fixed

Remember this from September 2010? "Norway, which has amassed the world’s second-biggest sovereign wealth fund, says Greece won’t default on its debts. “The point is, do you expect these guys to default?” said Harvinder Sian, senior fixed-income strategist at Royal Bank of Scotland Group Plc, in an interview. “Norway has taken the view that they will not. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default.” Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity."... Uhm, Big Oops. Needless to say, this stupidity was roundly mocked by Zero Hedge at the time. Yet we can only applaud the fact that unlike other European investors (read primarily Italian banks) which are merely sinking ever deeper into the quicksand by dodecatupling down on pyramid scheme assets, the Norwegian SWF finally "plans to sharply reduce its European exposure while raising investments in emerging markets and Asia-Pacific, the finance ministry said on Friday." While we ridiculed their stupidity in 2010, we applaud Norway's prudence in this case, as unlike other insolvent European entities, the crude-rich country is not falling for the latest round of central planning bullshit, and is finally acting as a fiduciary agent. "We're reducing our European exposure because we see that economic development in the global economy is changing and this should also be reflected in our investment strategy," Johnsen said. "Most likely we'll have to sell some assets in Europe." Remember: in game theory he who defects first, defects best. We expect to see many more funds openly declaring they will commence dumping European assets, all of which are buoyed 100% artificially by the ECB, and US taxpayers, shortly.

With the first quarter of 2012 just about in the books, Nic Colas (of ConvergEx) looks at how the Exchange Traded Fund 'Class of 2012' has done in terms of asset raising to date. There have been 82 new ETFs listed thus far for the year and they have collectively gathered $1.1 billion in new assets through Wednesday’s close of business. While 63% of those funds have been equity-focused, fully 67% of the asset growth for the year has flowed into fixed income products. Just over half the total money invested in these new funds has had two destinations: the iShares Barclays U.S. Treasury Bond Fund (symbol GOVT, with $297 million in flows) and Pimco’s Total Return ETF (symbol TRXT, with $267 million in flows). The standout new equity funds of 2012 in terms of flows are all iShares products – Global Gold Miners (symbol: RING), India Index (symbol: INDA) and World Index (symbol: URTH). Bottom line: even with the continuous innovations of the ETF space, investors are still targeting international and fixed income exposure, a continuation of last year’s risk-averse trends and while 'ETFs destabilize markets' might be the prevailing group-think, this quarter’s money flows into newly launched exchange traded products reveals a strong 'Risk Off' investment bias. Interestingly, the correlation between inception-to-date performance and money flows is essentially zero.

Besides gold and silver, there is nothing that scares Central Planners (Bankers) more that oil.  In their delusional world where they play god with our futures, they think they can make the sheeple do whatever they want by adjusting the settings on a printing press and can thus determine the fate of the global economy and humanity itself.  What they hate more than anything else is when all of their money printing causes things like oil to rise because it exposes them for the charlatans that they are.  This is why Obama is constantly attacking speculators and oil companies.  It is all an attempt to scapegoat someone else for the financial nightmare that is hitting everyone’s wallet.  This is why they floated the absurd idea of releasing more oil from the U.S. Strategic Petroleum Reserve and then denied it once the market failed to react vigorously enough to the rumor.  This is also why Obama surely has called the Saudis up repeatedly as of later to remind them that they might see regime change unless they ramp up oil production to help his reelection.   This brings us to one of the most important aspects of the entire global economy at the moment.  Saudi oil production is hitting record highs at the moment.  In fact if you look at the chart below you will see that the Saudis have never consistently pumped more oil than they are right now.     

All you need to read and more.

The sad reality of an austerity induced slowdown in Europe and an ESFS/ESM as useful as a chocolate fire-guard seems to be creeping into risk asset premia across Europe (and implicitly the US). GGB2s are all trading back under EUR20 (that is 20% of par), Sovereign yields and spreads are leaking wider despite the best efforts of their respective banks to back-up-the-truck in the 'ultimate all-in trade' and the LTRO Stigma has reached record levels as LTRO-encumbered banks' credit spreads are the worst in over two months. Spanish sovereign spreads are back at early January levels and with Italian yields comfortably back over 5% and the bonds starting to reality-check back towards the much less sanguine CDS market. It seems apparent that much of the liquidity-fixing LTRO benefits are now being washed away as investors realize nothing has changed and in fact things are considerably worse now given encumbrance and subordination concerns and the increased contagion risk that the LTRO and the Sarkozy trade has created.

