Deutsche Bank Hides The Hopium: "The Next Recession Should Start By The End Of August"
If there is one bank report that Obama wishes is absolutely wrong it
is the following note from Deutsche Bank's Jim Reid (definitely not
part of the bank's laughable Trinity Of Perma Bull consisting
of Bianco, Chadha and, of course, La Vorgna) who, looking at the
timing of business cycles, makes the following ominous, for both the
economy and Obama's reelection chances, prediction: "If this US
cycle is of completely average length as seen using the last 158 years
of history (33 cycles) then the next recession should start by the end
of August." The only saving grace for the president: since
the advent of centrally-planned markets, nothing is as it used to be,
and the business cycle no longer exists ("JP Morgan Finds Obama, And US Central Planning, Has Broken The Economic "Virtuous Cycle"").
Still, maybe, this is the one last trace of free capital markets that
the Fed has (so far) been unable to totally destroy. We are confident
it will get right on it.
Peripheral Sovereign Yields Spike On Spain 'Junk' Rumors
Spanish
10Y spreads are now over 50bps wider on the week and the yield pushing
back over 6.8% as its spread spikes 10-15bps on rumors of a Moody's
downgrade to 'Junk'. The IBEX dropped 0.5% rapidly, now down almost 5%
on the week. Italy is catching the cold and is blowing wider in credit
and lower in stocks as financials are leading the plunge in both
nations
Richmond Fed Plunges; Consumers Underconfident For The Fourth Month In A Row
...But at least housing has bottomed (it so difficult to even write that with a straight face). Our two economic indicators today continued the tradition of the last 2 months and both missed, with the Richmond Fed sliding to -3 on expectations of a +2 print, and down from +4: the lowest number since October 2011. And the other data point hinting to the Fed that it is needs to do something now, was the June Consumer Confidence number, which was lower 4 months in a row (for the first time since May 2008), and which declined from 64.4 to 62.0, missing expectations of 63.0, and the lowest since January, undoing all transitory, S&P500 driven gains of the year.
Is France's 'Germany-Containment' Strategy At Risk?
In
a little under two minutes, Stratfor provides a succinct primer on
'France'. Its natural (ocean, river, and mountain) geographic 'barrier'
borders, its major agricultural industry, and significant social
cohesion. But, there is one weakness - the North European Plain - which
remains France's main challenge is safe-guarding its north-European
border, on the path of a historic invasion route. The most critical
existential threat to France has come from its Eastern neighbor Germany
and after three significant wars from 1871 to 1945 after which France attempted to 'contain' Germany largely through economic and political union. The most recent economic
and political crisis (and the growing schism between Hollande and
Merkel) suggest France's containment-strategy may be in question.The EU Has Already Broken Up… They Just Haven’t Formalized Yet
06/26/2012 - 07:59
Commodities Bulls Have Thrown In The Towel
Admin at Marc Faber Blog - 39 minutes ago
This weakness is a clear indication of a global economic
contraction…fundamentals have been deteriorating for some time but now the
eternal bulls have thrown in the towel. In other words, the perception has
changed. - *in CNBC*
*Related: United States Oil Fund LP ETF (USO), SPDR Gold Trust ETF (GLD),
iShares Silver Trust ETF (SLV), Powershares DB Agriculture Fund (DBA); *
*Marc Faber is an international investor known for his uncanny predictions
of the stock market and futures markets around the world.*
The World Needs Something To Compete With The U.S. Dollar
Admin at Jim Rogers Blog - 44 minutes ago
I hope the Euro survives. The world needs something to compete with the
U.S. Dollar. -* in ETF Daily News *
*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.*
Don’t Count on Consumers to Save the Struggling Recovery: Economist
Eric De Groot at Eric De Groot - 2 hours ago
Correct, but a limping consumer doesn't necessarily translate into an
immediate financial and economic collapse. Negative divergences can last
for months, even years. The consumer was hurting in 2000, badly so in
2005-2007, yet the stock market took months/years to collapse. Chart: S&P
Retail Sector to S&P 500 ratio: Headline: Don’t Count on Consumers to Save
the Struggling...
