market, every market and it is no wonder that the American stock markets are hitting new highs. The spice must flow. I have been asked numerous times why the Fed’s balance sheet can’t be thirty trillion dollars and so the game continues. The answer is that it can be but, and a very big but, is that the debt of the United States would also be ten times the size it is now and it would have to be serviced by an economy that only has so many resources as the debt to GDP ratio of the country would be out of sight. The catch here is the amount of debt that would be created along with the creation of money and that is where the game halts or reverses the course. It would no longer be, and we are close to it now in my opinion, that the Fed is “the lender of last resort” but the only important lender in town.
Throughout history, bankrupt governments in decline almost ALWAYS fall back on a time-tested playbook. This includes imposing controls on everything - wage and price controls, trade controls, capital controls, border controls, people controls. Everything. And this idea goes back to the dawn of human civilization. From Mesopotamia to Rome and from France to Argentina, these policies have been a complete disaster for the country. But as the rest of the world looks on, people in ‘rich’ countries foolishly believe that ‘it can’t happen here.’ So, again, if you think that gold criminalization, price controls, and IRA/pension confiscation could never happen where you live, think again. This is wishful, ignorant, dangerous thinking. It can happen. It is already happening.
The budget for "rat fees" comes to $125m.
If Friday and yesterday it was Europe's reporting of ugly and below expectation economic data that pushed US stock futures ultimately higher, today it will be Europe's modest economic data beats that will send futures, where else, higher, and result in the Dow Jones breaking its nominal all time highs at the open or shortly thereafter. Following the Chinese economic update in its State of the Union address, which as we reported earlier, saw China set more moderate growth targets for itself resulting in the SHCOMP nearly wiping out Monday's losses, it was Europe's turn to shine which it did following the report of various Service PMI, which unlike last week's horrible manufacturing PMI data, were better than expected with the natural exception of Spain which printed at 44.7, well below the January 47.0, the first drop since September driven by the sharpest job losses since March of 2009, and Italy which dropped from 43.9 to 43.6, same as expected. The core countries' Services PMI beat: France coming at 43.7, on expectation of an unchanged print from last month's 42.7, and Germany printing at 54.7 vs also an expectation of an unchanged 54.1. Not very surprisingly, however, it was not the EURUSD which benefited the most from this data, which has lost nearly 50 pips from its overnight highs following the better economic news, but the various equity futures which have one centrally-planned goal: to take out all time DJIA highs or else, and unless something changes in the next three hours, precisely this will happen.
While Stocks Soar Towards New Highs, Sophisticated Investors Are Already Prepping for the Next, Bigger CollapseSubmitted by Phoenix Capital Research on 03/04/2013 11:10 -0400
While the mainstream financial media continues to trumpet the wonders of stocks closing in on all-time highs, larger, more sophisticated players are preparing for a financial meltdown in a much larger market: bonds.