Three months ago, this site was the first to discuss the impact of abnormally high temperatures on "better than expected" economic data, which the mainstream media in its perpetual permabullish bias attributed to economic "growth", and not even to $1.3 trillion in ECB liquidity, which today even the ECB's Constancio admitted was nothing but QE: "The purpose of the European Central Bank's two three-year longer-term refinancing operations was to address banks' short-term funding issues and "nothing else." "The sole aim of the LTRO was to cater to the funding stress of euro area banks in general," Constancio said at a colloquium on macro-prudential regulation here. "It never crossed our minds that we were solving the sovereign debt crisis" with these measures. Hence QE, albeit masked by worthless collateral exchange to make the naive Germans believe the ECB was not outright printing money. It was. Now that the 'economy', and by that we mean the stock market of course, is finally turning over, the topic of the weather will start being far more prominently featured, as there will have to be a validation to unleash QE at either the April or the June FOMC meeting (something which the Chairman hinted at on Monday, and which Bill Gross has been saying for months). Why blame it on the weather of course. It is in this context that we show the latest Goldman Sachs economic outlook piece from Zach Pandl who now states that "unseasonably warm temperatures have lifted the level of nonfarm payrolls by 70,000-100,000 as of February." Call it erroneous seasonal adjustments (as we have for the past two months), call it a trigger happy BLS, or just call it people leaving their home more than if there was 6 feet of snow outside, the point is that now up to 100,000 jobs will have to be "given back." Which in turn means that next Friday's NFP forecast of +213K may just end up being as low as 113K, with the print coming just in time for the Chairman to commence warming up the printers, and soon enough to where more QE will give the president the sufficient bounce in stocks he needs to mask the debt ceiling breach in September.

We were delighted to see that the old headline scanning algos are still in charge of the FX market following "news", which were not even news, having been expected by absolutely everyone, that the EU is about to propose an expansion of Europe's bailout fund to a total of €940 billion for one year, by merging the €440 billion EFSF and €500 billion ESM - leading to a very transitory spike in the EURUSD. From Bloomberg: "European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement written for finance ministers. The euro-area finance chiefs will probably decide at a meeting in Copenhagen March 30 to run the 500 billion-euro permanent European Stability Mechanism alongside the 200 billion euros committed by the temporary fund, a European official told reporters earlier today in Brussels. Beyond that, they are also set to allow the temporary fund’s unused 240 billion euros to be tapped until mid-2013 “in exceptional circumstances following a unanimous decision of euro-area heads of state or government notably in case the ESM capacity would prove insufficient,” according to the draft dated March 23 and obtained by Bloomberg News." Three  things here: 1) Of the bombastic €940 billion in headline bailout money, only €300 billion or so will actually be available (sorry PIIGS - you can't bail out the PIIGS, also a third of the EFSF money is already tied up); 2) Europe is already preparing for the fade of the impact of the LTRO, which as pointed out earlier, has not only peaked, but courtesy of the LTRO stigma, which we suggested months ago to trade by going long non-LTRO banks and shorting-LTRO recipients, is starting to hurt all those firms who thought, foolishly, that the market would not go after them. They were wrong. And now Draghi is also boxed in an runaway inflation corner. And 3) Europe is back to the old mode of thinking that more debt will fix debt, even as the banking sector is forced to delever ahead of Basel III and due to shareholder requirements. This simply means that the eye of the hurricane over Europe's sovereign debt is about to pass. Those who miss 7% yields on BTPs won't have long to wait. Reality is once again starting to reassert itself.

Because of its interventions and bond purchases, ¼ of the ECB’s balance sheet is now PIIGS debt AKA totally worthless junk. And the ECB claims it isn’t going to take any losses on these holdings either. No, instead it’s going to roll the losses back onto the shoulders of the individual national Central Banks. How is that going to work out? The ECB steps in to save the day and stop the bond market from imploding… but the minute it’s clear that losses are coming, it’s going to roll its holdings back onto the specific sovereigns’ balance sheets?