[[ This is a content summary only. Visit my website for full links, other
content, and more! ]]Art Cashin Warns: "Beware The Ides Of September"
While
Europe is dominating headlines this week, UBS' Art Cashin suggests
"mark your calendar and cross your fingers" as he notes the
disproportionate prevalence of events that occur in September. Focusing
on The Economist's Greg Ip's recent post on a possible seasonal pattern
in banking crises, via this recent Reinhart & Rogoff extension paper by Laeven and Valencia, he notes: "The frequency with which the world goes to hell in September seems hardly random."
Unfortunately the authors provide no explanation for this beyond
observing, "An interesting pattern emerges: banking crises tend to start
in the second half of the year, with large September and December
effects." Ip and Cashin offer some thoughts on why this is so
historically, and more importantly why this time is no different, as the
avuncular Art concludes with: "try to enjoy your summer".How To Trade The Spanish Bank Bailout In One Paragraph
We explained it all in painful detail in January. We refreshed two weeks ago ("The Spanish 'Legal-Arbitrage' Bond Trade Is On") and then one week prior ("Spanish "Litigation Arb" Trade Is The New Killing It"). Now, finally, Citi's Matt King has jumped on board.
European 'Bail-In' Risk Rises To Near-Six-Month Highs
The difference
between senior credit risk and subordinated credit risk for Italian
and Spanish banks has risen dramatically in the last few days (since we posted the macro 'bail-in' trade)
with Spanish banks the hardest hit but all wider. Senior credit for
these banks remains in its relatively wide range of the last few weeks
but the subordinated credit risk has broken out to the upside (an
average over 950bps across the eight names in our index) as the market
prices in the endgame of any dilutive 'burden-sharing' endgame as a
cram-up of sub (and perhaps even some senior) bank credit. Perhaps
spooked a little by comments from de Guindos on 'preferreds' today, it
is the Spanish Cajas that are worst with Caja de Ahorros del
Mediterraneo +185bps at 1455bps (equivalent) today. In the meantime, the
LTRO Stigma (the spread between LTRO-encumbered and non-LTRO banks) has pushed back over 180bps to record wides
as the LTRO-driven symbiotic contagion unintended consequence of
banking and sovereign stress reinforce one another more and more.Case Shiller Top 20 Composite Rose In April, Posting Smaller Increase Than In March
Remember April? That's when the US stock market peaked. It also occurred right after March when the peak effect of the record warm winter weather hit, resulting in peak forward pulled demand. Sure enough, today's Case Shiller index confirmed that: in April the Top 20 SA Composite Index rose by a respectable 0.67%: not a bad sign considering until February it had declined for 20 consecutive months. The issue, however, is that the April increase was already lower than the March revision, which in turn had seen a 0.73% increase which was the highest since August 2009. Which means precisely what the chart below indicates: a continuous lower trendline in home prices, with delayed monthly noise based on what the S&P does. And with the S&P plunging in May, expect a comparable response in housing price when the data is finally released. At the end of July. By then, however, we may have bigger issues. Finally, those hoping that the Fed is looking at this indicator as permissive of more negative feedback easing, will be disappointed: the Fed will need to see at least one full period of a sustained decline. So far not so good.
Van Rompuy Slashes The "Future Of The Eurozone" From 10 To 7 Pages
Now even the beggars (Gollum, Barosso, Juncker, Monti and lately Draghi) appear to have given up hope they can be choosers. While on Monday the press was abuzz with speculation that Van Rompuy was about to unveil yet another epic (and completely impractical) plan of future Eurozone integration, the FT now reports that just 24 hours later, "Herman Van Rompuy, president of the European Council, on Tuesday published a significantly scaled-back version of the highly-anticipated plan for the future of the eurozone to be debated at a summit meeting this week. The seven-page plan, which calls for progress towards commonly issued eurozone bonds and the eventual establishment of central EU treasury, is less ambitious and less detailed than earlier drafts, including a 10-page version circulated as recently as Monday." At this rate, the final draft will consist of three pages... of blank checks. And the glitch in the matrix will be complete if the first entity this plan is presented to will be US congress. Which would be oddly fitting: after all someone has to pay for other people's socialism.Reservations Please: Merkel, Party Of "Nein"
There are those that wait and hope and pray that there will be Divine Intervention.
