Mike Krieger, who has been a staple poster at Zero Hedge courtesy of his willingness to speak the truth no matter how gory or controversial, was on the Max Keiser show, discussing everything from trivial items such as Goldman Sachs movie casting, to far more serious issues such as Obama's failed presidency, corporatism, information oligopolies, the overturn of various core fundamental democratic principles, consumer culture, the Federal Reserve, and gold as the one true money standard. As always an objective and highly informative discussion between Mike and Max.
The ECRI Leading Indicator has just moved further into certain recession territory, hitting -10.7 for the most recent week (the previous revised number is -10.5). The market goes green on the news, as the Liberty 33 traders have done their job for the day and are off to the Hamptons. And what is so odd about the market reaction one may ask - bad news are as always priced in, as the apocalypse is nothing that a little money printing can't fix, while minimal upside surprises (soon to be revised far lower) are sufficient to move the market higher by over 100 points intraday. Hopefully the HFT operators unionize and go on strike soon in demanding greater pay, and get the Greek trucker treatment as a result, because this market is not even a joke anymore.
After surging to a several week high, the 2s10s has plummeted to a one week low in the matter of hours, dropping back down to 236 bps. This follows a day of fireworks in the curve, in which as Market News discusses below, we saw some pretty aggressive hysteria in flattener unwinds. Oddly enough, the collapse in the curve has occurred as the 2s have hit another record low yield, indicating that no matter how much of a spin opportunity any givendiffusion index headline provides, the bond market is increasingly pricing in deflation (and in fact the yield on various classes of TIPS was negative earlier today).
Expectations at 62.3 vs consensus of 61.3 (previous 60.6), and Conditions at 76.5 vs 76 (previous 75.5). And with this latest self fulfilling prophecy report out of the propaganda bureau, expect stocks to promptly go green as the ugly GDP number is all but forgotten. This report brings today's official economic release docket to a close. The upcoming ECRI Leading Indicator report (10:30 Eastern) will also come in higher than -10 and with that we will close solidly green as the administration high fives itself over yet another horrible economic print cover up.
It appears the earlier market rumor about a Chicago PMI of 53.6 that sent the SPOOs another leg lower were incorrect. Now if only the administration can please reconcile the drop in the economy with the PMI surge all will be forgiven. In the meantime stocks keep trading from headline to headline. Categories posting improvement include Employment, New Orders, Order Backlogs, Inventories and Production, while Prices Paid decline again.
Yet more pessimism from Goldman's Jan Hatzius, who sees a consistent decline in end-consumption. But how can that be when even Bloomberg now writes that Americans Buy IPads While Broke in New Abnormal Economy...From Jan: "Although the broad outlines of growth in Q2 were about as expected-large gains in residential and business investment and federal spending versus a deep setback in trade-all of these were more extreme than we had estimated. Inventory accumulation was faster than expected, contributing one percentage point to Q2 growth. This plus the unsustainability of the gains in construction-led by a nearly 28% annualized increase in the residential component-emphasizes the downside risks to growth in future quarters, especially as real consumer spending was sluggish. That said, the trade drag will also reverse. On balance, we see little in the first look at these numbers to alter our view that the economy will remain sluggish in the period immediately ahead."
Yesterday, we had our fifth circuit breaker pop since the pilot program was announced. This time the stock was CSCO and 7 trades of 100 shares priced between $24 and $26 caused the breaker to go off. All of these trades occurred on the NYSE Amex. You’ll recall that we just wrote about the NYSE Amex trading NASDAQ stocks in a recent post. It didn’t take long for that little experiment to cause problems. The question that now needs to be asked is why did the NYSE Amex allow a trade to occur through the market by such a large percentage? CSCO is one of the most active stocks, and let there be no doubt that there were plenty of offers to fill a 700 share buy order at competing venues. It appears that rather than route to another venue, NYSE Amex routed the buy order to their own best offer first (which was far away from the NBBO). Wait a minute, stop right there, we are throwing a flag and asking for some instant replay. In addition to being a clear violation of Rule 611 of Reg NMS, this smells of internalization. Is the NYSE Amex experimenting with some sort of “flash” order? Inquiring minds would like to know. We haven’t seen the data feed spec yet for the NYSE Amex but you can count on us to take a look and report back to you if we see something funny going on there.
