Since 2012 Is 2011, What Comes Next Is Not Pretty...

Since January we have been pounding the table that 2012 is nothing but a carbon copy of 2011. Whether this is due to the limited imagination of the central planners, or a quota on the number of pages in the market's script, we don't know. What we do know is that since now everyone acknowledges that the two years have been fused into one, we suggest readers take a double dose of Dramamine ahead of what comes next, which can be easily seen courtesy of the following chart from SocGen's Albert Edwards.

 

Stephen Roach Smokes Crack-Addicted Market "QE3 Is Not Going To Work"

Is it any wonder that Stephen Roach is now ex-Morgan Stanley? Today's brilliant truthiness in his interview on Bloomberg TV is an absolute must-watch as the veteran market practitioner notes that the Fed is forced to act next week and while consumers are telling you that they want to pay down debt - which all the monetray stimulus in the world is not going to change - that QE is nothing but crack to a ridiculously addicted market. With 70% of the US economy in a balance sheet recession, the Fed knows this (which he notes is now run by WSJ's Jon Hilsenrath since what he prints must be adhered to by Ben for fear of market disappointment) and is "dangling QE in front of the markets like raw meat - but it has not worked and it will not work!" But critically, he believes, the euphoric response of markets will be tempered since they have become "used to the fact that all of this unconventional monetary easing by the central bank is just not what it is supposed to be."

Where Did All The Alpha Go? These 20 Stocks!

A highly correlated market - both across asset-classes and across individual stocks within the equity indices - is now well known. It's a stockpicker's market is the refrain. Well, as Goldman points out, a dramatically narrow leadership is running the show in S&P 500 performance this year. 20 companies (22% of market cap.) account for 55% of 2012 YTD return for the S&P 500. Pick away (and by the way CRAAPL accounted for 17% of the S&P 500's YTD performance until last night) as while correlation removes alpha so concentration removes liquidity.

Five Year Bond Auction Comes Weak Despite Fresh Record Low Yield

In sharp contrast to the "WTF" 10 Year auction from 2 weeks ago, which smashed virtually every record, and saw a record 45.4% direct take down, today's $35 billion in 5 Years was a pale comparison. Yes, the bond priced at a new all time low yield of 0.584% which tailed the When Issued of 0.578% at 1 pm, but that's as good as it got. The Bid To Cover was 2.71, far below the TTM average of 2.90; the Directs were just 5.2%, or the lowest since the 2.9% in November 2009, resulting in Primary Dealers once again forced to buy up more than half of the auction or 52.2%, leaving just 42.6% for the Indirects. In many ways the auction was a replica of yesterday's unimpressive 2 year auction. Tomorrow we have a 7 year which concludes this week's latest bout of bond issuance, and will show just what the appetite for the curve belly is. What is strange is that the EURUSD algobot took the flashing red headline of the results, and without even pretending to think about it, sent the pair 20 pips higher on what was effectively a weak bond auction, in the process pushing stocks well higher as well. We bring this up just to show what a joke a broken, centrally-planned market is.

Man Tries To Start His Own Bank, Fails

For the last two weeks here in the UK, TV stations have been running a documentary series called “Bank of Dave“, in which down-to-earth businessman Dave Fishwick attempts to establish his own bank. The premise sounds plausible: offer depositors 5% interest (as opposed to zero), and lend to credible small businesses that are otherwise ignored by the majors. But as the irrepressible Dave soon discovers, getting a new banking licence in the UK isn’t easy. ‘Bank of Dave’ has obviously been, albeit inadvertently, deliciously well-timed, arriving on television and computer screens accompanied by increasingly shrill coverage of interest rate rigging in the LIBOR manipulation scandal. Granted, the news of the world’s biggest banks colluding to manipulate interest rates to their own benefit has spark a major debate about banking. But what’s frustrating about the banking debate is how narrowly focused most contributors are.  

Here's Why Earnings Revisions Should Worry You More

In the last year, consensus EPS for 2012 among those oh-so-smart equity analysts has been crushed from over $113 to under $104 but multiple expansion has held the index together on the back of the hopes and dreams of a hockey stick recovery in Q4 thanks to a 'this-time-is-different' response to NEW QE at some point. Goldman has a different perspective. The Earnings Revision Leading Indicator points to a dramatic drop in ISM as micro data not just comfirms macro data but notably points to further weakness. Of course this will be eaten up by all asunder as bad-is-good but worse-is-better, but we worry that the scope of the drop is extreme and given a far more 'aware' market (as Stephen Roach alluded to) that this hole might just be too large this time.

Spain's Second Largest Company, Telefonica, Cancels Dividend And Share Buyback

Up until this point, Europe has been transfixed with severing the linkage between the sovereign and the banking system. This has been a particularly big issue in Spain because as is now well known, its banks are insolvent, yet the country is trying to pass off as not needing a bailout. Of course, if RBS is correct, that is all going to change very soon as the entire country demands a formal bailout. Yet link that has been largely ignored is the link between the sovereign, the financial sector and the broad corporate sector. Because if the first two are imploding, it is only a matter of time before the latter is also dragging into the maelstrom. As of minutes ago, this has just happened, following an announcement by Telefonica, Spain's second largest company, that it has cancelled its dividend and share buyback for the entire year.

