There has been much discussion as of late about the need for interest rates to rise as they have been historically way too low for too long. However, is that really the case? The average long term interest rate in the U.S. has been 5.49% (median is 4.91%) since 1854. However, that average rate would be much lower if the "spike" in interest rates in the 1960's and 70's were removed which would mean that the current long term interest rate is likely more aligned currently with historical norms. This is particularly the case when compared to the much slower rates of economic growth that currently exists. What we find find most interesting currently are the ongoing discussions about whether or not the U.S. is in a recession. The reality is that such discussions are relatively pointless in the broader context. The "Great Depression" was not just one very long "recessionary" period but rather two recessions that "bookended" a period of relatively strong economic growth.
An ugly day all around...
30Y Treasury yield - biggest 4-day yield compression in 15 months
Dow Transports - biggest single-day loss in ~5 months (2nd worst in 11 months)
Nasdaq - 2nd worst day in 10 months
AAPL - worst day in 3 months (2nd worst day of 2013)
USDJPY - biggest gain in JPY in 10 weeks
WTI - biggest single-day gain in 10 months
Financials - worst day in 10 months
In no particular order: Weak (and strong) US data (good or bad news?), War, Taper (Treasuries 'special'), Debt Ceiling, German elections, New Fed Chairman, imploding developing markets and collapsing global currencies... (S&P 500's first close <100DMA in 2013) it is on... (oh and S&P 500 futures 2nd biggest volume day in 2 months)
Financialization and the Neocolonial Model of credit-based exploitation leave immense human suffering in their wake when speculative credit bubbles inevitably implode.
Remember all of the propaganda ahead of the USA’s “democracy unleashing” invasion of Iraq in 2003. It went something like this: “We have evidence that Saddam Hussein has stockpiles of weapons of mass destruction, and even worse he has a histroy of using them, even against his own people!” Well unsurprisingly, Mr. Hussein had a little help from his friends. The United States of America. Let’s bear this in mind as our Noble Peace Prize winning President attempts to involve us in another unconstitutional war based on the fact that chemical weapons have been used. The message is clear: one man's propaganda bogeyman is another (CIA supported) man's mustard gas.
The US has been stockpiling helium in ‘The Federal Helium Reserve’ (no, really) – an underground reservoir near Amarillo – since it was built in 1929. There is also a processing plant and 450 miles of pipelines. The US produces about 75% of the world’s helium, with half of that stored in the aforementioned reserve. Although helium is abundant, it is not economically feasible to capture and extract it from the atmosphere. The problem is that the Congress passed ‘The Helium Privatization Act’ in 1996, which stated that the government would effectively end sales from the reservoir once its debt was paid off. And this is expected to happen in, um, early October.
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.