Anxiety over the Qingdao port and warehouse probe is slowly but surely creeping through all the commodities that were used in China's commoditty-financing-deals (as we noted here). With Copper hurting (and gold picking up), Iron Ore prices have tumbled to 21-month lows (near the lowest since 2009) as 'real' demand slows as the economy slows and 'financial' demand is crushed as "banks are more vigilant about iron ore financing." As Bloomberg reports, investigators are trying to determine if individual batches of commodities were used multiple times to secure loans. This is making banks nervous (shadow and non-shadow) and while iron ore inventory is falling, prices are adjusting lower rapidly as traders anticipate "financing problems forcing traders to dump ore."
The numbers that you are about to see are likely to shock you. They prove that the global financial Ponzi scheme is far more extensive than most people would ever dare to imagine. The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises. It is literally a miracle that it has survived for so long without collapsing already. But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
- Iraqi Drama Catches U.S. Off Guard (WSJ)
- Al-Qaeda Offshoot on NATO Border Threatens Turkish Rally (BBG)
- It's just the snow, people: U.S. Economic Recovery Looks Distant as Growth Lingers (NYT)
- Freed Taliban leaders may remain in Qatar beyond one-year travel ban (Reuters)
- BNP Paribas Executive Chodron de Courcel to Quit Post (WSJ)
- Greenmail is back (WSJ)
- Facebook Places Multiple Bets to Win Messenger Wars (BBG)
- ECB easing to benefit Ukraine, Russia corporate bonds (Reuters)
- Rome Shows the World How Not to Run Bike-Sharing Program (BBG)
Corporate “inversions” have been around since the 1980s in various forms but have come back into focus recently, but as Goldman's Alec Phillips notes have recent regained popularity as world tax rates grow ever more divergent. On the back of several high profile 'proposed' deals, a certain level of hysteria has taken hold amid potential targets but the issue has drawn enough attention that politicians are once again considering intervening. As Goldman warns, however, companies considering these transactions may now hesitate in light of the possibility that the expected tax benefits will be undone (and expect broad-based tax reform to reduce, if not eliminate, any advantages).
In his first press conference since the loss last night, it is widely expected that Eric Cantor will resign as House Majority Leader (on July 31). Of course, we are sure Goldman Sachs and BlackRock are fascinated to hear how they are going to get their money back?
As we showed yesterday, with the shocking departure of Eric Cantor from the political scene, perhaps no firm is more disappointed that it will not generate the hoped 77,500%+ IRR on its "investment" in the Republican politician than Goldman Sachs. Indeed, of all 435 representatives in the House, Cantor was the one person that Goldman had contributed the most cash to in 2014. But before you panic just how will Goldman survive, here is a list of all the other representatives and senators that Goldman has invested its hard stolen earned cash in just the 2014 year alone.
Brazil wins the world cup... according to Bloomberg, 171 economists, and Goldman Sachs. They beat Spain, Germany, or Argentina in the final respectively but as one survey participant noted, "It’s kind of hard to bet against Brazil -- they have home advantage, the climate, crowd and recent record." Goldman's 'model' implies a 48.5% chance that Brazil wins it all (with Argentina 2nd most likely to win at 14.1%). While all eyes will be on Ronaldo, Goldman's Dream Team is dominated by 3 Brazilians (including Neymar of course) but based on the 6-factor Poisson distribution-based regression model, Goldman predicts the scores of every game (and Bloomberg's interactive graphics allow to create your own bracket). If only the Brazilian people were so certain about their futures...
When David Tepper speaks, markets (especially those short) quake as the sheep blindly follow him into the breach; so when he said he "was nervous" recently, bulls got scared (briefly). As PageSix reports this morning, Tepper is nervous once again as the world's highest paid fund manager has split with his wife of nearly 30 years. The split could well be the most expensive hedge fund divorce ever and we suspect comments such as this did not help... "What do you think I should do with it? . . . I could buy an island. I could buy a private jet . . . I could get myself a 22-year-old!"
"Step 4: Repeat Step 1-Step 3 as many times as possible, during the period of LC (usually 6 months, with range of 3-12 months). This could be 10-30 times over the course of the 6 month LC, with the limitation being the amount of time it takes to clear the paperwork. In this way, the total notional LCs issued over a particular tonne of bonded or inbound copper over the course of a year would be 10-30 times the value of the physical copper involved, depending on the LC duration."
2013 was a good year for Goldman Sachs investments in Emerging Markets, most notably Venezuelan bonds (as they bet on socialism and won). A year later and Goldman's EM debt portfolio is still loaded with Venezuelan bonds... and the arrears are mounting. As Bloomberg reports, at a time when Venezuela’s record $25 billion in arrears to importers has its citizens waiting hours in line to buy drinking water and crossing borders in search of medicine, President Nicolas Maduro is using the nation’s dwindling supply of dollars to enrich bondholders.
Over a year ago we were the first to bring the topic of China's shadow banking system's problematic rehypothecation issues to the general trading public. In "The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"?" we explained how the Chinese commodity financing deals (CCFDs) worked and how they would inevitably be a systemic event for the nation so dependent on the shadow banking system for its credit (and its "growth"). The day has arrived when the Bronze Swan is landing (and it's unlikely to be soft). As we have discussed recently, the probe into 'missing' collateral (or multiple-used collateral) at China's Qingdao warehouse is a major problem... and now Goldman confirms, the Qingdao situation likely to continue ongoing CCFD unwind and has the potential to leave foreign banks with undercollateralized loans and/or losses.
The great mystery of the endlessly levitating market continues to confound everyone, even Goldman Sachs. Because while the market soared in May (and has continue to surge in June) contrary to the sell in May mantra, when peeking beneath the market's covers, Goldman has found that most investor groups did just as they are supposed to do for this time of the year: they sold!
Risk is no longer priced into anything. Volatility has gone to sleep. Uniformity of thought has taken over the stock market. Complacency has reached a point where even central banks have begun to worry about it: the idea that markets can only go up – once entrenched, which it is – leads to financial instability because no one is prepared when that theory suddenly snaps. But all this bullishness, this complacency is only skin deep. Beneath the layer of the largest stocks, volatility has taken over ruthlessly, the market is in turmoil, people are dumping stocks wholesale, and dreams and hopes are drowning in red ink.
As we noted in the pre-open, the "BTFATH mentality" will be alive in well' and sure enough Goldman Sachs' S&P 500 Target for June 2015 was 1950, we just reached it 11 months early (1949.25 highs to be exact). Their corresponding target for 10Y yields at that level of S&P is 3.50% (so we are 90bps lower) and earnings expectations to support that price was $120 per share (dramatically higher than the current level). Goldman's 2014 Target is 3% lower than the current level. Nothing to see here, move along...