Despite yesterday's lackluster earnings the most recent market levitation on low volume was largely due to what some considered a moderation in geopolitical tensions after Europe once again showed it is completely incapable of stopping Putin from dominating Europe with his energy trump card, and is so conflicted it is even unable to impose sanctions (despite the US prodding first France with BNP and now Germany with the latest DB revelations to get their act together), as well as it being, well, Tuesday, today's moderate run-up in equity futures can likely be best attributed to momentum algos, which are also rushing to recalibrate and follow the overnight surge in the AUDJPY while ignoring any drifting USDJPY signals.
- Bubble Paranoia Setting in as S&P 500 Surge Stirs Angst (BBG)
- But how will math PhDs determine "fair value" - Wall Street Techs Take Secrets to Next Job at Their Peril (BBG)
- U.S., EU Escalate Russia Sanctions as Putin Holds Firm (Bloomberg)
- Australia Becomes First Developed Nation to Repeal Carbon Tax (WSJ)
- Gaza humanitarian truce goes into force, hours after tunnel clash (Reuters)
- Barclays, Deutsche Bank Said to Face U.S. Senate Hearing (BBG)
- ECB Asset Buying Far Off and May Not Come, Hansson Says (BBG)
- Time Warner win would make Murdoch U.S. media king (Reuters)
- Costly Vertex Drug Is Denied, and Medicaid Patients Sue (WSJ)
- China Rallying for All Wrong Reasons to Top-Rated Analyst (BBG)
- GM recalls some cars with problematic switches; judges others safe (Reuters)
Western strategists and talking heads, we are sure, will know better and continue to pitch China as the renewed engine of growth in the world and that everything will be fine... but when the country's largest property developer says, the "golden era" for China’s property market has passed, adding that "The period in which everybody makes money out of property is gone," perhaps it is time to listen? Of course, we are sure there will be an orderly exit (just as there was in CNY last night which crumbled to 19-month lows) but as China Vanke Co's Yu Liang warns, "the phase where 'whoever buys makes money' is gone." Property sepculators are frustrated that the government won't bail them out "are they tryng to kill us?" as one analyst notes "this downturn is more serious than 2008."
With the Fed tapering and both China “I don't think the markets are discounting what’s really happening in China,” and Japan’s currencies likely to weaken, the net impact on the U.S. will be deflationary, Kyle Bass warned in a recent presentation. That trend will be accelerated by the improvement in the balance of trade for the U.S., which had its current account deficit shrink due to increased hydrocarbon production. Bass warns, the crucial moment will come when the U.S. reports a sub-6% unemployment rate, meeting the target it has set for normalizing its monetary policy by ending QE and raising rates. He predicted that will come in July. That will be the Fed’s “worst nightmare,” he said. Raising rates would stifle growth and recreate unemployment problems, which would be disastrous politically, according to Bass.
The inevitable shuttering of at least 3 billion square feet of retail space is a certainty. The aging demographics of the U.S. population, dire economic situation of both young and old, and sheer lunacy of the retail expansion since 2000, guarantee a future of ghost malls, decaying weed infested empty parking lots, retailer bankruptcies, real estate developer bankruptcies, massive loan losses for the banking industry, and the loss of millions of retail jobs. Since we always look for a silver lining in a black cloud, we predict a bright future for the SPACE AVAILABLE and GOING OUT OF BUSINESS sign making companies.
Welcome to the recovery. For the 59th month in a row, the stock of bad loans across Italian banks rose (up ~26% YoY). At EUR 164 billion, this is a new record high and remains the biggest problem for Italian banks (non-performing loans now make up a reord 8.6% of total lending) as they suggest in their reports that profitability is improving. If that was not enough to have you piling cash into the heart of Europe's periphery, then the 22nd month of declines in loans to the private sector should do it. Despite a pick up in mortgage loans, private credit creation tumbled 3.1% YoY in April... not exactly the quasi-Keynesian dream that record low rates would suggest as transmission mechanisms remain entirely plugged.
