Looks like someone was betting on the SPX closing red for the year. Simply unbelievable. It was green until a couple of minutes from the close.
1 day chart, take a look at the very end:
1257.60 at the close. Last year: 1257.64: 0.04 below!
Shocked that companies and mutual funds would invest OPM (Other People's Money) in high-risk investments, the Shocked Investor was originally on a mission to find out if our money ended up in these dubious instruments. This blog now also discusses other financial topics, such as straddles, options, gold, natural gas, agri/food stocks, and the collapse of the US Dollar.
Looks like someone was betting on the SPX closing red for the year. Simply unbelievable. It was green until a couple of minutes from the close.
Verizon, with its tail between its legs, was forced to withdraw it's $2 convenience fee.
"At Verizon, we take great care to listen to our customers. Based on their input, we believe the best path forward is to encourage customers to take advantage of the best and most efficient options, eliminating the need to institute the fee at this time," Verizon CEO Dan Mead said in a statement.
The company faced an online uproar from its customers, just like BAC.
The Euro hit a new 10-year versys the Yen, going trough below 100 yen.
The euro fell 0.9 percent yesterday to 99.77 yen and is down about 8 percent for the year.
From around $1.33 in January, the euro soared to $1.4939 by May, then hit $1.2958, about a cent above a 2011 low hit earlier this week.
Dennis Gartman, author of the daily Gartman Letter, says that the path is set for the uro to drop further in early 2012.
"Given that we are closing the year below $1.30, the path seems to be set,"
He predicts $1.20 in early 2012 as the resolve on the part of the political, fiscal and monetary authorities in Europe are put to test.
Now there will be elections in France in the spring, let's see if Mounsieur Sarkozy can pull anther rabbit out of his hat and kicks the can down the road a little further.
The question is what will happen when interest rates rise or people lose their jobs.
The Canadian Association of Mortgage Professionals says in its annual report that there were $1,008,000,000,000 in mortgages outstanding at the end of August.
This represents a gain of 7.6% in one year and 194% over the past 15 years.
"While mortgage approvals slipped through the recession, a boom in lending has followed as the housing market recovered and buyers rushed into the market. After a frenzy of buying drove average prices to an all-time high of $346,881 in May, things have cooled slightly with prices now at year-ago levels near $331,000."
The association surveyed Canadians and asked at what point they would be in trouble if interest rates were to rise. The average amount of room is $1,056 per month on top of their current costs..
“There is a sizable minority, about 350,000 out of 5.65 million, or about 6 per cent, who would be challenged by rate rises of less than 1 per cent, and a further 225,000 (5 per cent) have thresholds in the range of 1.00 per cent to 1.49 per cent. However, most of these have fixed-rate mortgages: by the time their mortgages are due for renewal, time will have increased their financial capacity and reduced the amount of mortgage debt being financed. There are about 100,000 borrowers who are susceptible to short-term moves of interest rates, which is a quite small share (less than 2 per cent) of the 5.65 million mortgage holders in Canada.”
Shades of BAC's monthly fee here. ABC reports that verizon will now charge a fee to pay your wireless bill with a credit card. The unbelievable measure will start Jan. 15 and will apply to who make single bill payments online or by telephone.
The fee: a $2 "convenience fee"!
Gee, these customers are trying to pay their bills!
The reasons are the usual: Verizon: "The fee will help allow us to continue to support these single bill payment options in these channels and is designed to address costs incurred by us for only those customers who choose to make single bill payments in alternate payment channels (online, mobile, telephone),"
"The move appeared to be an attempt to push customers to enroll in an automatic bill payment plan. Verizon said customers can waive the fee by paying by electronic check or enrolling in its "AutoPay" service."
In spite of the the recent large drops, Gold is still about to complete an amzing 11th consecutive annual gains. This is longest winning streak in nine decades.
BMO Capital Markets released a report yesterday in which it states that diamond prices will rise for the next four years reflecting increased spending on luxury goods in China, India and the Middle East, outpacing supplies of the precious.
Average prices for rough, or uncut, diamonds will probably climb nine per cent to $145 US a carat next year, 1.4 per cent in 2013 and 4.8 per cent in 2014, then they may gain 2.6 per cent in 2015 and 3.2 per cent in 2016.
In addition, gold is expected drop for three years starting 2013, following a 19 per cent gain in 2012, according to the median of seven analyst estimates. (Ottawa Citizen report)
Oil has been very volatile with the latest Iran threats and U.S. responses.
Below are straddles on USO for January2012, from the free StraddlesCalc tool
In its latest World Economic League Table, the Centre for Economics and Business Research (CE-BR) said Brazil has overtaken Britain as the world's sixth-largest economy, while Asian countries were moving up and European countries were slipping down.
The biggest economies:
CEBR says Brazil's advance was part of a wider trend according to Douglas Mc-Williams, CEO: "I think it's part of the big economic change, where not only are we seeing a shift from the west to the east, but we're also seeing that countries that produce vital commodities - food and energy and things like that - are doing very well and they're gradually climbing up the economic league table," .
The ETF for Chile is ECH. We track all global ETFs live here.
Reuters reports today that mighty Apple is takjing a hit due to the weak economies of Europe, as well as lower prices of excellent competitors' smartphones.
Apple iPhones sales across Europe are being hurt, says data from research firm Kantar Worldpanel ComTech.
The new iPhone 4S failed to excite interest in continental Europe, and Apple's share smartphone market dropped. The smartphone industry is now dominated by Google's Android platform.
