The US is demanding a sum of $6 billion - the total loss associated with the "London Whale" debacle - in compensation for JPMorgan's mis-selling of mortgage-backed-securities. The FT reports that, unsurprisingly, the bank is resisting the payment, which would be its single biggest penalty in a catalog of expensive run-ins with US authorities and one of the largest post-crisis settlements by any bank. The FHFA said the bank falsely claimed that loans backing $33bn of mortgage-backed securities complied with underwriting guidelines and that it "significantly overstated the ability of the borrowers to repay their mortgage loans". It seems, perhaps, it is time to trade in the old jewelry for some new Kremlin cufflinks (the enemy of your enemy is your friend?)
For the first time since the most recent rally began in November, S&P 500 futures have retested (and broken below) the 100-day moving average within days of a previous break (without making new highs). It would appear the BTFD mentaliity is less exuberant with war and a tapering Fed in the background. And for those great rotators... 30Y yields are at 2 week lows...
With a US attack on Syria now seemingly inevitable, it is useful to get familiar (and in some cases follow in real time using their "social networking" sites) the US Naval forces amassing around Syria, ready to deliver either a lethal payload of Tomahawk cruise missiles (carried by the four destroyers listed below), a deployment of marines (located in the USS Kearsarge big-deck amphibious warfare ship), or one or more squadrons of airplanes sitting on the deck of the Truman and Nimitz aircraft carriers.
The total amount of Greek government debt outstanding has grown so much over the last 15 months that it has retraced over 60% of the 'haircut'-based reduction and has jumped a stunning 14.5% in that period. As KeepTalkingGreece notes, this is despite three years of strict austerity measures, incredible taxes and a debt haircut of 53% (~100billion euros in March 2012). As To Vima reports, Greek debt stands at EUR 321 billion, which is considerably higher than the pre-crisis levels of 2009. Is it any wonder that Merkel and Schaeuble have been forced to admit that a new bailout will be required? And how long before a 'new template' will be enforced?
Just when the world thought Europe was the new cleanest dirty shirt, ECB's Asmussen and Germany's Merkel have opened the can of European worms once more. First Asmussen...
- *ASMUSSEN SAYS ECB IS NOT AN ECONOMIC ALL-PURPOSE WEAPON
- *ASMUSSEN SAYS OMT PROGRAM LEGALLY POSSIBLE (a year later, still not sure?)
- *ASMUSSEN SAYS GERMANY 3Q WILL BE 'SOMEWHAT WEAKER' THAN 2Q
and then Merkel...
- *MERKEL SAYS GREECE SHOULDN'T HAVE BEEN LET INTO EURO AT ENTRY
- *MERKEL SAYS SCHROEDER RESPONSIBLE FOR `FALSE' GREECE DECISION
So that would appear to be it for those hoping for her to soften her stance post-elections... and remember Greek debt is soaring once again.
It seems time to call Liesman and Cramer for their advice... US equities are in freefall, down 2-3% from yesterday's highs (with high-flying NASDARK and Trannies underperforming) and breaking below the lows printed following the less-than-dovish FOMC minutes of last Wednesday. Gold ($1420), Silver ($24.60), and WTI ($108.75) are at the day's highs (and multi-month highs) and US Treasury yields are fading rapidly - with the long-end notably lower in yield from the FOMC minutes. The USD remains under pressure as JPY carry-unwinds dominate flows. It seems the great unrotation is at hand... as the S&P tests down to its 100DMA.
There was some anticipation heading into today's 2 Year auction, which as disclosed previously, represented the first drop in nominal issuance by $1 billion from the prevailing 2 Year size over the past several years, when as a result of reduce budget funding needs "only" $34 billion was auctioned off instead of the $35 billion recent average. Yet despite the tiny reduction in nominal, the auction was hardly a blockbuster, and if anything it was rather lackluster, with the high yield pricing at 0.386%, better than the 0.389% When Issued but certainly above July's 0.336%. The Bid to Cover also posted a modest improvement, from 3.08x last to 3.21x, however this was well below the TTM average of 3.53x. As can be seen on the chart below, auction BTC levels have been declining consistently since peaking in late 2012. Finally, the internal breakdown was generally as expected, with Directs taking down 26.1%, higher than post last month's 16.37% and the TTM average of 21.2%, Dealers holding on to 54.6% of the auction and Indirects ending up with just 19.30%, the lowest such allocation since January of this year.