They cling to the belief that Germany, in the end, will back down and
retreat and agree to bail everyone out. Germany’s GDP is only $3.2
trillion and this expectation, believed in by more than a few, is not
only ridiculous in my opinion but a mathematical impossibility. If you
consider the current EFSF program and that $300 billion has already
been used for Greece, Ireland and Portugal and that this new assistance
program for Spain will take it up to $425 billion you begin to get
some sense of the enormity of the problem. The U.S. equivalent
then for the total EFSF would be $4.318 trillion or 30.4% of America’s
total GDP which would swamp our nation. This is why when I
listen to Frau Merkel say “Nein;” I believe her! It is the twentieth
Summit. I predict it will be the twentieth time that almost nothing is
accomplished. The beggars want to be the choosers and Germany and the richer nations will hardly allow for that.Vampire Squid Downgrades Margin Stanley From Conviction Buy To Netural, Warns On Counterparty Risk, Lowers PT From $20 To $16
GS just did what it does best: pulled the rug from under its most troubled peer: "We are downgrading MS to Neutral and removing shares from the America’s Conviction List. Since being added to the Americas Conviction List on January 29, 2012, MS shares are down 27% vs. flat for the S&P 500. Over the past 12 months, MS shares are down 39% vs. the S&P 500 up 4%. When we added shares to the Conviction List, we noted that MS had addressed a number of legacy issues including (1) the conversion of the MUFG preferred stock to common to bolster common equity capital ratios, (2) elimination of the CIC preferred dividend, (3) removal of the MBIA relationship//hedge overhang, (4) write-down of legacy real estate assets, (5) elimination of non-core asset management businesses, and (6) near-completion of the integration of Smith Barney and Morgan Stanley Wealth Management. While that all still holds true today and should be beneficial towards long-term “normalized” returns, we believe several capital market overhangs will reduce out-year earnings visibility and cap near-term outperformance. While too soon to tell how counterparties will react to a new capital market ratings distribution post-Moody’s, this cycle has proven that banks with the largest increase in funding spreads have generally lost fixed income trading market share. In addition, with a number of global macro uncertainties likely to weigh on capital markets activity for the foreseeable future, MS has outsized exposure here as well....we are lowering our 12-month price target for MS to $16 (from $20) based on 0.6X TBV (from 0.7x) to reflect challenged near-term earnings power."Capitalism at its best: kick 'em while they're down.
Italy Just Bailed Out The World's Oldest Surviving Bank
Some
people know Banca Monte dei Paschi di Siena as one of the biggest
banks in Italy (lately best known for being either halted down, about
90% of the time, or up, the remainder) with 3,000 branches, 33,000
employees and 4.5 million customers. Others know it for being the
world's oldest surviving bank, founded in 1472 by the magistrate of the
then city-state of Siena.