Kantar saiys that in France its share slipped to 20 percent from 29 percent and in Germany to 22 percent from 27 percent, with similar drops were in Italy and Spain, unlike in the United States and Britain.
"The French market is showing increasing signs of price sensitivity," says the same firm.
Google had market shares of between 46 and 61 percent in all markets, with devices from Samsung Electronics, Sony Ericsson, LG Ericsson and Motorola Mobility who use the Android platform.
"In Germany, Android achieved a dominant 61 percent share of smartphone sales in the latest 12 weeks, with the Samsung Galaxy S II the top selling handset,"
The ECB announced today an unprecedented 489B euros ($645 billion) in 1% loans today,
French President Nicolas Sarkozy is quoted as saying that has banks could use the loans to buy even more government debt. Mindboggling. Well, sure, if their losses will always be covered up.
Bloomberg quotes Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, saying that the loans amount to quantitative easing “through the backdoor.”
Weakening the Euro
“What the ECB is doing is providing ultra-cheap money to banks, which in turn are going to be in there buying the sovereign debt up,” “That’s good news in the sense that it’s clearly going to help sovereigns in the near future, but it’s also printing more money. That’s going to start to weigh on the euro over time.”
The markets, which were positive, reversed sharply lower after the announcement as the annoucement may mean that the banks foresess a lack of funding in 2012.
This is all a casino, so who knows what will happen next.
The Brazilian Ministry of Labor and Employment announced today that in November of this year the number of hirings exceeded the number of layoffs by by 42,735 during the period. This is actually the worst result for the month of November since 2008, when the net balance was negative in 40,821. Compared to the same month of 2010, when 138,247 jobs were created, there was a drop of 69%. The previous month, there was a slight increase of 0.39% in the numberof employees with a formal contract.
Hiring was 1,620,422, while layoffs totaled 1,577,687, both the highest for the month of November.
Also, according todata accumulated in 2011 the jobs generated between January and November totaled 2,320,753, representing a growth of 6.46% compared to the number of jobs in December 2010. The result of this period was the second best in the series between the years 2003 and 2011, behind only the result of 2010, when 2,918,549 formal jobs were generated .
As for the last 12 months, 1,900,571 jobs have been created.
Larry Berman's prediction's for 2012.
Gold has broken its channel,, which would indicate it is headed for maybe $1,350/$1,400, but he thinks it may go sideways here and may bounce explosively to $2,100 if there is more money printing.
Fox news reports that in a long conference call today the EU ministers assessed plans for tighter euro zone fiscal rules, now labelled 'fiscal compact', that policy makers hope will insulate the 17-country currency zone against a repeat of the two-year debt crisis.
However, in the call, Britain had made it clear that it would not participate in the plan to increase IMF resources by up to 200 billion euros. 150 billion of that was supposed to come from euro zone central banks. So the question now is who would commit such kind of money from the remaining countries that actually have any money to lend.
A treasury official was quoted as saying: "We were clear that we would not be making a contribution," "no agreement on the 200 billion" euro funding boost.
BNN had a feature interview with hedge fund manager Greg Taylor, who had held RIMM stock since its IPO, and finally threw-in the towel today, selling everything.
He says ther company is worth maybe be $10 or lower, considerign cash, patents, etc. he adds that nothing new will come out of the company unitl late 2012, so they wll suffer even more against its compastition who will release new iPhones and new Android devices. Furthermore, he said that in the company's conference call the manager appeared defeated.
Brazilian newspaper O Estado de Sao Paulo reports that the European Financial Stability Facility has a draft prospectus whcoh warsn that the Euro may collapse. It includes explicit warnings that the euro could break apart or even cease to be a “lawful currency”.
The ESPF is still debating whether the “risk factors” should be included in the final version of the document.
The Financial Times also reports on the matter statign that the draft appears to be almost complete ahead of the expected launch of the instruments in January, "But the details of the risks of euro exit remain blank, as the EFSF debates whether to include them. Lawyers are debating the merits of including warnings about the euro in corporate prospectuses, although several London bond lawyers and bankers said they had yet to see them added".
Refecting the provinces very weak financial situation, Ontario’s rating outlook has been cut to negative by Moody’s Investors Service as it faces a higher risk in meeting fiscal targets.
The province’s C$190 billion ($183.6 billion) of debt is still maintained at Aa1
Provincial growth in 2011 and 2012 was revised down to 1.8 percent for both periods, from 2.4 percent and 2.7 percent.
Moody’s Assistant Vice President Jennifer Wong:“The negative outlook on the province reflects the softening economic outlook, Ontario’s growing debt burden, and the extended timeframe to achieving a balanced budget,”
Research in Motion, RIMM, now officially announced earnings and it taking a major tumble in after hours trading:
The Associate Press reports today on European Central Bank president Mario Draghi saying that there is "no external savior" for countries in Euripe deep in debt.
He added that governments must take the tough steps to balance budgets and reform economies to promote growth.
"I will never tire of saying that the first response should be from government," "There is no external savior for a country that doesn't want to save itself."
Draghi said that the ECB's bond purchases were "neither eternal nor infinite."
Today Italy paid 6.47% to sell five year bonds, a new euro era record
Germany, o the other hand, sold 4 billion euros of two-year bonds at an ultra-low average yield of just 0.29% as investors flock to safety. Germany's 0.29% yield was down from 0.39% in November.
Interestingly, even Sweden is seen as a safe haven. The country sold 5-year bonds at a record low yield of 1.023%, down significantly from 3.132% in April.
Italy's previous euro lifetime record high was 6.29% hit at a mid-November sale.
