As another woeful week wends to a weary close... what we got to look forward to? Although markets appeared to be shooting off in every direction, we do expect we'll see clearer direction soon. Despite the noisy criticism earlier this week of Yen "competitive" devaluation, the G20 meeting said nothing. We suspect certain individuals were quietly sat in the comfy chair, had global reality gently explained to them with the aid of some rusty dental equipment, were slapped around a bit and told to shut it. As long as Japan can sign the pledge on “no competitive depreciation” without giggling we’ll be ok. We do suspect the warmest circle of financial hell is being reserved for those populist European politicians who've tried to appeal to voters with efforts to stem the financial tides, and punished markets for being markets.
We all know that double digit inflation in HPA is not a good thing for the long term recovery of the housing market.
"The stress is beginning to show," Kyle Bass warns during a wide-ranging interview with Bloomberg TV. "The beginning of the end," is here for Japanese government bonds as he notes that while quantitiavely it is clear they are insolvent, "the qualitative perception of participants is changing." But away from Japan specifically, there is a lot more on the Texan's mind. "Things go from perfectly stable to completely unstable," very quickly; even more so after 20 years of exponential debt build-up and Keynesian cover-ups; and it is this that he warns complacent investors that it is "really important to think about the capital at risk in your strategy." For this reason he prefers to hold gold rather than Treasuries, as, "when you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other than you should maintain a position." His discussion varies from housing's recovery to structured credit liquidity "money is being misallocated by the printing press" and the future of the GSEs, concluding with the rather ominous, "at some point in time, I would much rather would own gold than paper. I just don't know when that time is."
Perhaps the best measure to gauge the European recovery is by the soaring number of companies going bust, because only from this perspective is Europe finally "fixed." As Reuters reports citing a report by Axesor, a record 2,564 companies filed for "insolvency proceedings", a more palatable version of the word bankruptcy, in the first quarter - an increase of 10% from Q4 and up a whopping 45% from Q1 2012. The reasons given: "tight credit conditions and meager demand." Or in other words: no actual cash flow to fund demand for products and services. Obviously it will take some truly phenomenal massaging and manipulation to represent GDP as rising in this environment, but we are confident the Spanish authorities are already on it, and somehow the Spanish pension fund, already 97% filled with Spanish government bonds, will somehow have a finger in yet another completely unbelievable economic print which will fool most of the algos most of the time on flashing red Bloomberg headlines.
If Friday's session is any indication of what to expect in a few minutes when JGB trading resumes, we are about to have a doozy of a session on our hands (especially with Interactive Brokers already announcing all intraday margins on all Japanese products for Monday trading have been lifted). As a reminder, the 10Y JGB suffered only its second most volatile trading day ever this past Friday when the yield plunged by half (!) to 0.30%, then doubled in a matter of minutes to 0.60% - a 13 sigma move - and the bond trading session was interrupted by two trading halts when it seemed for a minute that the BOJ may lose all control of the bond market. Well, judging by the absolutely ridiculous moves in the USDJPY as of this moment, with the pair soaring 70 pips in a matter of seconds, we are about to have precisely the kind of insanely volatile session that the Japanese Finance Ministry itself warned may lead to a wholesale selloff in JGBs, offsetting even the New Normal Mrs Watanabe kneejerk which is to merely frontrun the BOJ in buying JGBs. Why? Because with implied vol exploding, VaR-driven models will tell banks to just dump bonds as they have become too volatile to hold on their books. The problem is that with trillions and trillions of JGBs held by banks, insurance companies and pension firms, there just not may be anyone out there to buy them.
Thanks to the Fed's ZIRP, the investing world is on a constant reach for yield; and due to the fact that the last bubble of investor largesse (ignoring leverage and reality) was not 'punished' but in fact 'bailed-out', participants in the financial markets learned nothing. Just as the last crisis was formed on the back of an insatiable mortgage-backed security market desperate for new loans (any loans) of increasingly dubious quality to securitize, so this time it is subprime auto loans that have taken over. As a Reuters review of court records shows, subprime auto lenders are showing up in a lot of personal bankruptcy filings. At car dealers across the United States, loans to subprime borrowers are surging - up 18% in 2012 YoY, to 6.6 million borrowers. Subprime auto lending is just one of several mini-bubbles the bond-buying program has created across a range of assets; "it's the same sort of thing we saw in 2007, people get driven to do riskier and riskier things." Of course, with auto production having been the backbone of so many macro data points that are used to 'show' the real economy recovering (despite the channel-stuffing), now that the growth in auto-sales are stalling, it is for the subprime originators "under extreme pressure to hit goals" in their boiler-room-like dealings to extend loans (at ever higher rates) and securitize while the Fed 'music' is still playing. It seems we truly never learn.
