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Wolfgang Munchau On How The Greek Rollover “Deal” Is A Toxic CDO

Courtesy of Tyler Durden

A week ago, Zero Hedge penned “An MLEC In PIIGS’ Clothing: The Latest Greek Bailout Proposal Picks Up Where the Super SIV Failed” in which we explained how the current fatally flawed proposal for a Greek bailout is nothing more than a structured vehicle, expected to remain off the books, and much more importantly, expected to not trigger rating agency ire, and kill the entire extend and pretend game: remember – an Event of Default by a rating agency, even a Technical one (completely irrelevant of what ISDA does with Greek CDS) means game over for the European Central Bank and its €2 trillion in “assets”, not to mention the western financial system. Now, a week later, the FT’s own Wolfgang Munchau explains why our observation of how toxic the “bailout plan” is was rather accurate: “This structure is still not quite so complex as some of the more elaborate CDOs we have encountered in the global financial crisis. If you take some time to work through the arrows and boxes, you see relatively quickly that this complex structure is not a private sector participation at all. Rather it is a private sector bail-out… I have no space for a large drawing with lots of boxes and arrows to explain the complexity of the vehicle, through which eurozone governments want to involve the private-sector banks in its next loan package.” Munchau’s conclusion: “If this was any other field of human activity, you would go to jail if you accepted, let alone made such an indecent offer.” On the other hand, all is fair in love and perpetuating the ponzi Status QuoTM. Our follow-on observation that “The two things that are keeping the Eurozone afloat: an SPV and a CDO” alas appears also to be rather in line. And before the entire financial system collapses upon itself like a cheap lawnchair, this will be fondly remembered as one of the more prudent “rescue” mechanisms enacted to delay the inevitable.

And inevitable it is:

It is also inevitable that Greece will default on its coupon payment at some point. The interest will be 8 per cent under a benign growth scenario, and 5.5 per cent under a not so benign one. Either way, Greece cannot pay such a high level of interest.

Here is how…
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Goodbye Rare Earth Minerals, Hello Not So Rare Underwater Minerals: Vast ___ Oxide Deposit Discovered In Pacific Seabed

Courtesy of Tyler Durden

Two weeks ago we demonstrated what happens to prices of so-called “rare” earth minerals, which are almost exclusively controlled by China, and whose exports China recently decided to cut to a mere trickle, resulting in a 10+ fold increase in some of the most rare minerals in under a month. It also has allowed the third R bubble to persist as long as it has. It appears that the bubble is about to pop big time. According to Nikkei, “Vast deposits of rare earth minerals have been discovered on the seabed of the Pacific Ocean amounting to 1,000 times those on land, media reported on Monday citing a study by Japanese researchers.” Of course, this could merely be one of those not quite definitive discoveries, which end up being disproven eventually, but which serve to merely pop a temporary speculative bubble. Just like the IEA. In the meantime, it may be time to temporarily erase the Rare from Rare Earth Minerals, and change Earth to Underwater.

Reuters has more:

The deposits are estimated to amount to 100 billion metric tons, the Nikkei business daily said.

They are believed to lie at a depth of 3,500 to 6,000 meters and cover an area of over 11 million square meters, the reports said.

China, which produces 97 percent of global rare earth supplies, has been tightening trade in the strategic metal, which is used in high-tech electronics, magnets and batteries, causing concerns globally about supply and triggering jumps in prices.

The study by researchers from the University of Tokyo and the Japan Agency for Marine-Earth Science and Technology is to be published on Monday in the online edition of the British science magazine Nature Geoscience, the reports said.

Japan’s imports of rare earths from China fell 3 percent in May from April, the first month-on-month drop in three months, as the price of the metal surged, Japan’s finance ministry said last month.

Demand could pick up later in the year as Japan continues to recover from the March 11 earthquake.

