On Your Mark, Get Set, (Bank) Run! The Dominoes of Serial Lehman 2.0 (x 4) In The EU Are Falling Into Place At A Quickening Pace 

Posted by: Reggie Middleton

Post date: 08/01/2011 - 08:36

NPAs and devalued sovereign debt infect bank balance sheets, which are bailed out by sovereigns who assume too much debt for the bailouts, thus dropping the value of their bonds, further stressing...

CBO Scores "Bipartisan" Plan At Half Of S&P Required Savings; Only 2% Of Total Cuts To Take Place Before Obama Reelection

It was only a week ago that S&P said anything under $4 trillion in deficit cuts would be an automatic downgrade for the US. So according to the CBO's just released score of the bipartisan budget, the S&P will have to cut its rating of the US in half, since the total budget cuts will be just over 50% of what S&P demanded previously. And here's the funny part: of the $917 billion in known cuts (the other $1.2 billion is factored but not even the CBO has any clue what it will look like), a whopping 2% in cuts will take places before the Obama election. 2%! This whole charade is there only to make sure the president is reelected. Oh, and of course to make sure S&P does not downgrade the US. Which is where we get back to the fun. THE FUN. Because as it turns out, that whole $4 trillion thing.... S&P was only kidding. "It appears that the perception Standard & Poor's seemed to harbour, that the U.S. needed to find a $4trn sized package in order to keep its triple A rating, is unfounded. Two credit research reports published today point to the testimony given by S&P president Deven Sharma to the Congressional House Financial Services subcommittee on Wednesday, where he seems to believe his firm has been misquoted in media reports." There you go: to S&P $2.1 trillion (of which $1.2 trillion may never even materialize) will end up being just as good, if not better than $4 trillion. And that, ladies and gentlemen, is how a rating agency regains credibility and stuff.

DAX Futures Flash Crash

Think it's all just a US debt ceiling issue? Think again. The DAX futures just flash crashed. And judging by the broad HFT stop happening all around, this is coming to the US any second. After all, gotta make sure Congress does as they are instructed.

The Vespa Has Crashed Into The Mountain: Italy Burning

Italy undergoing a slow motion crash, with bank after bank getting halted, first Intesa, then Monte Paschi, and most recently, main bank Unicredit. The FTSEMIB is now down a whopping 5.5% from intraday highs, led by the financial sector which may or may not last the week absent another EFSF expansion as we have speculated before. Of course, should that happen, Italy becomes a liability and not a funder, meaning the proportional obligations of Germany and France will surge, just as we explained two weeks ago. And more bad news: the spread between the 10 year Italy - Bund just hit an all time wide of 349, +16 bps on the session, as Italy CDS are now trading 328, +12, and Spain is 9 bps wider to 374. Time for bailout #3, this time to rescue Italy, then Belgium and Spain, then France and the UK, until finally the Fourth Reich, in the darkness, shall bind them.

 

 

Global Manufacturing Collapses To Worst Levels Since Mid-2009, Markets "Shrug It Off"

News from last night out of China, coupled with early morning news from Europe confirmed what many speculated: namely that global manufacturing is now in a toxic spiral and absent another stimulus kick from various monetary and fiscal authorities there is no catalyst on the horizon to put the global economy into second gear. As Reuters observes, factories in Asia and Europe all but stagnated in July, according to business surveys that showed the weakest rates of growth since major industrial powers were struggling through the 2009 recession. While stock markets rose on signs of a last minute solution that would avoid a U.S. debt default, manufacturing purchasing managers indexes (PMIs) provided the latest evidence of a slowing global economy. The euro zone manufacturing PMI, which gauges the activities of thousands of businesses, fell to 50.4 in July from 52.0 in June -- its worst showing since September 2009 and barely above the 50 mark dividing growth and contraction. Perhaps more worryingly, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6. Following Friday's horrendous GDP and Chicago PMI readings these are hardly a surprise. Needless to say, the reverse decoupling thesis will be tested once again today after the July ISM is released with consensus looking for a 54.9 print, and Zero Hedge looking for number just a tad above 50. But none of this matters. As Bloomberg's James Halloway points out, "Markets are for now shrugging off Friday’s poor U.S. GDP report, softening PMI prints in China and Germany, contractionary PMI readings for Ireland, Spain, U.K." One couldn't have put the idiocy of the market any better. Oh, and did we mention there is actually still no deal on the debt ceiling. It is merely priced in. As was Tarp 1 before the vote, leading to the biggest then historical collapse in the Dow once the market realized it had gotten ahead of itself. Deja vu coming up?