Reuters: "Italy has trimmed the size of its auctions in reaction to market pressure but it will have to step up issuance in the coming months if it is to meet a gross funding goal of around 440 billion euros next year".
While the markets tank out of the realities of no way out in Europe and no QE3 in the U.S., these news are not inspiring for any market.
CNBC says that sales of previously owned U.S. homes from 2007 through October this year will be revised down next week. It rurns out the sales were being double counted by the National Association of Realtors. "indicating a much weaker housing market than previously thought".
Some properties were listed more than once, and in some instances, and even new home sales were being cpunted. You canot make this stuff up..
"All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought,".
"We're capturing some new home data that should have been filtered out and we also discovered that some properties were being listed in more than one list."
BNN had another fantastic interview today with Kyle Bass.
He focuses a lot on how bad Japan is, and Europe, says the U.S. is a disaster, but likes Canada. When asked if ECB buying bonds and printing would fix or change anything, he says 'No'. It' far past that point. The choices are
This is amazing, today's headline: "Gartman sees bear market for gold". He goes as far as to proclaim the... death of a bull:
“We have the beginnings of a real bear market, and the death of a bull,” “Since the early autumn here in the northern hemisphere gold has failed to make a new high. Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low.”
BNN reports that he sold his gold yesterday, and of course what happens today? Gold spikes higher.
Bank of Canada Governor Mark Carney said Monday that Canada's is in a better position for the coming years as other advanced nations struggle to reduce greater debt load. However, he added Canada must refocus the economy away from "unsustainable household spending" and toward greater business investment,
Carney said that the United States and Europe face several years of daunting fiscal and structural adjustments that will crimp global economic growth. Events since the 2008 crisis have also lessened Canada's "margin of manoeuvre."
In Canada household debt has climbed by 13% relative to income, even as foreign investors snap up Canadian bonds as both a vote of confidence in the economy and the government's fiscal management. However, too much of the capital coming in is now used to fund household spending instead of building productive capacity..
"We might appear to prosper for a while by consuming beyond our means," "Markets may let us do so for longer than we should. But if we yield to this temptation, eventually, we, too, will face painful adjustments."
Companies must use their solid balance sheets to become more productive over the long haul and work harder to crack new customers in emerging markets.
"This would be good for Canadian companies and good for Canada," "A virtuous circle of increased investment and increased productivity would increase the debt-carrying capacity of all, through higher wages, greater profits and higher government revenues. This should be our common focus."
He added that global public debt as a share of global GDP currently around 80 percent are equivalent to levels historically associated with "widespread sovereign defaults" and the adjustment could take longer and be harsher than anyone can see now,
"As a result of deleveraging, the global economy risks entering a prolonged period of deficient demand," "If mishandled, it could lead to debt deflation and disorderly defaults, potentially triggering large transfers of wealth and social unrest."
"Actions by central banks, the International Monetary Fund and the European Financial Stability Facility can only create time for adjustment," "The route to restoring competitiveness is through fiscal and structural reforms. These real adjustments are the responsibility of citizens, firms and governments within the affected countries, not central banks."
Fabulous interview with renowned hedge fund manager Kyle Bass, on the current dire situation, which is abut to get much worse, permanent job losses, bonds, global debt going from $80T to $210T, growing at 12% annual growth rate, while GDP has grown at 4% only, therefore... boom. He says the U.S. is lucky to get 1.5% grwoth, but the nimimum to keep unemployment from going up is 2.25%!
The bill is due today.
What Bernanke is saying is that interest rares will stay low... forever. He cannot raise them.
December 19th: the day of decision for Greece. It's a full wipe-out.
Tha last meeting/summit in Europe did not really produce anything solid, other than a split with the U.K. So it was only a matter of time before the ratings agencies acted.
Moody's issued this statement today:
Pressure Remains On Euro Area Sovereigns In Absence of Decisive Initiatives
"The communiqué issued by European policymakers after the recent euro area summit offers few new measures and therefore does not change our analysis of the rising threat to the cohesion of the euro area and the further shocks to which it and the wider EU remain prone. As we announced in November, unless credit market conditions stabilise in the near future, our ratings of all EU sovereigns will need to be revisited. The communiqué does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.
Last Friday, European policymakers issued a communiqué announcing additional measures aimed at addressing the formidable challenges facing the euro area. The communiqué discussed at a high level the direction of a variety of initiatives aimed at supporting closer fiscal coordination among euro area (and many EU) sovereigns in the years to come, and at the same time to address the more acute immediate challenges euro area sovereigns and banking systems face. The clear statements it contains affirming the commitment of euro area authorities to work towards a common economic policy provide a further indication of euro area politicians’ desire to move towards centralised fiscal coordination and mutualisation of resource and risk.
In substance, however, the communiqué offers few new measures, and does not change our view that risks to the cohesion of the euro area continue to rise. Measures to strengthen the governance of the EU’s Excessive Deficit Procedure were first announced in the first half of 2011. The intention to introduce measures to strengthen national budgetary frameworks and to improve coordination and cooperation, including a heightened role for the Commission, was announced in October, as was the aim of leveraging the European Financial Stability Facility.
The July package contained very clear statements regarding the uniqueness of private sector involvement (PSI) in Greece’s assistance programme. We placed little weight on those statements then. It is difficult to place greater weight on them now given, for example, the intention to complete the Greek PSI programme, to incorporate Collective Action Clauses in European Stability Mechanism documentation to facilitate orderly PSI in future, and the reference to the application of “IMF principles and practices” which often also involve burden-sharing with private sector creditors.
