EURUSD Free-Falling

EURUSD just traded under1.2150, down over 130 pips on the day. The question is - will wee see the ubiquitous rip-roaring reversion rally into the European close again? Rather notably this is as big a liquidity/break-up premium to its swap-spread-implied fair-value as we have seen since the peak of the crisis in mid November last year!

Gold Q2, 2012 - Investment Statistics And Commentary

The World Gold Council have just published their commentary on gold’s price performance in various currencies, its volatility statistics and correlation to other assets in the quarter - Gold Q2, 2012 - Investment Statistics and Commentary. It provides macroeconomic context to the investment statistics published at the end of each quarter and highlights emerging themes relevant to gold’s future development. One of their key findings is that gold will act as hedge against possible coming dollar weakness and gold will act as a "currency hedge in the international monetary system." The key findings of the World Gold Council’s report are presented inside.

Europe Ends In A Sea Of Red

Spain's broad equity index suffered its second largest single-day drop in almost 4 years and Italy also tumbled almost 5% as everything European was sold hard. EuroStoxx (the broad Dow equivalent) is down almost 3% as EURUSD dropped to two year lows, EURJPY to 12 year lows. AAA safe havens were massively bid with Germany, Denmark, and Switzerland all to new low (negative) rate closes. Core equity markets did suffer though with Germany down 2% but it was the periphery that saw the damage in credit-land with Spain 10Y closing at 7.27%, 610bps over Bunds (and 5Y CDS over 605bps). Spanish spreads are +130bps from post-Summit (and pre-Summit) and Italy +78bps, but it is the front-end of the curve that is most worrisome - Spain's 2Y is 132bps wider in the last week. Europe's VIX exploded by over 4 vols to 24% today and once again looks decidedly high relative to US VIX.

Kayak Goes Exponential (And Stalls)

UPDATE: It would appear $32.75 is the line in the sand...
After pricing its IPO at $26 and opening at $30.10, the latest poster-child for the awesomeness of the US capital markets has pushed up to over $34.50. While Fender cites market conditions, it seems 'investors' can't get enough of this Silicon Valley 'special offer'. This one should be interesting as we see some stability already and volume...

Guest Post: What's So Bad About Deflation?

One of the most widely accepted truisms of our time is that deflation is bad: bad for debtors, bad for the indebted government, and therefore bad for the economy. What all this overlooks is how wonderful mild deflation is for those who owe no debt but who own the debt and the income streams that flow from debt. What the "deflation is bad" argument ignores is who controls the financial and political systems, and what set of conditions benefits them. Everyone assuming the Federal government has the power to create inflation and that inflation is "good" should examine the interests of those who control the government's policies, i.e. those who own the debt. Put another way: here's what will be scarce: reliable income streams and liquidity.  

Spanish Stocks Plunge Most In 12 Months As Egan-Jones Cuts Spain To CCC+

With IBEX down 6%, 10Y yields over 7.30%, 10Y spread over 610bps, and EURJPY at 12 year lows; the hits just keep coming...

• EWP: Egan-jones cuts Spain sovereign rating to CC+ from CCC+
• Spain Won't Grow Until 2014 as Eurozone Agrees Bank Bailout
• *SPAIN BAD BANK MAY INCLUDE NON REAL-ESTATE DETERIORATED ASSETS
• *SPAIN BAD BANK TO APPLY `REAL LONG-TERM' ECONOMIC VALUATIONS
• *SPAIN TO MAKE ROADMAP BY END-NOV FOR LISTING OF RESCUED LENDERS
• *SPAIN'S LOAN-LOSS PROVISIONING FRAMEWORK TO BE REASSESSED (will we see the same in the US?)

via Bloomberg.

US Banks Battered On Spain's Bailout Approval

From the mysterious pre-Summit ramp in the afternoon of 6/28, the major US financials managed gains from 6 to 11% within a few days. As reality sets in and that sinking feeling rears its ugly head, so one-by-one, all that exuberance has faded. While the financial ETF XLF remains higher, the major US financials are considerably lower with BofA -6%, MS -5%, and JPM -3% from those pre-Summit levels...

Seven Sigma Rally In LQD: Be Careful Where You Reach For Yield

With 'safe-haven' yields at extreme lows (and negative in some cases), there is sense in 'reaching for yield' but - obviously - any increase in yield implies an increase in risk (and just because it is called a 'bond' doesn't mean its safer than an 'equity'). By way of example, moving to investment grade credit is the 'strategy du jour' of many asset allocators - "a little more yield and it's still IG after all." However, while this is a decent safety strategy overall - in a diversified and actively managed credit book, falling for the easy route of buying the liquid IG bond ETF LQD may run some into problems - no matter how much its 'price' tracks Treasuries. The last month has seen LQD experience a 7-sigma rally and it stands at multi-month rich levels to its intrinsic value (which implicitly places technical bids in the cash market). What worries us the most about LQD specifically is, we suspect retail investors who are piling in are unaware of the exposures within the portfolio of bonds. LQD is 24.3% weighted in financials - the very same Libor-rigging, beached-whale, NIM-compressing financials that are anything but 'risk-free'. As a reminder, an old adage from credit portfolio management, "the loss from losers far exceeds the gains from winners" and at these levels of price (and therefore yield) there is a lot of convexity in that risk-reward. Understanding the credit risk you are taking is key.