Smoke And Mirrors Aside, What Happens Next?

One big question is what will we do if the data continues to deteriorate? Another stimulus package seems like it would be hard to get done given we allegedly just agreed to keep spending in check. After the latest bits of data, even the most staunch supporters of QE must have some doubts as to its effectiveness. The Bernanke Put and the Obama Put may be difficult to implement going forward. The market has relied so much on government intervention that it will be interesting to see how strong it can be if investors lose faith in the government's ability to provide a strong backstop on any bit of weakness.

Guest Post: That Which Is Too Fearful To Speak: The Demise of the Consumer Economy

Consumption is our god, our faith and our religion. Like a cargo cult dependent on a magical connection to prosperity, we are terrified by the prospect that our religion is based on a false god--that is, that consumption and consumption alone leads to prosperity and happiness.  Like a cargo cult that we mock in our infinite industrious superiority, we worship the equivalent of rocks painted to look like radios that we can use to "call" the gods of endless prosperity. This rock that's painted to look like a radio is called "debt," and we call upon it to magically provide us with prosperity from over the seas. This other rock that's painted to look like a radio is called "aggregate demand," and it's carefully worshipped by a special troop of voodoo-wielding witch doctors called Keynesians. We are chanting magical phrases to these rock-painted "radios," pleading for a return to easy prosperity, but nothing's happening. We fear the magic no longer works, and that possibility terrifies us so much we can't even bear to speak of this loss.

Goodbye Japan V-Shaped Recovery: Record July Car Sales Plunge

One of the most entertaining if absolutely flawed fables we have heard over the past several months is that Japan is currently undergoing some mythical V-shaped recovery, based on some even more mythical surge in car production and sales. Courtesy of a thing called "facts", summarized by Reuters, we can now effectively ignore this growth strawman for good. "New vehicle sales in Japan fell by a record in July, battered by production disruptions from the March 11 earthquake, while South Korean rivals extended their winning streak to report strong global sales. Sales of new vehicles, excluding 660cc minicars, in Japan fell 27.6 percent to 241,472 vehicles, with Toyota Motor Corp leading the decline. "Looking at the trend from April onwards, the situation hasn't changed much from June," said Michiro Saito, general manager at the Japan Automobile Dealers Association. "Vehicle supply won't return right away and we're looking forward to the production recovery at automakers from around September." Toyota's sales fell 37 percent, while Honda Motor Co's dropped 33.2 percent. Nissan Motor Co , which has been less impacted by the March earthquake and tsunami, fared better with a 17.6 percent fall." Incidentally, it is time to get an update of our own nationalized, taxpayer-subsidized union blackhole: Government Motors and specifically its record channel stuffing shennanigans due out shortly.

All That Matters Part 2: Today's DC Agenda

The melodrama is not over yet. Here is what we have to look forward to out of DC on the debt ceiling crisis today, one day ahead of the Treasury running out of cash. The market assumes the deal is done. The market did the same with the "3 page termsheet" Tarp 0. Perhaps a real market flush is what is needed to really generate a "grand compromise."