• TELEFONICA SAYS CANCELS DIVIDEND AND SHARE BUYBACK FOR 2012

Why is Telefonica doing this? Simple - to conserve cash ahead of what may be a sovereign default which will have a huge adverse impact on all Spanish corporations.

Global Crisis - The Convergence Of Marx, Orwell And Kafka

This is where Orwell enters the convergence, for the State masks its stripmining and power grab with deliciously Orwellian misdirections such as "the People's Party," "democratic socialism," and so on. Orwell understood the State's ontological imperative is expansion, to the point where it controls every level of community, markets and society. Once the State escapes the control of the citizenry, it is free to exploit them in a parasitic predation that is the mirror-image of Monopoly capital. For what is the State but a monopoly of force, coercion, data manipulation and the regulation of private monopolies?  What is the EU bureaucracy in Brussels but the perfection of a stateless State? As Kafka divined, centralized bureaucracy has the capacity for both Orwellian obfuscation (anyone read those 1,300-page Congressional bills other than those gaming the system for their private benefit?) and systemic avarice and injustice. The convergence boils down to this: it would be impossible to loot this much wealth if the State didn't exist to enforce the "rules" of parasitic predation. In China, the Elite's looting proceeds along somewhat different rules from the looting of Europe and the U.S., but the end result is the same in all financialized, centrally managed economies: an expansive kleptocracy best understood as the convergence of Marx, Orwell and Kafka.

Is The EUR Short Squeeze Threat Exaggerated?

Every hour of every day we are told by the 'repeaters' that sentiment is terrible, it's all priced in, market's gotta go higher. Nowhere is this more true than in the constant diatribe of commentary on the EURUSD exchange rate and the 'massive build-up of short EUR positions'. However, as Citigroup's Steven Englander points out - shushing the bullish mob - that "a closer look at the data suggests that the investors with the biggest shorts seem to have built up their short positions at much higher euro levels, so the short squeeze risk may not be as great as aggregate positions suggest."

RBS Says To Expect A Spanish Sovereign Bailout Request "Within Days"

Probably not the news those who hopped on the Hilsenrath bandwagon of hope, prayer and bullshit were looking for. From Bloomberg:

• Spain likely to lose market access in near term, and will probably ask for precautionary sovereign bailout MOU “within days,” strategist Harvinder Sian writes in client note.
• ECB can act as agent to EFSF and buy Spanish bonds, lowering yields for Spain; BTPs to benefit by “correlation”
• Due to small size, this backstop would have “no credibility”; excluding risk that Moody’s cuts Spain to junk, ultimately SPGBs and BTPs will head to “double-digit” yields
• Giving ESM banking license is only “high-impact turnaround policy left”; however, Germany likely only to drop opposition to move at close to point of failure for EMU

It also means that those who bought non-local law Spanish bonds are about to be cremated as the PSI rears its ugly head once again. Everyone else who listened to us and bought UK, Swiss and Japanese law near-term bonds, should get taken out at par.

Netflix RadioShocked

While we were 'trained' in the 70s and 80s on what 'our brain looks like on drugs', it appears we never learned what it looks like when hope is crushed... until today. With Netflix and Radioshack smashed down over 20%, the darlings of momentum, tech, and LBO rumor ping-pong appear to be facing up to a new reality - "this is your portfolio on hope". We can only assume that everyone's favorite newly-standalone investment manager is licking his lips at the 'opportunity'. As a gentle reminder, Radioshack's CDS implies a cumulative 85% probability of default in the next five years (and 27% within a year, and 14% by the holidays).

Gary Gensler Explains How CFTC Allowed PFG To Steal $200 MM In Client Funds 8 Months After MF Global

Former Goldman appartchik Gary Gensler is about to take the stage (again) and explain why the CFTC should exist at all after allowing not only MF Global but a few weeks ago, Peregrine Financial, to steal hundreds of millions in client money without any regulatory supervision at all. All we can say here is: Free Corzine!

New Home Sales Miss By Most In 20 Months

But, but, but... the housing recovery. Was demand pulled forward? Could it be that warm weather encouraged people to venture out of their igloos? It appears so as new home sales plunge 8.4% MoM on expectations of a rise of 0.7%, days after the already fudged NAR data showed a huge miss in existing home sales as well. This is the first miss since October of last year and the biggest miss of expectations since October 2010. This is the biggest absolute drop since January with the actual number of new homes sold, not annualized, in June was 33,000 - of which a mere 1,000 was in the NorthEast. Median home prices also fell appreciably. Hope.is.fading as we note that of the 33,000 total new houses sold in June, 11,000 have not even been started, and 11,000 are still under construction and the number of homes sold at a price over $750,000 was less than 1,000.

The Real 'Bifurcated' Flight To Safety

In the last four days much has been made of Swiss and German short-dated bonds moving negative as investors seek the preservationist path of least resistance but perhaps even more critically, the real flight to safety globally has been from Europe to the US. The spread between 10Y US Treasuries and 10Y German Bunds has collapsed the most in over 3 months in the last few days as the world and their pet rabbit jump to front-run Bernanke and seek the safety of the most print-worthy currency in the world. Notably though, 2Y Treasuries are at their cheapest (widest spread relative) to German 2Y since Q3 2007! It appears domestic European capital is flooding into short-dated Bunds and any foreign money is being repatriated back to longer-dated US Treasuries.

Drachmatization Within 1 Year More Likely Than Not

With GGB prices, down 53% from post-PSI, plunging to all-time lows (offering Greywolf more opportunities to add to its 'no-brainer' trade) it appears Europe's ever-hopeful self-perpetuating banks are turning tail and realizing that the truth will set them free. In a turnabout from a late May note detailing 'why Greece will not leave the Euro', Credit Suisse now expects a return to some form of local currency for Greece within one year (an event they now assign a probability greater than 50%). The reason for their change of view is the slowness of structural reforms/privatizations and the lack of available capital to bail out the increasing number of distressed euro zone countries. It seems almost impossible for Greece to pull itself out of the contractionary hole it's in without additional support that few are politically able or willing to provide. Expecting another round of PSI - extending to ECB losses - and ending the ridiculous state of affairs that exists currently whereby the euro area is providing funding to Greece to enable them to repay the ECB. Ominously, they note, against the backdrop of the situation in Spain, we believe that such a development in Greece will have a highly negative impact on sentiment, further putting into question the sustainability of the euro area as a whole.

Live Webcast Of Tim Geithner Explaining Why Libor Manipulation Was All TurboTax' Fault

Well not really, but it will be someone else's fault of course that there was gambling going on here. There is no way the head of the New York Fed at the time could have possibly known that Barclays was manipulating its Libor rate. Recall: : “Barclays: You know, LIBORs being set too low anyway, but uh, yeah, that-that is correct. Fed person: “Yeah.” Supposedly Geithner is not the Fed person. Anyway, the scheduled topic of today's hearing in the House Financial Services Committee is the annual report of the Financial Stability Oversight Council (FSOC) but the hearing seems likely to be dominated by questions about manipulation of LIBOR rate. Watch it live here.






Today’s Items:

First…
Market Rigging by Central Banks is Gaining Respectability
http://gata.org/

Once the arena for tinfoil hats, the idea that Central Banks are rigging everything, from Gold to the mortgage interest rates, is quickly becoming common knowledge. The only thing that Banks have going for them is that people believe that their money is safe with them. Well, LIBOR, HSBC’s money laundering, and other flaring scandals are not only placing a crack in that dam, they have begun to allow people to peer through and see the criminal enterprise which is the entire Western banking system.

Next…
Moody’s Cuts Outlook on Germany
http://www.cnbc.com

Moody’s Investors Service changed its outlook for top-rated Germany, the Netherlands and Luxembourg to negative from stable.   Moody’s also cited an increased chance of Greece leaving the euro zone.   Moody’s affirmed Finland’s ‘Aaa’ rating while Spain and Italy are going to need a lot of financial support. So, apparently Moody’s is trying to get the economic powerhouse Germany to go broke by dumping money down the black hole that are the PIGGS.

Next…
Expect Shortages Of Gold As Soon As Next Month
http://kingworldnews.com

John Embry believes that we are moving toward a fundamental shortage of gold.   He goes on to describe how the drought is already creating food shortages and the EU crisis, and China to a much lesser degree, are getting economically worse.   He also believes the big issue going forward is this growing shortage of available physical gold as a lot of it is headed East.   People will be shocked that don’t understand the full extent of the manipulation and how cheap both gold and silver have been.

Next…
Banks Say Invest in Precious Metals?
http://www.youtube.com

David Morgan says that we are still in a long consolidation period and the metals may have bottomed. He said that Standard Charter Bank, which is the largest bank in Asia, whether it be coal, or precious metals, resources are the place to be.   He went on to say that the Asian community gets it when it comes to gold.   So, do not pay attention to the paper noise; in regards to precious metals, after preparing, keep stacking physical.

Next…
Nearly One in 10 Employers to Drop Health Coverage
http://www.washingtontimes.com

About one in 10 employers plan to drop health coverage when key provisions of the new health care law kick in less than two years from now.   While small business don’t face fines for failing to offer coverage, companies with 50 or more full time employees face the new “TAX” starting at $2,000 per worker.   Gee, now aren’t you glad that it was not a penalty?

Next…
55 Percent Of Americans Believe That The Government Will Take Care Of Them
http://endoftheamericandream.com
http://www.ready.gov

Despite being warned by the government officials to be prepared for emergencies:
44 percent of all Americans do not have first-aid kits in their homes.
48 percent of all Americans do not have any emergency supplies stored up.
53 percent of all Americans do not have a 3 day supply of nonperishable food and water in their homes.
In short, there are a lot of Americans that look to government for all solutions.

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

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