In what will likely be the first major municipal bankruptcy of the New Normal, Harrisburg is likely about to shut the gates. In an interview conducted with restructuring site Debtwire, the City's controller Dan Miller said Harrisburg would be better off filing for Chapter 9 than trying to restructuring finances under Act 47, the Financially Distressed Municipalities Act. He added that the latter has never solver the problems of any municipality that entered the program and the institution of a commuter tax in Harrisburg to avoid a Chapter 9 would be unworkable. On the other hands, "when reached for comment, long-time opponent of a Chapter 9 filing for the city, PA governor Ed Rendell said Harrisburg officials have not given him any indication that they will seek Chapter 9 protection. Rendell said he hopes that the city "will either sell assets or seek Act 47" before making a Chapter 9 filing." Alas, it appears the nearly bankrupt city has run out of options.
UN Security Council Condemns Cheonan Sinking, An Act North Korea Had Stated Would Be Considered An Act Of WarSubmitted by Tyler Durden on 07/08/2010 17:41 -0400
On June 15, North Korea threatened military action Tuesday in response to any UN censure over the sinking of a South Korean warship. As AFP then reported, "We don't want the Security Council to take measures provoking us," Pyongyang's ambassador to the United Nations, Sin Son Ho, told reporters in a rare press conference here by North Korea. If the 15-member UN Security Council takes action against Pyongyang "follow-up measures will be carried out by our military forces...I (will) lose my job," he warned. It appears the UN's Security Council has decide to call North Korea's bluff. The AP reports that "The United States has introduced a draft statement in the U.N. Security Council that would condemn the deadly sinking of a South Korean warship and express "deep concern" at the finding of an international investigation that blamed North Korea for torpedoing the vessel." It was however, unclear, if according to the draft statement would directly place the blame on North Korea, or if the condemnation would be targeted at nobody in particular, leading to a major political victory for the communist country.
Paulson Hit With $2 Billion In Redemption Requests, Likely Source Of Recent Gold Market LiquidationsSubmitted by Tyler Durden on 07/08/2010 16:27 -0400
Absolute Return+Alpha reports that John Paulson's $33 billion hedge fund is now substantially lighter in AUM courtesy of scared investors pulling $2 billion in redemptions by the end of June. Whether this was driven by the disclosures of the fund's participation in the allegedly illegal Abacus transaction, or the fund's deplorable performance in June is unknown and irrelevant. What is relevant is that this confirms our suspicions regarding volatile moves in gold in recent days, are driven primarily by liquidations, most likely those emanating from John Paulson's gold portfolio, which as of the most recent 13F, accounted for 30% of the fund's total assets via ETFs (GLD), miners and other secondary exposure.
The latest market trampoline action on horrendous consumer credit news should be sufficient to get every last sane person out of this illegal, yet fully government endorsed, backdoor gambling operation, or at least those that are stupid enough not to be trading with other people's money. Today marks the most recent long white candlestick on almost record low volume for a ramp day. Note the straight line higher immediately following the consumer credit collapse and the leak that QE2 is coming any minute. Our only question is how bad is the news coming this weekend for the primary dealers to need to surge the market so high on nothing. Well, that, and also we wonder if after the circus rang the closing bell on the Nasdaq two days ago, whether today the Sicilian mafia will be at the NYSE close.
For those that care about real freedom, genuine progressive reforms and this Republic in general there are all sorts of things you can do and they are being done all over the place. I actually think this group will fail miserably and ultimately be brought to justice. I simply think too many smart people have woken up to the scam and the entire system will implode on itself. So as I have written before the key is NOT to be consumed by fear but rather to take action. Get your finances in order with gold and silver and other real assets but also get mentally and emotionally prepared. This is because if you are not in a position to help your neighbors then you are no good to anyone. This will not be about hunkering down in a bunker and emerging rich once the dust settles. It is about staying intact financially and emotionally so that you can help rebuild a better nation when the current world paradigm comes to an end which should happen swiftly within the next 1-2 years. Most importantly do not look for leaders to save anything or anyone. It not about looking outside it’s about looking inside as Gandhi said. If we become the change we want to see in the world the world will change. Messianic leaders are a myth and meant to control you and stop you from personal action and independent thought. Thinking a new leader will change the world just gives you an excuse to be lazy.