Goldman's Muppet Slaying Resumes, Removes Momo Darling Chipotle From "Conviction Buy" List

Following the release of ugly earnings, Chipotle has finally been reacquainted with reality (down 18%), and the stock that has long been a darling of momo "investors" everywhere, because in a reflexive broken market, a stock is worth not a penny less than what the previous biggest fool is willing to pay for it, is getting decimated. Naturally, adding insult to muppet monkeyhammering, here is Goldman Sachs who decide to, after the fact, drop CMG from its conviction buy list.

ECB Says Greek Bonds No Longer Eligible As Collateral, Leaves Greece With Under €65bn Of ELA Borrowing Capacity

Due to the expiration on 25 July 2012 of the buy-back scheme for marketable debt instruments issued or fully guaranteed by the Hellenic Republic, these instruments will become for the time being ineligible for use as collateral in Eurosystem monetary policy operations.

The Ironic Winners And Losers From The "Spain And Italy Bailout" Summit

Presented with little comment but it seems that in yet another unintended consequence of the short-term haste to make noise ralative to any sustainable long-term solution, the nations that were supposed to benefit the most from the EU Summit are now the biggest losers as their equity markets are the only ones in Europe that are down from pre-Summit levels after today's sell-the-news events. It seems once again those looking at the equity markets to signal the success of an 'event' have been dangerously wrong-footed once again... Spain swung from an 8% gain to a 4% loss

Market Response To Schrodinger Spain

We are saved. No, we are doomed. The reaction to the much-heralded agreement to bailout Spain's banks is not good. Spanish bond yields are at their post-Euro highs at 7.21%, Spanish bond spreads (and 5Y CDS) are trading at 600bps as Valencia calls for its bailout, Montoro denies, then admits that indeed they are part of the fiasco. Spain's front-end is very weak with 3Y back over 6% with the entire curve at its flattest in 6 months. Italy is also cracking wider with the short-end getting crushed (2Y +42bps at 3.9%) - exactly where all that LTRO collateral is being held (more ECB margin calls?). While Italy's has reverted back to a zero basis to CDS, Spain has continued to see its bonds underperform CDS dramatically - which in the case of Greece and Portugal was the litmus test for a market switchijng from muddle-through to pending PSI as trust in CDS triggers reduces. Meanwhile, Germany's 2Y rate hits a record low below -6bps. Spain's IBEX is down almost 4% (but Italy's MIB worse) as EURUSD cracks below 1.22 once again. European financial credit (senior and sub) are getting cruyshed and it appears that broadly speaking equitieas are starting to catch up to the reality in credit markets - though have a long way to go. S&P 500 e-mini futures are down ove 9 pts from the close (and over 15pts from yesterday's highs). Europe's VIX is snapping 10% higher after capitulating al la US VIX but remains dramatically rich to crediot still.

Valencia Announces SOS, Needs To Tap Government LIquidity Support Just Eurogroup Accepts Spanish Bailout Plan

UPDATE: It would appear the right hand has no idea what the left hand is doing in Spain, as via Bloomberg:

• *MONTORO SAYS VALENCIA HASN'T SOUGHT RESCUE

but

• *VALENCIA TO TAP SPAIN'S REGIONAL FINANCING FACILITY
• *VALENCIA GOVT COMMENTS IN STATEMENT ON WEBSITE TODAY

Just as today's largely expected announcement that the Eurogroup has formally agreed to accpet the Spanish bail out (details still lacking), the Spanish region of Valencia just became the second to officially demand a bailout following Catalunya's comparable announcement at the end of May, and has announced it will need to tap the government liquidity mechanism. Kneejerk reaction: EURUSD sharply lower and below 1.22 for the first time in days.