In short, the communiqué reflects the continuing tension between euro area leaders’ recognition of the need to increase support for fiscally weaker countries and the significant opposition within stronger countries to doing so. Amid the increasing pressure on euro area authorities to act quickly to restore credit market confidence, the constraints they face are also rising. The longer that remains the case, the greater the risk of adverse economic conditions that would add to the already sizeable challenges facing the authorities’ coordination and debt reduction efforts.
As a result, the communiqué does not change our view that the crisis is in a critical, and volatile, stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain. While our central scenario remains that the euro area will be preserved without further widespread defaults, shocks likely to materialise even under this 'positive' scenario carry negative credit and rating implications in the coming months. And the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area.
The credit implications of these and further measures likely to be announced in coming weeks require careful consideration against the backdrop of decelerating regional economic activity, fragile banking systems, partly dysfunctional credit markets, and the varying degree of success of country-specific measures aimed at structural change and fiscal consolidation. But in the absence of credit market conditions stabilising, the system remains prone to further shocks which would likely lead to selective rating changes. More broadly, in the absence of any decisive policy initiatives that stabilise credit market conditions effectively, our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012".
Last time we reported this figrue it was $485T (remmebeer Mr. Das's book?).
According to the BIS, Bank of International Settlements, it is now $708T (this as back on July 2011, who knows today). Quadrillions soon!
Moody's has downgraded France's three big banks "due to their difficulty borrowing money".
Credit Agricole and BNP Paribas were cut from Aa2 to Aa3, and Societe Generale from Aa3 to A1.
"Liquidity and funding conditions have deteriorated significantly" also saying that the problem was likely to worsen.
"The probability that the bank will face further funding pressures has risen in line with the worsening European debt crisis,"
It also assigned a negative outlook to all three banks' ratings.
The Merkel, Sarkozy, Cameron Circus put on quite a show last night. In reality, none of Europe's problems have been solved.
Sarkozy wasting no time in blaming Cameron, ridiculous. And the markets are up, even more ridiculous. A huge shor opportunity presents itself. You'd think there is no excuse for S&P not to downgrade Europe now.
Cameron: ""We're not in the euro and I'm glad we're not in the euro," "We're never going to join the euro and we're never going to give up this kind of sovereignty that these countries are having to give up."
The fear mongering continues.
Sarkozy today: "Never has Europe been so necessary. Never has it been in so much danger." Europe or the banks?
"Never have so many countries wanted to join Europe. Never has the risk of a disintegration of Europe been so great. Europe is facing an extraordinarily dangerous situation."
However, he said the eurozone economies still had a few weeks to decide.
It should be noted that Fance and Germany don't get to decide the future of Europe by themselves.
Ireland is opposed to the idea of wholesale treaty change and the propsed Franco-German idea that would move Europe towards a single corporate tax rate. Crazy.
Lucinda Creighton Europe Minister for Ireland: "We have our red lines too. This is not a fait accompli just because two have found agreement."
UNG has hit a new all-time low, just ahead of inventories tomorrow.
All indicators agree: this has been a bear market rally. Big deflation coming in the next 4 to 5 years. There is another wave down coming, a big storm coming our way. The current period is very similar to 1929 to 1933, says Robert Prechter, founder and president of Elliott Wave International. Watch:
Saving Italy is a Mathematical Impossibility.
Natural gas contango is currently very low, something that benefits UNG (or makes it less 'horrible').
This had to happen since all its guarantors are on negative watch. From S&P today
"Standard & Poor’s Ratings Services today placed the ‘AAA’ long-term credit rating on the European Financial Stability Facility (EFSF) on CreditWatch with negative implications. At the same time, we affirmed the ‘A-1+’ short-term credit rating on EFSF.
Our ‘AAA’ long- and ‘A-1+’ short-term ratings on EFSF are based on (i) the unconditional, irrevocable, and timely guarantees from EFSF members (guarantor members) rated ‘AAA’ by Standard & Poor’s that support EFSF’s obligations (bonds, notes, commercial paper, debt securities, or other financing arrangements) and, (ii) the ‘AAA’ rated securities that constitute EFSF’s liquidity reserves. Standard & Poor’s has placed the ‘AAA’ long-term issue ratings on EFSF’s guarantor members Austria, Finland, France, Germany, Luxembourg, and The Netherlands on CreditWatch negative (see “Standard & Poor’s Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications,” published on Dec. 5, 2011), indicating our view of their increased credit risks.
A CreditWatch negative placement indicates that, in our opinion, there is at least a one-in-two probability of the rating being lowered in the short term. Based on EFSF’s current structure, were we to lower one or more of the current ’AAA’ ratings on EFSF’s guarantor members, all else being equal, we would lower the issuer and issue ratings on EFSF to the lowest sovereign rating on members currently rated ‘AAA’.
In our media releases of Dec. 5, 2011, on the CreditWatch placements of individual ‘AAA’ rated guarantor members, we indicated that our ratings on Austria, Finland, Germany, Luxembourg, and The Netherlands are currently unlikely to fall by more than one notch, and the ratings on France by no more than two notches, if at all. Accordingly, we currently anticipate that if we lower the rating on EFSF, it could be by up to two notches.
We expect to resolve EFSF’s CreditWatch placement within 90 days and, if possible sooner, after we complete the review of EFSF guarantor members currently rated ‘AAA’.
We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the ‘AAA’ sovereign ratings, which are currently on CreditWatch, on one or more of EFSF’s guarantor members. Conversely, we could affirm the ’AAA’ ratings on EFSF and its issues if we affirm the rating on all six of EFSF’s guarantor members currently rated ‘AAA’. We could also affirm the ratings if we were to lower the current ‘AAA’ ratings on one or more guarantor members, but had evidence that the EFSF guarantor members were implementing further credit enhancements that were in our view sufficient to mitigate the relevant guarantor members’ reduced creditworthiness".
