A Massive Liquidity Injection Is Coming

Eric De Groot at Eric De Groot - 26 minutes ago

The Fed constrained by the strings of control will likely stare down the market forces a little longer than they should. Inaction, however, does not imply a lack of understanding of the economic trends in place. The Fed fully understands that consumption, the main driver of GDP growth in the US and supported by an increasing number of real world observations, is slowing. Whether the Fed... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

The Dark Knight Capital Plummets

UPDATE: KCG -24%
Forget Bane, Knight is going dark:

• *KNIGHT CAPITAL EXPERIENCING DELAY IN PROCESSING STOCK ORDERS
• *KNIGHT CITES 'TECHNOLOGY ISSUE' FOR PROCESSING DELAYS
• *KNIGHT TELLS CLIENTS TO EXECUTE TRADES ELSEWHERE FOR NOW

Li(e)bor: The Cartel Emerges

Just when you thought the Li(e)bor scandal had jumped the shark, Germany's Spiegel brings it back front-and-center with a detailed and critical insight into the 'organized fraud' and emergence of the cartel of 'bottom of the food chain' money market traders. "The trick is that you can't do it alone" one of the 'chosen' pointed out, but regulators have noiw spoken "mechanisms are now taking effect that I only knew of from mafia films." RICO anyone? "This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.
 

 

Undpeformance In The Banking Sector Suggests Caution

Eric De Groot at Eric De Groot - 3 hours ago

Negative divergences in the nominal relative to gold-adjusted price of the banking stocks illustrate dangerous stock market rallies and precede significant bear markets. Notable negative divergences which can last for years anticipated the severe bear markets of 1973-1974 and 2007-2009. The banking stocks have been underperforming gold since 2010. This has created... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Stephen Roach Mops Floor With Keynesianism And Former Fed Governor Larry Meyer

Following David Einhorn's take-down of the great and glorious Oz Larry Meyer eighteen months ago, the latter has been in training - readying his counterfactual counter-punches and controlling his ire. The king of Keynesianism just had his bell rung once again by a market realist and pragmatist as Stephen Roach destroyed the "if-we-don't-have-models-we-are-making-it-all-up" maestro and his constant diatribe of counterfactual crap. "Where's the beef, Larry?" Roach asked on CNBC this morning, which was followed up with a rabbit punch from Kiernan, "and what about Christina Romer's stimulus-employment model?" The visibly shaken (seriously watch the clip) Meyer falls back once again to a defensive pose - and while practically admitting that the Fed is impotent - as he pulls out the ultimate "but without our models we would not be able to tell you how much worse it would be without the Fed interventions". Roach takes this weak cross to the chin and comes over the top with a devastating "mark your models to market in light of what the economy has done over the four and a half years, the traction from monetary policy has been the major disappointment of this so-called post-crisis recovery." TKO.

Investing Legend Louis Bacon Has Had Enough Of Algos And Central Planners, Calls It Quits

Markets are toast as Louis Bacon plans to give back 25% of his fund to investors as "liqudity and opportunities have become more constrained." As Bloomberg notes, Bacon is struggling to make money in his typically macroeconomic trend exploiting fund as "the risk on / risk off environment appears to be an abiding presence that has keep engagement low." Macro funds lost an average of 1.3 percent in the first six months of the year. Bacon, pointed out that "Markets are increasingly distorted by central banks’ attempts to squeeze drops of growth from an over-indebted private sector across much of the developed world." The U.S. markets are hindered by "a caustic political environment and an anti-business administration," he said and pulls no punches as he goes after inept regulators in Europe and the US, and describes the state of affairs as "Disaster Economics, where assets are valued based on their ability to withstand a lurking disaster as opposed to what they may yield or earn, is now the prism through which investors are pricing markets." And perhaps most 'distorted' is the credit market where trading in individual corporate credits has also been 'decimated' he said. "I shudder to think of the stress that is going to occur during the new credit liquidation cycle."

NYSE Reviewing Trades In 148 Symbols Between 9:30 And 10:15

 

Broken Market Chronicles: Initial Forensic Visual Evidence Of This Morning's Algo Freak Out

Anyone who has had the displeasure of trading this market since the open will be well aware that the massive selling that started at 3:59:57 PM yesterday just as we showed, appears to have continued into today, after an algo, supposedly one impacting NYSE stocks this time, and proving that the entire market is a broken joke, not just Nasdaq and BATS, and one which is linked to Knight Capital, has continued this morning, sending countless stocks into the proverbial "batshit" formation, with moves of 10% higher and lower for no apparent reason. That's ok: the SEC and various other regulators are all over it, and will guarantee that the markets "are fixed." In other news, today we will report the latest massive outflow from domestic media funds. In the meantime, here are the first two picture of stocks getting pounded in super slo-mo courtesy of Nanex. Behold "perfectly normal" bids, offers and prints.

