The sensible Sausalitan is back and this time he is taking on the "baffle 'em with bullshit" conclusion of last week's "non-game-changer" EU Summit. After some self-congratulatory chatter on his timely call for markets to ebb from April, Charles Biderman (CEO of TrimTabs) chokes back the spittal as he reflects on what came out of the mouths of European leaders last week: "I cannot see anything new from last week's summit" as he summarizes the findings clearly "The ECB possibly will print more money and save some Spanish and Italian banks". We can't help but agree with Charles when he adds: "Where have I heard that before? Printing Money To Save Banks - wow, how original?". Biderman still believes the Fed will engage in more money-printing but the stock market's current rally is temporary and will falter once again until Bernanke pre-announces his next print-fest. "Money-printing is the only solution left for Central Banks and in reality without fundamental changes in the way Europe and the US is run, the best money-printing can do is keep the dieing alive a bit longer"
As the stock surge on escalating bad news accelerates, here is one more datapoint that should be good for at least 5 more S&P points: Goldman just lowered its Q2 GDP forecast even more, from 1.6% to 1.5%.
Wonder who was pushing Barclays to manipulate its rate? Why none other than the English Fed. From BBG:
- BARCLAYS SAYS BANK OF ENGLAND CALLED ON OCT. 29, 2008 ON LIBOR
- BARCLAYS SAYS DIAMOND MADE NOTE OF CALL
- BARCLAYS SAYS DIAMOND RECEIVED CALL FROM PAUL TUCKER
- BARCLAYS SAYS TUCKER SAID `CERTAIN' BARCLAYS DIDN'T NEED ADVICE
- BARCLAYS SAYS TUCKER SAID DIDN'T ALWAYS NEED TO BE SO HIGH (Supposedly LIBOR)
- BARCLAYS SAYS DEL MISSIER CONCLUDED INSTRUCTION HAD BEEN GIVEN
- BARCLAYS SAYS DEL MISSIER TOLD RATE SETTERS TO LOWER RATES
In other words, a central banks was directly and indirectly involved in manipulating interest rates. Say it isn't so. Fast forward two months when the BOE's Tucker testifies that the Chairsatan made him do it.
Things in broke Europe are becoming stranger by the minute. Stepping away from the Bank of England telling private institutions what to do, and overriding fiduciary responsibility, we now shift to France, but not in the context of the Second Great Socialist Revolution and its Fairness Doctrine annex, but to the home and office of ex-president Nicholas Sarkozy whose home and office where just raided according to Politique in connection with long-running allegations that his presidential campaign had been illegally funded by France's richest woman Lilliane Bettencourt. Do you see what happens Larry when there are no PACs and it is illegal for rich people to outright bribe politicians?
Following our discussion of the significant drop in Goldman's Global Leading Indicator (GLI), the 'Swirlogram' depiction of the business cycle (that we have described in detail here and here) has crashed hard into a contractionary phase. Three things stand out dramatically: 1) the velocity of entry into contraction (which empirically suggests a much harder landing) is extreme; 2) the difference between the initial and final data is dramatic indicating the false sense of hope from seasonals had given investors coming out of Q1; and 3) the current position of the Swirlogram is at nearly the same place as this time last year (with growth close to 2011 lows) - which we note was only solved by globally coordinated central bank largesse. With the market seemingly buoyed by risk sentiment currently, and with macro fundamentals still deteriorating, it appears biasing to the short-side makes sense should data weakness continue.
While the CIO was clearly not populated by the smartest guys in the room, it appears the bank that just can't get a break has hit another snag as the Federal Energy Regulatory Commission is probing them over 'bidding practices' and abusive trading in California and Midwest energy markets. Via Bloomberg:
- *FERC PROBES POTENTIAL POWER-MARKET MANIPULATION BY JPMORGAN
- *FERC ASKS U.S. COURT TO ORDER JPMORGAN TO PRODUCE DOCUMENTS
- *FERC SAYS PROBE COVERS JPMORGAN'S `BIDDING PRACTICES' :JPM US
- *FERC SAYS CALIFORNIA, MIDWEST OPERATORS CITED ABUSIVE TRADING
Is there a wondrous capital structure here for Bethany Mclean to investigate? We can only assume that JEDI Morgan is 'not the Chewco FERC is looking for'.
With the Great June Socialist Revolution spilling over into July, here are some details as they become available from France:
- FRANCE TO HAVE NEW TAX RATE OF 45% FOR WEALTHY
- FRANCE TO TAX INCOME OF MORE THAN EU1 MLN AT 75%, AYRAULT SAYS
- FRANCE TO TAX CAPITAL INCOME AT SAME LEVEL AS WAGES
- FRANCE TO RAISE TAXES FOR LARGE COMPANIES, BANKS, OIL FIRMS
But... FRANCE TO ANNUL PLANNED VAT INCREASE PLANNED BY SARKOZY
After all, it's only fair. In other news, we are rotating our secular long thesis away from Belgian caterers and into tax offshoring advisors, now that nobody in the 1% will pay any taxes ever again.