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Frontrunning: July 20, 2012

• Gunman kills 14 in Denver shooting at "Batman" movie (Reuters)
• Full retard meets Math for Retards: Spain Insists $15 Billion Aid Need for Regions Won’t Swell Debt (Bloomberg)
• World braced for new food crisis (FT)
• Banks in Libor probe consider group settlement (Reuters)
• U.S. banks haunted by mortgage demons that won't go away (Reuters)
• Ireland Bulldozes Ghost Estate in Life After Real Estate Bubble (Bloomberg)
• China will not relax property control policies (China Daily)
• Russia, China veto U.N. Security Council resolution on Syria (Reuters)
• Kim to reform North Korean economy after purge (Reuters)

Overnight Sentiment: Europe Threatens Market Surreality Again
It is a quiet session so far with risk in the Off position (for now - we have yet to see the sinusoid HFT stop triggering function which rises stocks artificially as yesterday demonstrated so very well to nobody's surprise). All eyes are once again focusing to Europe, pushing the EURUSD lower for at least a few more hours until Europe closes and the repatriation resumes.  In terms of key European events, today is the EU finance minister’s conference call on Spain today. As DB summarizes, officials are expected to approve the EU100 billion Spanish bank rescue plan however the exact size of the loan will probably only be determined in September pending the result of a bank-by-bank stress test. This will then pave way for restructuring plans for the sector in October which is broadly consistent with the timeline set out in the leaked draft MoU. At the previous meeting finance ministers agreed to first disburse EU30bn to Spain by the end of July so we will watch out for further confirmation of this today. We may also get the terms of the loan today. The conference call is expected to start at 10am GMT. What is odd is that unlike before when the mere possibility of a European catalyst was enough to push risk higher, this is no longer the case, and Spanish spreads to Bunds just hit another all time wide, with the Spanish 10 Year plunging to 7.11%, another post-summit high, this time dragging the Italian 10 Year which was at 6.10% at last check. Will the world once again be able to ignore the once-again imploding European reality (and American: Of the 35 S&P 500 firms that reported results yesterday, about 74% of those came ahead of market consensus but only 57% of those topped sales forecasts.), and send the ES to a green close on the day? Or is today the day when reality comes back with a vengeance? Stay tuned and find out.

The European Debt Mutualization Options Matrix

Heading into the EU Summit at the end of June, talks about potential debt mutualization proposals to deal with the eurozone debt crisis had gained momentum. Ultimately, as Barclays points out, the Summit produced an agreement in principle to achieve banking and fiscal union in the medium to long term. However, this commitment was lacking detail and as we pointed out earlier, is now critically exposing once again the fundamental flaw of disunited and self-interested European union of idiosyncratic nations. While the decision to give the ESM the 'capability' to recapitalize banks directly solidified the medium-term commitment to a financial markets/banking union, there were no specific announcements/agreements from the EU Summit on various debt mutualization possibilities for the near term. If the eurozone debt crisis worsens, such that Spain loses market access and needs to be put into a full program (which a 7% yield and recent auctions suggests), policy makers will be required to give some serious thought to alternative plans, and in particular an accelerated move towards some form of debt mutualization - those options are laid out simply here (in all their unlikely transfer-of-sovereignty scenarios).

Explaining Wage Stagnation

One look at the chart and the question that immediately comes to mind is, why? Well, John Aziz's intuition says one thing — the change in trajectory correlates very precisely with the end of the Bretton Woods system. Our intuition says that that event was a seismic shift for wages, for gold, for oil, for trade. The data seems to support that — the end of the Bretton Woods system correlates beautifully to a rise in income inequality, a downward shift in total factor productivity, a huge upward swing in credit creation, the beginning of financialisation, the beginning of a new stage in globalisation, and a myriad of other things. But while oil production recovered and prices fell, wages continued to stagnate. This suggests very strongly that the long-term issue was not an oil shock, but the fundamental change in the nature of the global trade system and the nature of money that took place in 1971 when Richard Nixon ended Bretton Woods.

Median Wealth And Those Wealthy Canadians

In The Last 10 Years, Real Incomes Are Down In The US

Admin at Marc Faber Blog - 46 minutes ago

Well very clearly compared to say ten, twelve years ago the financial condition of the US has deteriorated because A, the median household has lost money and B, the real incomes are down for the majority of people. In other words the median household income is down and the debt level and as I just mentioned the unfunded liabilities are up very substantially. - *in Radio Interview* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

 

If America Bombs Iran, That Is Going To Change A Lot Of Things

Admin at Jim Rogers Blog - 1 hour ago

If America bombs Iran, that's going to change a lot of things. - in Twitter *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.* 

 

Sic Semper Tyrannis

Dave in Denver at The Golden Truth - 1 hour ago

I met up with two good friends of mine for dinner the other night, one of them dating back to second grade. We used to get together during high school and solve this country's problems. Back then Jimmy Carter was the President, the U.S. was a net creditor country to the world, the country had just gone off the gold standard a few years earlier and we had very little Federal Government debt, especially as a ratio to GDP. In other words, this country and its citizens still had a chance. Now this country has over 50% of the population receiving some form of Government support, our t... more » 

 