To those who say that this is very much like the US announcing there has been a record discovery of crude oil under the Marriner Eccles building, we would say you are spot on. But then again for the Japanese “recovery” scenario to proceed as expected,…
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June Light Vehicle Sales SAAR Drops To 10 Months Low, Upside Economic Case In Question

Courtesy of Tyler Durden

As is by now well known, when it comes to upside theories debunking the bearish “economic contraction” case, there are two core arguments: a Japanese pick up, and a surge in automotive production and sales. And following a jump in Japanese industrial production last week, there was a brief consensus that the soft spot as a result of the earthquake and tsunami have been overcome. Until the subsequent Tankan confidence index release, that is. And in the meantime, nobody can still explain how the economy is expected to return to trendline if peak electric consumption can not be met by a crippled electrical infrastructure. Which leaves auto production, and the latest iteration of inventory restocking. Zero Hedge already discussed the glaring split in inventory data between the Chicago PMI and the Manufacturing ISM, which as Goldman noted previously is a major wildcard in determining future GDP growth. Perhaps David Rosenberg said it best in his Friday Breakfast with Dave: “While there is no doubt that we will see an inventory boost from a revamping of auto production in the coming quarter, what will be critical is whether final sales will hold up. So far in June, chain store sales are running below plan. Auto sales, however, are the real wild card and could hold the key as to whether we are, in fact, at an inflection point. Go back to August 2007 and they put in an interim peak of 16.3 million annualized units. They bottomed for good in February 2009 at 9.2 million units. Then they hit a nearby high of 11.7 million units in March of last year just ahead of the market downturn and “double dip” concerns, only to then trough at 11.5 million in August 2010 just as the market was ready to rip. And then, in February of this year, sales peaked at 13.4 million in February. The May number was 11.8 million – and today we get June. Stay tuned.” Consensus was for a significant rise to 12.0 million in June. The actual number was 11.45 million. The lowest since August 2010. So much for an inflection point (not to mention that all of this ignores the record channel stuffing in post-reorg GM).

Here is how the June “end of the soft spot” appears in chart form.

Goldman’s Brian Jacoby who was among…
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50 U.S. Health Care Statistics That Will Absolutely Astonish You

Courtesy of Michael Snyder of Economic Collapse

The U.S. health care system has become one gigantic money making scam, and you are about to see the statistics that prove it.  Today, the United States spends more on health care per person than any other country in the world by far.  The health insurance companies and the big pharmaceutical corporations are raking in gigantic mountains of cash and yet the quality of the health care that we receive in return is rather quite poor.  People living in Puerto Rico have a greater life expectancy than we do.  Residents of Cuba have a lower infant mortality rate than we do.  We are the most medicated population on the planet and yet we are also one of the sickest.  If the U.S. health care system was a country, it would have the 6th largest economy on the globe and yet rates of cancer, heart disease and diabetes continue to increase.  The U.S. health care statistics that you are about to read below are absolutely stunning.  For as much money as we shell out for health care, we should have the greatest system in the entire world.  But we don’t.  Something has gone horribly wrong.

As you read this, there are hordes of health bureaucrats and greedy corporate fatcats that are becoming incredibly wealthy while the rest of us go broke trying to pay for our health care.  In the United States today, health care bills cause more bankruptcies than anything else does.  Millions of Americans are afraid to go to the hospital because they know that even a short visit would be a huge financial burden.

Sadly, our politicians in Washington D.C. continue to make the problem worse.  Obamacare was one of the worst pieces of legislation that anyone has ever come up with in the history of the United States.  You could put a thousand monkeys in a room with a thousand typewriters for a thousand years and they wouldn’t come up with anything as bad as Obamacare.  Rather than doing something to address the abuses of the health insurance companies and the pharmaceutical corporations, Obamacare actually gives them more power.  In fact, huge portions of Obamacare are virtually identical to a bill that was written by the health insurance trade association in 2009.  Under Obamacare our health care costs will go up even faster and the quality of our health…
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Here’s What’s In Gary Shilling’s Huge Guide To The Coming Collapse In China

Courtesy of Joe Weisenthal at The Business Insider

Investor Gary Shilling is a China bear (like many others) and he just wrapped up a 5-part series for Bloomberg on why the country is zooming towards an inevitable hard landing.

In it he takes a wide-ranging look at the country, examining its growth strategy, its demographic problems, and its failures in economic planing.

We read through the piece, and plucked out the key points.

Decoupling is a myth: China is still highly dependent on the US consumer.

China won’t easily flourish if there’s a hiccup in the west.

Source: Bloomberg: Shilling: China Heading For A Hard Landing, Parts 1-5

 

US total GDP of $14.3 trillion is still 3x that of China’s

US total GDP of $14.3 trillion is still 3x that of China's

Meanwhile, US GDP per capital is over 12x China.

