Sylvio Berlusconi is no stranger to being a catalyst for European crisis: in November 2011 it was his unwillingness to leave the PM post (and be replaced with a Goldman technocrat), that precipitated a bond crisis accented by the ECB's unwillingness to interject and buy Italian bonds until the career politician had left. Tomorrow, an Italian Senate committee is due to begin hearing arguments on whether to eject ex-PM Berlusconi from Parliament and on. The special Senate Elections and Immunities Committee will have its first hearing on Berlusconi’s expulsion from the Parliament and six-year ban on 9 September. It seems now less likely that a vote will already take place on 9 September. The decision of the commission will be followed by a vote of the whole Senate. According to Deutsche Bank, the duration of the process is unclear. Indeed, it could be lengthened by several months if the commission (or the parliament) asks for a ruling of the Constitutional Court. However, a worst case scenario could see the government fail, early elections being called, and a repeat of this February's political circus all over again, only this time with even less political capital, if such a thing ever existed in Italy.
- BOE Leaves Policy Unchanged as Carney’s Guidance Assessed (BBG)
- Surprise or not, U.S. strikes can still hurt Assad (Reuters)
- Samsung Gear: A Smartwatch in Search of a Purpose (BusinessWeek)
- 'Jumbo' Mortgage Rates Fall Below Traditional Ones (WSJ)
- Capital Unease Again Bites Deutsche Bank (WSJ)
- Technical snafus confuse charges for Obamacare plans (Reuters)
- JPMorgan subject of obstruction probe in energy case (Reuters)
- U.S. Car Sales Soar to Pre-Slump Level (WSJ) - i.e., to just when the market crashed
- BoJ lifts assessment of Japan’s economic health (FT)
- Dead Dog in Reservoir Helps Drive Venezuelans to Bottled Water (BBG)
- Russia Boosts Mediterranean Force as U.S. Mulls Syria Strike (BBG)
Ahead of September, historically the worst month for stocks, Deutsche Bank notes that volatility has picked up and corporate bond issuance has slowed. There are several possible risks over the next few weeks that could trigger a further escalation in market volatility...
With interest rates rising and now clearly weighing on the housing recovery (and affordability, as we noted earlier), many look at the extreme jumps in auto sales being pumped out today and worry that higher rates will impact that credit-fueled orgasm of optimism. While house price appreciation and belief in its linear extrapolation seemed to have prompted an inordinate amount of fed-funded credit-based car sales in the last month, the fact is that rates won't 'directly' affect car-buyers, since as CNBC's Rick Santelli exclaims, auto-loan rates are massively high already with millions paying high double-digit rates and terms are now as long at 97 months!! Simply put, with incomes stagnating, should we see any marginal impact on ability-to-pay or credit-availability (which will be affected by higher rates weighing on funding abilities - see below), then as Santelli concludes, watch out for these little words... "Auto Sub-prime loans."
Today's morning summary is a carbon copy of yesterday's. Some things happened, China continues to make up data to fit its current policy outlook, things in Europe continue to go bump in the night ever louder as we approach the German election despite reflexive diffusion indices - this time Service PMIs - desperately signalling a surge in confidence, Italy has just reminded everyone it is a big political basket case as Berlusconi is said to consider withdrawing his support for the Letta government and calling for elections this year, and so on, but it is still all about Syria. Last night the Senate Foreign Relations Committee has agreed on a resolution on using military force against Syria. The resolution would limit the duration of any US military action in Syria to 60 days, with a 30-day extension possible if Obama determines it is necessary to meet the goals of the resolution. In other words, a "surgical strike" lasting a minimum of 90 days, and then with indefinite additional extensions tacked on. Yet judging by the modest drop in crude and gold, the market may need more than just fighting words at this point to push to th next level of risk aversion.
It was overall a fairly dismal month for most assets as Deutsche's Jim Reid notes sentiment was weighed down by a) ongoing tapering fears, b) a further shakeup in EM assets and currencies, and later during the month c) the escalating tension in Syria. Clearly returns in fixed income and the broader emerging market space were tapered down further by tapering concerns but DM equities were also not immune to the softer risk backdrop. The biggest loser in August were EM bonds, followed by Wheat and the S&P 500. The biggest gainer in Auguest was Silver followed by Brent crude and Chinese stocks.
- Al-Qaeda Links Cloud Syria as U.S. Seeks Clarity on Rebels (BBG)
- Administration Tells Lawmakers of Evidence Linking Assad to Attack (WSJ)
- Director of National Intelligence James R. Clapper to publish numbers of secret spying orders (CBS)
- U.S., Switzerland strike bank deal over tax evasion (Reuters)
- Another Budget Deal Bites the Dust (WSJ)
- Contemplating Summers Drives Investors to Seek Beltway Expertise (BBG)
- Austerity Test Looms in Australia as Abbott Pledges Cuts (BBG)
- Gay Spouses in All States Now Married Under U.S. Tax Law (BBG)
- Shadow banks face limits to securities trading (FT)
- EU's Rehn sees European recovery strengthening in 2014 (Reuters) ... or 2015... or 2022... or never?
Overnight, the market continued to digest news out of the UK that the formerly solid pro-war alliance has splintered following a historic vote by the House of Commons, leaving Obama to "go it alone." The result was a rather sizable slamdown in both crude and gold, accelerating as Europe opened for trading, and pushing gold back under $1400. This happened even as data out of Europe showed that European unemployment remained at a record high 12.1%, while inflation missed expectations and printed at 1.3%, or below 2% for the seventh month. Earlier in the session, headline data out of Japan showed that inflation had risen at the fastest pace since 2008. However, before the deflation monster is proclaimed dead, the core-core figure (excluding foods and energy) of the Tokyo CPI was down 0.4% yoy, unchanged since June for three months, suggesting that prices are still largely driven by energy-related costs. In other words cost-push inflation is rampant, which is the worst possible scenario and means the BOJ's QE is going to all the wrong place.
