UPDATE: 5Y now +126bps (biggest jump in 19 months - snce the record highs) and rest of Europe is catching their systemic risk flu
Amid all the fun and games of the last few days that have seen everyone buy everything everywhere, we noted that the President of Portugal has 'warned' his politicians that if they don't find a coalition solution in a "very short period" then he will call early elections (throwing the Troika-imposed austerity program into shambles). It seems the 'time-bomb' was on a long fuse - thanks to Bernanke - and the reaction is very evident today as Portuguese bonds implode. Spreads are 76bps wider on the day, breaking above 600bps for the first time in 8 months. The 5Y yield on Portuguese debt is now at 7.5% (up 109bps today!) - and yet still they discuss the expectation of coming to market soon for new issuance. Europe remains very un-fixed and every now and again, when the domestic buyers are overwhelmed by some real liquidity, we get a glimpse.
Do not worry, we are told on a daily basis, the rise in crude oil prices is transitory and won't affect gas prices and implicitly the US consumer's pocket book (already ravaged by spiking mortgage rates). Well, sorry to burst that little fantasy but gas prices in the last few days have surged (up 9c in 4 days). In fact today's jump is the largest in six months and pushes regular close to its all-time high for this time of year. Arguing not to worry as gas prices are more sensitive to Brent is a non-starter as it is very evident, despite the export of WTI, that gas prices are tracking the higher prices of crude oil and if history is any guide - with regard the lead-lag from crude to wholesale gasoline to retail, gas prices will be at new all-time highs for this time of year within the next month.
If Bernanke is looking for inflation under every rock and cranny, he may have just found it in today's PPI, if only in its energy components. While the headline June number was expected to jump sequentially by 0.5%, the same as May, the final print came at 0.8%, or 2.5% on a Y/Y basis - the highest since March 2012 - driven entirely by Energy good prices, which soared by 2.9% sequentially, the most since February's 3.2%. Foods PPI jumped by a more manageable 0.2%, although no matter how, it is inevitable that producers will now pass both of these to consumers whose purchasing power, especially at the gas pump, is about to be severely tested especially with fuel prices now once again rising at the fastest pace in months.
With macro fundamental data anything but positive and earnings expectations on a one-way street lower, it makes perfect sense for stocks to be surging on expectations for the future, right? Well, it appears UPS is about to burst that little bubble of faith, hope, and unclarity.
*UPS EXPECTS TO REPORT 2Q EPS $1.13; EST. $1.20; YEAR VIEW CUT
*UPS SEES YEAR ADJ. EPS $4.65-$4.85, SAW $4.80-$5.06, EST. $4.98
Citing "customer preference for lower-yielding shipping solutions" - i.e. everyone is slashing costs still, the real kicker is what is driving their revenue and operating income below expectations - "a slowing US industrial economy." So much for the 'recovery'. For now, UPS is -4.2% pre-market.
As we showed a few days ago in "Taper Fears Lead To Biggest Monthly Loss In Bank Securities Portfolios Since Lehman", JPM just reported the biggest hit to its Accumulated Other Comprehensive Income line since Lehman, which plunged from $3.5 billion to a miserable $0.4 billion. All we can say is hurray that Mark to Market is dead.
Spain, as you know, and no matter how the story is fabricated, was bailed out by the European Union. The money was lent to the banks so that Spain does not have to count it as sovereign debt even though the country guaranteed the loans. Madrid, however, tells the truth in the same manner as a sardine naturally climbs mountains. Spain has set up a "bad bank" known as Sareb (Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria). This operation has $66 billion of Real Estate loans and property as their assets we are told. So far they have sold 700 properties and they claim they can achieve an annual return on equity of 13%-14% over its fifteen year tenure. The truth - so far - is unbelievably worse than expected.
- Summers Said to Show Interest in Fed Chairmanship After Bernanke (BBG)
- Obama Tells Chinese He’s Disappointed Over Snowden Case (BBG)
- Texas Threat to Abortion Clinics Dodged at Flea Markets (BBG)
- A Peek at Trucking Data, and Then the Stock Surged (WSJ)
- China cuts growth target… or does it? (FT) - yes, it does, net of goal seeked Random () of course
- China Official Suggests Tolerance for Lower Growth (WSJ)
- Disney Says Wristband Boosts Sales in Disney World Test (BBG) - next up: implanted RFID chips
- Spain Prepares Cuts in Renewable-Energy Subsidies (WSJ)
- Bernanke Departure With Duke Heralds Cascade of Fed Appointments (BBG)
JPM Beats Thanks To $1.4 Billion Reserve Release; Net Interest Margin Drops To Record Low; Mortgage Production SlidesSubmitted by Tyler Durden on 07/12/2013 07:37 -0400
Cutting through the noise of JPM's earnings, here are the salient facts: the company beat the bottom line expectation of $1.45 with an $1.60 ex-DVA print. However, this number included the now traditional "puffery" benefit from loan loss reserve releases, specifically $950MM pretax ($0.15 EPS) from mortgage loan loss reserves and $550MM pretax ($0.09) from credit cards. Additionally, the company reserved a whopping $600 million for litigation, or about $0.09, and according to the firm this should be backed out from the bottom line. Of course, that assumes the litigation against JPM will not be an ongoing, non-onetime event. In other words, ex-releases, JPM misses, however it was right in line if one assumes the litigation reserve was indeed one-time. In summary, the firm had a total of $19.4 billion in loan loss reserves and the release of $1.4 billion was the biggest since Q3 2012. What is worse going forward was the slide in Mortgage Production pretax income which was $582mm, down a whopping $349mm YoY, "reflecting lower margins and higher expense, partially offset by higher volumes and lower repurchase losses." For those curious how the rate spike has impacted JPM, here it is: mortgage originations down 7% Q/Q, and firmwide it dropped to $52 billion. But perhaps the worst news is that despite the dramatic spike up in yields at the end of the quarter, JPM reported a Net Interest Margin that in Q2 was the lowest ever, dropping to just 1.05% on a market-based basis, the firm's defined NIM slid to 2.20%.
