Morgan Stanley

A rather curious phenomenon that has been observed in the popular press lately is that on those rare occasions when total global public debt is demonstrated correctly on a country by country basis, i.e., including contingent liabilities, as well as various trans-national, public-sector backed guarantees (such as EFSF backstops), and most importantly the Net Present Value of pensions and healthcare, or the cost of the welfare state expressed in current dollars, there is one country that is  systematically excluded. That would be the United States. Today we set the record straight by adding the US to the list where it rightfully belongs, and also answer the rhetorical question of why the US just so happens to be consistently omitted from such column-chart based, hair-raising classifications. Simply said, it is quite clear why the now defaulted Hellenic Republic could and should be forgiven in saying that “at least Greece is not America…”

In short? Nothing good.

Between credible and non-credible political and fiscal policies and a reflationary or deflationary monetary policy aimed at the financial system, Morgan Stanley provides a quick-and-dirty 'map' of where Europe finds itself and the four different scenarios that await this troubled region. The 'Quantum Leap' of credible fiscal integration with term liquidity support and even easier monetary policy is where everyone hoped we would be by now (especially post the October 26th Grand Plan decisions). However, the sad truth in reality is the drop in credibility of political will (or direct nationalism emerging) combined with some concerns over inflation and the dramatic fading of the liquidity impact of the ECB's latest actions means we are drifting rapidly towards 'Debt Crisis Derailment' as the elite continue to confuse insolvency and illiquidity and stick their heads in the sand with regard the reality they face under the restrictions of Maastricht. With implicit monetary conditions dramatically easy and peripheral banks over-stuffed with sovereign debt, there is little room for anything but more encumbrance or ECB-Treaty-busting direct printing (which is the rumor floating all boats this morning).

Given the dominance of the machines, do flesh-and-blood traders have a chance?

Overall, EverBank is showing good current performance, but some of the asset quality factors and trends that I see are of concern for the future.

All you need to read and more.

All you need to read.

Just in case one is wondering what is a greater crime in America: vaporizing $1.5 billion in client money or having the temerity to downgrade the US (twice), JP Morgan and Morgan Stanley, here is the SEC with the answer:

• SEC SUES EGAN-JONES, SEAN EGAN ON ALLEGED MISREPRESENTATIONS

Somewhere Jon Corzine is cackling like a mad cow.

All you need to read.

22% of the Q1 earnings season (by market cap) is over, and anyone listening merely to soundbites and reading media headlines would likely think that stocks have soared as a result of a relentless parade of beats. One would be mistaken. In fact, as the chart below shows, there is something very wrong with this earnings season...

All you need to know.

With S&P futures, and most notably financials, staging the second overnight opening surge in a row, we thought it perhaps worth reflecting on five quite concerning fundamental reasons why dip-buyers (as anesthetized as they have become thanks to central bank 'protection') could face a tougher time. As Mike Wilson of Morgan Stanley notes, for those looking for a cause or explanation of recent weakness, feel free to blame it on the more hawkish Fed minutes, Draghi’s comments that it was now “up to governments to do the right thing” or the soft US payroll numbers. After such an uninterrupted run, some kind of correction was inevitable and simply a matter of timing. The bigger question to resolve is whether this pull back will look like what we experienced in 2010 and 2011 or end up being more muted. Obviously, the key variables for this analysis remain growth and liquidity expectations. The 'payback' that we have been warned about for such an unseasonably warm winter is upon us (as macro data surprises increasingly to the downside) and that is the first flaw in BTFD logic. Wilson goes on to point out that NFIB small business hiring intentions have dropped precipitously, GDP growth is weak but earnings growth is now catching up (down) to that weakness and for many stocks is rapidly falling towards zero, we remain in a 'liquidity lull' as central banks stand on the sidelines and reflect, and perhaps most worrisome is the rapid deterioration in the Bloomberg financial conditions index. All-in-all, these sum up to suggest a greater-than-5% correction is more than likely.

All you need to read and some more.

• Downgrades Loom for Banks (WSJ)
• China Loosens Grip on Yuan (WSJ)
• Sarkozy Embraces Growth Role for ECB (WSJ)
• A Top Euro Banker Calls for Boost to IMF (WSJ)
• Wolfgang Münchau - Spain has accepted mission impossible (FT)
• Hong Kong Takeovers Loom Large With Banks Lending Yuan: Real M&A (Bloomberg)
• Banks urge Fed retreat on credit exposure (FT)
• Drought in U.K. Adds to Inflation Fears (WSJ)
• France faces revival of radical left (FT)
• Euro Area Seeks Bigger IMF War Chest as Spanish Concerns Mount (Bloomberg)

As traders walk in this morning, there are only two numbers they care about: 522 bps and 6.15% - these are the Spanish 5 year CDS and 10 Year yields, respectively, the first of which is at a record, while the second is rapidly approaching all time wides from last November. Needless to say Europe is no longer fixed. And yet despite a selloff across Asia, Europe is so far hanging in, as are the futures courtesy of a persistent BIS bid in the EURUSD just above 1.30 to keep the risk bottom from falling off. It remains to be seen if they will be successful as wrong-way positioned US traders walk in this morning.