The Fed Disappointed... The Great Collapse is Here
Silver and Gold on SALE TODAY...Enjoy...
13 cents away from a problem
The Greeks cannot pay, but lots of people in the U.S. can’t pay either; most banks worldwide are bankrupt. The world is cold. There is not a lot of inflationary pressure on consumer goods but energy prices are up, food prices are up. With zero interest rate, you know what will happen to your insurance premiums? They will go up dramatically. - *in The Wall Street Pit* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.*
While
bank CEOs across Europe (and the US) continue to deny-deny-deny that
they have any liquidity issues, the markets seem to be calling their
bluff (once bitten twice shy?). EURIBOR-OIS has just reached back to March 2009 levels,
3 month EUR-USD basis swap is almost back to late 2008 lows at
-106bps, and while for once the ECB's liquidity facility was not taken
advantage of in size (only EUR179mm), counterparty risk is clearly on
the mind of traders as CDS curves invert and Senior Financials jump
15bps to 304bps (and Subordinated +36 to 538bps!).
Following yesterday's 1-2 BAC/WFC downgrade double penetration (which the market will very soon realize has substantial impacts on money market and other prime money access) performed on ye olde' Octogenrian of Omaha by Moody's (in which, adding insult to injury, Buffett is an investor as well) the market has had a violent reminder that Berkshire is nothing but a procyclial and levered derivative of downside market risk courtesy of the "insurance" company's massive bet that the market will only go up, yes we are talking about all those sold index puts. As a result, for the first time in 20 months, anyone owning a share of BRK/A can no longer say they have over $100,000 with the stock dropping to 99,275. And if, as the market indicates, Buffett's buddies at the global central planning committee no longer have control of the markets, pretty soon the thousands separator comma will be converted into a decimal point.
A dramatic Hail Mary appeared in the FX markets earlier this morning following the circulation of a rumor, since attributed to Goldman sales, that the FRBNY is preparing to slash its FX swap line with the ECB rate, which would in turn make it virtually free to borrow Dollars from the Fed and make the Libor funding market completely irrelevant as the Fed would give dollars to European banks for virtually no money. Frankly, we will believe it when we see it, especially when one considers the source. Why it is none other than the firm's Dominic Wilson who reminded us today that Goldman clients should "Stay long EUR/$, opened at 1.4085 on 18 March 2011, with a target of 1.50 and a stop on a close below 1.35, now at 1.3545"... well make that 1.339 when the supposedly Goldman-initiated rumor hit and has since pushed the currency to nearly 1.35. The problem is this rumor is, without confirmation, patent bullshit, as the last thing the Fed need is for Republican to take it to task, this time completely justified, for sending dollars abroad on a cost-free basis just to bail out Europe again. We would fade this rumor all the way, especially with the EURUSD about 100 pips rich to pre-rumor fair value. Furthermore should the EURUSD close below 1.35, which it will, look for major stop loss signals to be activated which purely on technicals will send the EUR far lower.
As early as July,
we pointed out the increasingly likely endgame in Europe with regard
to the EFSF and centralizing/concentrating credit risk. Well sure
enough, sovereign risk has risen dramatically for Germany (among many
others obviously) as traders realized standing on the shoulders of
giants does nothing but push them further into the dirt. What is
becoming more worrisome, and dramatically escalating, is the rise in
sovereign CDS relative to government bond yields - or the so-called
'basis' - as it becomes ever more clear that government-bond-yield-by-mandate may not be as 'real' a measure of the risk-free rate as CDS.
Another day, another chance for the BLS to fudge jobs data by revising last week's claims miss to an even worse number: sure enough last week's -428K drop was just revised to -432K. Which means that this week's consensus miss, which was at 420K, is irrelevant, with the weekly number coming at 423K because all headlines will blare than claims actually declined by 9K. The game has become so old (and we mean old: the BLS has been doing this very same fudge for 2 years in a row now) we are stunned anyone falls for it. And one thing that will also most certainly be ignored is that the 423K number is really 427K because as the BLS reported, a -3,776 drop in claims in Texas was due to "Fewer layoffs due to holiday" - well the holiday is over. Lastly, and most troubling for the economy is that another massive 103,000 people dropped off extended benefit claims in one week. Just as troubling is that 1.7 million people have dropped off the government's dole in the past year as can be seen in the chart below: these are people that haven't gotten a job, they have just stopped being counted by the govt.