Noting that "everything suggests the Syrian regime used chemical weapons," France's President Hollande this morning stated
*HOLLANDE SAYS SYRIAN CHEMICAL ATTACK REQUIRES RESPONSE and FRANCE IS READY TO PUNISH USE OF CHEMICAL WEAPONS
Perhaps this is subtle way to solve his nation's economic problems (just ask Krugman). French jobseekers just hit another all-time high; and following the utter failure of the Mali incursion to raise Hollande's popularity, perhaps he will reinstate the draft (for the millions of unemployed), invade, and then promptly surrender (leaving oil-rich Syria with the problem?)
Right now, ship traffic around Syria, and especially around the port city of Latakia and Tartus (where the Russian naval base is located), is normal as can be seen on the real-time map of naval traffic in the Mediterranean courtesy of Marine Traffic. If and when (supposedly Thursday if NBC is to be believed) the US finally launches the Tomahawks, expect a prompt evacuation of the triangle between Lebanon, Turkey and Cyprus. Or maybe in advance, especially if some of the more "strategic" tankers get advance notice things are going down. Keep an eye on real-time Mediterranean traffic courtesy of the map below.
Between a renewed demand for the relative geopolitical 'safety' of US Treasuries and the dismal US macro data starting to renew 'hopes' that the Taper will be delayed, the scarcity of high-quality collateral and plunging liquidity (thanks to the Fed's ongoing envelopment of the US bond market) has once again driven the 'belly' of the US Treasury market to trade 'special'. As Stone & McCarthy notes, repo has been tightening up overall, and the 2-year, 5-Year, 7-year, and 10-year are all also trading with negative handles this morning, with the 7-year getting more special ahead of this week's auction. This 'specialness' will once again raise concerns about the Fed having 'broken' the market (and as we noted here) may be further ammo to scare Bernanke straight (encouraging some degree of Taper in the Treasury buying even if the consensus believes economically we can't withstand it).
The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm. As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009. As in the mid-2000’s, there is plenty of blame to go around this time as well. The Fed is hardly alone in embracing unconventional monetary easing. Moreover, the collapsing 'developing economies' all have one thing in common: large current-account deficits. A large current-account deficit is a classic symptom of a pre-crisis economy living beyond its means – in effect, investing more than it is saving. The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad. That is where QE came into play...
It seems not everyone is so confident that this market drop is dip to be bought. With most of the Treasury complex trading 'special' and the S&P 500 back below its 50DMA, investors are grabbing protection where they can. Credit indices are notably wider but it is VIX at 16.56% that is in great demand as it hits nine-week highs.
With the Case-Shiller 20-City index up double-digits for the 4th straight month, Bob Shiller has some choice words for the CNBC interviewers about the 'housing recovery'. "Housing is a market with momentum," he notes, "and right now, the momentum is up;" but he adds that while house prices are 'recovering', he remains much less sanguine about this recent move. But it is once he has explained the potential concerns that may weigh on the housing market that Shiller comes into his own as he explains "none of this is real, the housing market has gotten very speculative."
Must see clip as Shiller scoffs at the current sentiment, the resurgence of 'flipping', and that the housing market is "driven by irrational exuberance."
The Richmond Fed survey surged to 14, its biggest beat since April 2010 and its highest level since January 2011. All makes perfect sense right? Just a 3.5 sigma beat of analyst expectations at 0. All sub-indices improved to multi-month highs and expectations for six months ahead also surged (even as prices paid and received collapsed). Consumer Confidence, amid surging interest rates and near-record gas prices for this time of year (and a pending war), rose (beating expectations) after falling last month. All of the gains in confidence came from 'hope' as the expectations sub-index rose from 86.0 to 88.7 as the present situation fell from 73.7 to 70.7 - the biggest drop since January. Remember, beware of the big 'con'.