Following the morning in Europe, a generally risk-off tone is observed, with stock futures sitting just above session lows and the German Schatz auction resulting in record low yields. Some of the risk-averse moves were noted following unconfirmed market talk that a troubled Dutch housing association may be pressed towards bankruptcy, however this seems to be linked towards an article concerning the Dutch central bank probing into the sale of derivatives to the housing group Vestia. Nonetheless, the long end of the Dutch curve remains well-bid and European 10-yr government bond yield spreads are seen generally wider across the board. Releases from the UK have come under particular focus; the BoE minutes showed an alongside-expectations vote of 8-1 to keep QE on hold. With some analysts estimating more of a lean towards further asset purchases, the initial reaction was strength in the GBP currency, but countering this effect was the parallel release of UK retail sales, with the monthly reading showing the sharpest decline since January 2010. Additionally, it was noted that several members of the board saw further QE as a finely balanced decision, placing GBP/USD back on a downward trajectory and briefly below 1.5700. Elsewhere in foreign exchange, current sentiment is reflected in EUR/USD, printing multi-month lows earlier in the session of 1.2615, with the USD index at 20-month highs which in turn has weighed on commodities.
- Rajoy to ask for ECB assistance, according to reports (Sharecast)
- Bundesbank Suggests Greek Exit From Euro Would Be Manageable (Bloomberg)
- Unemployed Burn as Fed Fiddles in Debate Over Natural Rate (Bloomberg)
- Regulators, investors turn up heat over Facebook IPO (Reuters)
- China to boost private energy investment to bolster economy (Reuters)
- OECD fears euro woe to snap brittle world recovery (Reuters)
- China slowdown threatens Australia - World Bank (Herald Sun)
- Guessing game begins over next Treasury chief (Reuters)
- Italians spurn main parties in local polls (FT)
- A fragile Europe must change fast (FT)
- Spain to outline Bankia plan, may announce bailout size (Reuters)
- China Should Adjust Policy Early - Government Researcher (WSJ)
If China Backs Its Currency with Gold, It Could Have Profound Effects for Investors … and Consumers
If indications become reality then we are faced with a leftist government in Greece that will either renegotiate a new bailout agreement with Europe or it will head back to the Drachma or be forced there by the refusal of European Union to provide any additional funds. In Spain we are faced with bare bones arithmetic where the country cannot bailout its Regional debt and its back debt because they do not have the capital to do either; much less both. Both countries can flop about for a brief period of time but the conclusions are unavoidable we are afraid and so a very unpleasant landscape awaits us in the coming days. We have warned about all of this for quite some time and we have hammered upon it in recent days as equities, credit/risk assets, the Euro have all declined in value as I had predicted. There may well be a bounce or two along the way but we continue to maintain that dark days lie ahead based not only upon fundamentals but based upon a union in Europe that has been deceptive in presentation and deceitful in practice.
THIS is the fate that awaits the European banking system. Every single EU bank has leveraged itself based on financial models that consider sovereign bonds to be “risk free.” Moreover, EVERY EU bank is leverage to the hilt based on its OWN in-?house assessment of the riskiness of its loan portfolio.
"Uncivilized" China Quietly Building Gold Reserves As Gold Imports From HK Soar By 587% In First QuarterSubmitted by Tyler Durden on 05/08/2012 09:00 -0500
A month ago we ended up with the hilarious situation where the US was actively considering releasing petroleum from the Strategic Petroleum Reserve even as China was demonstratively and concurrently adding to its strategic inventory. Now, as the developed world is seeing day after day of gold hammering on amusing flights of fancy that central banks won't be forced to engage in more and ever bigger rounds of monetary dilution, and where the seller apparently has no regard for getting a "good" price, but merely seeks to crash the bid stack slams various PM prices, we see the same inversion with gold. Because as Bloomberg reports, "Mainland China's gold imports from Hong Kong surged more than sixfold in the first quarter, to 156 metric tons, adding to signs that the country may displace India as the world's largest consumer of the precious metal on an annual basis." And the punchline: "The purchases through Hong Kong may signal that the mainland is accumulating reserves, London-based brokerage Sharps Pixley Ltd. said in February. The nation last made its reserves known more than two years ago, stating them at 1,054 tons." Yep ladies and gents: the PBOC is very grateful that it can add hundreds of tons of gold to its reserve holdings in a stealthy operation which it will announce only after its conclusion, at which point, like true 13F chasing lemmings, retail will send gold soaring. But in the meantime, dear hedge funds worried about your margin calls and 1 month performance reports, please proceed calmly along with the lemming herd, and keep pushing gold lower and cheaper for our new Chinese overlords, and for everyone else who, without P&L timing constraints, takes delight in such brief arbitrage opportunities.
There are some people who also believe that the private Federal Reserve with the Treasury in tow has the ability to prolong the worst symptoms of the collapse indefinitely, or at least, until they have long since kicked the bucket and don’t have to worry about it anymore (the ‘pay-it forward to our grandkids’ crowd) . I can say with 100% certainty that most of us will live to see the climax of the breakdown, and that this breakdown is about to enter a more precarious state before the end of this year. You can only stretch a sun-boiled rubber band so far before it snaps completely, and America’s financial elasticity has long been melted away. A pummeling hailstorm of news items and international developments have made the first half of 2012 almost impossible to track and analyze. The frequency at which negative information has surfaced is almost dizzying. However, a pattern and a recognizable motion are beginning to take shape, and, I believe, a loose timeline is beginning to form.
Fraud ... What Fraud?
In the shady underground world of banking, doing wrong means doing right, up is down, and left is right.
Better late than never. All you need to read.
We pay homage to one of the architects and chief implementors of quantitative easing and discuss the end game for the Fed.