The Bernank Testimony Reprise: This Time With Maxine Waters And Bawney Fwank

The Bernank's prepared remarks in today's second session of his semiannual Humprhey Hawkins testimony will be identical to yesterday's, but one thing is certain: the questions asked of the Chairman will be far more colorful, courtesy of the inquiry of such penetrating financial experts as Bawney Fwank and Maxine Waters et al.

What Is On The Bernank's Easing Menu?

As Messers Frank and Paul take on the Bernank this morning, we reflect on the four easing options that the illustrious fed-head laid out in a statement-of-the-obvious that still managed to get the algos ripping. As Goldman notes, his prepared remarks were terse (and lacking in 'easing options' discussion) - cautious on his outlook, concerned at Europe, and fearful of the 'fiscal cliff' - but his response in the Q&A were a little more revealing as he laid out his choices: asset purchases, discount window lending programs, changes in communication about the likely path of rates or the Fed balance sheet, or a cut in the interest rate on excess reserves. We discuss each below but note, just as Goldman believes, that while we think that a modest easing step is a strong possibility at the August or September meeting, we suspect that a large move is more likely to come after the election or in early 2013 (and not before), barring a very rapid further deterioration in the already-cautious near term Fed economic outlook (which we assume implicitly brings the threat of deflation).

This Is What Happened This Time Last Year After Ben Bernanke Spoke To Congress

"A week after Bernanke spoke last year we saw the highs for H2 2012 (1345) before moving aggressively lower into the low 1100s through August- October as Europe’s problems intensified and the US debt ceiling problems came to a head. One year on and the biggest H2 risks are probably similar. US data is weakening, Europe’s problems could easily come to a head again and the fiscal cliff could become a major issue, albeit slightly later in the year. We also now have a China slowdown to contend with. So the parallels are there."

Finland Enters The NIRP Club As Germany Sells 2 Year Subzero Debt For The First Time

The NIRP club, or those countries whose 2 Year (or longer) bonds trade inside negative territory as presented yesterday, is happy to welcome Finland among its ranks, following the country's 2 Year bond briefly touching on -.008% minutes ago (since "recovering" to 0.0000% briefly). Other proud member countries include Holland, Germany (which earlier issued 2 Year debt at sub zero rates for the first time ever), Denmark, and Switzerland, or Europe's AAA-list. On the other end, the peripherals continue to trade on an ever more unsustainable basis. Europe has now become one big pair trade: everyone is long the viable countries and short the... less than viable ones.




I Said Germany Would Leave the Euro… Well, Germans Are Already Using Deutschemarks Again!

Posted by: Phoenix Capital...

Post date: 07/18/2012 - 10:52

Germans NEVER really trusted the Euro. They went along with it because of the benefit to their export driven economy. But now that the PIIGS and others are begging Germany to backstop the entire EU,...

Gasoline Prices back on the Rise

Trader Dan at Trader Dan's Market Views - 21 minutes ago

Call it a "stealth rally" as it has not been garnering any headlines, but unleaded gasoline futures have quietly been on the rise for the last three weeks after bouncing off of the $2.50 level and are now pushing back towards the important 50% Fibonacci retracement level of the entire decline from the late March peak . Coming at the same time that we are seeing the grains soaring higher (see my recent article on this), it is soon going to be packing a one-two punch to consumers between food and energy costs. Prices at the pump had been coming down giving some relief to drivers and t... more » 

Yet Another Sign of Accumulation In Equities

Eric De Groot at Eric De Groot - 2 hours ago

Intel results tell you nothing about the broad market trend. While the body of evidence still favors the risk-off trade over the short-term, it does not negate a growing signs of accumulation this summer. Yet another sign of accumulation is a positive divergence between stock prices and ADN(E), a measure of market participation or breadth. ADN(E)'s new all-time... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Middle Class 'Hit by a Truck'

Eric De Groot at Eric De Groot - 3 hours ago

You don't need a political pundit to tell you that the middle class has been repeatedly hit by a truck since the early 70’s. The message of the market supports this ongoing hit and run accident. The flow of money between Tiffany’s and Wal Mart illustrates a growing number of Americans from upper to lower classes gradually reducing their standard of livings. The ebb and flo has become more... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Precious Mogambo Time (PMT)

Richard Daughty, a.k.a., 'The Mogambo Guru' at Mogambo Guru Report! - 9 hours ago

July 13, 2012 Mogambo Guru So there I am, minding my own business, standing in my own front yard, yelling at my stupid neighbor "Mental problems? I don't have any mental problems, you whacko! You are the one with serious mental problems! You are the one who is NOT buying gold, silver and oil, even when the nasty Federal Reserve is creating trillions of dollars in new money and credit per year, Right In Front Of Your Stupid Eyes (RIFOYSE), you moron!" So he calmly replies, with a snotty tone of annoyance in his voice, "This is NOT about me or your mental problems. It's... more » 

City Of Compton Next On The Muni Bankruptcy Deck

Because once the dominoes start, they don't stop. Stockton, Mammoth, San Bernardino and now legendary rap and LA riots nexus - the City of Compton. Fear not: the ESM, and the German population whose retirement age will have to be in the quadruple digit range to fund a broke world, has got this, too, covered. Also, only squares don't make fun of Meredith Whitney for saying municipal America is insolvent, so please do.

Organized Financial Crime Is Now The New Normal

Ultimately, we should not be doing business with businesses that are repeat offenders; it's kind of like Stockholm syndrome. We keep on allowing ourselves to be abused and even protect our abuser. Unless and until the business changes their ways and assists in the prosecution of White collar criminals, we're going to keep on having problems in how our society functions. Why our local governments continue to do business with the big Wall Street banks is beyond me. In many cases, it appears that the management decided to incorporate fraud into their business models. No reasonable person would knowingly do business with the Mob, but we continue to do business with these banks which have been run just like organized crime. We can either live by the rule of law or the law of the jungle. I prefer the former.

The Elephant Keeps On Sitting: VIX Slides To 3 Month Lows

VIX is now trading with a 15 handle - at its lowest since early April. At current levels of exuberant complacency, the S&P 500 should be trading over 1400 and HY credit spreads back at 500bps. The volatility term structure has collapsed in the last month or two as it appears that there remains an extremely well-capitalized vol-seller at the front-end of the curve - unafraid of risk flares as they pick up those nickels in front of the European steam-roller. We can see two reasons for this compression (from a fundamental perspective): extreme confidence in NEW QE appearing shortly (and suppressing vol as it does) or more likely a vol steepener out beyond the German judge's decision on Spain's bailout constitutionality - or just call-writing retail monkeys following TD Ameritrade's CEO's advice - what could go wrong.

T1 Is Not T2: Goodbye Whitney Tilson?

From the inbox: "Tilson splitting from Tongue, unwinding T2 Partners, new fund at KASE Capital" We very much hope our tipster is wrong: after all how will CNBC Fast Money viewers know to buy JCP at $27, and $26, and $25, and $24, and all the way down to $19 where it is today. Also who could have possibly foreseen the end of a mega long-biased end of a $345 Million fund which had over $125 million in long derivative equivalents? Oh wait...

Revenues And Earnings: Another "Decoupling"

As we approach 'peak earnings reporting' in the next two weeks, a quick glance at the state of the 65 companies of the S&P 500 that have reported so far may be useful. In yet another miracle of modern-day accounting, and just when you thought there was no more fat to cut, staff to lay-off, or Capex to cut, 73% of companies reporting have surprised positively on EPS while 65% have surprised negatively on Revenues. Industrials stand out in the liberal sprinkling of accounting fairy dust with 100% of the firms having missed top-line while 88% beat bottom-line. Is it any wonder that unemployment is rising once again and CapEx is falling?

'Game Changer' For Gold In UK As New Regulation Favours Gold

The Financial Services Authority (FSA) primary role is to make retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal. In June 2006, the FSA created its Retail Distribution Review (RDR) programme which they are enacting in order to enhance consumer confidence in the retail investment market. The RDR has a target for full-implementation of 31 December 2012. The RDR is expected to have a significant impact on the way in which financial services are delivered to retail investors in the UK. The primary delivery mechanism of financial services to retail customers is via approximately 30,000 Independent Financial Advisers (IFAs) who are authorised and regulated by the FSA. They are expected to bear the brunt of the force of the RDR. Gold bullion is set to benefit from the axing of commission for IFAs and the implementation of the RDR “should be regarded as a game changer” for gold as an investment in the UK, according to the World Gold Council. Managing director of investment Marcus Grubb, says: “These extremely challenging times mean it’s impossible to quantify the risks for UK investors. They are facing an unprecedented combination of threats to their assets including extreme and unexpected market shocks that can trigger widespread value destruction.” “As UK investors reduce allocations to traditional investments such as equities and bonds and increasingly dash to cash, they face a double whammy, with the potential for stagnation of capital due to the lack of returns from cash and the increased possibility of inflation as a result of ongoing monetary stimulation.”

So Much For "Housing Has Bottomed" - Shadow Housing Inventory Resumes Upward Climb

Appropriately coming just after today's Housing Starts data, which captured MSM headlines will blast was "the highest since 2008" is the following chart from this morning's Bloomberg Brief, which shows precisely the reason why "housing has bottomed" - and it has nothing to do with organic demand rising. No, it has everything with excess inventory once again starting to pile up, which means that the imbalance in the supply and demand curves is purely a function of shadow inventory being stocked away, and that there is once again no true clearing price.

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Spain Goes From Bad To Worse

Despite the world and their lemur believing that, with a self-referential EUR100 billion bailout (loan) for its banks and a ponzi guarantee scheme for its insolvent regions, all will be well and more debt fixes too much debt, Spanish 10Y yields are back near 7% and spreads over 575bps. The reason - simple - the backbone of their credit-fueled economic growth has crumbled and is now crumbling faster. As the FT reports today, Spain's housing and banking sectors continue to deteriorate, grim new government data showed Wednesday, providing the latest indication that the country's economy remains caught in a protracted recession. House prices declined at the fastest pace since the start of the crisis in the second quarter, the public ministry said, and bad loans increased for a 14th month in a row, the Bank of Spain reported. What is more worrisome is that in spite of a bank rescue plan (that is obviously tyet tto be implemented), bank deposits saw a record decline shrinking 5.75% from a year earlier. The vicious cycle of rising borrowing costs and continued economic recession prompted the International Monetary Fund earlier this week to predict that the downturn will last into next year. "This government can't decide between a good and a bad choice," Mr. Rajoy said. "This government has to choose between the bad and the even worse."

Housing Starts Edge Slightly Higher As Completions Drag Along Historic Bottom

Housing starts, permits, units under construction and completions all continue to crawl slowly along the bottom. The noise was as follows: June starts came in at 760K on expectations of a 745K print, up from a revised 711K in May; Permits were 755K on expectations of 765K, and down from a revised 784K. In other words, largely a wash. Within start, single unit housing has barely budged upward, with the only strength focused on multi-family units on hopes that the rental market will pick up. Of course, by building much more rental units, the only thing that will happen is a flood of supply on the margin which sends rents lower yet again. Finally, keep in mind that both starts and permits only indicate one aspect of the lifecycle of new homes: the final one, and the one that few speak about, completions, came at 622K: as the second chart below shows, there is absolutely no rebound in this category which actually shows what is coming to market.

Bondholder Betrayal Leaps Anew

You may recall that the PSI (Private Sector Involvement) was a one-off event as heralded again and again in the Press by every political leader in the European Union. This proclamation was thundered from the rafters, held up like a banner by the ECB and trumpeted by every Parliament in Europe. The message was clear and rolled out like a red carpet for bond owners, “This will never happen again.” Amazingly, or perhaps not so, is the length of time that “never happen again” took to dissipate. The European Union and the European Central Bank are now signaling a change of position as tax payers always trump the owners of bonds and I fear one more example of this is about to be shoved down our throats. Mr. Draghi’s recent statements are all but a fait accompli in my opinion and you may expect some definitive announcements very soon. The situation is even more grave than this however as the question of “seniority,” already a distressing issue, is also going to be re-addressed and I think recalculated in some very non-conventional ways so that an owner of senior debt in European sovereigns and European banks will find himself behind an eight ball with absolutely no control and in serious jeopardy.

Daily US Opening News And Market Re-Cap: July 19

European equities are trading in minor positive territory on light volume and a light economic calendar with the exception of the IBEX and the FTSE MIB which are down 0.3% and 0.4% respectively as US participants begin to come to their desks. Headline employment data from the UK was for the most part in-line with expectations, though the jobless claims change for June showed a 6.1K increase compared with the 5.0K expected, with downward revisions to May’s figures. The BoE minutes showed the July increase in APF was not unanimous at 7-2, and a GBP 75bln increase was also discussed, and that should the additional easing measures not work, a further rate cut would be examined. The final comment caused a spike to the upside in the short Sterling strip of 6 ticks, Gilt futures rose to make highs of 121.78, and GBP/USD to slide back below 1.5600, though the pair has since come off its lows and trades back above this level.

Frontrunning: July 18

• Who Needs the Euro When You Can Pay With Deutsche Marks? (WSJ)
• Now it's personal and ad hominem: Is German Economist Exacerbating Euro Crisis? (Spiegel)
• Bernanke Outlines Range Of Options For Additional Easing (Bloomberg)
• Italy's Monti says serious worry Sicily region may default (Reuters)
• Libor ‘structurally flawed’, says Fed (FT)
• Some Firms Opt to Bring Manufacturing Back to U.S. (WSJ)
• ECB Signals Support for Easing Irish Debt Terms (WSJ)
• China’s Wen Warns Of Severe Job Outlook As Growth Yet To Return (Bloomberg)
• Hollande scraps tax breaks on overtime (WSJ)
• China’s June Home Prices Rebound As Sentiment Improves (Bloomberg)

 

BofA Reports $2.5 BN Net Income On $1.9 BN Reserve Release, Reps And Warranties Claims Soar

There were several numbers one should focus on today's Bank of America earnings release. They were not the Net Income EPS ($0.19 which beat estimates of $0.15), the Income before income taxes of $3.4 billion, nor Revenue net of interest expense ($21.968 which missed expectations of $22.71 billion). Here are the numbers that did matter: Loan Loss Reserve Release $1.9b billion, or 56% of pretax net income, Sales And Trading Revenue exluding DVA plunged by $1.9 billion from Q1 to $3.3 billion (and by $263 million from a year ago), and most importantly, counterparty claims by coutnerparties for Reps and Warranties purposes (remember those? the realization of their size caused the stock to plummet last August) soared from $16.1 billion to $22.7 billion sequentially: the highest it has ever been, even as the company only took a $395 million provision against losses, and the ending Rep and Warranties balance was $16 billion (driven by nearly a doubling in Private repurchase request claims from $4.9 billion to $8.6 billion!), or well below the potential outstanding claims. BAC is now reserve deficient by about $6.7 billion! Considering the company's settlement with Syncora yesterday, and imminent settlement with MBIA this may be a tiny problem.






Today’s Items:

First…
War On All Fronts
http://www.activistpost.com

The Russians have caught on that the U.S. was meddling in Russian politics.   China is aware of the U.S.’s attempt to derail China’s natural economic leadership in its own sphere of influence.   Yes folks, officials in Washington are in desperate need to read the book “How to Win Friends and Influence People” again, because, they are certainly not popular here or abroad.

Next…
Law of the Sea Treaty Now Dead
http://www.washingtontimes.com

In some possible good news, there are 34 senators opposed to the treaty that would require American businesses to pay royalties for resource exploitation and subject the U.S. to unwieldy environmental regulations.  Unfortunately, the official vote is planned later in the year… Most likely after the after the election.   Until it is actually voted down, it is merely dormant. Beware the lame ducks.

Next…
IRS has No Legal Basis to Collect Affordable Care Act Tax
http://www.naturalnews.com

Thanks to the way the Obamacare law has been specifically written, the IRS is powerless to force people, who do not buy health insurance, to pay this so-called “tax”.   According to the law, the IRS will not be permitted to freeze bank accounts or garnish wages.   The only thing that the IRS can do is, perhaps, send scary letters to withhold tax refunds.

Next…
The Gathering Pace Of Muni Fails
http://www.zerohedge.com

From Detroit to San Bernadino, we are seeing the can being kicked for the last time, austerity in some form implemented, and the pace of local government distress is accelerating.   The blame game will get worse; however, there very little that can stop this slow motion fiscal train wreak.

Next…
US citizens Journalism Killing Mainstream
http://www.youtube.com

Bias and bungled reporting by U.S. news networks are behind plummeting audience numbers.   20% of brain dead respondents, in a poll, actually trust the Main steam media.   Thanks to social media, average people are doing the job of answering the who, what, where, when, why, and how of important news stories.

Next…
12 Surprising Benefits of the Boomerang Effect
http://www.onlinedegrees.org

Here are a few of the benefits for kids returning to the nest…

1. Living with others is better for your health
2. Eating home-cooked meals can reduce your risk of cancer and it taste better.
3. The parent-child relationship can be strengthened

Next…
20 Reasons Why It’s Great to Be Barack Obama
http://townhall.com

I just had to do a few of these folks…
1. You get a Nobel Peace Prize just for showing up.
2. The press judges you on what you say and not what you have done.
3. You still have a chance to be reelected despite massive disability err… unemployment, illegal wars, and increasing the debt over $5 trillion.

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

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