In about an hour, the US Supreme Court, three years after Chrysler, is about to have a profound impact on Wall Street one more time. As Goldman explains, the court is expected to release some of the final opinions of the current session, which ends this week. Rulings on the Affordable Care Act (ACA) as well as the Arizona immigration law are likely to capture the greatest amount of attention. With a number of opinions to get out, it is possible the court could wait until later this week (possibly Thursday, June 28) to release some of the remaining rulings for this term, though the court has not yet announced any additional dates for the release of opinions. Trading in the online prediction market intrade.com implies a 74% probability that the court will find the mandate unconstitutional; prior to the oral arguments in March, it implied only around a 35% probability the court would rule against the mandate. Goldman believes that the outcome is fairly unpredictable and that many market participants probably are relying too heavily on the oral arguments in trying to predict the outcome of the case.
- Greece is Relevant: Central Banks Warn Greek-Led Euro Stress Threatens World (Bloomberg)
- Greece is very Relevant: World Economies Prepare for Panic After Greek Polls (Reuters)
- ECB's Draghi flags euro risks, spurs rate cut talk (Reuters)
- And as usual, beggars can be choosers... Hollande Urges Common Euro Debt, Greater ECB Role (Reuters)
- Wait and flee - Electoral uncertainty sends the economy into suspended animation (Economist)
- The EU Smiled While Spain’s Banks Cooked the Books (Bloomberg)
- Osborne’s £100bn Plan for UK Economy (FT)
- Two Cheers for Britain’s Bank Reform Plans: Martin Wolf (FT)
- BOJ Holds Policy Ahead of Greek Vote with Eye on Global Markets (Bloomberg)
- China Hits Back at U.S. Criticisms at WTO (Reuters)
There's been a lot of hand-wringing about busted Initial Public Offerings of late, but the process itself is hardly rocket science. Like Tolstoy's comment about families, every "Happy" IPO is essentially the same, while every miserable one is different in its own way. There are rules to the successful IPO, and today we offer up ConvergEx's Nic Colas' manual, a step-by-step checklist for investors to assess if an offering is on track. From maintaining the illusion of scarcity to managing company and investor expectations, the road from salesforce "teach-in" to final pricing is narrow but well-marked.
Two months ago, to much fanfare, Greece and the IIF announced what a smashing success the forced cram down that was the Greek PSI (memories of GM and Chrysler should be flooding back here) was. The thinking went that Greece avoided bankruptcy, co-opted lemming creditors avoided pursuing what is rightfully theirs in exchange for a 75% haircut, hold out hedge funds would be blown out of the water for daring to not go with the herd of 96.6%, but most importantly, Europe was saved! Today, Europe is no longer saved, and all those hedge funds that folded like cheap lawn chairs in agreeing to Europe's extortion are getting annihilated, because as the chart below shows, the NEW Greek bonds have now seen their dollar price cut in half since the PSI. Which means that total looses on original Greek debt, for those who did agree to the PSI's arm-twisisting terms are now about 90%. Just desserts. But what happened to those other few who followed our advice, bought UK-law bonds, and told the group to shove it? Here's what...
Investing in an uncompetitive company in the ugly EU auto market to bail out its own failing subsidiary.
Bailed-out but un-restructured. And now Fiat-Chrysler CEO is crying for help as EU car sales crash.
Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.
The persistent negative investment flows at U.S. listed mutual funds specializing in domestic stocks is one of the most important long-term trends catalyzed by the Financial Crisis. AUM has dropped by $473 billion since January 2007 despite the S&P 500 Index’s essentially flat performance over this period. The news is no better since the beginning of 2012 – despite the ongoing rally in domestic equities – with $6.8 billion of further outflows year to date. In today’s note Nic Colas, of ConvergEx analyzes what will reverse this trend along two vectors: the desire and ability of individuals to invest. The rally in risk assets, along with declining actual volatility, is the best hope for a reversal in money flow trends. Offsetting that factor are continued stresses on household budgets and consumer psychology combined with problematic demographic trends. Bottom line: domestic money flows have likely become more economically sensitive than in previous cycles.
Having spent this money, your next concern becomes avoiding popular outrage as sooner or later folks will find out that this money was practically given away and that everyone else got a raw deal. Let’s say that you just spent a large sum, to the tune of several trillion Dollars, bailing out various businesses that were literally run into insolvency by shortsighted and greedy business practices.
- China cuts 2012 growth target to 7.5 percent, stability key (Reuters)
- Freom the Fed scribe himsef - Fed Takes a Break to Weigh Outlook (WSJ)
- Greek bond swap deal rests on knife-edge (FT)
- Lenders Stress Over Test Results (WSJ)
- China to Curb Auto Production Capacity, Promote New-Energy Car Development (Bloomberg)
- China military spending to top $100 billion in 2012, alarming neighbours (WaPo)
- Warning: A New Who's Who of Awful Times to Invest (Hussman)
- EU to push quota for women directors (FT)
- Romney Advances As Obama Gains (WSJ)
- Saudi Aramco Raises Oil Premium for April Sales to Asia, U.S.; Cuts Europe (Bloomberg)
All this money sloshing around is nothing but kindling. This is enough to start one hell of a large inflationary fire, but probably not until we have a deflationary panic first – which will add even more kindling to the pile. The progression from the $1.5 billion Chrysler rescue to the current multi-trillion dollar worldwide financial support operations seems to parallel the march from the first US forestry service attempts to limit forest fires about a century ago to the far more sophisticated efforts possible today... Studies have shown that the onset of that catastrophe is almost totally unpredictable. By suppressing small fires, the forests approach an unstable state where the dead wood, resulting from the natural cycle of birth and death in the wild, is piled high, ready to explode into flames if the conditions are right. The central banks and other governmental authorities have piled the money so high that bubbles are popping up everywhere. With so many bubbles and so much kindling, volatility in price is a sure thing. As research has shown that the timing of these dramatic breakdowns, whether a forest fire, an earthquake, or a market crash cannot predicted, or mitigated as it runs its course, the time to control these crises is way before they start. The US Forestry Service knows that, please tell Bernanke!
Clint Eastwood drew a lot of ire, rhetoric, and subsequent explanations as to the real motives behind his Superbowl halftime commercial. Frankly, the commercial could and should have been much better. One proposal for what a less cynical and thus far more sincere "Halftime in America" commercial should be comes from Omid Malekan, creator of the original Bears (explaining QE for the "rest of us") cartoon. We believe this is what should have been shown during the superbowl. And certainly not presented under a Chrysler, pardon Fiat, umbrella.