China's
HSBC Flash Manufacturing PMI was released earlier this evening and
showed continued weakness at 49.4 (below 50 implying a majority of
manufacturers saw conditions deteriorating). The continuing moderation
of growth is weighing on the Shanghai Composite which is down around 2%
but it is the CDS market that is really cracking. 5Y China CDS
is now an additional 20bps wider than the 10bps decompression we saw
during Wednesday and is back to March 2009 levels at 167bps. It seems global markets are disrupted.
UPDATE: A number of Asia-Pac Sovereigns are cracking wider this morning.
09/22/2011 - 05:55
Silver and Gold on SALE TODAY...Enjoy...
Thank You
I'm PayPal Verified13 cents away from a problem
09/22/2011 - 09:48
Australian Dollar closing in on key technical support levels
The Aussie is under severe pressure this morning as traders sell the unit on
fears of the global slowdown catching up to the Land Down Under. Australia's
economy has been very resilient standing out as a bright spot with
relatively low levels of unemployment and a vibrant housing market. That
plus the fact that it sells a tremendous amount of its goods to China, has
made the Australian Dollar a standout performer for the first half of this
year. It has however recently fallen on harder times as traders have shunned
"risk trades" in favor of the US Dollar and the US Treasury market an... more »
Obama Will Do Anything To Get Reelected
Mr. Obama wants to get reelected. We are not talking about economics here.
He will do anything to get the vote; to get votes, you have to hand out
things. - *in Fox Business News*
*Marc Faber is an international investor known for his uncanny predictions
of the stock market and futures markets around the world.*
Reuters Video Interview: A Recession Is Coming
"We are going to have another lost decade. We are making enormous mistakes
running the US economy" - *Jim Rogers, in Reuters*
*Jim Rogers is an author, financial commentator and successful international
investor. He has been frequently featured in Time, The New York Times,
Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and
is a regular guest on Bloomberg and CNBC.*
Fox Business News: Best Fed Reserve Decision In A Long Time
Marc Faber talks to Fox Business News, live from Hong Kong
*Marc Faber is an international investor known for his uncanny predictions
of the stock market and futures markets around the world.*
Greece, Inflation & Insurance Premiums
The Greeks cannot pay, but lots of people in the U.S. can’t pay either; most banks worldwide are bankrupt. The world is cold. There is not a lot of inflationary pressure on consumer goods but energy prices are up, food prices are up. With zero interest rate, you know what will happen to your insurance premiums? They will go up dramatically. - *in The Wall Street Pit* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.*
European Liquidity Update
While
bank CEOs across Europe (and the US) continue to deny-deny-deny that
they have any liquidity issues, the markets seem to be calling their
bluff (once bitten twice shy?). EURIBOR-OIS has just reached back to March 2009 levels,
3 month EUR-USD basis swap is almost back to late 2008 lows at
-106bps, and while for once the ECB's liquidity facility was not taken
advantage of in size (only EUR179mm), counterparty risk is clearly on
the mind of traders as CDS curves invert and Senior Financials jump
15bps to 304bps (and Subordinated +36 to 538bps!).Suck It Up Buffett: BRK/A Below $100,000 For First Time In 20 Months
Following yesterday's 1-2 BAC/WFC downgrade double penetration (which the market will very soon realize has substantial impacts on money market and other prime money access) performed on ye olde' Octogenrian of Omaha by Moody's (in which, adding insult to injury, Buffett is an investor as well) the market has had a violent reminder that Berkshire is nothing but a procyclial and levered derivative of downside market risk courtesy of the "insurance" company's massive bet that the market will only go up, yes we are talking about all those sold index puts. As a result, for the first time in 20 months, anyone owning a share of BRK/A can no longer say they have over $100,000 with the stock dropping to 99,275. And if, as the market indicates, Buffett's buddies at the global central planning committee no longer have control of the markets, pretty soon the thousands separator comma will be converted into a decimal point.