US Manufacturing Sector Contracts For Second Month In A Row, Misses Expectations Of Expansion

Expectations that the American manufacturing sector would expand after "briefly" contracting in June were promptly doused after the Manufacturing ISM printed at 49.8, below expectations of an expansionary print of 50.2, and essentially unchanged from last month's 49.7. Where did offsetting growth come from? The most hollow of indicators - Inventory - which keeps on being built up in expectation of a demand spike that never comes. This is also the third miss in a row for the ISM, whose most watched component, the Employment index, slid from 56.6 to 52.0 confirming that the earlier ADP number was a total noisy fluke as usual. The question: is the data as bad as possible for it to be good for stocks remains unanswered, especially with some Knight algo wreaking havoc across all stocks as of this posting.

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Dan Loeb Lets Loose On Barack Obama

Those wondering how the preponderance of Wall Street's buyside community feels about the President, will have their questions answered after reading this blurb from Dan Loab's Q2 letter. "The second quarter was marked by choppy markets caused by fears about Europe, a soft patch in the U.S., more signs of a Chinese slowdown, and U.S. consumers and business owners alike frustrated by the Obama Administration, which is openly hostile to most businesses and unable to articulate or implement policies to spark growth and reduce unemployment. Since ”Euro?phobia” has roiled the markets for over twelve months, we attributed the second quarter’s sell?off mostly to the renewed worries over US weakness and pervasive concerns about a Chinese hard landing, which punished any assets linked to global growth."

We're Not Japan But One Can Always Hope

In a brief 42 seconds, Bloomberg TV perfectly describes the sad reality that we are facing in the US. Conjuring images of gold medal winners and years of effort, this brief clip notes that not only is the current recovery the worst since WWII, it is worse than the poster-boy for dismal 'lost-decade' economy's - Japan. Somewhat ironic in its dysphoria given Larry Meyers' counterfactuals and the massive stimulus so far - but we do still have hope (and change). It seems we should forget 'Citius, Altius, Fortius' since reality is 'weaker, slower, longer'.

Wall Street Gives Treasury Its Blessing To Launch Floaters; Issues Warning On Student Loan Bubble

We previously observed that the US Treasury, under advisement of TBAC Chairman Matt Zames, who currently runs JPM's CIO group in the aftermath of the London #FailWhale and who will become the next JPM CEO after Jamie Dimon decides he has had enough of competing with the Fed over just who it is that run the US capital markets, would soon commence issuing Floating Rate bonds (here and here) as well as the implication that the launch of said product is a green light to get out of Dodge especially if the 1951 Accord is any indication (which as we explained in detail previously was the critical D-Day in which the Fed formerly independent of Treasury control, effectively became a subservient branch of the government, in the process "becoming Independent" according to then president Harry Truman). Sure enough, minutes ago the TBAC just told Tim Geithner they have given their blessing to the launch of Floating Rate Notes. To Wit: "TBAC was unanimous in its support for the introduction of an FRN program as soon as operationally possible. Members felt confident that there would be strong, broad-based demand for the product." Well of course there will be demand - the question is why should Treasury index future cash coupons to inflation when investors are perfectly happy to preserve their capital even if that means collecting 2.5% in exchange for 30 Year paper. What is the reason for this? Why the Fed of course: "Whereas the Fed had, as a matter of practice, reinvested those proceeds in subsequent Treasury auctions, Treasury must now issue that debt to the public to remain cash neutral. For fiscal years 2012-2016, this sums to $667 billion." Slowly but surely, the Fed's intervention in the capital markets is starting to have a structural impact on the US bond market.

Global PMI Update: 10 Of 11 European Countries In Contraction

Overnight, global July PMI data was released. In a nutshell: the contraction in the world economy is accelerating primarily due to that fulcrum continent, Europe, where 10 out of 11 countries indicated they are now in contraction. And since Europe is the nexus economy for global trade, what happens in Europe happens everywhere. As BAC summarizes: "From June’s levels’ global PMIs were mixed with roughly half (13) of the manufacturing PMIs decreasing over the course of the month. Out of the 23 countries that have reported so far, sixteen of the PMIs indicate that their manufacturing sectors are contracting – indicated by a PMI reading below 50. Europe’s sovereign debt and banking crisis continues to take a toll on the region’s manufacturing sector. Out of the 11 European countries that we reported on today, 10 printed with a PMI below 50. In other words, the majority of the global manufacturing weakness is stemming from Europe."