Germany's recent 'agreement' to expand Europe's fire department (as Goldman euphemestically describes the EFSF/ESM firewall) seems to confirm the prevailing policy view that bigger 'firewalls' would encourage investors to buy European sovereign debt - since the funding backstop will prevent credit shocks spreading contagiously. However, as Francesco Garzarelli notes today, given the Euro-area's closed nature (more than 85% of EU sovereign debt is held by its residents) and the increased 'interconnectedness' of sovereigns and financials (most debt is now held by the MFIs), the risk of 'financial fires' spreading remains high. Due to size limitations (EFSF/ESM totals would not be suggicient to cover the larger markets of Italy and Spain let alone any others), Seniority constraints (as with Greece, the EFSF/ESM will hugely subordinate existing bondholders should action be required, exacerbating rather than mitigating the crisis), and Governance limitations (the existing infrastructure cannot act pre-emptively and so timing - and admission of crisis - could become a limiting factor), it is unlikely that a more sustained realignment of rate differentials (with their macro underpinnings) can occur (especially at the longer-end of the curve). The re-appearance of the Redemption Fund idea (akin to Euro-bonds but without the paperwork) is likely the next step in countering reality.

A warning by the SEC in mid-March 2011 regarding repo-to-maturity trades suggests otherwise.  

There is noise and fluff and soap bubbles floating in the wind but don’t be distracted. Like so many things connected to the European Union it is just hype. In the first place do you think that any nation in Europe is actually going to put up money for the firewall no matter what size that they claim it will be? Let me give you the answer; it is “NO.” The firewall is just one more contingent liability that is not counted for any country’s financials, one more public statement of guarantee that everyone on the Continent hopes and prays will never be taken too seriously and certainly never used. Any rational person knows that some promise to pay in the future will not solve anything and it certainly won’t create some kind of magic ring fence around any nation. Think it through; what will it do to stop Spain or Italy from knocking at the door of the Continental Bank if they get in trouble and the answer is clearly nothing, not one thing. The firewall is just a distraction to lull all of you back to sleep and all of the headlines and discussion about it makes zero difference to any outcome and so is nothing more than a ruse. “Look this way please, do not look that way, pay no attention to the man behind the curtain, put up your money to buy our sovereign debt like a good boy and everything will be just fine.”

Much has been made of the lack of retail participation in the casino equity market rally of the last few months (and few years for that matter). Whether it is a signal of the individual investor's overly anxious nature and only the pros 'get it' or more likely this is the end of the baby-boomer-driven secular savings and investment bonanza is perhaps more likely as a nation of soon-to-be-retirees rotate from massive-drawdown-inducing stocks (no matter how diversified your group of trees, when the tornado hits the forest, they all fall down) to the relative (low-drawdown) safety (and steady income) of fixed income. Nowhere is this 'its different this time' secular shift more evident than in cumulative fund flows.

• 6.0+ Magnitude quake strikes near Tokyo (USGS)
• Ireland Faces Legal Challenge on Bank Bailout (Reuters)
• Bernanke says U.S. needs faster growth (Reuters)
• Spain Promises Austere Budget Despite Poll Blow (Reuters)
• Orban Punished by Investors as Hungary Retreats From IMF Talks (Bloomberg)
• Obama vows to pursue further nuclear cuts with Russia (Reuters)
• Japan's Azumi Wants Tax Issue Decided Tuesday (WSJ)
• Australia Losing Competitive Edge, Says Dow Chemicals CEO (Australian)
• OECD Urges ‘Ambitious’ Eurozone Reform (FT)
• Yields Less Than Italy’s Signal Indonesia Exiting Junk (Bloomberg)

Sarkozy is grasping at straws ... and created a new classification of people in France and maybe even in the whole entire world.

It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning's tungsten brick road. Yet in the aftermath of last month's stunning surge in the country's trade deficit, this, and much more may soon be finally ending. Because as Caixin's Andy Xie writes "The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then." As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: "Yen devaluation is likely to unfold quickly. A financial bubble doesn't burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low. Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government's solvency could lead to a collapse of the JGB market." It gets worse: "Of course, the government will collapse with the JGB market." And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world's rapidly declining 3rd largest economy to take precautions for when this day comes... soon.