We are constantly told all our problems are too complex to be addressed with simple "big idea" solutions. Complex problems require complex solutions, we are assured, and so the "solutions" conjured by the Central State/Cartel Status Quo are so convoluted and complex (for example, the 2,319-page Dodd-Frank Wall Street Reform and Consumer Protection Act or the 2,074-page Obamacare bill) that legislators say they must "pass the bill to see what's in it." The real "solution" is to see that complexity itself is the roadblock to radical reformation of failed systems. Complexity is the subterfuge the Status Quo uses to erect simulacra "reforms" while further consolidating their power behind the artificial moat of complexity. Over the next three days, I will present three "big idea" solutions that cut through the self-serving thicket of complexity. Nature is complex, but it operates according to a set of relatively simple rules. The interactions can be complex but the guiding principles can be, and indeed, must be, simple. Big Idea One: Radically lower the cost basis of the entire U.S. economy. The cost basis of any activity is self-evident: what are the total costs of the production of a good or service? The surplus produced is the net profit which can be spent on consumption or invested in productive assets (or squandered in mal-investments).
UPDATE: An hour later - BofA has tumbled over 2%, reverting rapidly from unreality...
From last Wednesday's ECB rumor that ramped stocks higher and financials more than anything else, Goldman and JPMorgan have retraced it all and the rest are reverting rapidly on the total refutation of any rumors. There is one financial however that is still up 6%...
Europe was a sea of red (apart from Bund prices) today. With yesterday's window-dressing done and overnight dismissal of Spain's hopeful ECB-workaround, European equity and credit markets were dismal, EURUSD ended under 1.2400, and 2Y Bunds at 0.00% yield. Financials underperformed in stocks and credit with senior bank spreads back up to 300bps and LTRO Stigma jumping 12bps to 177.5bps (near record wides). Spain and Italy dominated both single-name banking and non-banking credit and equity moves as well as sovereigns with Spanish 10Y now +45bps on the week and Italy +37bps (with Belgium, France, and Austria all around 9bps wider). All European equity indices are down for the week with Spain down almost 8%. EUR-USD 3Y basis swaps turned back lower (worse) back to -70bps - not a good sign for funding (especially in light of the drop in LTRO we noted yesterday). On a final note of despair, Spanish 2s10s is now flatter than at any time since LTRO1 - implying that any LTRO debt used to fund a real carry trade is now a loser.
Einhorn Eviscerates Buffet: "If You Wrap Up All $100 Bills In Circulation, It Would Form A Cube 74 Feet Per Side"Submitted by Tyler Durden on 05/30/2012 11:00 -0400
In Greenlight's latest letter we learn that "At quarter end, the largest disclosed long positions in the Partnerships were Apple, Arkema, General Motors, gold and Seagate Technology. The Partnerships had an average exposure of 98% long and 62% short." Also, we find a spirited defense of AAPL (if one which breaks no real new ground with the ever louder recent criticisms of the company), some thoughts on STX, a discussion on the Yen, some of the firm's profitable shorts, including DMND, GMCR, and JOE, but most delightful is this scathing attack on old crony capitalist, TBTF money bags himself...
We have explained in the recent past just why the rotation from a professional European bond-run to a retail bank-run is critical to the euro-zone banking system - with deposit losses creating even more encumbered asset levels among European banks, which would then exaggerate contagion problems as funding pressures mount. The problem is existing deposit guarantee schemes are implemented at the national level and are not currently funded to handle a systemic crisis - this is why there has been so much chatter of a pan-Europe guarantee scheme. However, not only does a euro-wide guarantee rely on credible commitments from core European governments but it misses the redenomination risk - as unlike the US FDIC, it would need to explicitly guarantee the euro-value of deposits. Barclays shares our doubts on the implementation (short- and long-term) of such a solution, noting that Eurozone deposits are greater than eurozone GDP (as opposed to US deposits at ~68% of US GDP). Between operational difficulties, the size of redenomination losses, moral hazard, and the massive (deposit/GDP) contingent liability dependent on actual exit of a member state, we would urge any exuberance over 'talk' of a guarantee to be stymied once again by the dismal reality of implementation and agreement.
EURUSD just broke below 1.2400 - back to July 2010 levels
Just when talks of Accelerated Kinetic Action In Close Proximity To Cash Dispensing MachinesTM in Spain were quieting down, here comes Goldman to reminds us that nothing is fixed. "The ECB released April deposit data today. Italian deposits in April were stable, with a moderate increase in retail (+€7 bn) more than offsetting a small reduction in corporate deposits. In Spain, April saw €31 bn (or 1.9%) deposit outflow from banks. Within this only half is attributable to corporate (down €7 bn or -3.4%) and retail balances (down €8 bn, or -1.1%). The residual outflow is attributable to deposit reductions by others (financial institutions / pension funds / etc)."