Fluff, Stuff, And Expectations

For months the European Union, the IMF and the European Central Bank focused all of their attention on the giant firewall that was supposed to protect the core countries of Europe. It was all a diversion and one that, once again, did not work. I think the real problem is that the European Union has come to believe their own concocted nonsense. I think they honestly believe that it is some band of speculators, some Jesse James type of gang riding out of the American West that is trying to drive up European interest rates and destroy their beloved construct. The bonds of Germany, France, the Netherlands et al now trade at negative levels in the short end; this is not that the credits are so great it is that a lot of European money is mandated to stay in Europe so that the money has been put in the safest places available within the mandate and hence negative yields. Germany is becoming troubled economically and will be in a recession along with the rest of Europe by the fourth quarter of this year.  We suspect both the ECB and Fed will disappoint as the expectations, especially for the ECB, to provide some kind of miracle will not be the manifest destiny hoped for by many.

Always Noisy ADP Better Than Expected, Market Confused About NEW QE

The endless noise and confusion that is the ADP private jobs report (a company which incidentally just missed on its top line), and whose forecast record for NFP is simply atrocious, has posted its second beat in a row, coming at 163K, on expectations of a 120K print, and down from last month's revised 172K. And there is the problem: last month ADP said private industries added 176K jobs. The BLS' NFP print disagreed, coming in at less than half, so sadly anyone trying to gauge what happens on Friday based on today's data will be largely mistaken. But this is all we get before today's FOMC statement, so the bets have to be made, and the market has to decide: will Bernanke make it rain, or won't he, based on 3 days in which economic data has somehow managed to scrape better than expected results. In terms of what really matters: manufacturing jobs as a proxy of the US real economy, was, as usual, sad: +6,000.

Daily US Opening News And Market Re-Cap: August 1

The European Equities are in positive territory at the North American cross over. The CAC-40 was the initial outperformer following SocGen’s earnings. Despite reporting a drop of more than 40% in Q2 net profits year over year, the co. beat analyst expectations on Q2 CIB net and announced the completion of its cost cutting measures and traded up to highs of EUR18.57, though shares have since pulled back into negative territory. The FTSE-100 now leads the way despite a sharp decline in July’s UK Manufacturing PMI, which came in at 45.5, the lowest reading since May 2009. This saw GBP/USD also tumble to intra-day lows of 1.5619, though the pair has since stabilised around 1.5650. Elsewhere, comments from ECB’s Weidmann that “governments overestimate ECB possibilities”, going against general consensus and speculation that the ECB will announce further stimulus measures at tomorrow’s meeting, provoked a sharp drop in the riskier assets and the Bund to gain 8 ticks, though as it came to light that these comments were taken from an article published on June 29th, the move was pared.

With Five Months To Go, Here Is "Cliff" Versus Consensus

America is now exactly 5 months away from the day the US Fiscal cliff will crater the economy unless a Congress which has never been as partisan as it is currently agrees to collaborate and delay the day of reckoning. This is very unlikely to happen before the presidential elections for obvious reasons, and it is even more unlikely to happen after the elections when politicians demonstrate just why the term "graceful loser" has never existed when describing what happens in D.C. So what would happen to the US economy if and when January 1, 2013 rolls in and nothing has changed, and how does this differ from the consensus? The chart below from BofA answers that particular question, and brings up a new one: even if the Fed goes ahead with more NEW QE today or in September, if the "cliff" consensus really is as wrong as it very well may be, will the Fed have no choice but to follow up its easing at this FOMC meeting or the next with another one immediately following? And is this precisely the one consideration for Ben Bernanke, who realizes very well that if financial conditions, read the Russell 2000, are relaxed just in time for the crucial decision on Bush Tax Cut extension, then absolutely nothing will happen, forcing the Fed to continue being the sole source of "stimulus" in America. Of course, in that case expect nothing from the Fed not only in in August and September, but well into 2013.