From Kyle Basss interview, and chart from BNN today. Global debt has grown in the last 9 years from $80T to $210T, i.e. at 12% year, while global GDP has grown at 4%. Something has to give.
Italian welfare minister, Elsa Fornero, broke down in tears as she explained cuts to pensions last night: she was on TV with Mr. Monti explaiining changes to pension system when she could not control herself and started crying. If this is true, pensions will be reduced drastically once inflation resurfaces, which it will one day as money is printed to pay off debts.
Note the caption below, by Mr. Monti himself.
More rumours from Europe today: ECB preparing a1T Euro rescue plan.
This was reported by The Sunday Times without reporting where it received the information, said that the plan would be executed if Europe's leaders reach agreement on a broader political reform of the currency bloc and impose 'strict budget controls' on nations struggling to control their state finances. Would this ever fly on Europe? It does sound like giving up sovereignity.
In addition, the article says German chancellor Angela Merkel would be willing to give the ECB an expanded, but conditional, mandate to control the region's sovereign debt crisis.
Of course these plans have been talked about for many months now.
How shocking and sad is this: the richest tenth of the population earn income that is about nine times that of the poorest tenth, ans is egtting worse. The gap increased about 10% since the mid 1980s
This was in a report by the OECD today.
Facebook said today that it will hire "thousands of employees" in 2012, as well as open a new York engineering office. Interesting choice of location, are New Yorkers more socially connected or aware?
Currently, Facebook has about 3,000 employees, and over 800 million users.
Earlier this month, Chief Executive Officer Mark Zuckerberg visited Harvard University and the Massachusetts Institute of Technology to recruit potential engineers. So... new grads.
Facebook currently has about 100 employees in NYC, mostly in marketing and recruiting.
Looking for a job? Facebook will begin accepting applications for jobs in New York immediately.
Jim Rogers on Bloomberg: short stocks, long commodities, nice tie.
He says it's absurd that countries like France is AAA, and wonders about Germany! QE3 is going on now.
Well, this blog is called Shocked for a reason. The Wall Street Journal reports today that Wall Street executives held a private meeting with a top Federal Reserve official in late September and recommended a "coordinated effort by central banks to remedy the European financial crisis". The journal says this was revealed in Fed documents received in an open-records request.
Wow, and what happened yesterday?
Ambrose Evan-Pritchard today, on Europe's upcoming lost decade, a la Japan
Citigroup's guru Willem Buiter has more or less condemned the eurozone to death by asphyxiation (if it doesn't die of a heart attack first).
In his global forecast for generalized Götterdämmerung in 2012, the Dutch Meister said Euroland will remain in recession for the next two years, contracting by 1.2pc next year and again by 0.2pc in 2013.
Heaven knows what that will do to the South. Dr Buiter said the chance of a euro break-up is low (of course, of course). He assumes that the ECB will blink, acting at the 11th hour as lender-of-last-resort. Well, it had better blink fast.
If his figures are correct, I find it it very hard to see how the eurozone can hold together. Club Med will be in even deeper depression. The debt trajectory will be even worse.
Be that as it may, the Meister and his team said the eurozone will not regain its 2008 level of output until 2016. The overall picture for both EMU-land and Britain will be "similar to, or below" Japan's Lost Decade in the 1990s (though with much higher unemployment than in Japan).
So there we have it. The Japanese handled their mess rather well in retrospect".
David Rosenberg was live on BNN TV at 12:30PM stating that a major French bank was about to fail today, hence the major CB intervention today, including China's. He would not name the bank but said it was one of the big three.
The central banks are saying "we are ready to intervene" shall it get so bad. They are providing cheap U.S. dollars. Fed, ECB, Central Banks of Canada, England, Japan, and Switzerland announced joint action to boost liquidity, addressing pressures in global money markets by lowering pricing on liquidity swap arrangements by 50 basis points.
China lowers reserve requirements, central banks announce coordinated actions to enhance capacity to provide liquidity to global financial system: stocks to the moon. The problem is why this was done, was it because liquidity had dried up and banks were on the brink? Borrowing costs have been lowered by these central banks by 0.50%, to what rate now? "The new interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, the Fed said in a statement in Washington"
How much more can they be lowered, another 0.50% to... zero! or else they start paying the banks to borrow money.
Ambrose Evans-Pritchard from the Telegraph reports that Europe's money supply have begun to decline - in absolute terms. He is referring to M1, M2, M3.
M3 shrank last month by €59B to €9.78T, in "a sign that Europe's long-feared credit squeeze is underway as banks retrench to meet tougher capital requirements".
Quoting Tim Congdon from International Monetary Research: "This is very worrying," "What it shows is that the implosion of the banking system on the periphery is now outweighing any growth left in the core. We are seeing the destruction of money and it is a clear warning of serious trouble over the next six months."
Simon Ward from Henderson Global Investors said "narrow" M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.
The OECD has warned that Canada should cut its interest rates as it faces significantly deteriorating conditions due in great part to the European mess.
"The risks are skewed to the downside" the Parisbased think tank for the world's wealthy nations cautioned in its latest Economic Outlook. "The outlook for the Canadian economy has worsened significantly."
"If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption."
The OECD cut its outlook for growth in Canada for next year down to 1.9 per cent from its previous forecast of 2.8 per cent in May, based on the expected impact of the European debt crisis, a deteriorating external market for its exports made worse by the strong Canadian dollar, and high personal debt loads.
