With markets screaming that Europe is fixed and Italian sovereign bond spreads back near pre-crisis levels, we thought it somewhat interesting that delinquent loans in the country just surged by their most in almost 18 months as bad debt begin to re-accelerate. ANSA notes that over EUR130 billion of Italian debt is currently delinquent (+21.7% YoY) and this comes on the heels of the Bank of Italy's demand that Italian banks increase their loan loss provisions are 'disappointing' audits in March. As we noted previously, the percentage of loans in delinquency rose from around 3% in 2008 to 6.3% in February 2012, and assuming a relatively flat total private sector credit creation in the last year (which is probably conservative since fragmentation has been soaring), the current percentage of loans in default is approaching 8% of the total.
Deutsche Bank: "We Fully Understand Why The Authorities Wouldn't Want Free Markets To Operate Today"Submitted by Tyler Durden on 05/09/2013 08:06 -0500
"Is it healthy that the default/insolvency cycle is being sedated in so many large economies? Surely the financial system and life in general has prospered through history on the basis of creative destruction. Indeed all the good looking and intelligent readers of this note are products of survival of the fittest. Economic growth over time is helped by a regular cleansing. So are low defaults helping to lock in low growth for years to come across many large economies? Clearly there are other factors at work here but we think that what's great for credit investors isn't necessarily good for the global economy. A bit of a paradox. We would stress that we fully understand why the authorities wouldn't want free markets to operate today as the risk of a huge global default and unemployment cycle would still be very high. However their intervention has a cost in our opinion."
The biggest surprise from the JOLTS report is not in any of the standalone series, but in the time progression of the Net Turnovers number, which is simply the total new hires less total separations. Historically, the Net Turnover number tracks the total monthly nonfarm payroll change (establishment survey) on a almost tick for tick basis. Not this time. In fact as the chart below showed, the upward revised March NFP number to 138K, which preceded the even more optimistic, and much cheered April print of 165K, which sent the S&P and the DJIA soaring to new all time highs on Friday, not only did not get a confirmation, but in fact the JOLTS survey for Net Turnovers - which came at only 46K in March compared to a revised 138K jobs added per the establishment survey - implied that the real NFP number in March should have tumbled to a level last seen in September of 2010!
A few weeks after Italy reelected its 87-year old president for a second term, we get news that its former 7-term Prime Minister, 94 year old, Giulio Andreotti, has passed away.
For those following Bitcoin, this interview with Gavin Andresen, the 46-year-old lead software developer for the Bitcoin project in today’s Wall Street Journal should be of interest. The chief scientist for the digital currency talks about its appeal - and pitfalls - in a world of fiat money. Politicians and their appointees are entirely cut out of Bitcoin’s monetary loop, Andresen explains, adding that "Bitcoin or a similar technology could threaten the power of not just central banks, but banks, period." It is perhaps the coder's parting words that are most insightful, "I tell people it’s still an experiment and only invest time or money you could afford to lose. If only investors could as easily follow that advice with fiat currencies."
Europe has already entered a Japanese sort of existence and America will be coming next in our opinion. We are caught in a trap of our own making and this will be the price for the printing of all of this money. As China has reached its apex and begun a gradual grinding down in their economy, as Japan wrestles with insolvency, as Europe falls further into its sinkhole; America will follow. Make hay while you can but you may also wish to notice that the fields are shrinking and that less hay may be forthcoming. Borrowers have reaped the benefits. Those with money have paid the price. Wealth that can be redeployed is evaporating. Buying power is in decline. There is always a price. The reason is simple enough; it is the consequence of what the central banks are doing.
- Bank of America 125K
- UBS 130K
- Deutsche Bank 140K
- Citigroup 140K
- JP Morgan 145K
- Goldman Sachs 150K
- Barclays 150K
- HSBC 170K
Nomura's Richard Koo destroys the backbone of the modern central bankers only tool in the tool-box in his latest paper. "As more and more people began to realize that increases in monetary base via QE during balance sheet recessions do not mean equivalent increases in money supply, the hype over QEs in the FX market is likely to calm down ...The only way quantitative easing can have a positive impact on economic activity is if the authorities’ purchase of assets from the private sector boosts asset prices, making people feel wealthier and thereby encouraging them to consume more. This is the wealth effect, often referred to by the Fed chairman Bernanke as the portfolio rebalancing effect, but even he has acknowledged that it has a very limitmed impact... In a sense, quantitative easing is meant to benefit the wealthy. After all, it can contribute to GDP only by making those with assets feel wealthier and encouraging them to consume more."