At this point it is no longer interesting to recap the ever-growing list of problems facing Spain - we all know the country needs billions and billions in aid to merely contain its implosion, let alone grow. And while as of as of minutes ago we just got another rumor of "Accelerated Kinetic Action In Close Proximity To Cash Dispensing Machines" which is the proper nomenclature, as the B-R word is not in good form these days it appears, the real news is that as the ECB fiddles, and Madrid burns guess who is buying? Why China of course.
The avuncular Art Cashin opines on the roller-coaster of unreality that has been the equity markets for the last few days as outcomes become increasingly binary and investors increasingly herded from one direction to another. His sage advice - as if spoken by the most-interesting-person-in-the-world - "Stay nimble", my friends.
You know its bad when... two of the largest and best-known 'familia' in Europe and the US come together. As the FT reports, The Rockefellers and The Rothschilds are uniting under a common group as Rothschild Investment Trust and Rockefeller Financial Services become one. The patriarchs (David Rockefeller 96, and Lord Rothschild 76) have been 'connected' for five decades. Between the Rothschild's 'sprawling' multi-century banking empire across Europe and the Rockefeller's roots in 1882 Oil-money, we can only imagine the Illuminati, Freemasons, Templars, and Central Bankers of the world are quaking in their boots at this new global force for change - The Rothsellers or is it The Rockchilds. What next? It seems only Soros is left to complete the holy trinity...
10Y Treasury yields just broke to new all-time record low yields (marginally lower than the 9/23 1.6714% previous lows) and while the 'rates-can't-go-any-lower' crowd perhaps have not looked at JGBs recently (as in the last decade) in price terms, 10Y Treasury Futures have gained 4.6% since 3/20 swing lows while the S&P 500 has lost 6.0%. On the bright side, at least the front-end isn't inverted yet...yet.
And to think it was not even 2 hours ago that a regurgitated and largely impotent news story hit the WSJ (following up on an identical Reuters story yesterday, as ZH noted), sending the EURUSD higher by 50 pips. As we said, expect Germany to come out with a prompt refutation in minutes. The minutes in question were 90. The official denial to Gollum's lie panderings has arrived courtesy of Market News: "Government spokesman Steffen Seibert said at a regular press conference here that the German rejection of the idea of any direct recapitalisation of banks by the ESM "is well known." Summary: B+ for effort, C for execution, C- for market reaction halflife, and F for content, as usual.
So the EC wants the ECB to bypass the EFSF and use the ESM to recap EU banks? That was the rumor that shifted global stock markets by 1% in a matter of minutes? It has been awhile see we looked at the EFSF Flowchart or had a detailed look at the EFSF Guidelines but it looks like it is time to dig a bit deeper into what is possible and what is not. The ESM is not yet up and running. There was talk that it would be done by June or July of this year, but in typical EU fashion I don’t think much progress has been made towards that promise. So right now the EU is stuck with EFSF and the potential to set up the ESM. The market got carried away with the promise of LTRO as a sovereign debt savior, instead it created a potential death spiral. Spanish and Italian bonds are definitely getting crushed today, but with Spanish 10 years above 6.5% and Italian 10 year bonds nearing 6%, the potential for intervention rises. The secondary market is affecting the primary market, which is driving up the cost of funds, creating more pressure on the budget deficits. The countries are painfully aware of that, as is the ECB.
Risk-averse sentiment dominated the session yet again as market participants continued to focus on Spain and speculated whether the country will soon be forced to seek some sort of monetary assistance. As a result, credit markets continued to deteriorate, with the EURUSD cross-currency basis-swaps under pressure, while the spread between Spanish and German benchmark bonds widened to a fresh Euro-era wide level. Less than impressive demand for the latest Italian debt issuance where 2017 was underbid by EUR 0.20, while the 2022 issue was underbid by EUR 0.30 also resulted in aggressive bond yield spread widening. However, as we head into the North American open, reports that the EU is willing to envisage direct ESM bank recapitalizations saw Bunds spike lower by around 33ticks and EUR/USD by 44pips to the upside. EU stocks made an impressive recovery, but remain in negative territory. Going forward, the second half of the session will see the release of latest housing data (pending home sales), as well as the weekly API report.