If you feel like the market took one sniff at the much anticipated Obama, cue horns, bassoons and oboes, "American Jobs Act", and threw up all over this latest Keynesian abortion, you are not alone. Here is David Rosenberg explaining how, unlike Goldman which thought the plan is more than expected, is actually nothing more like a tiny flatulent wind in a feces-storm. He summarizes it best: " I'll put it to you this way. Assuming (i) that the House Republicans do not accept the Obama spending measures, and (ii) half of the tax relief goes into savings and debt reduction, then we are talking about the grand total of $35 billion of net new stimulus from this "jobs plan". That's principally because so much of it is merely extending what is already in the system. At an annual rate, that is a 0.2% boost to baseline GDP growth. In other words: much ado about nothin'. It doesn't even come close to offsetting the ongoing drag from the retrenchment at the state and local government levels." So anyone looking for an explanation why the market is down 4.3% since Thursday, here it is. And what is more disturbing, not even rumors of additional QE on top of the widely priced in Operation Twist, have had any impact. In other words, the time for another Hugh "I suggest you panic" Hendry soundbite is nigh.
Last week, Zero Hedge first brought to readers the infamous UBS report, which has since made the global rounds, and which essentially laid out the binomial tree for Eurozone survival as follows: either the EUR survives, or we get Civil war. In keeping with the schizophrenia of the TBTF banks whose number one goal is to cover their ass by predicting the two opposite possible outcomes, so as to avoid being sued by sovereigns once the dominos start falling, here is the firm's much respected economist George Magnus, who in his latest release of "By George", does a comprehensive framing of the agenda in the Eurozone. His conclusions: don't believe the European bureaucrat PhDs - there is much more here than meets the eye. To wit: "The dilemma over where to draw the lines between integration and sovereignty lies at the core of the fiscal union debate. The policy agenda has to recognise this, and not assume that fiscal union, one way or another, is eventually a ‘gimme’, even though logic would say it should be. Parallel to the logic are the politics and vested interests, the German Constitutional Court notwithstanding, which say fiscal union only one theoretical outcome, and maybe a long shot. Most likely, the political limits to fiscal integration have not yet been reached, but if there are further moves towards but not reaching this goal, they will most certainly be on German, and therefore, limited, terms. We may conclude that while the Euro system is not about to break up, its viability as it stands is far from assured." Maybe not "about" - give it a few weeks though...
One justification for bailing out Wall Street was that it would ultimately help Main Street. ast time we looked at the diamond price index for 1-ct diamonds. Today we investigate the effects of QE2 on that most Main Street of businesses--the high-end diamond retailer. At the prices quoted, a single diamond of this size would set you back about $110,000. Hopefully she's worth it. There are two significant periods of rising prices--early 2010, and November 2010 to June 2011, during which time prices rose about 30%. The official CPI (excluding food and energy) was 1-2% over the same interval. We note that this last interval corresponds approximately with the timing of QE2, and congratulate the Federal Reserve for aiding Main Street business.
Earlier today we reported that 3 Month USD Libor hit a year high of 0.343%, jumping from 0.338% on Friday. The reason we bring this up is that the US Treasury just priced $32 billion in 3 Year Bonds (chart 1 below) at a yield that is below that of 3 Month Libor. As for what that means we leave the explanation to anyone who believes that a 0.000% on the 30 Year (which courtesy of Operation TurboTorque we may soon see) is perfectly normal. For those who prefer empirical evidence, the last time this spread inverted was back in early 2009 before the Fed bailed out the world for the first time (chart 2 below). Now, on the question who bails out the world this time around, with all the central banks "all in" already, we are not too sure. Either way, completing the auction details, was a Bid to Cover of 3.148, slighly lower than recent averages, a Dealer take down of 53.7%, or more than half, and Indirects accounting for 35.7% or about their average. The non-eventfulness of the auction was confirmed by the lack of tail, with the When Issued trading at 0.34% at 1pm.
With the US economy in free fall, European liquidity imploding, NASA on beneficially inclined and extremely solvent extraterrestrial life alert (someone has to bailout the world after all), at least we have political circuses, if not so much bread... or cake. Here is what DC has in store for us over the next five days. Luckily, we can forget our trials and tribulations tonight when 8 pm brings with it the second Republican presidential address in which Ron Paul will once again be the undisputed winner and will be largely ignored by everyone in the mainstream, financially-funded media.
We now know that the US is an Onion Republic, which leaves open the question: what is Greece... because we are getting very vegetably challenged here. According to the Bank of Greece, household and corporate deposits declined for the 7th month in a row, dropping by €1 billion euros in the July. Since January 2010, total deposits have declined from €233 billion to just €187 billion, or €46 billion, or 20% of the entire deposit base. Once again, we make it very clear that no matter what the government does with sovereign tax collections, spending cuts and stop gap liquidity boosts, as long as the deposits outflow continues, nothing else matters. And speaking of tax collections, according to Dow Jones, completing the unbelievable Greek farce, is the news that tomorrow in addition to the now standard customs officials and taxi drivers, among those striking will be the country's tax collectors as well. So.... just how will Greece collect those so very precious taxes it needs to pretend it is in compliance with the Troika's demands for deficit cut compliance in order for the country to get the next IMF tranche which will stave off bankruptcy for one more month. As a reminder, Greek cash runs out on October 17.
