Despite PIMCO, DoubleLine, and pretty much every other major mortgage bondholder in the world litigating the actions, Richmond, California's leaders approved this morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes. Richmond's city council voted 4 to 3 to use the power of 'eminent domain' (as we discussed here most recently) to seize underwater mortgages and refinance them. City council members opposed to the plan countered that using eminent domain would put Richmond at risk of expensive lawsuits that could destroy the city's finances; and sure enough, Richmond had no takers last month when the successor to its redevelopment agency put $34 million of bonds up for sale to refinance previous debt. As Reuters reports, investors holding the mortgages targeted by Richmond dispute altruism motivates the plan and are set to meet in court for the first time tomorrow.
Spot the outlier...
There's a growing view that America's energy boom will result in a higher U.S. dollar in coming years. There are some key holes in the argument though.
- Government has too much debt to issue more debt
- Government nationalizes private pension funds making their debt holdings an "asset" and commingles with other public assets
- New confiscated assets net out sovereign debt liability, lowering the debt/GDP ratio
- Debt/GDP drops below threshold, government can issue more sovereign debt
Bonds Bleed: Largest Bubble In History Unwinds, But The “Great Rotation” Into Stocks Is Deceptive Wall Street HypeSubmitted by testosteronepit on 09/05/2013 19:40 -0400
The evaporating “wealth effect”
Those curious if the Indian Rupee cratered once again in overnight trading will be disappointed: following the previously reported intervention by the RBI in which it would provide US dollars only to crude companies, the currency rose strongly at the open only to fade and trade rangebound before closing in the mid 67 range. In other words, much more will be needed by the central bank to stabilize the currency, the markets and the economy. The main overnight story, however, remains the Syrian conflict and market reactions to it. Stocks traded higher in Europe early today, with credit spreads tightening as market participants scaled back expectations of an imminent strike on Syria after US Defense Secretary Hagel said that the US will act on Syria only with international collaboration. Of note, the G-20 is set to take place next week where Syria is widely expected to be the hot topic for discussion among global world leaders. But while futures ramped in early trade following a spike in the USDJPY over 98, they have since retraced most of their upside, and crude is back to nearly unchanged.
It was a quiet overnight session, in which the Nikkei was catching up to USDJPY weakness from the past two days, while China dipped once more despite the NDRC's chief economist stating China may cut RRR or conduct more reverse repos in H2 to maintain stable credit as loan growth slows down (or in other words things go back to normal). In Europe ECB's Nowotny decided to undo some of Draghi's recent work when he said that "good economic news" removes the need for a rate cut which in turn pushed the EURUSD higher (and European exports lower), even as former Cyprus central bank Orphanides said the Euro crisis may flare up after the German elections. In the UK Q2 GDP came in slightly stronger than expected at 0.7% vs 0.6% Exp. letting the GBP outperform since a need for the BOE to ease, at least in the short run, is becoming less pertinent. In amusing news, Moody’s late yesterday put six largest U.S. banks on review as it considers the effect of evolving bank resolution policies under Dodd-Frank and international regulations. As such GS, JPM, MS and WFC may be cut.
THE RESULTS OF THE 5-YEAR NOTE AUCTION COULD RESULT IN THE UNSCHEDULED REOPENING OF THE 7-YEAR NOTES OF SERIES P-2018 (CUSIP NO. 912828RE2)
If the auction of the 5-year Treasury notes to be held Wednesday, August 28, 2013, results in a high yield in a range of 1.500% through and including 1.624%, the 5-year notes will be considered an additional issue of the outstanding 1-1/2% 7-year notes of Series P-2018 (CUSIP No. 912828RE2) originally issued August 31, 2011. The additional issue of notes would have the same CUSIP number as the outstanding notes, which are currently outstanding in the amount of $29,886 million. If the auction results in the issuance of an additional amount of the outstanding 7-year notes rather than a new 5-year note, it will be indicated in the Treasury's auction results press release and by a special announcement. Any net long position reporting in this auction should be in regard to the 5-year notes.
Gross: 3 to 4 percent credit growth can’t produce much more than 3-4 percent increases in asset prices. No more QE's? No more bull markets.
— PIMCO (@PIMCO) August 21, 2013
Gross: Today I feel less "GUARDED" than yesterday. Is the free press still free?
— PIMCO (@PIMCO) August 20, 2013
“We have to turn the page on the bubble-and-bust mentality that created this mess,” President Obama stated authoritatively in his weekend radio address... but do not get too excited by the possibility of a real end to the Keynesian experiment and a return to 'free' markets for the President, in his oh-so-not-trying-to-start-a-class-warfare-battle way, blames bubbles not on Central banks (who have done "an outstanding job") but on the skewed distribution of income. As Bloomberg reports, Obama states “When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy." The problem with his way of thinking is best described by the status quo defender Sarah Bloom Raskin who offered up this insight into what the manipulation of market interest rates gives us, "asset bubbles are a feature of our financial landscape." So there it is, a feature (not a bug) that the President wants to get rid of (and yet wants to maintain the illusion that unrealized profit (and debt) is wealth).
If the following just released forecast of where the 10 Year is going, from Bank of America's chief technical strategist MacNeill Curry is accurate, not only is the bond bottom nowhere near but we sense a Tweetstorm is coming from Bill Gross.
Bill Gross Tweets: "Without Central Bank Check Writing, We Only Have Ourselves To Sell To" Sends Yields SoaringSubmitted by Tyler Durden on 08/16/2013 12:54 -0400
Gross: Pogo said, We have met the enemy & he is us. I say, All asset mkts peaking; W/o central bank ck writing we only have ourselves 2sell2
— PIMCO (@PIMCO) August 16, 2013
As JPM's Michael Feroli notes, the September FOMC Taper announcement (which certainly isn't assured, although if the Fed does not taper, it will end up monetizing 0.4%-0.5% of the total private TSY stock per week before year end) may just be a sideshow to a previously undiscussed main event: the Fed's first forecast of 2016 interest rates.
Gross: Strategists/writers I follow? Dalio, Durden, Bianco, Arnott, Aitken, Santelli, Grant, Grantham, Inker, Marks, Quaintenance & Brodsky
— PIMCO (@PIMCO) August 9, 2013