When Mary Schapiro quit the laughing stock US stock market regulator, the only question was which Wall Street firm the latest SEC "revolving door" migrant would end up with, with most bets being on, naturally, Goldman and JPM. Today, to some surprise, the news hit that the former head of the internet porn-addicted regulator (which like clockwork always complains about its low budget: maybe get a refund for that bangbus.com subscription?) has decided to join none other than the revolving door extraordinaire consulting firm Promontory Financial. Per the WSJ: "Ms. Schapiro will work full-time in Promontory's office in Washington as a managing director leading the consulting firm's governance and markets practice and advising clients on risk management and compliance. Ms. Schapiro and a Promontory spokesman declined to say how much she will be paid in the new job." So who is Promontory? Nothing short of an "expert network" of all former government workers who having moved on, are willing to spill the beans about all the secrets of government operations... for a fee of between $1000 and $10,000 per hour. The chart below shows a sampling of all current and former employees of Promontory, explaining why it is a perfect fit for anyone intent on justifying the allegations of those who claim all the SEC does is provide a revolving door opportunity for ex-government workers.
The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out BanksSubmitted by Reggie Middleton on 03/30/2013 11:12 -0400
It's not just Cyprus, and no - it's not just Canada either. I'm preparing a list of specific banks that I have 1st hand knowledge that would prevent me from keeping my money in them. Get "Cyprus'd"!!!
Events in Cyprus stem from precisely the same source as the surge in US home prices, namely monetary expansion by the Fed.
Hopefully the memory of the new Eurogroup head, who in a one day lost more credibility than his admittedly lying predecessor Juncker ever had, will be jogged courtesy of this full transcript provided by Reuters and the FT of what he told two reporters - on the record - and for the whole world to read. Because, by now, we are confident everyone has had more than enough with watching the entire Eurozone rapidly and tragically turn itself into a complete and utter mythomaniac, kletpocratic circus.
For those curious about the timeline of the world's biggest prop-desk blow up, here it is day by day and, pardon the pun, blow by blow.
"Since my departure I have learned of the deceptive conduct by members of the London team, and I was, and remain, deeply disappointed and saddened to learn of such conduct and the extent to which the London team let me, and the Company, down."
- Dimon’s ‘Harpooned’ Whale Resurfaces With Senate Findings (BBG)
- Greece and lenders fall out over firings (FT) - as predicted 48 hours ago
- Dallas Fed Cap Seen Shrinking U.S. Banking Units by Half (BBG) - which is why it will never happen
- Xi elected Chinese president (Xinhua)
- Russia Bond Auction Bombs as ING Awaits Central Bank Clarity (BBG)
- U.S. and U.K. in Tussle Over Libor-manipulating Trader (WSJ)
- Chinese firm puts millions into U.S. natural gas stations (Reuters)
- In Rare Move, Apple Goes on the Defensive Against Samsung (WSJ)
- Berlin Airport Fiasco Shows Chinks in German Engineering Armor (BBG)
- Ex-PIMCO executive sues firm, says was fired for reporting misdeeds (Reuters)
- Bank of Italy Tells Banks in the Red Not to Pay Bonuses, Dividends (Reuters)
The Reserve Bank of Australia’s computer networks have been repeatedly and successfully hacked in a series of cyber-attacks to infiltrate sensitive internal information. The RBA disclosed to The Australian Financial Review (after their investigation) that multiple computers within the RBA’s network were had been infiltrated by a Chinese-developed malicious software. While no details were given on what information was stolen, a defense department official warned, that "the targeting of high profile events, such as the G20, by state-sponsored adversaries... is a real and persistent threat. Cyber intruders are looking for information on... the government’s intentions." The hack appears related to the 2011 G-20 summit, at which the French government have already confirmed over 150 computers were hacked for months with files "redirected to Chinese sites." Australia’s cyber-spy agency, the Defense Signals Directorate, said “there are many examples of [Australian] entities being targeted due to involvement in high profile events” like the G20. Currency wars meet cyber wars - or is it the other way around?
The State has monopolized all authority, giving it essentially unlimited power to make things worse. Since concentrations of centralized capital, authority and power does not relinquish control easily, if ever, the Status Quo will have to decay and implode before authority can be pushed down to more responsive, appropriate levels.