The Fed Engaging In Quantitative Easing Until Unemployment Falls Is Like a Medieval Doctor Bleeding a Patient with Leeches ...Submitted by George Washington on 05/01/2013 18:19 -0500
And there it is. Moments ago Bloomberg disclosed the final terms of the just launched Goldman-led syndication of AAPL paper. The total size: $17 billion, which surpasses the previous record set by Roche at $16.5 billion, and makes it the biggest corporate bond synidcation in history. The breakdown:
- $1B 3Y FRN LAUNCH AT 3ML + 5 BPS
- $1.5B 3Y FIXED NOTES LAUNCH AT + 20 BPS
- $2B 5Y FRN LAUNCH AT 3ML+25 BPS
- $4B 5Y FIXED NOTES LAUNCH AT + 40 BPS
- $5.5B 10Y FIXED NOTES LAUNCH AT +75 BPS
- $3B 30Y DEBT LAUNCHES AT +100 BPS
30 Year paper in a tech company whose market cap has fluctuated by roughly $500 billion in the past year, and yielding just under 4%?
Sold to you.
Who could have thought, one year ago, that we would one day see an AAPL bond prospectus for floating and fixed rate notes (due between 2016 and 2043). And yet here we are, as the preannounced AAPL bond prospectus goes live and proves what we said months ago: that some $100 billion of the company's offshore held cash is non-US recourse courtesy of repatriation taxes, forcing the company to raise even more cash to fund US-based capital decisions. Perhaps the most surprising (or least) thing is who the lead underwriter would be. No surprise anymore: Goldman Sachs.
The weakness in economic data (not to be confused with the centrally-planned anachronism known as the "markets") started overnight when despite a surge in Japanese consumer spending (up 5.2% on expectations of 1.6%, the most in nine years) by those with access to the stock market and mostly of the "richer" variety, did not quite jive with a miss in retail sales, which actually missed estimates of dropping "only" -0.8%, instead declining -1.4%. As the FT reported what we said five months ago, "Four-fifths of Japanese households have never held any securities, and 88 per cent have never invested in a mutual fund, according to a survey last year by the Japan Securities Dealers Association." In other words any transient strength will be on the back of the Japanese "1%" - those where the "wealth effect" has had an impact and whose stock gains have offset the impact of non-core inflation. In other words, once the Yen's impact on the Nikkei225 tapers off (which means the USDJPY stops soaring), that will be it for even the transitory effects of Abenomics. Confirming this was Japanese Industrial production which also missed, rising by only 0.2%, on expectations of a 0.4% increase. But the biggest news of the night was European inflation data: the April Eurozone CPI reading at 1.2% on expectations of a 1.6% number, and down from 1.7%, which has now pretty much convinced all the analysts that a 25 bps cut in the ECB refi rate, if not deposit, is now merely a formality and will be announced following a unanimous decision.
As Europe continues to churn nowhere but down economically, it seems that leading government officials everywhere have suddenly become fixed income experts. According to these financial wizards, declining yields from Italy and Spain is vindication that (once again) the worst is over. This is the point where we ask investors, government officials, and media to read beyond both the headlines and the first paragraph of investment reports. Just as the declining US unemployment rate is attributed to more and more people simply giving up hope (there’s that “word” again) and not an abundance of new jobs; the decline in sovereign bond yields is the result of domestic banks and pension funds buying new bonds from their respective governments – not an increase in confidence from international investors. While strong domestic demand for a government’s debt is usually a good sign, “forced” demand is not. By any measure the all-in strategy of demostics banks and pension funds investment in their own bonds is epic. Of course, odds are this epic strategy will only end in disaster. The high concentration of investment is embarrassing for whomever is in charge of the fund and is really no different than directly raiding the pension fund assets. This is a shameful act and ultimately someone will have to pay for this Spanish mistake, which naturally leads us to Germany. And, in simple terms, the generosity threshold of the average German is pretty close to being breached.
In the past months and right after implementing Quantitative Easing Unlimited Edition, the Fed began surfacing the idea that an exit strategy is at the door. With the latest releases of weak activity data worldwide, the idea was put back in the closet. However, a few analysts have already discussed the implications of the smoothest of all exit strategies: An exit without asset sales; a buy & hold exit. We have no doubt that as soon as allowed, the idea will resurface again. Underlying all official discussions is the notion that an exit strategy is a “stock”, rather than a flow problem, that the Fed can make decisions independently of the fiscal situation of the US and that international coordination can be ignored. This is logically inconsistent as we address below...
It may seem uncharitable to note that only 0.4% - that's 4/10th of 1% - of mutual fund managers outperform a plain-vanilla S&P 500 index fund over 10 years, but that is being generous: by other measures, it's an infinitesimal 1/10th of 1%. So what do we get for investing our capital in mutual funds and hedge funds? The warm and fuzzy feeling that we've contributed the liquidity needed to grease a monumental skimming operation. Ten out of 10,000 is simply signal noise; in effect, nobody beats an index fund. The entire financial management industry is a rentier arrangement: they skim immense profits and return no productive yield at all.