Charles Ferguson Interviewed By Lauren Lyster

Ignore the Libor scandal at your own risk

Eric De Groot at Eric De Groot - 4 hours ago

Greed and fear have dominated capitalism, human nature, for thousands of years. In other words, there’s nothing new here. Crises develop when greed pushes too far and confidence fails. Headline: Ignore the Libor scandal at your own risk SAN FRANCISCO (MarketWatch) — Maybe you’ve seen the headlines mentioning “Libor” or Bob Diamond or the fixing of interest rates. Perhaps you vaguely know... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

Extreme Affecting Crop and Livestock Yields

Eric De Groot at Eric De Groot - 4 hours ago

Extreme, persistent heat goes beyond inconvenience for many. It reduces both crop and livestock yields and influences an economy already weakened by failing debt and falling aggregate demand. The pressure for the Fed to act through additional liquidity will only grow as the hot and dry summer cycle lingers. Headline: Extreme heat cuts milk production in Wisconsin July 17, 2012 (COTTAGE... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

Capital Flows Remain Defensive

Eric De Groot at Eric De Groot - 4 hours ago

Intermarket money flows such as the relative performance between junk and high-grade corporate and treasury bonds suggest risk-aversion despite higher stock prices (chart 1 and 2). Chart 1: Junk to High-grade Corporate Bonds Ratio Chart 2: High-grade Corporate to Treasury Bonds Ratio This technical setup also existed in July 2011 (chart 3) Chart 3 S&P 500 Daily... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

The Leading Formula, Followed By Formula Weakens Ahead Next Crisis

Eric De Groot at Eric De Groot - 4 hours ago

Taxes withheld, a leading indicator to total revenue, has broken its up trend (chart 1) The US Federal budget up trend remains in tact but weakening (chart 2). A break in the US Federal budget up trend, by 2015, will foreshadow the next major crisis. Chart 1: Taxes Withheld to Total Revenues Ratio, 12-Months Chart 2: US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]


Today’s Items:

First…
Propaganda Not Working!
http://online.wsj.com
http://www.insurancejournal.com

For the third time, China and Russia have both vetoed the U.S.’s, via the British, trumped up U.N security council resolution threatening Syria with sanctions.  This is a spectacular failure from Hillary, Obama and others wanting an excuse to do to Syria what they did to Libya.   As November draws closer, will we see the Black Swan event…   You know, an attack on the Olympics, of which there is already talk of the games being cancelled, blamed on Syria or even Iran?   We will see.

Next…
Spain’s Banking System: Circling the Drain
http://www.acting-man.com

The latest data release from Spain show a worsening of the banking system’s problems.   The European Central Bank’s idea to let senior creditors also take losses meanwhile is not really popular.   The country’s house price index dropped 8.3% from a year earlier in the second quarter, indicating that the free-falling real-estate market has yet to find a floor.   Things just keep getting worse.

Next…
Germans Are Already Using Deutschemarks Again!
http://gainspainscapital.com

More and more Germans are waking up to the fact that the Euro is financial fiasco. In fact, Germany was interested in the EU as a political entity, NOT the Euro as a currency. Germans have yet to give up on the euro. But as Europe’s debt crisis rages on, many are indulging their nostalgia for the abandoned mark by shopping with it again—and retailers are happily going along. It will not be long before these same merchants stop taking euros as payment.

Next…
Get Rid Of Debt & Prepare For Tough Times
http://kingworldnews.com

Richard Russell issued the warning to cut expenses and get rid of all the debt you can, and prepare for tough times.   He does not like the utter calm and complacency seen as deluxe restaurants are full at dinner time and families travel to Disneyland.   It is going to take about six months to a year before the public begins to realize that times are changing and they need to adjust accordingly.

Next…
Post Office Might Miss Retirees’ Payment
http://online.wsj.com

Fat cats heading the United States Postal Service announced that without taxpayer money, that the poorly run Post Office will default. It will default on the $5.5 billion dollar payment on August 1st.  In the mean time, politicians in both parties are playing the blame game.

Next…
Dreams from My Real Father
http://www.youtube.com

The lies that make up Obama are coming more apparent everyday.  Now we have a Photoshopped image from Barack Obama’s own  Facebook page.   The Black hand under Obama’s right armpit doesn’t match Ann Dunham’s right arm.

Next…
Why Are So Many Bad Things Happening To America?
http://endoftheamericandream.com

The following are some of the bad things that are happening to America right now….
1. The worst heat and drought in 50 years.
2. The rising trend of wildfires.
3. The rising number of very powerful tornadoes.
4. The radiation from Fukushima
5. Economic collapse
6. Poverty explosion
7. The death of American cities as they become hellholes.

Getting the idea?

Finally, please prepare now for the escalating economic and social unrest. Good Day!

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