Most will henceforth know it as the first Italian bank bailed out in
2012 using the old 2009 ponzi scheme known as "Tremonti bonds", whereby
the bank sells bonds to a guaranteed buyer - the Italian government -
receiving critical cash to continue operating in exchange for, well,
promises, and sharing its balance sheet with the much more "viable"
sovereign, whose bonds were trading above 6% at last check. The initial
bailout bid: €1 billion in Tremonti bonds with speculation the number
will be realistically up to €4 billion. The final number: much, much
higher, but it likely won't be known for at least days. Which
incidentally is an event which was largely expected. Recall on June 13
we wrote: "Forget Three Months: Italy May Have Two Weeks Tops, As "It
Already Is Where Spain Is Heading." It is now 13 days later and the
bailouts have begun.Meet The New Greek Finance Minister
Since
the last Greek FinMin came and went before anyone could even learn how
many syllables are in his last name, here is an advance peek at the
man who is tasked with the world's worst transitory job imaginable:
that of being the new Greek finance minister. His complete profile below
is courtesy of Athens News. Feel free not to learn it by heart:
something tells us when he too sees the inside of the Greek finance
ministry he too may developed a mysterious illness and be promptly
"replaced."Turkey, Russia, Ukraine And Kazakhstan Further Diversify Into Gold
Turkey raised its reported gold holdings by another 2% in the month of May. Turkey’s gold holding rose by 5.7 tonnes in May to total 245 tonnes, International Monetary Fund data showed, making it the latest in a string of countries to increase gold bullion reserves this year. Turkey has allowed banks to hold more of their reserves in gold to provide extra liquidity. The central bank this month raised the proportion of reserve requirements that can be held in foreign exchange to 50 percent from 45 percent, while the limit for gold was increased to 25 percent from 20 percent. The changes will add as much as $2.2 billion to gold reserves. Gold accounts for about 9.1 percent of Russia’s total reserves, 5.1 percent of Ukraine’s and 15 percent of Kazakhstan’s, according to the World Gold Council. That compares with more than 70 percent for the U.S. and Germany, the biggest bullion holders, according to Bloomberg figures. Kazakhstan plans to raise the amount of gold it holds as part of its reserves to 20 percent, Bisengaly Tadzhiyakov, deputy chairman of the country’s central bank, said earlier this month.Frontrunning: June 26
- On the continuing fraud that is Liebor: Libor Guardians Said to Resist Changes to Broken Rate (Bloomberg)
- Bank bailout to spark firesale of corporate Spain (Reuters) with Goldman and China just waiting
- EU Could Rewrite Eurozone Budgets (FT) but it won't because Germany will just say Nein again
- Congress Said to Delay Automatic Budget Cuts Until March (Bloomberg)
- China Says June Trade Improving in Sign Slowdown Stabilizing (Bloomberg)
- Biggest U.S. Banks Curb Loans as Regional Firms Fill Gap (Bloomberg)
- New York Fed Sells $4bn in Mortgage Debt (FT)
- Julian Assange’s fall from the heavens (Reuters)
- Wheeler to Lead N.Z. Central Bank as Kiwi Hits Exports: Economy (Bloomberg)
- Japan Lower House Passes Sales Tax Bill as Vote Divides DPJ (Bloomberg)
Spain Borrowing Costs Triple In One Month, Italian Yield Firmly Above 6% Again
Not much to add to Reuters summary of the overnight Spanish bill auction. The good news: the country that is not Uganda sold €3.08 billion compared to a range sought of €2-3 billion. The bad news: the price paid to sell this debt more than makes up for any optics that this was a good deal. "Spain's short-term borrowing costs nearly tripled at auction on Tuesday, underlining the country's precarious finances as it struggles against recession and juggles with a debt crisis among its newly downgraded banks. The yield paid on a 3-month bill was 2.362 percent, up from just 0.846 percent a month ago. For six-month paper, it leapt to 3.237 percent from 1.737 percent in May... Spain sold 3.08 billion euros of its short-term debt on Tuesday, slightly above its target amount, even as the Treasury paid the highest rates to sell the paper since November and met with falling demand from the country's struggling banks. The Treasury sold 1.6 billion euros of a 3-month bill, and 1.48 billion euros of a 6 month bill, which together was just above the 2-3 billion euro target set. The Treasury has overshot its sales target in recent auctions, showing it still is capable of selling its debt even if has to rely on domestic banks to do so as international investors avoid Spanish debt." Here's a hint to whoever is pretending to be in charge of Spanish finances: selling more debt than the "max" just to show you still have bond market access (i.e., debt bought by just downgraded Spanish banks) while paying ridiculous interest on this "optical success" is about the dumbest thing a broke country can do. But who are we to judge. We will leave that to the bond market. Below we show the yield on the Spanish 10 Year, which in two days has retraced the entire move tighter in the past week.