US Military Re-Surging In Persian Gulf As Turkey Scrambles Jets For Third Day And Iran Fires Medium-Range MissilesSubmitted by Tyler Durden on 07/03/2012 09:34 -0400
US military "surge" is back in the Persian Gulf + Iran fires medium-range missiles + Turkey scrambles jets for third day in a row = $100+ Brent
I don’t know, in my rather straight down the middle Kansas City mind I prefer a reality where one plus one is two and not where some European auditor, when asked about the sum of one plus one says, “What number would you like?” This was the way of it in “Alice in Wonderland” of course as the meaning of the word was determined by the speaker but this is not a wise path to be followed by an investor. Recently I wrote about Firewalls and the hocus pocus of their being touted as the cure-all for Europe. Europe missed the train on this one altogether as no amount of money, either pledged or funded, will do one thing to help the worsening financial crisis of the countries in Europe. You may think of the nations of Europe as horses in a corral. What is the value of a bigger and bigger fence that surrounds them if the horses are full of cancer? The fence, of whatever size, does nothing and I mean nothing to help the sickness of the horses. Europe is battling with windmills when they should be addressing the financial health of each country. “The horses are sick,” I say, “forget fiddling with the fence.”
Judging by the modest rallies in what was already hugely oversold risk asset markets in a perfectly timed illiquid 'holiday' mode, it would appear that, just as MEP Nigel Farage blasts his European Parliamentary leaders, "Breakthrough? Nobody believes you". The new bailout vehicle - the ESM - is doomed before it starts as he notes "the wheels are coming off" highlighting the legal challenges in Ireland and Germany, the Estonian Justice Minister saying it won't fit their constitution, but most fun of all, the erudite Englishman barks "the Fins and the Dutch seem to have broken the agreement that was made in the middle of the night". Perhaps the "little countries" don't have a say in Europe anymore as his frustration with Barosso and Van Rompuy in their self-congratulatory smugness is clear when he jibes that "The Euro-crisis appears to be insoluble" noting that their incessant public calls that the worst is over or finger-pointing and blaming others has made them "an international laughing stock". It appears, like us, Farage does not see this as a game-changer - concluding that vacations should be put on hold as "the markets will all but guarantee we'll all be back here in August".
Fundamentals (inflation expectations, longer-term savings and investment objectives) should be driving current demand for gold coins. And, this is exactly what we are seeing. In June 2012, the US Mint sold 54,500oz of coinage gold, up on 53,000 in May 2012. Total for H1 2012, US Mint sales of gold coins in terms of total weight sold are down 41.3% on H1 2011 and it is down 49.8% on H1 2010 and 50.3% on H1 2009. Dramatic? Sure, when one disregards consideration of drivers for 2009-2011 demand for coins being coincident with extreme risks in other markets. Total H1 2012 demand was at 338,000oz still well ahead of H1 average demand for 2000-2007 period when it was 165,679oz, but down on 531,750oz average for H1 2008-2011 crisis period. Exactly the same picture - return to fundamentals - is seen in the number of coins sold. Consistent with still robust demand drivers, H1 2012 average coin sold contained 0.60 oz, while H1 2000-2007 period average was 0.51oz and H1 2008-2011 period average was 0.76oz.
After two days of solid gains, European equities continue the upward trend and are seen higher at the North American crossover, with the Basic Materials sector leading the way, followed by financials. The moves in equities follow overnight reports from Chinese press, once again calling for the PBOC to slash their RRR, as well as expectations that this Thursday both the ECB and the BoE will conduct monetary easing, possibly boosting future commodity demand. In the fixed income markets, the European 2s/30s curve continues to see bear-steepening following last night’s announcement from the Dutch Central Bank that has changed Dutch insurers’ Solvency II interest rate curve; modifying the maturities in which the firms must hold assets towards the longer-end. Today also saw official confirmation from the Irish debt agency that they are to return to capital markets with T-bill issuance on July 5th, their first return to the market since 2010. Investor reaction to this news is evident in the shorter-end of the Irish yield curve, where the 2-yr bond yield spread against their German counterpart is firmly indicating the risk of returning to the market; currently wider by around 20bps.
Objective analysis, or media spin to gauge popular reaction to Plan Z? Whatever it is, today's staff lead article in the English section of Spiegel has a piece that will likely raise more than a few eyebrows: "The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties."
Anyone wondering if the reason why Diamond resigned less than 6 hours ago is because he suddenly grew a conscience, will be disappointed. The real reasons are two: on one hand politicians were concerned he would make it public where all the bodies were buried as reported last night, in the process taking down at least half the English political establishment, obviating his departure from the public eye immediately, and, more importantly, as BBC's Robert Peston reports, the English Fed, that "impartial" and "apolitical" institution known as the Bank of England, got involved. From Peston: "I have learned that Bob Diamond's departure was encouraged by the Governor of the Bank of England, Sir Mervyn King, and the chairman of the Financial Services Authority (FSA), Lord Turner."