headlines

By way of post-mortem of this afternoon's epic Paul vs Paul Bloomberg TV cage-match, we reflect on the various headlines the two gentlemen made during the event and in the context of the credibility with which one of the gentlemen discusses his ability to manage the world and the 'ease' with which he and his henchmen can control inflation (and yet an unmanaged economy is subject to 'extreme volatility'), we remind readers of the post-WWII years and the extreme swings in purchasing power that their so-called managed economy created. As ever it appears the mutually-assured-destruction fall-back premise of Keynesian Krugman is trumped by the fact-based method of the more Pragmatic Paul.

• *KRUGMAN SAYS UNMANAGED ECONOMY SUBJECT TO "EXTREME VOLATILITY"
• *PAUL SAYS FED IS LENDER OF LAST RESORT FOR POLITICIANS
• *KRUGMAN SAYS U.S. ECONOMY IS "PERSISTENTLY DEPRESSED"
• *RON PAUL: FED HAS DESTROYED 98% OF DOLLAR'S VALUE SINCE 1913

All major European bourses are trading lower with the exception of the DAX, which holds just above the open by a modest margin. Adidas ranks among the top performers in the German index, following the report of a strong set of sales figures, contributing to the positive trade. Spanish concerns continue to build up as Standard & Poor’s took ratings action on 16 of the country’s banks, downgrading the notable names of Banco Santander and BBVA. Although the move was not a surprise as this is the usual procedure following a sovereign downgrade, both Santander and BBVA, along with the IBEX are in negative territory.  The Bund is seen higher amid a generally risk-off theme to markets this morning. Volumes have been relatively light, however a slight pick-up has been observed in recent trade, grinding the security upwards in the last hour or so.  EUR/USD continues to experience weakness and now trades close to a touted option expiry of 1.3200, as traders seek the safety of the USD across a number of currency crosses.

The US is now about to enter fully-fledged "election mode". With only two candidates left in the "race" for the Republican nomination - only one according to the mainstream media, but more on that below - the "issues" at stake in the upcoming election are now being very carefully tailored for an increasingly unruly domestic US political audience. A less polite way of phrasing this is that the spin is becoming dizzying. The foremost task of preparing for the November vote is to maintain the illusion that any and all economic or financial "hiccups" which might affect the US in the next six months are not home gown. The US establishment has never fooled all of the people all of the time -just enough of them to keep their power. The problem is that this keeps getting harder to do.

Holland entered the bond vigilantes' radar screens abruptly this weekend, following some vague rumbling that it may be downgraded if it doesn't get its deficit in order, and culminating with a cabinet collapse once the critical austerity deal was unable to be reached. Subsequently the cabinet resigned en masse. It seems it may have to be now reappointed en masse with headlines blasting that...

• DUTCH PARLIAMENT MAJORITY BACKS BUDGET DEAL, ANP REPORTS

The paradox is that in this market, in which more European turbulence is actually good for risk assets as it brings the inevitable next LTRO/easing event closer, any diffusion of Dutch tensions would be market neutral. Yup: enjoy the Constanza market.

Recall what we said less than an hour ago: "what will most likely happen is a print in the mid to upper 380,000s, while last week's number will be revised to a 390K+ print, allowing the media to once again declare that the number was an improvement week over week. In other words, SSDD." SSDD it is: last week's 386K number was revised to 389K, meaning the massive miss relative to expectations of 370K last week just got even worse. This is the 10th week in a row of misses to the weaker side and the 16th of the last 18. And while this week's miss was whopping as usual, with expectations of 375K being soundly missed after the print came at 388K on its way back to 400K, the media can sleep soundly because the absolute lack of BLS propaganda means that the sequential progression is one of, you got it, improvement. In other words here is what the headlines in the Mainstream Media will be: "Initial claims improve over prior week." In fact here it is from Bloomberg: "U.S. Initial Jobless Claims Fell 1,000 to 388,000 Last Week." Absolutely brilliant.No propaganda. No data fudging. No manipulation at all. Just endless laughter at the desperation.

All you need to read and more.

We start today's story of the day by pointing out that Deutsche Bank - easily Europe's most critical financial institution - reported results that were far worse than expected, following a decline in equity and debt trading revenues of 23% and 8%, but primarily due to Europe simply "not being fixed yet" despite what its various politicians tell us. And if DB is still impaired, then something else will have to give. Next, we go to none other than Deutsche Bank strategist Jim Reid, who in his daily Morning Reid piece, reminds the world that with austerity still the primary driver in a double dipping Europe (luckily... at least for now, because no matter how many economists repeat the dogmatic mantra, more debt will never fix an excess debt problem, and in reality austerity is the wrong word - the right one is deleveraging) to wit: "an unconditional ECB is probably what Europe needs now given the austerity drive." However, as German taxpayers who will never fall for unconditional money printing by the ECB (at least someone remembers the Weimar case), the ECB will likely have to keep coming up with creative solutions. Which bring us to the story du jour brought by Suddeutsche Zeitung, according to which the ECB and countries that use the euro are working on an initiative to allow cash-strapped banks direct access to funding from the European Stability Mechanism. As a reminder, both Germany and the ECB have been against this kind of direct uncollateralized, unsterilized injections, so this move is likely a precursor to even more pervasive easing by the European central bank, with the only question being how many headlines of denials by Schauble will hit the tape before this plan is approved. And if all eyes are again back on the ECB, does it mean that the recent distraction face by the IMF can now be forgotten, and more importantly, if the ECB is once again prepping to reliquify, just how bad are things again in Europe? And what happens if this time around the plan to fix a solvency problem with more electronic 1s and 0s does not work?

