Gross Domestic Product
The gloves are off! As the French prepare for the loss of their AAA status, the governor of the Bank of France, Christian Noyer, suggests that the UK should be first in the firing line as the data for inflation, real GDP growth and government deficit to GDP are worse across la Manche from where he sits. A month ago French 10 year yields were 3.8%. Today they are just above 3%, so maybe the markets are giving him the benefit of the doubt, but let us not forget that the maturity timeline of French bonds is considerably shorter than the UK. They are about to have a funding problem and that is one of the many issues that the much maligned ratings agencies are concerned about.
Debt is Endemic In Our System... And the Deleveraging Will be Brutal For Businesses and Investors AlikeSubmitted by Phoenix Capital Research on 12/16/2011 20:44 -0500
To put US household debt levels into a historical perspective, in order for US households to return to their long-term average for leverage ratios and their historic relationship to GDP growth we’d need to write off between $4-4.5 TRILLION in household debt (an amount equal to about 30% of total household debt outstanding).
It appears Moodys is not having server issues.
- BELGIUM'S CREDIT RATINGS CUT 2 LEVELS TO Aa3 BY MOODY'S
For today's humorous detour, we go back in time, some could say to prehistoric days, and pull the 2011 year end predictions by Blackstone's grizzled (date of birth Valentine's Day, 1933) Vice Chairman Byron Wien posited back on January 1, who for 26 years in a row tries to predict the future. And fails. Well, technically he did get gold right. And yes, there are two more weeks left in 2011: Wien may still be proven right... crazier things have happened.
The Economic Collapse Blog does a terrific job of periodically putting together a compilation of the scariest data points about the US economy. Today is one such day, and the list of 50 economic numbers presented is indeed, as the author puts it, "almost too crazy to believe"... Almost. As noted: "At this time of the year, a lot of families get together, and in most homes the conversation usually gets around to politics at some point. Hopefully many of you will use the list below as a tool to help you share the reality of the U.S. economic crisis with your family and friends. If we all work together, hopefully we can get millions of people to wake up and realize that "business as usual" will result in a national economic apocalypse." Or, far more likely, 99% of the population can continue watching Dancing with the Stars, as what little wealth remains is terminally transferred to those who are paying attention right below everyone's eyes.
We spoke to soon: it appears suicide is painless after all, as Fitch just changed the French outlook to negative.The punchline: "The Negative Outlook indicates a slightly greater than 50% chance of a downgrade over a two-year horizon." As for the line that will finally shut up France in its diplomatic spat with the UK: "Relative to other 'AAA' Euro Area Member States, France is in Fitch's judgement the most exposed to a further intensification of the crisis." And now, the market shifts its attention to non-French rating agencies, who will downgrade France in a "slightly" shorter timeframe... more like 2 hours according to some rumors.
Reading just the first paragraph of Michael Feroli's note from this morning, one could be left with the impression that all is well, and the US has formally decoupled from anything and everything, especially reality. Alas, there are two other paragraphs, and both paint a bleak picture of the US economy if the current global autopilot persists. One thing is sure: decoupling is a myth for gullible children, and the longer the European recession lasts, and it will last long, as it will never be allowed to revert to fair value promptly by pulling off the band aid of three decades of cheap credit, and instead it will be bled to death using token austerity, rather than doing to right and very painful thing and cutting to the bone. And the longer the divergence persists, the more violent will be America's return to reality once the "lag" finally catches up with the trademarked mark to unicorn world created by America for America.