- UN Insecptors to leave Syria early, by Saturday morning (Reuters)
- Yellen Plays Down Chances of Getting Fed Job (WSJ)
- JPMorgan Bribe Probe Said to Expand in Asia as Spreadsheet Is Found (BBG)
- No Section 8 for you: Wall Street’s Rental Bet Brings Quandary Housing Poor (BBG)
- Euro zone, IMF to press Greece for foreign agency to sell assets (Reuters)
- Brothels in Nevada Suffer as Web Disrupts Oldest Trade (BBG)
- U.S., U.K. Face Delays in Push to Strike Syria (WSJ); U.S., U.K. Pressure for Action on Syria Hits UN Hurdle (BBG)
- Renault Operating Chief Carlos Tavares Steps Down (WSJ)
- Vodafone in talks with Verizon to sell out of U.S. venture (Reuters)
- Dollar Seen Casting Off Euro Shackles as Fed Tapers (BBG)
First Signs of Hyperinflation Have Arrived: US National Debt Can Travel From the Earth to the Sun and Back a Stunning 83 Times!Submitted by smartknowledgeu on 08/26/2013 09:44 -0500
If one were to lay $1 bills side by side, the current US National Debt would reach from the earth to the moon 32,358 TIMES AND BACK and to the sun 93 million miles away 83 times AND BACK.
More of the same downward drift this overnight trading session, with early Asian outflows coupled with a fresh record low in the Indian currency, driven in part by reports the Fukushima leak severity had been raised from Level 1 to Level 3, which however subsequently reversed following a weakening in the JPY and pushed the Nikkei from a steep early drop to a modest green close. China was unchanged even as Fan Jianping, chief economist at the State Information Center, said that a new reasonable range for China’s growth is 7%-9%, Xinhua said and ongoing liquidity additions by the PBOC. In Europe, newsflow was dominated early on by a Suddeutsche report that the third Greek bailout would be likely financed in part by EU budget as the reality that nothing is fixed in Europe slowly returns and fears that the latent and non-existent OMT will eventually have to be used. US futures have seen a modest risk off bias in part driven by concerns what today's key event, the FOMC minutes due out at 2 pm, would reveal (if anything new). Also on deck are Existing home sales at 10:00 am which expect a slight pick up to 5.15 million from a 5.08 million prior print. Moments ago the latest weekly MBA Mortgage Applications number came out and, to nobody surprise, it posted the last weekly decline, dropping another 4.6% with conventional refis dropping for the 10th consecutive week.
The yield on 10 year U.S. Treasuries is skyrocketing, the Dow has been down for 5 days in a row and troubling economic news is pouring in from all over the planet. The much anticipated "financial correction" is rapidly approaching, and investors are starting to race for the exits. We have not seen so many financial trouble signs all come together at one time like this since just prior to the last major financial crisis. It is almost as if a "perfect storm" is brewing, and a lot of the "smart money" has already gotten out of stocks and bonds. Of course a lot of people believe that we will never see another major financial crisis like we experienced in 2008 ever again. A lot of people think that this type of "doom and gloom" talk is foolish. It is those kinds of people that did not see the last financial crash coming and that are choosing not to prepare for the next one even though the warning signs are exceedingly clear. The following are 18 signs that global financial markets are heading for a vicious circle...
Germany's Angela Merkel visited the German concentration camp in Dachau - the first such visit by a sitting German Chancellor- where one may say, she could have picked her words a tad more wisely:
- MERKEL SAYS NATIONS SHARING A CURRENCY WILL NEVER GO TO WAR
- MERKEL SAYS 'WORTH IT' TO FIGHT FOR UNITED EUROPE
US civil war counterfactual aside, the stunned European population was confused by the implication of her words: is it that Germany will keep ploughing German funds to keep a pacifist, socialist dream alive (which is really just a front to keep Deutsche Bank and its $50+ trillion in derivatives solvent) even as hours ago her own Finance Minister admitted that a third (and certainly not last) bailout of Greece is now just a matter of time... or was it simply a warning to Greece, Cyprus and anyone else contemplating a true recovery, one which begins with their own currency, and maybe with a few Panzers crossing the border?
Deutsche: "Either The Central Banks Lose Credibility Soon Or The Markets Have Overstretched Themselves"Submitted by Tyler Durden on 08/19/2013 08:46 -0500
Some unpleasant observations from Deutsche Bank below for fans of either central planning and/or risk assets, as having one's cake and eating it too is no longer an option, and one or the other is finally set to snap. To wit: "Yield curves are very steep suggesting a challenge to central bank guidance credibility is at a tipping point. Either the data really are strong and the central banks lose credibility soon or the markets have overstretched themselves, allowing for a partial recovery in lower rates." A "tweeted out" Bill Gross is praying to the Newport gods it's the latter.
A recent survey of asset managers globally, managing USD 27.4 trillion between them, found that 78% of defined-benefit plans would need annual returns of at least 5% per year to meet their commitments, while 19% required more than 8%, "a target of 5% per year can be reached but only by using leverage, shorting, and derivavtives." And sure enough, as Deutsche Bank (DB) reports, in short, investors have rarely been more levered than today! According to DB, a MoM change in NYSE margin debt >10% has to be taken as a critical warning signal as there are astonishing similarities in the sequence of events among all crises. As the S&P 500 just hit a new all-time high, investors might want to ask themselves when it is a good time to become more cautious – yesterday, in our view. Simply put, the higher margin debt levels rise, the more fragile the underlying basis on which prices trade; with even a less severe sell-off in equities capable of triggering a collapse.