The FOMC statement once again had a little for everyone but critically lacked the all-important- "we'll print now and to infinity". Key headlines from the statement, via Bloomberg:

• *FED SAYS ECONOMY `EXPANDING MODERATELY'
• *FED SAYS INFLATION `HAS PICKED UP SOMEWHAT' ON ENERGY
• *FED SAYS GROWTH TO STAY MODERATE, `THEN TO PICK UP GRADUALLY'
• *LACKER DISSENTS FROM FOMC DECISION
• *FED SEES `SIGNIFICANT DOWNSIDE RISKS'
• *FED SEES `EXCEPTIONALLY LOW' RATES AT LEAST THROUGH LATE 2014

Pre-Fed price levels:

ES 1382, IG 98.6bps, HY $95.58, 10Y 1.97%, Gold 1639, EUR 1.3200, AAPL 609.5

Immediate Reaction

10Y +3bps, Gold -$10, ES -1pt, EUR -15pips, AAPL -$0.5

Full Statement Redline...

European equities are seen making modest gains at the midpoint of the European session; however underperformance is observed in the FTSE 100, with the UK economy falling back into a technical recession with an advanced Q1 GDP reading of -0.2%. Data from the ONS has shown that the UK’s weak construction sector weighed down upon the relative strength in services and manufacturing, pushing the economy into contraction during the first three months of the year. Following the UK GDP release, GBP/USD spiked lower by around 40 pips and the Gilt moved around 30 ticks higher, with GBP remaining weak as the US comes to market. Elsewhere, the Bundesbank held a technically uncovered 30-yr Bund auction, with the German Debt Agency commenting that the results reflect volatile and uncertain market conditions. Following the results, the Bund printed session lows and remains in negative territory. Looking ahead in the session, participants look forward to the FOMC rate decision, and the Fed’s projections release.

As we said yesterday, traders could have just slept through the entire day, ignored headlines about mad cows, auctions of European bonds maturing in a few weeks, speculation of Europe's alleged falling out favor with austerity which is very much irrelevant as all that matters is what German taxpayers/voters say, and the SEC's latest laughable scapegoating attempts, and just woken to the 4:30 pm announcement of iPhone sales in China. As expected, the entire world is now reacting. Here is Deutsche Bank's Jim Reid with the global response to the world's ongoing fascination with aspirational cell phones.

Netflix headlines may appear rosy as top and bottom lines were a beat but guidance on revenues and subrscriber adds perhaps rings the death knell on this mythical beast...

*NETFLIX SEES 2Q NET ADDS BELOW THOSE OF 2010 :NFLX US
*NETFLIX SEES 2Q REV. ABOUT $873M-$895M; EST. $893.4M :NFLX US

We can only hope that AAPL does not miss in any way on any metric ever as NFLX is now down 18% from Friday's close...

UPDATE: Added Tim Geithner's ever-positive spin-fest...

Medicare trustees just released their annual report on the program's finances and it does not make for healthy reading. In fact the main headline takeaway is that the social security fund itself will now run dry three years sooner than was projected in 2011. While 2035, the new deadline, seems a long way off, the 5% rise in medicare costs in 2011 should be enough to worry most and perhaps more disturbing is the separate disability program is set to run dry in 2016 (two years earlier than expected) and Medicare is to be depleted by 2014. Headlines via Bloomberg:

• *MEDICARE COSTS RISE 5 PERCENT TO $549 BILLION IN 2011 :UNH US
• *LONG-TERM PROJECTIONS FOR MEDICARE WORSEN, TRUSTEES SAY :UNH US
• *HOSPITALS TO FACE MEDICARE PAYMENT CUTS IN 2024, U.S. SAYS
• *TRUSTEES SAY FUND TO RUN OUT THREE YEARS EARLIER THAN PREDICTED

Who beleves the Euro-Depression will really just stop at Greece? Here's tons of supporting evidence that the biggest financial disruption & largest wealth accumulation opportunity of this lifetime is nigh upon us. Remember how the robber barons from the US depression era got started?

European stocks are trading lower as North America enters the market with participants coming to terms with the political events of the weekend. The collapse of the Dutch government has clouded the future for fiscal harmonisation in the Eurozone and the outperformance of the far-right in the French Presidential elections has highlighted the discontent of the populous with mainstream politics. As such, all European bourses are trading significantly lower, with the Bund seen trading higher by around 70 ticks. European government bond yield spreads against the German 10-yr reflect the caution, with the Dutch/German spread widening by over 10BPS and the Spanish yield holding above 6% for most of the session.

Today I'd like to talk a bit about the virtual radio silence in the Netherlands on its growing Target2 balances. While a healthy but acrimonious debate has raged on this topic in Germany, there is almost nothing to be heard about it in the Dutch media. I did three google news searches using:

Target2

Target2 + Dutch

and

Target2 + Nederland

In an admittedly quick look, I came up with a grand total of one article of three sentences: