Apparently one taxcut for another is an equitable quid pro quo. Watch the president explain how expanding the payroll tax would be funded by millionaires. Which naturally means DOA.
As Deutsche Bank suggested earlier, the ECB needs a market plunge to justify an intervention. Hence, here is the ECB's very own Nowotny doing all he can do to precipitate a, you go it, market plunge:
- NOWOTNY FEARS MERKEL/SARKOZY PROGRAM WON'T BE ENOUGH
- NOWOTNY SAYS EUROPE CAN SOLVE CRISIS ITSELF
- NOWOTNY SAYS NOT NECESSARY THAT USA `HELP OUT' EUROPE
- NOWOTNY SAYS SMP CAN'T BE COMPARED TO FED, BOE PROGRAMS
- NOWOTNY SAYS SMP HAS TIME LIMIT
- NOWOTNY: DEBT CRISIS MUST NOT BECOME BANKING CRISIS AGAIN
For anyone who ignored the DB post earlier, we urge you reread it...
While the capital markets may be cheering that in the past month 120,000 people supposedly found jobs, even if these were largely temporary or part-time just in time for the year end shopping sprees, we wonder how they will react when learning that according to the latest update from the Supplemental Nutrition Assistance Program (SNAP), some 423,000 Americans found their way to minimum way subsistence, courtesy of Food Stamp handouts from Uncle Sam. Since the start of the Second Great Depression, food stamp participation has increased by 18.7 million, and is now at an all time higher 46.3 million. All Bush's fault, or something. At least the chart below appears to be plateauing... Actually, sorry, no isn't.
Short-dated TSY Bill yields have remained negative for almost two months now and even as the S&P 500 has roared 100 points higher in the last week signaling seeming risk appetite and optimism, other investors are so scared to hold money with banks that they are willing to pay the US Treasury (a veritable paragon of virtue) to hold their money and keep it safe. Of course there is likely year-end effects in the T-Bill but still it seems the bifurcation among market participants perceptions of risk remains extremely high.
As investors proceed happily through the forest that is this week's potentially epic fail, Nomura asks the question on every European is asking - What's in my wallet? Investors holding EUR-denominated assets and obligations face potential redenomination of contracts into new currencies. Based on the current misalignment of the real exchange rate and future inflation risk estimates, the fixed income group sees very material depreciation risks in most of the periphery and one surprise but critically the research enables risk-reward trade-offs on intra-European trades. This potential 'fungibility' issue is exactly what we described last week as a potential driver of stress and Nomura's work provides a framework for quantifying that relative stress. That said, Nomura adds the usual disclaimer: "For full disclosure, we are not regarding the break-up scenario as our central case." But... there is always a But. "But it has become a real risk over the last few months, and a possibility for which investors should now plan."
While the US Attorney General's office, presided by a very much embroiled in the Fast and Furious scandal Eric Holder, who at last check was spending 90% of his time frozen in carbonite, may believe that Jon Corzine is the homo sapiens equivalent of holy water, others appear to not share the sentiment. And as of today, two former employees have proceeded to sue Jon Corzine as fins.com reports. "Two former employees of MF Global have filed a class-action lawsuit against the firm's former Chief Executive Jon Corzine, other senior executives and board directors on behalf of themselves and current and former employees who acquired stock in the company while Corzine led the firm. The lawsuit, filed in the United States District Court for the Southern District of New York, alleges that the defendants provided false information regarding the company's financial condition and made statements that artificially inflated the stock price." Jon Corzine and the board breached their fiduciary duty to their employees and destroyed their careers and retirement savings," Jacob Zamansky, lead counsel for the plaintiffs, said in an email. The plaintiffs are Monica Rodriguez, the New York-based head of credit for the Americas, and Cyrille Guillaume, the London-based managing director of the commodities and stock division....If employees had known MF Global's true financial state, Zamansky said, "they could have refused to buy in or insisted on compensation arrangements that were all cash." And here is why Corzine's life is about to get very difficult now that the precedent has been set: "The employees did not file suit against MF Global, the company itself, because it is currently undergoing bankruptcy proceedings." One wonders how much more various Attorneys General need to see to perhaps consider to at least question the former CEO of Goldman Sachs, pardon, MF Global.
In the aftermath of the MF Global fiasco, popular anger has understandable been focused on the complete lack of any response (let alone prevention) by regulators, in this case by Goldman's Gary Gensler, currently head of the CFTC, who quite comically had to recuse himself from an MF Global investigation due to his previous ties to Jon Corzine. So today, in a unanimous vote, "The U.S. futures regulator approved on Monday a rule that puts tighter limits on how brokerage firms can use customer funds, a measure that the now-bankrupt MF Global had encouraged the agency to delay." In other words, while before commingling client accounts was assumed to be a clear violation of every logical fiduciary imperative, now it is set in stone. For real. The CFTC means it. Said otherwise, clients can now rush back into the rigged casino and put their money because as of today illegal activity on behalf of futures dealers will really be illegal. Or else. And one wonders why there has been relentless outflows from anything remotely resembling retail capital in the past two years.