"Persistence or worsening of global growth prospects and financial-market turbulence may lead to a sharper slowdown in exports, while damaging business confidence and investment. A sharp correction in house prices could further (dampen) consumption,"
We commented on the massive amounts of auctions coming up for Italy. The situation has not gotten any better in spite of all the recent "Europe has been saved" news, and the ECB apparently buying their bonds to keep yields low.
3.5 billion euros of a new three-year bond were sold, 2.5 billion euros of 2022 bonds and 1.5 billion euros in 2020 bonds, a little short of the top range of 8 billion euros for the sale. The three-year bond yield were 7.89% percent while the 2022 bond yielded 7.56%, up from the previous 4.93% (!). and 6.06% on Oct. 28..
Bloomberg: The ECB started buying Italian debt on Aug. 8 to "tame borrowing costs after the 10-year yield had surged to euro-era record of 6.4 percent. After falling to under 5 percent around mid-August, the yield resumed rising and reached a new record of 7.48 percent on November".
From BNN today:
"The AP reports today that police in Los Angeles are searching for a woman who assaulted other shoppers with pepper spray during a Black Friday sale at an area Walmart. The incident occurred at around 10:30 pm last night when shoppers, full to the point of bursting with dry turkey, sweet potato and marshmallow casserole, warm white wine and the passive-aggressive condescension of their mothers-in-law exploded through the doors in a flat-screen TV feeding frenzy".
Thankfully, those shoppers not directly affected by the pepper spray were able to step over the writhing victims to secure their purchases. Who could possibly have seen this coming?"
Now, others are reporting huge sales on this silliness rush to buy useless stuff, perhaps even the best BF ever. So... I am thinking XRT after the it drops today.
This is te other, rather huge elephant in the room: S&P ratings agency hasn’t made progress in tackling the public debt burden.
Ogawa, director of sovereign ratings at S&P in Singapore, said that “Japan’s finances are getting worse and worse every day, every second,”. On downgrade: “may be right in saying that we’re closer to a downgrade. But the deterioration has been gradual so far, and it’s not like we’re going to move today.”
Bloomberg reports: "A reduction in S&P’s AA- rating would be a setback for Noda, who took office in September and has pledged to both steady Japan’s finances and implement reconstruction from the nation’s record earthquake in March. It’s unrealistic for Japan to think it can escape the debt woes that have engulfed nations overseas unless it can control its finances, according to Ogawa.
While Japan has enjoyed borrowing costs at global lows for its debt, the International Monetary Fund said in a report released on its website yesterday there’s a risk of a “sudden spike” in yields that could make the debt level unsustainable. Japanese government bonds fell after Ogawa’s remarks, sending 10-year yields to the highest level in three weeks".
The news is very grim from Europe this morning, as if it could get any worse.
Italy paid a record 6.5% to borrow money over six months.
Italy managed to sell the entire10 billion euros, so it was not a "failed" auction like the German a couple of days ago, but it is not know hw much was bought by the ECB.
Italy 2-Yr Yield hit 7.90%, Belgium 5.22%, Portugal 18.38%; Greek 1-Yr Yield... 310%
Stock futures are well down.
Yahoo: "Traders said the ECB was buying Italian and Spanish bonds in an attempt to shore the market up. But given its reluctance to prop up high-debt euro zone governments, its bond-buying program has been conducted intermittently, and never powerfully enough to provide more than short-term stability."
Our straddles from yesterday are already in the money, not by much. Note both versions in and out of the money. Another little push wil make them win big, I have actually bought more XLF calls as a hedge. Lots of time on these.
"Europeans have a plan to have a plan". That won't work...
Yahoo: Nouriel Roubini says about Europe that "money alone is not going to resolve the problems" "contagion is spreading" "The contagion has now gone viral, cross Atlantic and global."
"Most ominously, credit spreads are widening on the sovereign debts of France and Belgian among other core nations. In addition, there are acute signs of stress in interbank lending such as LIBOR and the TED spread while many European banks are facing a shortage of dollars".
"It's a slow-motion train wreck,"
There is "at least a 50% probability" of breakup of the eurozone in the next 2-to-3 years
Jim Chanos sounds a warning on China, in this Bloomberg interview.
"... because what happened the last two crises, in ’99 and ’04, when non-performing loans went crazy in China without even a recession, the Chinese banking system was not re-capitalized like ours was, it was papered over. Going into this credit expansion, Chinese banks are sitting on lots of bonds from the so-called asset management companies set up in 1999 and 2004, and they are keeping them on the books at par, at full value."
"The Chinese banking system is built on quicksand, and that’s the one thing a lot of people don’t realize. When they talk about the foreign reserves of $3 trillion, what everybody forgets is there’s liabilities against that".
It is being reported today that the Fed said that the 31 largest U.S. banks will be stress tested for their loan portfolios and trading books against a "severe recession and a European market shock". The conditions are actually tough. Given that they may fail under less tough scenario, will they actually make all these banks fail?
The tests will assume:
Reuters reports today on the ECB's operatipns:
"Euro zone banks' demand for European Central Bank funding surged to a two-year high on Tuesday, as fast spreading sovereign debt worries left lending markets virtually frozen and the ECB the only available funding option for many institutions".
The ECB's weekly, limit-free handout of funding underscored the widespread problems on Tuesday with 178 banks requesting a total of 247 billion euros.
This amount is the highest since mid-2009.
