Unlike their French counterparts, it appears the hapless (or sensible) Italian demagogues have decided not to extend the short-sale ban that was enacted three months ago. With the US Treasury market closed and volumes likely thin elsewhere, we wonder what outlet the flight-to-safety flow will take as Italian bank equity reality is unleashed. In general the CDS market took the systemic brunt of the hedging and protection-seeking since the 8/11 ban and it seems likely that Intesa Sanpaolo and Mediobanca have the most to fall to catch up with peers in equity while UniCredit seems to have the most to lose in equity to catch up to CDS performance.
Every day we are blugeoned with a variety of economic reports from various government agencies about the state of the economy. Most of these reports have some form or another of "seasonal adjustments", speculations, estimations or just flat out "guesses" about what is going on in the economy. What we tend to find out over time is that these numbers are generally overly optimistic during recessionary periods as we are in today. Today, we are going to look at three different polls from the Gallup organization on consumer spending, the economy and employment. The Gallup organization has studied human nature and behavior for more than 75 years and focus on what people "think and feel" about various issues. They employ many of the world's leading scientists in management, economics, psychology, and sociology, and other consultants to identify and monitor behavior. The key difference between Gallup and the various government agencies is that these polls are direct questionnaires to individuals and the responses are tallied and reported. There are no adjustments, assumptions, guesses, etc. In the famous words of Bill Clinton; "What is...is."
The overwhelming majority of media content being created now in 2011/2012 (film, television & music) is being BLINDLY financed with hopes that NEW reliable and profitable media streams will emerge quickly before the "old" income streams completely dry-up.
Indeed, the MF Global failure suggests that the US and EU banking systems may be facing a far larger problem than even the most bearish analysts suspect.
So much for the US decoupling. Following 5 days of persistent refusals to deal with reality, the real world finally came back with a bang, and while the overall market tumbled the most in two months, it is really financial stocks that took the brunt of today's beating. As the chart below shows, the XLF has literally collapsed with most major banks on the ropes, and the broker dealer index down 6.45% the most since August 10. The reason? Italy of course, and the fear that once the country is forced to write down its debt, the bank failures will proceed in waves: first Italian banks, then French, and then everyone else, especially those that have already been in the market's crosshairs for their exposure. And if today was ugly, tomorrow promises to be an absolute bloodbath with Italy deciding to proceed with the issuance of €5 billion in 1 year Bills into what may well be a bidless market.
The answer to the question “How to Stop the Drop in Home Values” is not a matter of knee jerk reactions, more moral hazard, bad policy pushed through on a populist wind, or a problem you solve by principal reductions.
The Fat Lady Singeth, yet no one is listening!!!
The notion of more austerity and economic growth solving Italy’s debt trap is the pinnacle of silly season.
I know it's tough to think about anything but the fast-melting ice cream cone that is Europe, but there are some things you should know about China. All the reassurances you've been reading about China's "soft landing" and its "they know what they're doing" central government are probably false. Here's why: very little in China is as it seems on the surface, or as it's presented to the Big Noses (Westerners)... The only sources who actually know what's going on in China are in local government. Another fantasy Westerners lap up is that the central government actually knows what's going on, and even more laughable, knows how to "fix" everything. If you don't even know what's happening, how can you fix the problem? Westerners also don't understand "corruption." They think in terms of bribes that could be suppressed by some new rules. That is beyond laughable, for corruption isn't bribes, it's the warp and woof of how things work in China. They don't understand that pirated goods are crushed by bulldozers for a show of face; nothing changes behind the facade presented for show. There is a lot of anger and resentment in China, especially among young people. This will not go away because some new railway is built, or a new mall opens.
Bank of America Explains All You Need To Know About The Market: "Down In The Morning; Rally In The Afternoon"Submitted by Tyler Durden on 11/09/2011 12:27 -0400
Want to be a consummate stock picker and investor? Forget all you have learned in business school, from fundamental or technical analysis, or from years of trading: the only thing that matters is the position of the sun: if it is rising, sell. If it is setting, buy. Rinse. Repeat. Bank of America explains it just slightly more scientifically.
Last night we discussed the repeated regime that has occurred in equity markets over the last few days where we ramp in ES away from any other asset class (FX, credit, TSY, commodity) only to fade overnight. This morning's abrupt diminution of hope has once again caused ES to revert back to its CONTEXTual reality - trading more in line with broad risk assets for now. It appears that again and again we are seeing the buy-the-dips beta-chasing that Art Cashin so eloquently pointed out this morning - and that is not working as the overwhelming macro/systemic conditions favor risk-off.
How Long Does It Take For Losing Money To Result In Lost Money? The Effects Of Rampant Bond Selling on Devalued Sovereign DebtSubmitted by Reggie Middleton on 11/09/2011 10:38 -0400
For years I have warned of the impending European collapse. Now, as it is happening, we still have banks getting away with nonsensical 60% writedowns on essentially worthless debt. LGD > 100+% - You ain't seen the worst of it, not by a long shot!
The much dreaded LCH margin hike came and went and while initially the market participants thought it was just a joke as nothing bad is ever allowed to happen anymore in these neverneverland markets, a few hours later the realization that this is all too real has finally dawned. The result is an epic bloodbath everywhere, but nowhere more so than in Europe, where one can kiss Italian bonds goodbye, and shortly French too, as the bond vigilantes demand that the ECB print now or else. Visually this is presented as follows: a 30 point drop in the ES, an unseen collapse in Italian bonds, and an explosion in the French-Bund spread. And since nobody can demonize CDS any more, we expect Europe to make selling sovereign bonds illegal next.
We have discussed at length the slowing forward expectations for the next 12 months EPS of the S&P 500 and while every long-only equity strategist enjoys the same talking points of record profits, margins, global growth, and cash-on-the-sidelines, it seems Goldman is increasingly skewing back to a sense of reality (following last month's initial concerns). At cycle turns, analysts are always the 'most' wrong with their Birinyi-like extrapolations but a cautious outlook with expectations of a de minimus equity market over the next 12 months leaves Goldman rightly concerned that margins are peaking as consensus sees them growing and multiples will drop as policies remain volatile.
An S&P 500 target of 1200 for Dec11 and 1300 for Dec12 and a focus on quality, dividends, and defensives doesn't sound like the high beta momo double-bogey performance-chasing we have seen in the last few weeks is sustainable. Furthermore, their perspective on the October rally is it reflects a drop in the cost of equity as opposed to better fundamentals.
Having seen the supposed smart money miss out on the October rally in US equities, the last few days have once again surprised many with US equity performing similarly each day and ramping to close at its highs - each time notably ahead of credit markets and broad risk markets. From the early October lows, we have seen the rotation from US to Europe reverse with the last few days see US equities dramatically outperform European. We wonder, somewhat prosaically, whether the relative inaction of the ECB with regard to BTP intervention since early Friday morning is what pushed Berlusconi over the edge and US-Europe divergence to extremes as Draghi flexes the ECB's considerable muscles. Critically, we see low volume ramps in the afternoons which leave every other market trailing in the dust - only to leak back in the overnight sessions. Couple this extraordinary action in S&P futures with the MF Global SIPC news and we wonder what liquidation will impact next?