- Mike Krieger
Consumer Credit Plunges In May, April Revised Much Lower, As Government Only Marginal Lender For Two Months In A RowSubmitted by Tyler Durden on 07/08/2010 15:24 -0400
The latest consumer credit number continues the decline we have seen in recent months, plunging from $2424.4 billion in April to $2415.3 billion in May, a $9.1 billion decline, or 4.5% annualized, on consensus of $2.3 billion. Yet the biggest stunner was the April revision which was whacked from +$1 billion to a revised -$14.9 billion! In other words, there has been a $24 billion decline in consumer credit in the past two months. The biggest hit was, as usual, experienced by revolving credit accounts, which fell by a 10.5 annualized rate to $830.8 billion, from $838.2 billion in April, and just north of $910 billion a year earlier. The bottom line is that consumers continue to retrench as the deflationary wave gets ever bigger. And the only lender, for the second month, running, is guess who... Yet stocks, which confirm again they are now completely decoupled from facts, statistics, or reality in general, jump on this very negative development.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 08/07/10
The last few weeks there have been a whole bunch of puttable CDs being issued by European banks, and overall apparently that has given money markets some confidence and money is being put to work. That also explains why people have been buying EDU0 99.50 and 99.625 calls or the future outright, a thawing of the funding market would clearly lead to lower Libor, and the Fed which had started pulling liquidity away has basically stopped with global liquidity indicators showing signs that cash has been added to the system. Those puttable securities allow money market funds to treat it as a trade of maturity the put notice, rather than the full duration of the CD is the option is not exercised: you basically get a 1Y rate for a 7 day deal yeeeehhaaaaw! So Money Funds love it, and even though the banks don't get credit for full duration liquidity but instead liquidity that has the put notice as duration, it allows them to fund themselves. No wonder European banks love it too. It then makes complete sense to see EURUSD doing a bit better even when stocks sell-off, and we get compressing swap spreads and lower vol as well (helped by both selling of the optionality by money market funds who only really care about going around their new SEC regulation not buying options, and a slew of agency issuance being digested).
Yet another data point on why the Obama administration and BP are both so concerned about media access to spill areas comes courtesy of this youtube video by jamescfox. In his own words: "Oil and water samples were taken from both the Shores of Grand Isle and from 20 miles out. The preliminary analysis was done at an academic analytical chemistry laboratory. Looking for the likely pollutants from the deep water Horizon Oil spill. It was focused on the detection of benzene and propylene glycol. Benzene and other highly toxic contaminants were very low however the concentration of propylene glycol was between 360 and 440 parts per million. Just 25 parts per million is know to kill most fish and propylene glycol is just one of many ingredients found in Corexit. In short, the Gulf is being poisoned by BP's usage of the dispersants even after the EPA asked them to stop back in May. We are willing to provide ANY respected/known laboratory these samples or provide them with more. This is very serious to all people and marine life in and around the Gulf."
Just like Goldman top ticked the EURUSD trade to within a few hours of the multiyear low of the pair when it issued its downgrade from 1.35 to 1.15, so today's notice that Goldman is now bearish on the dollar should be enough reason for everyone to short the living daylight out of the euro. Amusingly even as the GS Global Market team sees a major slowdown in the US, somehow the rest of the world (BRICs) is supposed to pick up the slack, even as Jim O'Neill himself has now said he expects China to decelerate materially. Also, according to Goldman's "GS Bond Sudoku Model" the fair value on the 10 Year is at 3.1%, "with a very grim macro backdrop needed to justify yields at 2.5% or below." Well if the Sudoku says so... Altogether confusion is rampant, but the only thing that matters is that Goldman is now buying dollars and selling euros.
Details of the latest offering of the 3-10-30s have been released. Between July 12 and 14, the US Treasury will auction off $69 billion of 3, 10 and 30 Year bonds.
- $35 billion in 3 Year Bonds on July 12 (link)
- $21 billion in 10 Year Bonds (reopening) on July 13 (link)
- $13 billion in 30 Year Bonds (reopening) on July 14 (link)
We anticipate there will be no glitches in the take down of this latest total, which amounts to about 33% of the average recent monthly deficit, as "direct bidders" continue to increase their participation. These auction will be promptly followed by another 2,5,7 offering as there are hundreds of billions in budget shortfalls that can only be funded thru endless debt issuance.
The irrational exuberance of the last 24 hours has evaporated following the Meredith Whitney downgrade of Goldman 2010 EPS, but mostly after reports that some European banks are so busted they managed to fail an exquisitely doctored test designed so that no banks would fail. The market is once again wondering if someone can fail this farce, what would the test of reality look like? The result: the traditional carry-risk correlation has once again recoupled and with countless such occurrences continues to be the most routinely profitable intraday trade available.
The irrational exuberance of the last 24 hours has evaporated following reports that some European banks are so busted to fail an exquisitely doctored test designed so that no banks would fail. The market is once again wondering if someone can fail this farce, what would reality look like? The result: the traditional carry-risk correlation has once again recoupled and with countless such occurrences continues to be the most routinely profitable intraday trade available.
Just a rumor for now. On the other hand, it conforms precisely to Credit Suisse's earlier announcement that Post Bank, in addition to Greek ATE, Piraeus, Helenic Postbank NBG would fail the Stress tests. (more to come).
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 08/07/10
Some interesting developments in the mutual fund arena, where a trailblazer, the Appleseed Fund, has announced that beginning July 1 it will no longer invest in Too Big To Fail banks: "Given the failure of regulators to prevent the previous credit crisis
and the subsequent failure of legislators to break up the massive and
very much interconnected banks that helped to create the crisis, it is
incumbent on depositors and investors to vote with their wallets. Until
the financial system is truly restructured, the Appleseed Fund will
avoid investments in too-big-to-fail banks, choosing instead to invest
in regional banks, community banks, and credit unions which lend money
to families and businesses that operate in the productive sectors of our