After hiking the haircuts on Greek banks' ELA collateral, the ECB decided it was time to apprise the market of its "risk management" procedures. The result: an epic display of central banker hypocrisy.
If marriage insurance sales take off, it's only a matter of time before Wall Street repackages it and sells it to investors via subprime marriage-backed securities. A boom in marriage speculation would ensue. Did you see your neighbor with his mistress last night? Buy some MBS credit default swaps on him and tell his wife what you saw.
Hedges accounted for 15% of Q1 revenue for nearly half of North American E&P companies, Bloomberg reports. "Now the safety net is going away."
We warned previously that when (not if) the market crashes next, The Fed is going to need a scapegoat (other than British traders living at home with their parents) and judging by The Fed's Lael Brainard's comments today, high-frequency-traders (HFT) are in the crosshairs. Crucially, Brainard warns that HFT "may amplify market shocks," and The Fed is "studying possible changes in liquidity resilience."
- Tsipras backs down on many Greece bailout demands (FT)
- Creditors skeptical of Tsipras' offer (Reuters)
- Greek Pension Rationing Begins; Poll Shows Tsipras Backed (BBG)
- Greek referendum poll shows lead for 'No' vote, but narrowing (Reuters)
- Greek Bank Controls Heap More Pain on Crisis-Weary Citizens (BBG)
- Greek Crisis Ripples Across European Companies as Markets Swing (BBG)
- China Stocks Fall: Shanghai Composite Index Drops 5.2% (BBG)
- China June factory, services surveys fuel hopes economy leveling out (Reuters)
- Some Chinese Are Taking 22% Margin Loans to Finance Stock Purchases (BBG)
Whether, or not, a Greek exit from the Eurozone or a potential debt default is "the thing" that sparks the next major correction in the markets is unknown. Historically, such a widely "known" event is generally already factored into the markets and has much less of an impact when that event eventually comes to fruition. As Art Cashin suggested this morning: "I think China may be more important than Greece. Stick with the drill – stay wary, alert and very, very nimble."
There’s a specific sort of instability in the world today – a game theoretic instability – which means that it has an identifiable pattern and rhythm you can understand in order to improve your investment strategy. It’s the instability of the game of Chicken, and once you start looking for it, you will see it everywhere here in the Golden Age of the Central Banker. Greece vs. the Troika? Chicken. Western sanctions on Russia over the Ukraine? Chicken. OPEC vs. US energy producers? Chicken. ECB vs. the Swiss National Bank? Chicken. Fed monetary policy communications to markets? Chicken. Abenomics? Chicken. US policy towards China? Chicken. ISIS vs. the world? Chicken.
Strong Conviction + Low Volatility + High Levels/Low Costs of Leverage [irrespective of Dodd-Frank] + More Absolute Capital at Risk + Increased Concentration of “At Risk” capital + “Doing the Same Thing" = combustible market cocktail.
European shares remain higher, close to intraday highs, with the autos and travel & leisure sectors outperforming and basic resources, utilities underperforming. Meeting of finance officials to reach a deal over Greek aid ended in frustration, forcing leaders to call for an emergency summit for Monday. ECB plans to hold an emergency session of its Governing Council on Friday to discuss a deterioration in liquidity at Greek banks, three people familiar said. German airwave auction raises $5.7b to top 2010 sale. Bank of Japan leaves monetary policy unchanged as forecast. Shanghai Composite Index capped its worst weekly decline in seven years.
"Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."
While investor behavior hasn't sunk to the depths seen just before the crisis, Oaktree Capital's Howard marks warns, in many ways it has entered the zone of imprudence. "Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain... Although I have no idea what could make the day of reckoning come sooner rather than later, I don’t think it’s too early to take today’s carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium."
There are many half-truths perpetrated on individuals by Wall Street to sell product, gain assets, etc. However, if individuals took a moment to think about it, the illogic of many of these arguments are readily apparent...
Another round of the Crisis is coming and the Powers That Be know it. This is why they’re preparing by buying up Gold bullion.
The Shanghai Composite is on the verge of 5,000 and has more than doubled in the past year but this may just be the beginning. The reason: if the Chinese stock bubble bursts, that will be the beginning of the end of the greatest con game in history.
Some folks have been dumpingglobal bonds again today (after disappointing retail sales in the US). But, can we just put the recent bump in interest rates into some perspective? Will the "bond bull" market eventually come to an end? Yes, eventually. However, the catalysts needed to create the type of economic growth required to drive interest rates substantially higher, as we saw previous to the 1960-70's, are simply not available today. This will likely be the case for many years to come as the Fed, and the administration, come to the inevitable conclusion that we are now caught within a "liquidity trap" along with the bulk of developed countries.