The Doves Resume Their Crying: Fed's Evans Sees More Easing As Necessary To Avoid "Debt Trap"; Fed Must Act NowSubmitted by Tyler Durden on 12/05/2011 13:23 -0400
While Italy's Mario Monti earlier said that the country with the still ridiculously high bond yields would be somehow able to avoid a debt trap on its own (for its second largest debt load in the entire Eurozone), the Chicago Fed's Evans just said that America, which has the lowest rates in the world (with the possible exception of Japan) just said that unlike Italy, the US apparently needs far more help, and "further monetary stimulus is needed" to avoid a relapse into the debt trap. This probably means that sooner or later Italy will follow through with statements that "Italy is not the US" - after all, they are perfectly ok as is.
Ambrose Evans-Pritchard Summarizes The Latest Hopium Dud Out Of Europe: "Quatsch, Bêtises, And Eyewash"Submitted by Tyler Durden on 12/05/2011 13:08 -0400
Yesterday we proclaimed via Twitter, with the now traditional dose of cynical skepticism, that "this week Europe will fail to achieve anything all over again" a statement which apparently was taken to task by some Bloomberg TV anchors this morning who were displeased with our gloomy outlook that this time may not be different. Unfortunately for now it is Cynicism 1 - Naievete 0. The Telegraph's Ambrose Evans-Pritchard gives our friends at Bloomberg TV the low down.
During his recent lengthy discussion on the broad topic of global central bankers, optical backstops, and our coordinated cognitive dissonance, Kyle Bass, of Hayman Advisors, suggested everyone read "The Black Swan Of Cairo" penned by no less a tail-risk philosopher than Nassim Taleb (and Mark Blyth). The Foreign Affairs article from June 2011 brings into clear prose the fascinating dichotomy between the centrally planned smoothing efforts of world bankers and politicians and the inevitable (and much larger) instabilities that spring from this suppression.
It is both misguided and dangerous to push unobserved risks further into the statistical tails of the probability distribution of outcomes and allow these high-impact, low-probability “tail risks” to disappear from policymakers’ fields of observation.
With freedom comes some unpredictable fluctuation. This is one of life's packages: there is no freedom without noise - and no stability without volatility.
Deutsche Bank Tells Clients To Put "Risk Off" Trades Ahead Of December 9 Summit, On Hopes Market Sell Off Will Shock ECB Into PrintingSubmitted by Tyler Durden on 12/05/2011 12:08 -0400
While our assessment that the latest and certainly not greatest European summit due this Friday will be yet another dud (confirmed by today's Merkozy non-statement which took both Eurobonds and the ECB off the table), we are surprised to learn that none other than Deutsche Bank has once again joined our call that the market continues to get ahead of itself, in the process making life for the ECB that much harder. As BBG reports, Deutsche Bank's Dominic Konstam has advised clients to re-establish risk-off trades ahead of the December 9 summit. In his note he adds: "We think the current track of European policy is not credible in that austerity ultimately undermines the banks, increasing the need for recapitalization and asset liquidation, and threatening a vicious circle." And therein, as noted over the weekend, lies the rub: European banks are desperate for a longer-term solution (not the Fed's FX swap band aid), which can only come if and only if the ECB relents and starts printing. This however, will not come as long as the stock market keeps diverging from broad risk indicators, and rises purely on hope and a career risks Santa rally. In fact, as DB today confirms, it makes the case for the ECB (or Fed for that matter) to print that much harder, which considering there is no additional fiscal stimulus coming either in the US (thank you congressional gridlock) or Europe (thank you Germany-imposed austerity), means only additional monetary easing can do anything to push markets higher out of the recent trading range. Alas, we doubt any of the momentum chasing algos caught once again reacting to the market, will care much about this, and instead once the inevitable Risk Off day once again comes - which it will: it's mathematically certain - will simply accentuate the downside move as one side of the boat moves to the other at the same time.
While there is no arguing with the strength in Italian bond prices, yield (now less than 6% again), and spreads (cash and CDS) over the last week or so, there is a rather ugly and similar-looking precedent from only five months ago that is making managers nervous. It seems that the hope is this time is different as we remember the three-step reaction to the summer's efforts to bailout the eurozone as fear gave way to hope which inevitably became reality. BTP prices are trading at levels which were viewed as precipitous in the summer and warranted massive intervention (the ECB announcements) and obviously spreads and yields reflect similarly the market reaction to any and every stick-save.
US Postal Service Asks Regulator For Permission To Slow Mail Speed (Even More); Sees Revenues SlidingSubmitted by Tyler Durden on 12/05/2011 11:36 -0400
In yet another piece of news that somehow will be seen as largely bullish for risk, if not so bullish for the USPS's 600,000 thousand workers, we learn that the United States Postal Service, long on the verge of insolvency, has decided to take its already snail-pace speed... and make it even slower.
Expectations for ISM Services (services as in the sector that accounts for 70% of US GDP) were for expansion to keep the decoupling dream alive. Unfortunately, those dreams are dashed for now as the data prints its worst level in 23 months. The biggest driver of this drop was the employment sub-index which cliff-dived from 53.3 to 48.9 (a contracting print). The composite manufacturing and services PMI also dropped notably.