Yesterdays’ activity showed the Q/V spread coming in while the market gyrated a little higher as this time it was Q longs who were the aggressive liquidators. Rumors however still abound about delivery issues. Observably, the majority of spreads continue to come in as the market rallies. It can’t be emphasized enough. The cost of carry should not come in on a financial spread as the underlying rallies, as evidenced in the Contango Crush here.
For gold: Cost of carry = risk free interest rate + storage costs for the time period.
And this is happening even despite the very appropriately named Bullard telling CNBC that he calls "for a plan to have significant easing if the situation arises" in essence guaranteeing QE2.0. Today's GDP report has just confirmed that another round of dollar debasement, long expected by everyone at Zero Hedge, is now inevitable. And with the ECB actively "easing", better known as printing, as well, the race to the currency bottom, now well in the second to last lap, is starting to get interesting once again.
Double dip confirmed as Q2 GDP plunges from revised Q1 number: GDP comes in at a below consensus 2.4%, which a huge drop from the revised Q1 number which came in at 3.7% (from 2.7%). The GDP Price index comes at 1.8%, the core PCE comes at 1.1%, from 0.7% previously. Per the revised GDP numbers, the US economy has now shrunk by 4.1% from Q4 2007 to Q2 2009, compared with the 3.7% previous estimate. From the BEA: "The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, exports, personal consumption expenditures, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased."
- Asian stocks lower on Friday ahead of fresh growth numbers from the US.
- Japan's industrial prodn unexpectedly fell 1.5% in June on expectations of lower exports.
- US close to Japan-style deflation, Bullard, a voting member of the Fed Reserve says.
- Alcatel-Lucent swings to Q2 loss of €184M on a 2.4% decline in revs to €3.8B.
- American Apparel shares fall as much as 25% after auditors, Deloitte & Touche, resign.
- Anglo American's H1 profit falls 31% to $2.06B, despite 35% jump in revs at $15.02B.
- Bayer cuts full-year forecasts at two of three units as profit declines
- British Airways' Q1 loss widens to GBP122M following strikes. Revs fell 2.3%.
- Citigroup pays $75M to settle charges for providing inadequate information to investors.
- Consortium led by Li Ka-shing to buy EDF's U.K. assets for $9.05B.
- DBS posts surprise 2Q loss on $747M impairment charge
- Disney selling Miramax to Tutor and Colony Capital for more than $660M
With everyone focusing on today's GDP, it is easy to ignore the other relevant economic data to be released in the one and a half hour block before 10am. In order of appearance, they are: Q2 GDP,the employment cost index, the Chicago PMI, and the final UMichigan consumer sentiment. Below is a summary from a rather bearish Goldman Sachs (which expects a 2.0% GDP print in 15 minutes) on each of these data points.
Earlier today we noted that the biggest buzz on Wall Street is the recent suggestion by MS and ML's Harley Bassman that the GSEs should provide some form of autorefi program to take borrowers to market rates. As this would impact a vast majority of the 37 million of mortgages outstanding backed by the government, not only would this housing stimulus have a huge impact on consumption appetites, but it would be a political coup as all of a sudden the administration would find tens of millions of giddy homeowners who are paying far less monthly, and quite satisfied with the way Obama has handled things. It is thus likely that this program will take off shortly (if at all) just before the mid-term elections to neutralize all the pent up discontent focused on the administration. Yet there may be less than meets the eye. As Market News points out, over the past 24 hours Wall Street has gone into overdrive analzying the consequences, both positive and negative, of such a move. Below are the conclusions.
As expected, the tight correlation between European interbank funding rates and the EURUSD FX rate continues: today, we have seen the first inflection point in both 3M Euribor and 3M EUR Libor, as both have dropped marginally lower, the first from 0.899 to 0.896, the second from 0.83344% to 0.8325%: this is the first decline since July 14. And, not surprisingly, today we see a big pullback in the EURUSD complex. Never too far behind with its own attempt at an explanation, here is Goldman, which after calling for 1.15 in the EURUSD flipflopped yet once again, and is now selling the other side of its 1.35 target to clients.