The Waiting Game

A Fed decision to launch QE3 would increase the yellow metal’s appeal as an inflation hedge and bolster prices.  US house prices increased for their 4th month in a row suggesting that the US housing market recovery may be underway which dampened further hopes of any immediate easing in the US Fed’s monetary policy. The markets are playing a waiting game and investors are cautious.  Thursday’s ECB policy meeting will determine if President Mario Draghi will have the backing he needs to embark on significant policy changes to rescue the region’s financial woes.  Yesterday, German Finance Minister Schauble said in an email response to a newspaper, “The rules of the European Stability Mechanism don’t foresee a banking license to allow refinancing at the European Central Bank”.  Schauble’s comments fell like a penny in a wishing well that rippled to curb the market’s enthusiasm. Since Draghi’s initial comments to “do anything it takes” gold has increased by nearly $50/oz.

Frontrunning: August 1

• Bundesbank’s Weidmann Says ECB Shouldn’t Overstep Mandate (Bloomberg)
• Hollande and Monti Vow to Protect Euro (FT) - be begging Germany to death
• Monti Calls French, Finns to Action as Italy Yields Rises (Bloomberg)
• not working though: Banking license for bailout fund is wrong: German Economy Minister (Reuters)
• Switzerland is ‘New China’ in Currencies (FT)
• Regulator Says no to Obama Mortgage Write-Down Plan (Reuters) - tough: there will be socialism
• Gauging the Triggers to Fed Action (WSJ)
• When domestic monetization is not enough: Azumi Spurns Calls for Bank of Japan to Buy Foreign Bonds to Curb Yen (NYT)
• Indonesia’s July Inflation Accelerates on Higher Food Prices (Bloomberg) - remember: the Deep Fried black swan
• China Manufacturing Teeters Close to Contraction (Bloomberg)
• Spain Introduces Regional Debt Ceilings to Achieve Budget Goals (Bloomberg) - yes, they said "budget goals"

July's Winners And Losers

Anyone who paired a corn/wheat long in July while shorting the "natural" hedges Spain and China (a painfully obvious trade in retrospect, maybe) can now take the rest of the year off. Everyone else will have to continue trying to frontrun Ben Bernanke for a few more months.









Today’s Items:

First…
Near-Bankrupt Greece Says Cash Reserves Drying Up
http://www.cnbc.com

Near-bankrupt Greece is fast running out of cash while it waits for its next installment of aid from international lenders.   Greece’s European partners, who are seeing record unemployment levels, have repeatedly promised the country will be funded through August, when it must repay a 3.2 billion euro bond.   By now, the Greek people should know that they need to get out of the EU and start rebuilding from scratch.   But will they have the will power to do so?

Next…
11 Signs That Time Is Quickly Running Out For The Global Financial System
http://theeconomiccollapseblog.com

Here are a few…
1. Spain, with a 24.6% unemployment, may need a 300 billion euro bailout.
2. The UK economy has now plunged into a deep recession.
3. The Dallas Fed index of general business activity fell dramatically to -13.2 in July.

Next…
Post Office Nears Historic Default On $5-Billion Payment
http://www.businessinsider.com

The U.S. Postal Service is bracing for a first-ever default on billions in payments due to the Treasury. $5.5 billion on Wednesday and $5.6 billion due in September will be left unpaid.   Unless, of course, it got lost in the mail.  Of course, it appears the Post Office will be needing some Obama money.

Next…
Canadian Mint to Stop Circulating Pennies
http://www.ctvnews.ca

The Royal Canadian Mint will officially stop circulating pennies as of Feb. 4, 2013.   The government cited “excessive” production costs relative to the coin’s value as a key reason. It costs 1.6 cents for every coin minted.  Can you say inflation?  Anyway, it will not be long before the Federal Reserve makes the same move.

Next…
Flash Mob Crimes And Organized Looting
http://endoftheamericandream.com

Until recently, most Americans had never even heard of “flash mob robberies” or “organized looting”. Today, it is becoming a weekly story.   To make things worse, when officials refuse to do anything about it; such as in Baltimore, the word gets out and similar actions are just encouraged.   At some point, these mobs are going to meet a store owner, who believes in the 2nd amendment, and that is when the excitement will begin.

Next…
Five ATF Officials Found Responsible for Fast and Furious
http://www.latimes.com

Well, Eric Holder has done his job; in that, he has nearly fallen on his sword and successfully hid Obama’s hands on an operation designed to attack the 2nd amendment.    The Republicans, can only name 5 senior people, not including Holder, for the operation that has led to hundreds of deaths.    The Congressional report did cite the Department of Injustice’s attempt to obstruct the investigation.   Well duh!!!

Next…
Rationing Begins
http://cnsnews.com

Sixteen states, including California, Texas, Utah and Main, have set a limit on the number of prescription drugs they will cover for Medicaid patients.    Well, who could have seen that one coming?   Could those death panels be far behind?

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

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