IMF Scrambles To Double Bail Out Capacity To $1.3 Trillion, May Issue Bonds
The scariest news out of the IMF overnight is not that the scandalized bailout agency telegraphed that the global sovereign debt crisis is about to get into even higher gear after the Dow Jones reported it is "exploring" ways to double its gross lending power to $1.3 trillion (which means that in addition to the EFSF's proposed $3 trillion expansion, global bailout capacity will soon hit $5 trillion), nor is it that the US middle class will soon be on the hook for tens of billions more in real European-facing exposure (over an above the hundreds of billions in USD FX swaps that the Chairman is about to unleash on the world), but that the IMF is in fact considering issuing its own bonds. The reason why this is disturbing to the G-7/8/20 is that such a move would take the SDR one step closer to being an alternative gold-backed reserve currency, an dilute the hegemony of the Western axis much to the delight of Russia and China (which however may be having problems of their own). Well, that's bad, but we take it back - just as bad is that the IMF is about to have $1.3 trillion in bailout power. And yes, they wouldn't scramble to get it if they didn't need it. What next: unlimited rescue capacity, and unlimited exposure for US taxpayers?ECRI's Achutan Says US Is "Entering A New Recession"
Last year the ECRI index was the bete noir leading indicator of the market: while the index clearly indicated the US had entered a recession, its creator Lakshman Achutan consistently refuted the findings of the index, instead pushing a contrary view that the US was in fact growing. Then came QE2 and with it s 9 month suspension of reality. That time is over, as is Achutan's ongoing attempt to deny facts. As of a minutes ago, the ECRI's head told Bloomberg Radio that the U.S. is "tipping into a new recession." "He added: "We don’t make these calls lightly. When we make them, it’s because there’s an overwhelming objective message coming out of our forward-looking indicators. What is going on with the leading indicators is wildfire; it’s not reversible.” As Zero Hedge first said months ago, when it finally extracts its head from between its gluteui maximus, we expet the NBER to proclaim the re-recession as having started in June/July.Guest Post: QE And The “Crowding Out” Of The Bond Market Vigilante
We’ve updated our chart of the sources of financing of the U.S. budget deficit from the Fed’s Flow of Funds data released on September 16th. The chart illustrates how the Fed and foreign central banks have been indirectly fully funding the massive U.S. budget deficit for the last three quarters. It will be interesting to see the data for the quarter ending today as no doubt there will be less yellow with the end of Q2 on June 30 and more “flight to quality” blue (domestic) and red (rest of world).
Martin Armstrong on the 24 hour turn around/Bernanke QE3
"In the repo market you post securities, the next day you get cash for them and the next day you have to pay back the cash. So it’s a 24 hour market. Now if you have these time bombs that are rated AAA, and it has to be AAA paper to go into the repo market, and it blows up, you have 24 hours to come up with the cash." Click here for more...
China CDS Soars On Continued Hard Landing Concerns
Update: CDS now over 200 bps, or over 7 bps since this artice was posted.This is an emergency announcement for bubble watchers: China CDS has soared to 194.5 bps, +14.5 in the past few hours (a trend first noted here about a week earlier), the biggest relative mover in the sovereign realm, which has just hit the widest it has been since March 2009. Ironically the incremental newsflow was mildly positive after the Final September HSBC PMI came at 49.9, still contractionary, but modestly better than the Preliminary 49.4, and unchanged from the August print. That however brought little solace to China bulls, who have seen their local stock holdings drop significantly in the last few days now that the China "Hard Landing" scenario is becoming widely accepted. Not helping is a just released UBS report which now expects Q1 2012 GDP to drop to below stall speed at 7.7%. Whether or not the country can land softly, or hardly, or at all, with that kind of growth drop, is certainly unknown. Look for more widening in CDS spreads as the China crash thesis permeates the vigilante community which has now picked its next target.
Greek Banana Republic Status Upgraded To AAA After Sit-Ins At Eight Ministries Prevent Troika Inspections
A day after we learned that the Greece tragicomedy just gets better and better after it had run out of ink to print tax forms, and hence is unable to collect taxes, and were forced to got over a minute long bout of hysterical laughter having learned that Greece plans on refinancing its rolling debt (which trades at over 100%) with Century Bonds, no seriously and this under the sage advice of BNP Paribas, Deutsche Bank, HSBC and Lazard, we now get the latest update in this progression of relentless Banana Republic upgrades after learning that the Troika is unable to conduct its much needed inspections of Greek deficit cut progress due to sit ins by protesting government workers at 8 ministries. From Kathimerini: "The troika has been in Athens since Wednesday but its monitoring of Greek finances is running into a variety of problems, as besides the disagreement with the government on a number of issues, the representatives of the country’s international creditors had to deal with sit-ins at the building they were about to visit on Thursday. Public sector employees blocked the entrance to the Finance Ministry and the Hellenic Statistical Authority (ELSTAT) in protest at the planned measure of putting thousands of them on labor standby status." Seriously what else? News that government workers start shredding debt indentures for fun? In the meantime the Troika is having official meetings with what's left of the government at the local Starbucks...Pricing in a Recession, Liquidity Crunch, Or...