TedBits - Newsletter
... To the astonishment of almost everyone in the room, Angela Merkel began to cry. “Das ist nicht fair.” That is not fair, the German chancellor said angrily, tears welling in her eyes. “Ich bringe mich nicht selbst um.” I am not going to commit suicide. For those who witnessed the breakdown in a small conference room in the French seaside resort of Cannes, it was shocking enough to watch Europe’s most powerful and emotionally controlled leader brought to tears....
China is coming under close scrutiny these days, as the leadership scurries to find new sources of economic growth and control its debt. Some analysts have reassured China watchers that the Chinese government can simply write off its bad debt, at least within the major banks, and pass it on to the asset management companies that handle that resale of distressed debt (or have it later purchased by the Ministry of Finance). Others have warned that some of the debt is serious, such as that incurred by local government financing vehicles, and are dubious about the sustainability of these entities. To worry or unwind? How much debt can China really absorb?
Today’s nonfarm payrolls release is expected to show a "spring" renaissance of labor market activity that was weighed on by "adverse weather" during the winter months (Exp. 200K, range low 150K - high 275K, Prev. 175K). Markets have been fairly lackluster overnight ahead of non-farm payrolls with volumes generally on the low side. The USD and USTs are fairly steady and there are some subdued moves the Nikkei (-0.1%) and HSCEI (+0.1%). S&P500 futures are up modestly, just over 0.1%, courtesy of the traditional overnight, low volume levitation. In China, the banking regulator is reported to have issued a guideline in March to commercial banks, requiring them to better manage outstanding non-performing loans this year. Peripheral EU bonds continued to benefit from dovish ECB threats at the expense of core EU paper, with Bunds under pressure since the open, while stocks in Europe advanced on prospect of more easing (Eurostoxx 50 +0.14%). And in a confirmation how broken centrally-planned markets are, Italian 2 Year bonds high a record low yield, while Spanish 5 Year bonds yield dropped below US for the first time since 2007... or the last time the credit risk was priced to perfection.
Gazprom must really be demanding payment on overdue Ukraine invoices which is the only way we can explain the unprecedented speed with which the IMF has managed to cobble together a makeshift bailout package of up to $27 billion - the bulk of which will naturally go to Russia - which has just made Ukraine its latest vassal state. There are of course, conditions: "Approval is “expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in the statement. Disbursement may start next month, he said at a news conference in Kiev." And then comes the hyperinflation: "Monetary policy will target domestic price stability while maintaining a flexible exchange rate. This will help eliminate external imbalances, improve competitiveness, support exports and growth, and facilitate the gradual rebuilding of international reserves. The NBU plans to introduce an inflation targeting framework over the next twelve months to firmly anchor inflation expectations"... Very high inflation targeting.
Another morning melt up after a less than impressive session in China which saw the SHCOMP drop again reversing the furious gains in the past few days driven by hopes of more PBOC easing (despite China's repeated warning not to expect much). A flurry of market topping activity overnight once again, with Candy Crush maker King Digital pricing at $22.50 or the projected midpoint of its price range, and with FaceBook using more of its epically overvalued stock as currency to purchase yet another company, this time virtual reality firm Oculus VR for $2 billion. Perhaps an appropriate purchase considering the entire economy is pushed higher on pro-forma, "virtual" output, and the Fed's capital markets are something straight out of the matrix. Despite today's pre-open ramp, which will be the 4th in a row, one wonders if biotechs will finally break the downward tractor beam they have been latched on to as the bubble has shown signs of cracking, or will the mad momo crowd come back with a vengeance - this too will be answered shortly.
Earlier today we were surprised when none other than uber central-planning skeptic, not to mention bond fund manager, Bill Gross threw in the towel and in his latest letter advocated the purchase of risk assets - and Bill Gross is the last person needing reminding that in a day and age when the 10 Year yields just barely over 2.5%, this means not bonds but stocks. The surprise, however, promptly disappeared when we realized that PIMCO is merely the latest entrant in the scramble for yield game following, with a substantial delay to all of its other "alternative" asset management peers, right into ground zero: European toxic debt.
So you want to be a mortgage banker? then listen now to what i say Just get liability insurance... and get ready to pay and pay...