This is the essential primer on the Fed that every high school and college student in America should read. If they study this short essay, they will grasp the essence of the Fed and understand why the financial Status Quo is doomed.
When Bloomberg blasts headlines like this: S&P FUTURES UP 1PT, AT SESSION HIGH, ERASE EARLIER 3.4PT DROP, you know Bernanke hasn't spoken in over 24 hours if a 4 point swing is headline worthy. That said, the exhausted S&P ramp is now going for the 6th consecutive session as all the losses since the June FOMC meeting have now been erased, the S&P is making constant all time highs, and seemingly the Fed's message on tapering and communication has been clarified. The message being that the Fed is tapering its monthly purchases but short-term rates aren't being lifted. Sadly, the market's first reaction was the right one but the herd of cats has once again been herded by the trading desk at Liberty 33.
The German President, Joachim Gauck, concluded in a recent interview, that the NSA was not to be compared with the Stasi, because, [paraphrasing] "it is not like it was with the Stasi, where there exist big filing cabinets in which all our conversations are written down." No, indeed, nothing like that. As OpenDataCity notes, at the NSA, conversation contents are neither written down nor filed - but digitally recorded, saved and can be searched and found within seconds. In contrast to the Stasi, the NSA can count on new technologies and can therefore collect information in gigantic quantities - in fact, according to their data, 1 billion times more data than the Stasi!
Chinese gold demand, from both individuals and central banks, garnered increasing attention as the gold price rose consistently in the last twelve years. When the gold price declined, many in the West declared the end of gold, but China (along with many other Asian nations) defiantly continued to buy gold and increase their imports. Questions over the legitimacy and transparency of COMEX and the London Gold markets are now becoming louder, especially as increasing numbers of institutions are keen to know what actually backs those contracts. ‘Paper gold’ is on everyone’s lips. As The Real Asset Company notes, Physical gold demand in the most populated country on earth does not seem to be subsiding, yet neither do COMEX and futures volumes generally.
No, last week’s jobs report was not “strong”. It was just another edition of the “born again” jobs scam that has been fueling the illusion of recovery during the entire post-crisis Bernanke Bubble. In short, the US economy is failing and the welfare state safety net is exploding. And that means that the true headwind in front of the allegedly “cheap” stock market is an insuperable fiscal crisis that will bring steadily higher taxes, lower spending and a gale-force of permanent anti-Keynesian austerity in the GDP accounts. And for that reason, the Fed’s strategy of printing money until the jobs market has returned to effective “full employment” is completely lunatic. The bottom-line is that Bernanke is printing money so that Uncle Sam can keep massively borrowing, and thereby fund a simulacrum of job growth in the HES Complex. Call it the Bed Pan Economy. When it finally crashes, Ben Bernanke will be more reviled than Herbert Hoover. And deservedly so.
Reminiscing on the good ol' days when traders and investors poured over fundamental metrics, CNBC's Rick Santelli looks upon the current environment as a single-factor "Bernanke-loves-me, he-loves-me-not" un-reality and the impact he has on savers. "It seems a little bit ridiculous," he understates before launching into two minutes of clarifying thought on just what it is that Bernanke is doing and that we are suffering through. Just who is Bernanke working for?
Nothing says 'wealth' like a luxury Swiss watch (or two), and despite the equity markets of developed 'wealthy' nations resurgent in their inflated-asset-based selves, it seems the demand for luxury watches remains subdued at best. While Asia appears to be a big drag (as we noted here), Europe and the US are also plunging; but have no fear as African sales are up 25% (there's the real wealth effect?). The 'wealth effect' plan appeared to be working until the beginning of 2013 when, in spite of the almost unprecedented and inexorable rise in equities, Swiss watch exports collapsed to their worst levels since the great recession. Transitory blip? Doesn't seem that way as the most recent YoY change is the worst in six months.