The high yield bond market is in worse shape than most people realize. HYG looks extremely rich relative to what is going on beneath the surface, and this liquidation is occurring into quarter end, when bond investors have just as much incentive to “window dress” as stock investors do. And it isn’t just domestic high yield. Emerging Markets, and Asian Property companies in particular, are seeing their bonds getting crushed. It may be more fun to watch the EU contort itself and find some way to lend money to itself that makes the markets happy, but in the depths of the credit world, there is a problem, and it is getting worse.
US Consumer Taps Out: Personal Savings Rate Drops To Lowest Since December 2009
The August Personal Income and Spending report
is out and while there were some modest surprises in the data, namely a
drop in Personal Income of -0.1%, on expectations of an increase of
0.1% (and an adverse revision for July data from 0.3% to 0.1%) - the
first drop in two years, while Personal Spending was in line with
expectations at 0.2% (previous revised from 0.8% to 0.7%), the biggest
news of the day is that the US consumer is getting tapped out, with
spending coming entirely from savings: the savings rate dropped from a revised 4.8% (previously 5.0%), to 4.5%, the lowest since December 2009.Morgan Stanley CDS Curve Inverts As Risk Highest Since Q4 2008
We have been discussing US (and European) financial risk for some time (especially recently with regard MS exposure to French banks). Since we published that article, we have seen incredible shifts in MS CDS and bonds even as stocks appear to shrug of some of the reality of the situation. An excellent article on Bloomberg
last evening pointed out that not only was MS CDS at rather extreme
levels, it was quietly as risky (if not more so) than many of the
European banks that are making the headlines. Not only is MS CDS its highest since its spike highs in Q4 2008, the curve is inverted
with 1Y risk trading 500/550 against 5Y risk at 455/470 which strongly
suggests jump risk (or counterparty risk) is being aggressively hedged.
With over $4.5bn of debt maturing in Q4 (which we have been pointing
out for months - TLGP issues) and the increasingly binary nature of any
outcomes, it seems the only real buyer of any MS debt are basis traders as the difference between bond spreads and CDS has halved in the last few weeks.Closing Dexia Long CDS With $3.6MM Profit On Imminent Nationalization Concerns
Back on May 25,
somewhere close to the irrelevant equity market's highs, when once
again a little ahead of the market curve we suggested that Dexia would
be the bank most impacted by the next round of Greek-induced risk
flaring, we were banging the table on a long Dexia CDS SUB position. 5
Year subs were trading at 568 bps then. They are now 31/39 points
upfront and every day for Dexia could be its last. Which is precisely
why we are closing the trade: should Dexia go under it will drag all of
Europe with it. We expect a partial or complete nationalization to be
announced imminently, which in addition to all other side effects, would
lead in a Bear Stearnsing of all accrued profit. With a 20% recovery
rate on the CDS, the P&L on the trade is $3.6MM on $10MM notional.
Not bad for a 4 month holding period.Manufacturing Decoupling Comes To America As Chicago Breaks Away From Rest Of Country
Economic
activity decoupling is no longer a phenomenon between the developed
and developing world. It is between the Chicago region and everywhere
else. And because the Chicago PMI
is supposed to be representative of the Manufacturing ISM, the market
just loves (or rather loved, considering the 10 minute leak of the data)
that the PMI soared from 56.5 to 60.4 on expectations of a decline to
55.0. The internals were all hot, hot, hot as follows: "Business
Activity: "EMPLOYMENT expanded to highest level in 4 months; NEW ORDERS
erased net declines accumulated since April; ORDER BACKLOGS remained in
contraction at a 23-month low; SUPPLIER DELIVERIES approached neutral;
while the buying policy was as follows: PRODUCTION MATERIEL moved to
an 10-month high; CAPITAL EQUIPMENT lead times ended a 4-month
uptrend." Yet as usual the amusing part, which is straight from the
respondents was the following: "We
are seeing unannounced and incredible inflation on one product,
multiple parts, that we are purchasing out of Europe. At 400% increase
we thought surely must have been a mistake. This is not related to $ exchange since we pay in Euros already. Supplier says they cannot absorb costs anymore." And that's why Houston, we have a problem.Guest Post: Our Many Layers Of Entitlement
The word entitlement commonly refers to government benefits to which we are entitled as taxpayers and/or citizens/residents. But there are layers of entitlement in the American psyche far beyond government benefits programs. Let's start with the government benefits entitlements. The programs most people refer to as entitlements are Social Security and Medicare, which taxpayers pay for with payroll taxes (even if the money just goes into one giant Federal pot). Beyond these "I paid into them" entitlements are the "welfare" entitlements of Medicaid, Section 8 Housing, SNAP/food stamps, etc., which are paid out of general tax revenues and which are available to anyone who qualifies, regardless of their status as taxpayers. Buried within Social Security is another large entitlement program for the disabled and dependents (widows and orphans). Veterans are entitled to benefits as a result of their military service, as are their families. Employers pay for other employment-related entitlements: Federal and state unemployment, workers compensation and disability insurance, etc. The entitlement mindset is thus firmly established in the American psyche.News That Matters
09/30/2011 - 08:24
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