Guest Post: The Redline - A Tale Of Collapse
Special Note: In this latest Alt-Market piece we try something a little different; short fiction based on fact. Make no mistake; while the characters and events in this story are products of imagination, the issues presented and their probable consequences are anything but fantasy. The message? What will you choose to be in the face of hardship and crisis; a mountain? An impassable obstacle to tyranny? Or, a silent and beaten passenger of the Redline?Art Cashin's Take On The Twist
As usual getting Art Cashin's pragmatic take on something as important as the Fed's decision (which at this rate will need to be revised very soon), is quite a morning coffee, or for some, "fermentation", treat.Rumor Of FX Swap Line Rate Cut Is Euro Hail Mary As Goldman Is About To Be Stopped Out On Tactical EURUSD Trade
A dramatic Hail Mary appeared in the FX markets earlier this morning following the circulation of a rumor, since attributed to Goldman sales, that the FRBNY is preparing to slash its FX swap line with the ECB rate, which would in turn make it virtually free to borrow Dollars from the Fed and make the Libor funding market completely irrelevant as the Fed would give dollars to European banks for virtually no money. Frankly, we will believe it when we see it, especially when one considers the source. Why it is none other than the firm's Dominic Wilson who reminded us today that Goldman clients should "Stay long EUR/$, opened at 1.4085 on 18 March 2011, with a target of 1.50 and a stop on a close below 1.35, now at 1.3545"... well make that 1.339 when the supposedly Goldman-initiated rumor hit and has since pushed the currency to nearly 1.35. The problem is this rumor is, without confirmation, patent bullshit, as the last thing the Fed need is for Republican to take it to task, this time completely justified, for sending dollars abroad on a cost-free basis just to bail out Europe again. We would fade this rumor all the way, especially with the EURUSD about 100 pips rich to pre-rumor fair value. Furthermore should the EURUSD close below 1.35, which it will, look for major stop loss signals to be activated which purely on technicals will send the EUR far lower.
The Sovereign Risk Dislocation Trade Means Big, Black Clouds Coming To "Risk Free"
As early as July,
we pointed out the increasingly likely endgame in Europe with regard
to the EFSF and centralizing/concentrating credit risk. Well sure
enough, sovereign risk has risen dramatically for Germany (among many
others obviously) as traders realized standing on the shoulders of
giants does nothing but push them further into the dirt. What is
becoming more worrisome, and dramatically escalating, is the rise in
sovereign CDS relative to government bond yields - or the so-called
'basis' - as it becomes ever more clear that government-bond-yield-by-mandate may not be as 'real' a measure of the risk-free rate as CDS.Bank Of America Is Becoming A "Counterparty Risk" Like Bear And Lehman
Yesterday's downgrade of BAC was potentially problematic for credit markets. I am less concerned about the holding company downgrade. Downgrading the bank to A2 from Aa3 could become problematic. That is the entity most derivative counterparties will face. A2 is still fine, but I suspect many counterparties will be having meetings over the next few days to discuss how comfortable they are facing BAC as a derivative counterparty. It might be wrong, and unnecessary, but it is something that will be occurring. BAC should be doing everything in their power to address this potential risk immediately. The risk of ratings downgrades to a bank is twofold. On a basic level, it may reduce the flows they see as counterparties prefer to trade with higher rated entities for their derivative trades. That is manageable. The bigger, and far more problematic issue, will be if firms cut their lines to that bank. This would cause banks to unwind or assign existing trades, or to buy protection on the downgraded banks to "hedge their hedge". Protection buying would drive their spread higher (if this was all exchange traded, it wouldn't be an issue). Unwinds could force the bank to raise some cash. Most hedge funds will have one way collateral agreements with banks, so that on any positive mark to market, they are posting collateral to the bank, which the bank can typically use "rehypothecate". Hedge funds will unwind or assign profitable trades, which will force the bank to return collateral to the hedge fund. It is a subtle, but painful, way for a bank to experience a run. It happened with Bear and with Lehman.Initial Claims Miss Consensus, Prior Bad Data Amplified, 103,000 Unemployed Fall Off Extended Benefits
Another day, another chance for the BLS to fudge jobs data by revising last week's claims miss to an even worse number: sure enough last week's -428K drop was just revised to -432K. Which means that this week's consensus miss, which was at 420K, is irrelevant, with the weekly number coming at 423K because all headlines will blare than claims actually declined by 9K. The game has become so old (and we mean old: the BLS has been doing this very same fudge for 2 years in a row now) we are stunned anyone falls for it. And one thing that will also most certainly be ignored is that the 423K number is really 427K because as the BLS reported, a -3,776 drop in claims in Texas was due to "Fewer layoffs due to holiday" - well the holiday is over. Lastly, and most troubling for the economy is that another massive 103,000 people dropped off extended benefit claims in one week. Just as troubling is that 1.7 million people have dropped off the government's dole in the past year as can be seen in the chart below: these are people that haven't gotten a job, they have just stopped being counted by the govt.