Of VIX, Correlation, And Building A Better Mousetrap
We have discussed the use of correlation (cross-asset-class and intra-asset-class) a number of times in the last few years, most recently here,
as a better way to track 'fear' or greed than the traditional (and
much misunderstood) VIX. As Nic Colas writes this evening, a review of asset price correlations shows that the convergence typical of 'risk-off' periods in the market is solidly underway.
While we prefer to monitor the 'finer' average pairwise realized
correlations for the S&P 100 - which have been rising significantly
recently, Nic points out that the more coarse S&P 500 industry correlations relative to the index as a whole are up to 88% from a low of 75% back in February. In terms of assessing market health, a decline in correlation is a positive for markets since it shows investors are focused on individual sector and stock fundamentals instead of a macro “Do or die” concerns.
By that measure, we’re moving in the wrong direction, and not just
because of recent decline in risk assets. Moreover, other asset classes
such as U.S. High Yield corporate bonds, foreign stocks (both emerging
market and develop economies), and even some currencies are
increasingly moving in lock step. Lastly, we would highlight that average
sector correlations have done a better job in 2012 of warning
investors about upcoming turbulence than the closely-watched CBOE VIX
Index. Those investors looking for reliable “Buy at a
bottom” indicators should add these metrics to their investment toolbox
as a better 'mousetrap' than the now ubiquitous VIX.Today’s Items:
George Soros is saying that it could be
fatal if the EU summit, at the end of the week, does not solve anything.
The markets are in a state of watching the ongoing crisis and
muddling-through strategies will make next week very difficult.
Spain formally requested euro zone rescue
loans in the amount of about $125 billion. The aid is an attempt to
address the real estate bubble that has collapsed in Spain. Needless to
say, Spanish bond yields, along with Italian yields, are rising. Make
no mistake, Greece was just the opening act as more and more nations in
the EU come to the realization they are all insolvent.
Next…
Obama Tries To Wag A Dog That Bites Back
http://www.testosteronepit.com
http://www.bloomberg.com
http://news.yahoo.com
Obama Tries To Wag A Dog That Bites Back
http://www.testosteronepit.com
http://www.bloomberg.com
http://news.yahoo.com
Obama is trying to start a war with Syria
to divert attention away from his floundering presidential campaign. Now
things are getting interesting because of the shooting down of a
Turkish reconnaissance plane with a Russian made, and most likely
operated, SA-5 surface-to-air-missile 8 miles offshore of Syria. Of
course, Hillary is waiting in the wings to take the Democratic
nomination if Obama is deemed unelectable. What is even worse, is that
Jimmy the dictator loving President has turned on Obama by claiming that
Obama is guilty of human rights abuses with the use of drones.
The Supreme Court issued a partial victory
to Obama that essentially states that Federal immigration law trumps
state law. The Court didn’t discuss the controversy over possible
racial profiling with the provision. In effect, the immigration checks
during traffic stops, in the state can continue. And the wait for
Obamacare’s fate continues…
Hiring fell 9 percent last month. New
hires now average just 4.08 million per month.An unusually large number
of people are staying in the jobs they already have presumably because
they fear not being able to get a new job. Of course, with some
exceptions, if you have a job and quit without another lined up… Not
smart.
Many people got into the precious metals
market to make a quick buck even though logic of hyperinflation as a
store of wealth first drew them in. It does not matter what happens with
the world’s economy because the world will eventually rush into
physical, which will skyrocket physical silver past $1,000 an ounce,
while paper will be trash. In short, after preparing, keep stacking
physical.
Next…
Obama’s Executive-Privilege Assertion Not as Popular as White House Imagined
http://hotair.com
http://fellowshipofminds.wordpress.com
http://hotair.com
http://fellowshipofminds.wordpress.com
Only 29% of likely voters support Obama’s
executive privilege position on documents pertaining to the Fast and
Furious probe. So, why the non-support of Fast and Furious, the likely
brainchild of Hillary Clinton and Andrew Shapiro? Most likely because
this illegal operation caused people to die on both sides of the
U.S.-Mexico border.
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