Who's the fool?
- Fed Sees Recovery Lagging (Jon Hilsenrath)
- Grand Bargain U.S. Debt-Deal Failure Would Set Up 2012 Election Showdown (Bloomberg)
- Ruling party lawmakers attack new Greek bailout (Reuters)
- IMF's Lipsky says QE3 not necessary (Reuters)
- Yuan's band may be widened (China Daily)
- Tank Looks Dry for the Australian Dollar (WSJ)
- Berlin seeks 7-year Greek debt extension (FT)
- It’s Bubble Time as Asia Braces for Fed’s QE3 (Bloomberg)
- G20 targets volatile food prices (FT)
A beige book and a bond auction.
What happens if energy and food prices keep going up? Can we be sure that this won’t happen? No of course not so these markets are far too complacent in my view and are not pricing enough risk premium. I am not even convinced that a lot of higher input prices have been passed on yet so the consumer will either face higher prices or the producer will see margins collapse and neither is good for equities. Europe is in a mess and it looks increasingly likely that a restructuring WILL happen somewhere at some point, whilst Trichet seems determined to jack up rates on principle. Don’t forget that even though European politicians want to help for fear of the consequences, ultimately the outcome will be decided by backbench politicians in PM Papandreou's parliamentary party. If austerity measures are not approved by parliament on Jun 28, then all hell could break loose. And just look at the EUR; what’s it doing up here? There is little risk priced here it seems and yet the risks are huge. Central banks are sucking volatility from these markets in a bid to create a false sense of security. This covert intervention is very clever as it’s tough to fight. Without doubt G20 is behind this and the accord is strong. They need a stable equity markets and stable FX markets to help buy time. Very clever.
Gold and silver are lower today despite European equities falling for a sixth day on sovereign debt and economic growth concerns. Bernanke’s failure to even suggest that the Federal Reserve will embark on further stimulus and QE3, after QE1 and QE2 failed to kick start the US economy, has markets jittery. Moody’s warned that the UK was at risk of losing its AAA rating if growth remained weak and the government failed to meet its budget deficit reduction targets. This is almost certain as the UK is now seeing a new bout of weakness in the housing market, and stagflation. Gold remains near record highs in sterling (£949.82/oz) and looks well both fundamentally (given the risks posed to the UK economy and sterling) and technically. Gold looks well supported above £900/oz and may be consolidating over £900/oz prior to a move to £1,000/oz.
Following the earlier note on the "irrational exuberance of QE3" at current conditions, Goldman does a one-two to the face of the long-only slow money crowd which are about to realize that what goes up the escalator, will go down the elevator, repeating that the next round of monetary easing "would require a notable further deterioration in the outlook to be considered seriously." As a reminder the only "outlook" the Fed keeps an eye out on is the 50 DMA of the Russell 2000.
Alas, the market still refuses to acknowledge that the S&P will need to drop below 1000 (and whatever the appropriate level for the RUT is) for Bernanke to greenlight QE 3 which will in turn send everything to the moon (better have those collocated algos ready and steady). Judging by the post-speech reaction, markets may finally be getting it, just as Bernanke is also getting that he is dealing with a heroin addict who will not settle with methadone (aka "extraordinary" and "extended").
The Big Banks Have Sold Us Out. Democrats And Republicans Have Sold Us Out. No One Is Defending Our Interests. Our Future Is Going Up In Flames. It’s Time For Us To Stand Up And Defend OurselvesSubmitted by George Washington on 06/07/2011 15:38 -0400
Are we Men (and Women) ... or are we mice?
With an hour of boredom to kill until the Bernanke announcement, and nobody trading anything until then, here is some afternoon amusement courtesy of the NMA which has taken Weiner's career suicide and made a, what else, cartoon out of it.
Is the Fed telegraphing that today's 3:45pm speech, expected by many to presage some form of monetary easing preannouncement by the Chairman, will leave many disappointed? That could well be the case based on the just disclosed data from the Fed's mouthpiece, Jon Hilsenrath, who spoke to Chicago Fed's Evans. In the interview, we find that the Fed president decided to cut its outlook (long overdue), but more importantly, Evans, a diehard dove and a big fan of additional easing, announced that he "doesn’t want to add to [QE]." In other words, as we have been warning, the S&P will have to drop at least another 25% before the "high threshold" for more money printing is reached. Ironically, for the first time, discounting even near certain future events does not work, courtesy of Central Planning, which needs the market to act in a centrally planned way and drop despite the inevitable Zimbabwe reaction.
66% Of Las Vegas Mortgages Are Underwater, 27.7% Of Total US Housing Debt Has Negative And Near-Negative EquitySubmitted by Tyler Durden on 06/07/2011 09:33 -0400
Following yesterday's news out of Zillow of a 0.77% drop in April home values compared to March, today we get an update from CoreLogic which in turn looks at the latest trends on "underwater" (or negative equity) mortgages in the US. In summary: "10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent." The most impacted state is Nevada, which has 62.6% of all mortgages underwater (with another 4.8% in near-negative), followed by Arizona, Florida and Michigan. California is fifth with 30.9% of all homes underwater. We doubt these millions of "homeowners" are benefiting much from the wealth effect.
Another quiet day in the economic activity docket, with the bulk of the action occurring in the afternoon. Today's key event is Der Bernank's address at the International Monetary Conference titled "The US Economic Outlook"
The media has been replete lately with a variety of different government officials saying that there will not be a third round of Quantitative Easing. Even the great Ben Bernanke himself on April 27th spoke against the possibility of QE 3. This isn't surprising, of course, because in order for something like QE to have the most effect it needs to be, well, a surprise. However, I am throwing down the gauntlet and making the call - there will be Quantitative Easing, and a big one most likely, by the end of summer. There I said it; of course, I have actually been saying this for the last couple of months and it doesn't take much of a real genius to figure it out considering that we are heading into a presidential election year. However, it most likely won't be called QE 3 since the term QE is now politically and socially almost taboo.
Amid the usual meandering propaganda, Tim Geithner finally catches up to Zero Hedge from February 2010: "The three largest U.S. banks account for 32 percent of total banking assets in the United States, in comparison to 46 percent for the three largest in Japan, 58 percent in Canada, 63 percent in the UK, 65 percent in France, 70 percent in Germany, 71 percent in Italy, and 76 percent in Switzerland. And total banking assets are 461 percent of GDP in the UK, 178 percent in Germany, and 820 percent in Switzerland." Supposedly this is intended to indicate just how much less concentrated the US banking system is compared to other nations: "Some argue that the U.S. financial system is too concentrated, which could promote systemic risks. But the U.S. banking system today is less concentrated than that of any other major economy. And
total banking assets in the United States today are only about the size
of U.S. GDP – much lower than in other developed economies." So just because the entire system is broken beyond repair, it makes sense to tout that the US is broken just a little bit less than everyone else? Also, where is the mention of the fact that the bulk of these balance sheets are chock full of toxic US securitized detritus and that without the US selling its worthless crap around the world, we would not be in the predicament we are in now. In the meantime, here is what Zero Hedge presented in February of last year...