To close that gap in 30 years would require 3 decades of 10% growth.

Source: Bloomberg: Shilling: China Heading For A Hard Landing, Parts 1-5

 

The country’s inexhaustible supply of cheap labor will peak as soon as 2014

The country's inexhaustible supply of cheap labor will peak as soon as 2014

Image: Screenshot

Thanks to the country’s one-child policy (now relaxes), it’s already running into demographic problems.

Another fact about Demographics: "As the Chinese population ages, the ratio of retirees to working-age people is forecast to rise from 39 percent last year to 46 percent in 2025."

Source: Bloomberg: Shilling: China Heading For A Hard Landing, Parts 1-5

 

Wages are already rising

Wages are already rising

More and more countries are moving form China to Vietnam or Pakistan.

Source: Bloomberg: Shilling: China Heading For A Hard Landing, Parts 1-5

 

Inflation is already crippling

In Beijing, only the top 20% of income earners can afford to buy a house.

Source: Bloomberg: Shilling: China Heading For A Hard Landing, Parts 1-5

 

Meanwhile, the government has uncovered a huge volume of bank loans that were illegally funneled into property investments

Meanwhile, the government has uncovered a huge volume of bank loans that were illegally funneled into property investments

Image: AP Images

When the property bubble bursts, watch out.

Source: Bloomberg: Shilling: China Heading For A Hard Landing, Parts 1-5

 

Signs of cooling are already clear

Signs of cooling are already clear

The latest HSBC


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A Look At Events In The Week Ahead: Less Headline Risk, More ECB Rate Hikes

Courtesy of Tyler Durden

From Goldman Sachs

Last week was a good week for risk sentiment with almost all of the major hurdles taken successfully. The Greek Parliament voted in favour of the reform package as well as the implementation laws. The Eurozone has already approved the disbursement of the 5th tranche of the initial support package and the IMF is likely to follow with approval. On the activity side, the Chicago PMI and the Manufacturing ISM all came out much stronger than expected. Not every single news item was positive though. The composition of the ISM showed a big rise in the inventory component. Moreover, a number of regional business surveys from Europe, China, and the Japanese Tankan all failed to show the improvements visible in the US data. The Turkish trade deficit remained shockingly wide.

Still, against the backdrop of improving US data and the Greek votes, risky assets performed well across the board. In the middle of the week, we added more pro-cyclical risk via a long AUD/JPY recommendation, as well as short position in 5-year Treasuries and a long recommendation in our GS Wavefront Growth basket. Our FX recommendations generally performed well in this environment, with the Dollar TWI declining by about 1.5% in the second half of the week. As one of our core views we expect more USD weakness and we remain positioned via a number of Asian and European crosses (short USD versus CNY, PHP, MYR, EUR, NOK).

In the week ahead, we are waiting for the second batch of key activity data in the form of service sector and non-manufacturing surveys, as well as US payrolls. The Chinese non-manufacturing PMI has already been released over the weekend, showing a decline from 61.9 to 57.0.

After last week’s key votes in Greece, headline risk should decline though we are now entering the phase where the final negotiations for the second support package take place. The updated funding strategy for Greece will likely be unveiled by Eurozone Finance Ministers on July 11.

There will be central bank meetings by the ECB (+25bp), BOE (on hold), in Malaysia (+25bp), Mexico (on hold), and Poland (on hold).

Monday 4 July

Turkey CPI (June): Given the huge imbalances in Turkey currently and strong demand growth, inflation will likely remain relatively high. Consensus expects +7.0% yoy after +7.2% in May.

UK Construction PMI (June): Last month’s…
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Sean Corrigan’s Commodities Corner

Courtesy of Tyler Durden

From Sean Corrigan of Diapason Securities

Commodities Corner

Regular readers may be aware that two of the author’s greatest bugbears are Malthusianism and mindlessly mathematical macroeconomics.

The two of these come into no sharper focus than when we turn to the hoary old canard of ‘Peak Oil’, especially when it cites the work of those two past masters of wrongly–applied ratiocination, Hubbert and Hotelling.

The former we have recently dealt with already, so let us say a few words about the latter—a gentlemen who was a statistician, not an economist, in an era when there was still an honourable degree of separation between the two disciplines (ironically, he was also, at one time, Murray Rothbard’s professor at Columbia before the latter had a self?declared ‘epiphany’ regarding the flimsy epistemological grounds upon which much statistics lies and quit the course forthwith).