IFR strategist Divyang Shah: "We don't need to look far for signs of tension in the money markets, with the ECB acting as the main intermediary with 1) deposits parked at ECB at elevated levels and 2) MRO usage also now increasing sharply,"
"The ECB is the main vehicle through which the money markets are able to make transactions, highlighting that we have not just a liquidity crisis on our hands but also heightened concerns over solvency,"
The TED spread continued to surge higher, reaching a new 2-year high:
BAC, Bank of America, whose stock has been severely battered, had been operating under an MoU since 2009. The memorandum, according to Reuters, said that "governance, risk and liquidity management" were problems that needed to be fixed. However, regulators met again with BofA's board recently and said they wanted to see more progress on the bank's compliance with the MoU.
"In the absence of progress, the informal order could turn into a formal and public action, which would likely mean intensified scrutiny and greater restrictions,".
Below are straddles for BAC, computed with StraddlesCalc Tool. Stocks is right between strike prices, great, but risky shall the stock price not move.
A big collection of bad news today has done it. The S&P500 and Dow are negative for the year. Europe, Super committee, China, MF Global. It was better to leave money on the bank earning 0.01%.
Will the ECB print at will and save European banks, causing stocks to skyrocket (at severe costs down the line), or will Europe fall apart?
Below are straddles for XLF, the popular financial ETF, for December. There are two versions, one in-the-money, and one out-of-the money. As long as XLF moves the indicated amount, the positions will be profitable.
Here is the result from our starddles on UCO, from 2 days go. November is on top.
There is an oil leak 129Km off the coast of Brazil on a well being drilled by Chevron. Transocean seems to be involved as well.
O Globo newspaper today has full page on it:
Nice piece from Robert Peston, BBC Business Editor. He looks at Spain's total debt level, including government, corporate, and financial. The total: 363% of GDP.
"In 1989, Spain's ratio of government debt to GDP - the value of what the country produces - was just 39%. Its ratio of corporate debt to GDP was 49%, the ratio of household debt to GDP was just 31% and financial sector debt was just 14% of GDP. The aggregate ratio of debt to GDP was 133%.
By the middle of this year, the picture was utterly different. The aggregate ratio of debt to GDP had soared to 363% of GDP.
And it was really from 2000 onwards, the euro years, that Spain really got the borrowing bug, with the ratio of aggregate debt to GDP rising by a staggering 171 percentage points of GDP.
The biggest increment over the past 20 odd years has been in the ratio of corporate debts to GDP, which has soared to a staggering 134% of GDP. Spanish companies have become addicted to debt".
He says that Italy's numbers are similar but not for coporate debt, which is much lower.
"But the debts of Italy's private sector are a fraction of Spain's. The indebtedness of Italian businesses is just 81% of GDP and the indebtedness of households just 45% of GDP. Italy's private sector, from the point of view of indebtedness, is in pretty good shape.
So Italy's total indebtedness at the end of last year was 313%, some 50 percentage points less than Spain's."
Wow. A must watch short video with regards to the democratic process and what is going on in in Europe. Nigel Farage, current Member of the European Parliament for South East England.
Blame it on the Chinese's new found love for processed food? Cooking oils are used to make everything these days from candy bars to "healthy" margarine, to biofuels.
Stocks have declined to the lowest in two generations as demand is expanding at five times the pace of the world population. Oil production cannot keep up.
The U.S. Department of Agriculture data shows that inventories of soybean, rapeseed, sunflower and six other oils will drop to less than 29 days of consumption this year. This is the lowest since 1975.
The very popular Palm oil, will rise 8% to $1,100 a metric ton in Malaysian by the end of the first quarter, the highest since March.
A United Nations report published Nov. 3 says supplies of oils and fats will be near the same critically low level seen during the 2008 food crisis,.
Says Peter Thoenes, an economist at the UN Food and Agriculture Organization in Rome: "This is an early warning that we're giving," "A tightening in the global supply and demand balance seems inevitable. The oil-crop market fundamentals seem to call for continued firmness in prices."
Jim Grant on Bloomberg:
"... ECB has a ratio of non-AAA rated assets to equity of 14 to 1. What the ECB has been doing is stepping in where private money fears to tread. In the private sector we call that heading for trouble"
"The New York Fed is leveraged 100 to one"
Fitch said its current outlook on the U.S. banking industry is stable because of "improving fundamentals and ratings that are lower than before the debt crisis". However it warned that "risks of a negative shock are rising and could alter this outlook,”
“Fitch believes that unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,”
The market tumbled on the news. However... Did anyone not expect Europe's problems to spill into the U.S.?
Oil has moved north of $100, bringing with it the popular USO and UCO ETFs. Below are straddles for our favorite UCO, computed with StraddlesCalc Tool
What is next, another unelected ECB or EU official to take the Prime Minister Spot in Spain?
Bloomberg reports today that Spanish 10-year bonds fell pushing the yield on the securities to more than 6 percent for the first time since Aug. 5. The yield on the 10-year debt climbed 0.17% to 6.02% today.
"It’s the first occasion the rate has reached 6 percent since before the European Central Bank was said to resume its purchases of government debt, including buying Spanish and Italian securities, on Aug. 8.
The Italian 10-year bond yield rose 20 basis points to 6.65 percent. It reached a euro-era record 7.48 percent on Nov. 9."
You cannot make this stuff up. The ESPF tried to sell bonds this week, claimed success, but it turns out, they bought their own offering because there were not enough buyers
The Telegraph: "Europe's €1 trillion (£854bn) rescue fund has been forced to buy its own debt as outside investors become increasingly concerned about the worsening eurozone sovereign debt crisis.
An amazing week, started wit Greece, shifted to Italy by the middle, and it moves to both France and Spain today. Unbelievable, and not good.