Spiegel Interviews Tea Party Patriots Co-Founder, US Ridicule And Obama Bashing Ensues

German daily Der Spiegel has conducted a rather unexpected interview with Mark Meckler, co-founder of the Tea Party Patriots, or about as right as they come, in which he discusses the US debt ceiling, the radical right's "uncompromising fight against the national debt" and the "complete economic disaster" he claims President Barack Obama has created. Naturally, the bottom line should not come as a surprise to anyone: the great reset is overdue, and it is all Obama's fault. What is curious is that Germany is giving such a prominent soapbox to one of the US administration's biggest critics. Is Germany becoming more actively involved in doing what ECB's Trichet and Noyer have done over the past month, namely deflecting Europe's own problems by pointing out the country which Europeans have said has even worse credit fundamentals? Will ridiculing America be the dominant theme in Europe's media over the next few weeks even as the second European bailout falls apart (Intesa Sanpaolo was halted again earlier, for the n^th time). Is the game of G-8 scapegoating about to take on a whole new dimension? And what does that mean for future consensus in an organization that has for now been largely submissive to every US whim? We will find out in the coming months.

Deja QE2, All Over Again: 2s5s Declines To August 2010 Levels

As we pointed out last week, the broad flattening in the Treasury curve, and especially in the short-end continues, with the 2s5s just dropping to 97.6 bps earlier closing below the 104 support line on Friday. Why is this important? Because as Citi chief technical strategist Tom Fitzpatrick wrote in a note released to clients, this is a "concerning development" as it is one of those "other" metrics watched by the Fed in determining when "intervention" is required (not like Goldman's note from Friday had anything to do with it). He adds: "2/5 broke below this level first week of August last year, the result of increasing guidance that QE2 was on the way. Here we do not have any such guidance and instead the curve reflects increasing concerns with the U.S. economy/slowdown." We may add that since cause and effect do not really matter much, it is only a matter of time before the Fed assumes that the market is pricing in not economic weakness but precisely another QE event and reacts accordingly. Citi concludes: "2/5 decline may continue, and could be a negative augur for stock market." It will be... until the Fed proceeds to do what it does best: monetize. Which, assuming today's debt deal passes before midnight, it will just have gotten permission to do. To the tune of about ~$2.5 trillion.

July ISM Prints At 50.9, Huge Miss Of 54.9 Consensus

Earlier today we said: "the reverse decoupling thesis will be tested once again today after the July ISM is released with consensus looking for a 54.9 print, and Zero Hedge looking for number just a tad above 50." (LaVorgna was at 54.0) Unfortunately, we were correct: the July ISM plunged from 55.3 to 50.9, or yes, "a tad above 50", on expectations of 54.9. This is the lowest ISM in two years, and confirms that the Fed's viagra no longer does anything to help the soft spot. The market took it in stride and plunged to late Friday lows. So much for the latest US debt ceiling raise market euphoria. Every single subindex dropped, with only exports and imports posting an increase, although with Imports +2.5, this more than offsets the benefits from Exports rising by just 0.5. Also, New Orders, Backlogs, Customer Inventories are all sub 50. The biggest drops occurred in Prices and and Employment, confirming that not only are employment conditions deteriorating but price making ability continue to erode.The Wall Street kneejerk commentary is hilarious, with TD's Green calling it a 'Freakshow': "TD chief economist Eric Green says in client note he is “struggling to find any silver lining” in July ISM “as the underlying components were, with the exception of export orders, lower across the board."

Wall Street Economists Once Again Prove Utterly Worthless As ISM Prints Below Lowest Expectation

There is nothing that needs to be said about this chart which compares the histogram of "expert" Wall Street predictions and the final outcome. Everyone was above the final number! All Wall Street economists should be immediately fired, and the money saved from their multi-million bonuses should be used to fund the US deficit (after all the banks they work for only exist courtesy to the US).

General Collateral Has Just Been Demoted To Private, First Class As Repo Market Grinds To A Halt

No, there is no problem with the repo markets. None whatsoever. Absolutely none. Oh, uhhh, wait a second...








A Simple Bailout Plan for Housing and the U.S. Economy

Posted by : Luc Vallee

Post date: 08/01/2011 - 09:27

Now that everybody is busy the budget and the debt limit, we are forgetting that the single clear and present danger for the US economy is still the state of U.S. housing. As the economy is slowing... 

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