The irony could.not.possibly.be.any.damn.funnier; Just as Sgt. Obama had the not so lonely unemployed club band huddled around him to tell America to "PASS THIS BILL", literally that very minute Bank of America released a statement it is sacking 30,000. Because Banana republic is so 2010, we are now officially an Onion republic.
Just after the FTSE Mib announced it is in process of breaking once again, we get notification that the Italian banks are resuming their rolling halts as predicted earlier this morning, with Intesa the first to go offline after plunging 7.9%. What next: any selling will be punshiable by death? Or will the Society for the Prevention of Cruelty to the Status QuoTM not go that far?
It is a day ending in -y, which means the TOTUS will be out there, somewhere, sharing all the juicy fiscal wonders still untapped and hidden deep in his magic sleeve, from whence they will be pulled after the American Jobs Act (the most recent Keynesian flashbang grenade to be lobbed at the middle class), fizzles out. Watch it live here.
It is too early to proclaim that ding dong, the vampire squid is dead, but it just dropped below triple digit range for the first time since March 2009. To anyone who enjoys to wager, this may be a good time to put some money that a Management/Buffet Buy Out (MBBO) of Goldman Sachs may be in the works.
For a Restructuring to Credit Event it has to meet some conditions. We have already been made to understand that anything that is “voluntary” is not a Credit Event. So if investors agreed to be paid back in another currency, it wouldn’t be a Credit Event in any case. But let’s just assume that with the bigger countries, some investors will resist any “voluntary” program. Then for a Restructuring Credit Event to occur, either the interest rate has to be lowered, some debt has to be forgiven, the maturity of the debt has to be extended, or the debt has to be changed to something other than a Permitted Currency. It is the Permitted Currency clause that would allow a country like Italy to keep all the terms of bonds the same, but pay back in Lire, and not trigger a CDS Credit Event. Permitted Currency includes the legal tender of any G-7 country. Germany and France could also play this game, but they have spent so much time defending the Euro they seem the least likely to do it. Italy on the other hand would welcome a weak lire. They could stop worrying about austerity and focus on getting a Ferrari in every garage in the Hamptons. Seriously, the Italian economy could perform extremely well if they revert back to making Lire legal tender (note, it does not say it has to be the only legal tender of a country, just that it has to be legal tender, so Italy could continue to use Euro while it re-introduces the Lire).
As Stocks Surge On Rumor Of Additional QE Measures, Someone Forgot To Tell Europe It Is Fixed: CDS RerackSubmitted by Tyler Durden on 09/12/2011 10:17 -0400
Even as stocks surge on the back of the latest rumor that yet another perpetually wrong Medley report has been released and states that the Fed may cut the IOER to zero in addition to Operation Twist (we have not seen the report nor have any interest in putting any faith in a "think tank" work product), someone has apparently forgotten to tell Europe it is all filed. Here is the CDS rerack, which unfortunately shows that this latest stock ramp is to be faded, especially since QE3-666 are already priced in, and will all eventually fail.
In The Meantime, ECB QE Is On In Full Force With About $100 Billion In Open Market Bond Repruchases In Past MonthSubmitted by Tyler Durden on 09/12/2011 09:58 -0400
And so the ECB's balance sheet, once upon a time clean of any monetization interventions, continues to deteriorate, and has now grown to a record €143 billion, after the bank disclosed €13.96 billion in PIIGS debt purchases in the prior week. This is an additional €70 billion since the SMP was expanded to purchase Italian and Spanish debt in early August (predicated by Italy complying with an Austerity prgoram that it has since made a complete mockery of). So for those complaining about the ECB pursuing Quantitative Easing, we wonder what one would call nearly $100 billion in bond repurchases in the open market in the past month: this is about as much as the Fed would purchase in its most active monetization month during either QE1 or QE2!
Nothing actually new here, but listening to Art Cashin retall the latest end of the world episode in that wise, grizzled voice of his brings a soothing element to what is set to be another dramamine-friendly week."Over the weekend, the battle has shifted. German authorities talk openly of the likelihood of a Greek default. They are said to be developing a plan to backstop German banks in the event of a Greek default. That puts pressure on other banks, especially French banks, since there is no Gallic backstop plan. Collateral damage could be to bring no bids to the next Greek auction, or make them pay such high rates as to make the auction toxic. The Euro crisis is quickly evolving into a Gordian Knot....U.S. markets are at near-critical levels. The uptrend line that caused the last bounce (S&P 1140) is around 1145. Key support levels are 1140, 1132, 1120 and ultimately 1101. The new Battle of Thermopylae is on the way."