Another of history’s many lessons is that governments under pressure become thieves. And today’s governments are under a lot of pressure.
JP Morgan Money Market Funds Join Fidelity, Sell Bills "In Light Of Possible U.S. Government Default"Submitted by Tyler Durden on 10/10/2013 15:48 -0500
Yesterday, it was Fidelity who in conducting its fiduciary duty, announced it was getting out of any and all near-term risky Bill insturments, namely those that mature just around the time of a possible technical debt default. Today, while the stock market was soaring on hope that a Washington debt ceiling deal was imminent, it was another firm that was quietly doing the opposite, and was taking "action in light of a possible US government default), and as highlighted earlier when we showed the ongoing divergence between stocks and Bills, was quietly "boosting" liquidity (i.e. selling short-term securities) in order to avoid breaking the buck (which as we also learned yesterday had been breached by not only the Reserve fund but by 28 other heretofore unknown money market funds). The firm: JPMorgan.
In a day in which there was and will be virtually no A-list macro data (later we get the FHFA and Richmond Fed B-listers), the inevitable low volume centrally-planned levitation was attributed to news out of China, namely that Likonomics has set a hard (landing) floor of 7% for the GDP, and that just like other flourishing economies (Spain, Italy, California) China would invest in "monorails" to get rid of excess capacity, as well as a smattering of European M&A activity involving Telefonica Deutscheland and KPN. In Japan, the government upgraded its economic view for the 3rd straight month and also raised its view on capex for the 1st time in 4 months: who says the (negative Sharpe ratio) PenNikkeistock market is not the economy? All this led to a 2% rise in the Shanghai Composite - the most in 2 weeks - and the risk on sentiment also resulted into tighter credit spreads in Europe, with the iTraxx Crossover index falling 4bps and sr. financial also declining by around 4bps, with 5y CDS rates on Spanish lenders down by over 10bps. Naturally, US futures wouldn't be left far behind and took today's first major revenue miss of the day, that of DuPont, which beat EPS and naturally missed revenue estimates, as bullish and a signal to BTFATH (all time high). On the earnings side, in addition to Apple, other notable companies reporting include Lockheed Martin, Altria, AT&T and UPS.
Spain's slow-motion implosion into an insolvent singularity has been one of the most amusing sideshows for over a year. The chief reason for this is the sheer schizophrenic and absurdist polarity between the sad reality, visible to everyone, and the unprecedented propaganda by the government desperate to paint a rosy picture. While on one hand the economic data shows very clearly the painfully obvious sad ending for this chapter of European integration, it continues to be punctuated almost daily by such amusing confidence games as Spain's Economy Minister de Guindos telling anyone who cares to listen that the labor market is improving "beyond the seasonal pick up" and that Q2 GDP would be close to zero (because 0% GDP is the new killing it). That's the good news. The bad news is that as Reuters reports, and contrary to fairy tales of unicorns and soaring 0% GDP, Spain's government is so insolvent, it was just forced to "borrow" from its social security reserve to fund pension payments.
The United States’ current fiscal and monetary policies are unsustainable. The US government’s net debt as a share of GDP has doubled in the past five years, and the ratio is projected to be higher a decade from now, even if the economy has fully recovered and interest rates are in a normal range. An aging US population will cause social benefits to rise rapidly, pushing the debt to more than 100% of GDP and accelerating its rate of increase. While the future evolution of these imbalances remains unclear, the result could eventually be a sharp rise in long-term interest rates and a substantial fall in the dollar’s value, driven mainly by foreign investors’ reluctance to continue expanding their holdings of US debt. Investors frequently rely on two key arguments to dismiss the fear of a run on the dollar: the dollar is a reserve currency, and it carries fewer risks than other currencies. Neither argument is persuasive.
The great global rig of 2012 is ending. Central Banks used up their last remaining ammo trying to convince the world all was well. What ahppens when the markets call their bluff?
With Spanish 10Y yields hovering at a 'relatively' healthy 5%, having been driven inexorably lower on the promise of ECB assistance at some time in the future, the market has become increasingly unsure of just who it is that keeps bidding for this stuff. Well, wonder no longer. As the WSJ notes, Spain has been quietly tapping the country's richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds - with at least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt. Of course, this is nothing new, the US (and the Irish) have been using quasi-government entities to fund themselves in a mutually-destructive circle-jerk for years - the only difference being there are other buyers in the Treasury market, whereas in Spain the marginal buyer is critical to support the sinking ship. The Spanish defend the use of pension funds to buy bonds as sustainable as long as it can issue bonds - and yet the only way it can actually get the bonds off in the public markets is through using the pension fund assets. The pensioners sum it up perfectly "We are very worried about this, we just don't know who's going to pay for the pensions of those who are younger now," or those who are older we would add.