Bloomberg reports today that Spain’s economy stalled in Q3, with its Gross domestic product unchanged from Q2, when it expanded 0.2 percent.
From a year earlier, the economy expanded a measly 0.8%.
"The slowdown threatens Spain’s budget-deficit goals, the European Commission said yesterday, meaning the government that emerges from the Nov. 20 general election may have to accelerate spending cuts to prevent the nation becoming the next victim of the debt crisis. The People’s Party, which polls show will win, has pledged to regain Spain’s AAA rating and tame borrowing costs without raising taxes or cutting pensions".
Nouriel Roubini said today in Brazil that the risks of a double dip in the world economy are higher than the chances that the level of global activity will accelerate in the short term. He said one factor that could be decisive even worse than in 2008 with the collapse of investment bank Lehman Brothers, is the possibility that problems in the euro area is still worsen more, which may lead some countries to have to abruptly leave the block.
Two Roads. Roubini said the severity of the crisis in Europe will determine one of two roads to its member countries in the short and medium term. "Either they do economic and fiscal integration, and me political too, or it will implode from the exit of some of its members," Roubini said during a talk to businessmen, in Sao Paulo, Brazil
He said the authorities in Europe are doing little to tackle structural problems in the region. He noted that, besides improving the management of public accounts, the authorities must act to stimulate growth in the euro zone, otherwise the social and political instability will grow.
"The Euro area, United Kingdom and United States have serious fiscal problems, with very high public debt. However, the solutions to structural problems, especially in the euro area have primarily financial focus. They lack finding of ways for growth to be restored, because without it, the insecurity increases, unemployment rises, there are social and political tensions, culminating in the fall of governments."
Plane in stall mode. "There are already signs that the eurozone and the UK are in recession, while the United States are still in a border area," he said. "The United States grew 2.5% in 2010, a mediocre level, because the historical rate is 3%. In the first half of this year, 2011, the United States showed an increase of only 1%," "The global economy can be seen as a plane in flight, which currently is in stall mode"
Well, it has indeed been very unpleasant for quite time. Now Angela Merkel said today that the situation in Europe is "so unpleasant" that it is time for a change, calling for changes in the European Union Treaty.
Reuters reports that Merkel said so in a speech today. She added that declarations of good intent are no longer good enough and "that genuine structural reforms are needed that can be checked".
Merkel added that the political community "will not survive if it is not capable of changing".
She said countries' responsibilities cannot end at their frontiersl reforms are needed quickly because the "rest of the world is not waiting for Europe.".
Stocks are tummling today, and yields on Italian bonds are soaring as London's clearing house LCH.Clearnet increased the margin on Italy's debt.
The cost of using Italian bonds to raise funds rose close "to levels deemed unsustainable". Reuters.
"Banks use government bonds as collateral to access cash in the repurchase (repo) market, in which a handful of clearing houses play a vital role, assuming lending risks to provide institutions with the cash".
"When LCH.Clearnet Ltd took similar action on Portuguese and Irish debt as bond yields soared, it added to selling pressure on the paper. Both countries were later forced to seek bailouts".
10-year Italian government bond yields are now approaching 7%. As a reminder, a hge chunk if Italy's bonds are coming up for renewal, please see our previous posts.
The rate that mortgage holders were late with their payments by 60 days or more rose in the June-to-September period. It was the first time since 2009. 5.88% of homeowners missed two or more payments, which is an early sign of potential foreclosure.
The problems were widespread. BetweenQ2 and Q3, all but 10 states and the District of Columbia had an increase in delinquency rates.
TransUnion's Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit, ays they can not pinpoint one particular reason for the jump. He pointed to number of reasons: the U.S. credit rating downgrade, the U.S. and European debt crises and the tanking U.S. stock markets during this period, and declines in consumer confidence.
Arizona had the best rate of improvement in the nation, and now has a delinquency rate of 7.46%, which is still the fourth worst in the country, and the highest foreclosure rate in the nation at one in every 44 housing units with a foreclosure filing in Q3
"Another possibility for the bump in the delinquency rate is that a new crop of adjustable mortgages written toward the end of the housing bubble is resetting. Even if their interest rates remain low after the adjustment, the payments might have increased", says Yahoo/AP, quoting Realtytrac.
TransUnion is now forecasting a few quarters of elevated nonpayment rates due to the uncertain economic outlook. Says Mr. Martin: "More and more homeowners are likely to struggle," "I'm not sure this is a one-quarter blip."
RealtyTrac agrees: "This isn't just about bad loans anymore," "It's about a bad economy that's pushing people into foreclosure."
The quote of the day comes from the Bank of Canada governor, Marc Carney, speaking to the Canada-U.K. Chamber of Commerce.
"The Usual Suspect for any event or dynamic too complicated to explain, global liquidity is the Keyser Söze of international finance. It has no agreed definition and, as a consequence, there has been no coherent policy approach to tame its more violent tendencies."
"In conclusion, recent history has amply demonstrated that global liquidity has an important impact on financial stability and economic growth. Global liquidity has fluctuated wildly over the past five years, and we are on the cusp of another retrenchment. There are steps that can be taken to mitigate, but not eliminate, the negative effects of the current wave. How European banks choose to delever will determine which ones authorities around the world need to take."
It is no wonder the market is so nervious about Italy. Italy currently has about 2T Euros outstanding debt, cp,apred with Grece's 200 to 300B. Greece is noise in comparison. The amount to refinance in the year is greater than all of Greece's outstanding debt!
Maturity schedule (charts from BNN today):