- Fitch downgraded the long-term IDR ratings of seven major banks, including, Bank of America, Goldman Sachs, Citigroup, Barclays, BNP Paribas, Credit Suisse and Deutsche Bank
- Market talk that S&P may downgrade sovereign ratings of Spain and Italy today, however the talk remains unconfirmed
- Eurozone 10-year government bond yield spreads tightened across the board, with particular narrowing observed in the Spanish/German and Italian/German spreads
- According to a senior Troika official, the aim of Greek talks is a voluntary debt swap, however there are no guarantees of success, adding that the Greek 2011 deficit is likely to be higher than the 9% of GDP target
- German FDP party approved the set-up of ESM
And so the focus shifts to the quietest neighborhood on the block: "The negative [Moody's] outlook on the province [of Ontario] reflects the softening economic outlook, Ontario's growing debt burden, and the extended timeframe to achieving a balanced budget." What's next: someone dares to question the stability of Canadian banks which as we it turns out may have a few hundred billion in hyper-rehypo assets (Canadian Imperial Bank of Commerce (re-pledged $72 billion in client assets), Royal Bank of Canada (re-pledged $53.8 billion of $126.7 billion available for re-pledging)) pledged there... and there... and there... and so, ad inf.
Founder Of $30 Billion Hedge Fund BlueCrest Says Most Euro Banks Are Insolvent; Euro Situation Much "Worse Than 2008"Submitted by Tyler Durden on 12/15/2011 12:22 -0500
The Founder of one of the world's largest asset managers, the $30 billion hedge fund BlueCrest, Michael Platt, spoke to Bloomberg TV and cut right to the chase, saying most of the banks in Europe are insolvent and the situation in the region is "completely unstable." On how he approaches market risk: ""I do not take any exposure to banks at all if I can avoid it. All the money at BlueCrest Capital Management is in Two-Year U.S. government debt, Two-Year German debt, we have segregated accounts with all of our counterparties. We are absolutely concerned about the credit quality of the counterparties." On investing in illiquid assets, Platt said he "would not touch them with a barge pole" and that "the major opportunities will come post-blowout." Something tells us Russia and China know this all too well, and realize that the best time to "invest" in Europe is after the single (or multiple) bankruptcy. Which incidentally, as Kyle Bass said yesterday, after the "blowout" is when the ECB will finally step in as well, at which point the entire world will go all in on that now infamous 2-7 offsuit. And his view on how that bluff will end: 'In my opinion, what's going on now is significantly worse than 2008."
Year end markets are infamous for distorting price action as illiquidity, bank and company window dressing, and risk paring tends to characterize investment decisions and valuation quirks. In this market climate it can be challenging to differentiate between fundamental moves versus liquidity provisioning and the pursuit to flatten books and race to the finish line. In the above spirit, typical year end position imbalances are suspicious as are global finance needs and the apparent dysfunctionality of funding market functioning and an information arbitrage between different markets in understanding of such minutia...The circular nature of worsening emerging and global fundamentals, lower sovereign growth prospects, associated financing challenges, lower asset valuations, regulatory cushions to such catalyzing asset sales, bank balance sheet illiquidity and, hence, funding stains tis the season. Just a DAILY comment to elevate the ebb and flow adjustments of markets and policy makers to such linkages.
Today at 8:30 am at least one HFT vacuum tube will short a filament as we get not one, not two, not three, but four concurrent economic data releases at the same time. And then there is a whole bunch of other stuff later in the day... which is not to say that the 3pm rumor will not determine the outlook of the day.
The European banking system is on the verge of collapse.
David Rosenberg Discusses The Market With Bob Farrell, Sees Europe's Liquidity Crisis Becoming Solvency In Q1 2012Submitted by Tyler Durden on 12/14/2011 10:57 -0500
For the first time in while, Gluskin Sheff's David Rosenberg recounts his always informative chat session with Bob Farrell and shares Farrell's perspectives on the market ("his range on the S&P 500 is 1,350 to the high side and 1,000 to the low side. He was emphatic that there is more downside risk than upside potential from here. His big change of view is that we have entered a cyclical bear phase within this secular downtrend (he sees the P/E multiple trough at 8x). Rosie also looks at Europe and defines the term that we have been warning against since May of 2010: "implementation risk" namely the virtual impossibility of getting 17 Eurozone countries (and 27 broader European countries as the UK just demonstrated) on the same page when everyone has a different culture, language, history and religion... oh, and not to mention animosity to everyone else. So yes: Europe in its current format is finished, but what will it look like in its next reincarnation? And why does he think the European liquidity crisis will become a full blown solvency crisis in Q1 2012? Read on to find out.