Today's Economic Data Docket - Claims, Leading Indicators, Mass Layoffs
While nobody will actually care about today's set of high frequency economic updates, seeing how the world's implosion has now been validated and it is all up to the global central banks to bail us out (which they will fail at miserably), as has been anticipated on this blog for months, here is what the algos, who are the only ones trading US economic headlines now, have to look forward to.CDS: Blood On The Streets As Contagion Has Been Upgraded To Gangrene
If you think this morning has a September 12, 2008 smell and feel to it... You are right. Complete and total CDS bloodbath in sovereigns and fins means a global bailout may not be imminent, but the market sure demands it as contagion has been upgraded to gangrene. Bernanke has now officially blown it with the twist and Mr. Market demands a $1 trillion+ LSAP, or else...European Service Activity Contracts For First Time In Two Years As Global Recession Now Ensured
While the bulk of the re-recessionary fears this morning came out of China where economic contraction is now fully raging, Europe is not helping after both Manufacturing and Services Flash PMIs came in worse than expected, and far worse than previous, and more notably with the Services PMI printing below 50, or contracting for the first time in 2 years. In a nutshell, Manufacturing came in at 48.4, Services at 49.1, both missing consensus of 48.5 and 51.0, and far lower than prior 49.0 and 51.5 respectively. As Reuters notes, "None of the 37 economists polled by Reuters had predicted that services activity would contract and this is the first time the index has been below the 50 mark that divides growth from contraction since August 2009....It was a similar picture in the manufacturing sector, which had driven a large part of the bloc's recovery. The factory index dropped to its lowest level in two years at 48.4, slightly below expectations of a fall to 48.5. "The numbers are still consistent with some GDP growth, so it does not signal recession just yet," said Martin Enlund at Handelsbanken. "That said, we are seeing a slow-motion train crash in the euro area, where credit contraction risks leading to a new recession by Christmas unless governments face up to the task swiftly and forcefully." In other words, on one hand I) the perpetual shining beacon in Europe: economic growth against all odds courtesy of Germany, has now been dimmed, and on the other, II) the liquidity run on Europe's banks is raging even harder, especially with II being reinforced by I, and immediately sending BNP 3M USD Libor from 0.385% to a year+ high of 0.39% as the average Li(e)bor has risen for nearly the 50th consecutive day from 0.356% to 0.358%.Guest Post: Bundesbank Ready To Pull The Euro's Ripcord?
Something odd is happening. Germans are leaving the ECB. First Weber, then Stark. Why would senior German officials withdraw from the ECB just at a time when they should seek greater influence? One explanation: to avoid having a conflict of interest once Germany re-instates the Bundesbank as the leading central bank of Europe. Currently, Germany and Greece are engaged in a game of chicken; the Germans do not want the first “domino” of the Euro zone to fall, and the Greeks know that. Each time Greece nears default, Germany agrees to a last-minute stick save without offering a far-reaching solution. Their aim is to limit the funds actually flowing to Greece. This, of course, guarantees the crisis to simmer on indefinitely, preventing a recovery in Southern Europe. But, as with every game, this one will have to end one day. Especially as German and Dutch 5-year CDS approach 100 bps. France’s CDS rocket has long left the launch pad, reaching 190 bps recently.China CDS Spikes To Highest Since MAR09 As PMI Disappoints
China's
HSBC Flash Manufacturing PMI was released earlier this evening and
showed continued weakness at 49.4 (below 50 implying a majority of
manufacturers saw conditions deteriorating). The continuing moderation
of growth is weighing on the Shanghai Composite which is down around 2%
but it is the CDS market that is really cracking. 5Y China CDS
is now an additional 20bps wider than the 10bps decompression we saw
during Wednesday and is back to March 2009 levels at 167bps. It seems global markets are disrupted.UPDATE: A number of Asia-Pac Sovereigns are cracking wider this morning.
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