Bank of Japan Posts Whopping ¥233 Billion Loss As Its Soaring Balance Sheet Hits Record ¥156 TrillionSubmitted by Tyler Durden on 11/28/2012 12:38 -0500
But, but, a central bank can never lose money. Bzzzz, wrong. As it just so happens, the world's most tragicomic farce of a central bank, and one which is about to officially lost its (faux) "independence" and become a branch of the Japanese government if the up and coming PM Abe has his way, the Bank of Japan, just reported that in the quarter ended September 30, the Japanese central bank reported an operating loss of ¥183.4 billion, and a net loss of ¥232.9 billion. As a comparison, the loss in the same period in 2011 was "only" 91 billion. This is a harbinger of the total collapse that is the utterly meaningless capital tranche of all central banks will go through before the terminal phase of the global Keynesian experiment is finally completed. But in the meantime, enjoy this chart of the Bank of Japan's balance sheet returning back to a record ¥156... trillion.
With EURUSD hitting one-month highs, Greek and Spanish government bonds pushing higher day after day, and EU stocks up 5% this week, one could be forgiven for thinking all is well across the pond. Tail-risks removed, firewalls in place, and everything ticking along nicely. The reality, of course, is a rather different picture. As Credit Suisse notes, the apparent inability of the euro area to reach any sort of decision on how best to address Greece’s debtload is far more negative in our view than just its impact on Greece. It speaks, once again, in our view, of the inability for progress at the euro area level in the absence of market pressure. The ECB’s (unactivated) OMT backstop has worked extremely well until now, but the ability of it to continue to do so without progress on the political side is limited in our opinion. As we head into year-end, European storm clouds are building. Meanwhile, the private sector is voting with its feet: German exposure to the periphery continues to fall (down 56% from the peak to the end of September), with exposures to Italy and Spain in particular lower this year. As Santander’s CEO said this week: while the Treasury may not need the Spanish bailout, the Spanish economy and firms do.
Tim Geithner will put a pen to the FHA bailout before the end of the year. It will be his last act as Treasury Secretary.
As we warned here first, and as the sellside crew finally caught on, while the key macro event this week is the US presidential election, the one most "under the radar" catalyst will take place in Greece (currently on strike for the next 48 hours, or, "as usual") on Wednesday, when a vote to pass the latest round of Troika mandated austerity (too bad there is no vote to cut corruption and to actually collect taxes) takes place even as the government coalition has now torn, and there is a high probability the ruling coalition may not have the required majority to pass the vote, which would send Greece into limbo, and move up right back from the naive concept of Grimbo and right back into Grexit. Which is why the market's attention is slowly shifting to Europe once more, and perhaps not at the best time, as news out of the old continent was anything but good: Spain's October jobless claims rose by 128,242, higher than the estimated 110,000 and the biggest jump in 9 months, bringing the total number of unemployed to 4,833,521, a rise of 2.7%, according to official statistics released Monday. This means broad Spanish unemployment is now well above 25%. In the UK, the Services PMI plunged from 52.2 to 50.6, which was the lowest print in nearly two years or since December 2010, and proved that the Olympics-driven bump of the past few months is not only over, but the vicious snapback has begun.
- ECUADOR WANTS BANKS TO REPATRIATE ONE THIRD OF FOREIGN HOLDINGS
- ECUADOR TAX CHIEF CARRASCO SPEAKS TO CONGRESS IN QUITO
Two days ago we reported that the German Court of Auditors demanded that the German Central Bank, the Bundesbank, verify and audit its official gold holdings consisting of 3,396 tons, held mostly offshore, namely New York, London and Paris, at least according to official documents. It also called for repatriation of 150 tons in the next three years to perform a quality inspection of the tungsten gold. Today, in a surprising development, via the Telegraph we learn that none other than the same Bundesbank which is causing endless nightmares for all the other broke European nations due to its insistence for sound money, decided to voluntarily pull two thirds of its gold holdings held by the Bank of England. According to a confidential report referenced by the Telegraph, Buba reclaimed 940 tons, reducing its BOE holdings from 1,440 in 2000 to 500 in 2001 allegedly "because storage costs were too high." This is about as idiotic an excuse as the Fed cancelling its reporting of M3 in 2006 because "the costs of collecting the underlying data outweigh the benefits." So why did Buba repatriate its gold? Ambrose Evans-Pritchard has an idea...
New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For ImpactSubmitted by Tyler Durden on 09/29/2012 12:14 -0500
Traditionally, when it comes to reading behind the manipulated media's tea leaf rhetoric and timing major inflection points in the economy, the most accurate predictor are financial firms, whose sense of true economic upside (or downside) while never infallible, is still better than most. Yet unlike employment, which is usually a lagging, or at best concurrent indicator, one aspect that has always been a tried and true leading indicator, has been real estate demand, in this case rental contracts. Due to the long-term lock up nature of commercial real estate contracts, firms are far less eager to engage in rental transactions (and bidding wars) when they expect a worsening macroeconomic environment. Which is why news that office vacancy in Manhattan's Plaza district, the area between Sixth Avenue and the East River from 47th to 65th streets, anchored by the landmark Plaza Hotel at Fifth Avenue and Central Park South which is home to some of the nation’s most expensive and prestigious office towers, and where America's largest hedge funds and PE firms have their headquarters, has just risen to 12.3%, or a two year high, is probably the most troubling news for the economy and a real indicator of what to expect of the immediate future.
In absence of really negative news, outside the heavier macro / sentiment data, the lukewarm Italian auction and US data, markets remained on a slight tentative rebound.
Will need to await further details and overnight analysis of the Spanish budget. Lots of reforms...
Hmm, and in how much time can all that be passed - if at all???