The better to set the scene, let us first note that those who think of themselves as ‘resource economists’ all seem to think of their subject as if they were describing an Easter egg hunt.

In this, an explicitly determine number of eggs are scattered about over a given territory and the seekers are then sent off to find them. Once found and eaten, they can never be replaced. I’m sorry, boys and girls, but the fun’s over and it’s back to spinach and cauliflower from here on in.

From this gross misrepresentation of what John Bratland has tellingly called the entrepreneurial business of ‘resourcing’, the RE crowd then  concocts a mathematically neat, but practically irrelevant, analysis of which the founding tenet was the so?called ‘Hotelling Rule.’

Pondering the question of how one should price a non?renewable stock of a good, Hotelling arrived at the pseudo?rigorous and partly tautologous conclusion that its price should ascend continuously at the rate of interest (by which he really meant the general rate of profit achievable in all  other fields of endeavour), a result which implied that the NPV of the sale proceeds would not only equal the product of the cash price times the stock, but that—and this both an eco?alarmist’s and an asset?pusher’s dream—that the price would mount exponentially along the way to its final and utter exhaustion.

This, however, begs so many questions it is at risk of being arrested for intellectual vagrancy.

Among the many shortfalls displayed by this essentially static schema, it assumes…
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World Markets in Review: Huge Rallies to Close the Quarter

Courtesy of Doug Short

Major world markets rallied again last week, with most making exceptional gains to close the second quarter and start the new month. The S&P 500 and FTSE 100 were both up more than 5%, the DAX more than 4%, and the SENSEX gained almost 3% on top of its 2% rally the previous week. The Nikkei and Hang Seng also recorded strong back-to-back weekly gains. The laggard Shanghai also finished in the green, up half a percent, following a nearly 4% gain the week before.

The tables below provide a concise overview of performance comparisons over the past four weeks for these seven major indexes. I’ve also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean. The colors for each index name help us trace the comparative performance over time.

 

The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.

 

Click to View
Click for a larger image

 

A Longer Look Back

Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai, Hang Seng) is readily apparent.

 

Click to View
Click for a larger image

 

Check back next weekend for a new update.

 

 

 

 

 

 

 

 





 

Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!

 
 

Chart School

NYSE Margin Debt Drifted Higher Again in September

Courtesy of Doug Short.

Note from dshort: The NYSE has released new data for margin debt, now available through September. I've updated the charts in this commentary to include the latest numbers.

The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let's examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.

The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching t...



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Zero Hedge

Dow Is Up 110 Points, Visa Is 120 Of Them

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Broad-based strength... as Pisani might say.

 

 

Chart: Bloomberg

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Phil's Favorites

Outside the Box: The Colder War

Outside the Box: The Colder War

By John Mauldin

The story of energy is the story of human expansion. From the days when we roamed the African savanna, we tamed first fire and then other forms of energy, using them as tools to control our environment and improve our lives. The control of energy has always been at the heart of the human story.

This week our Outside the Box essay is from my friend Marin Katusa, who has written a fascinating book about a part of that story, a subplot of intrigue and conspiracy. Under Putin, Russia has aspired to dominate the energy markets. Called The Colder War, Marin’s book is a well-written tale of the rise of Putin and his desire to change the way the world’s energy markets are controlled.

I sat down a few months ago with an advance copy, not sure...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Sabrient

Sector Detector: Bullish conviction returns, but market likely to consolidate its V-bottom

Courtesy of Sabrient Systems and Gradient Analytics

Bulls showed renewed backbone last week and drew a line in the sand for the bears, buying with gusto into weakness as I suggested they would. After all, this was the buying opportunity they had been waiting for. As if on cue, the start of the World Series launched the rapid market reversal and recovery. However, there is little chance that the rally will go straight up. Volatility is back, and I would look for prices to consolidate at this level before making an attempt to go higher. I still question whether the S&P 500 will ultimately achieve a new high before year end.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then o...



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OpTrader

Swing trading portfolio - week of October 27th, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's the latest Stock World Weekly. Enjoy!

(As usual, use your PSW user name and password to sign in. You may also take a free trial.) 

 

#455292918 / gettyimages.com

 

...

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Market Shadows

Bill Ackman's Big Pharma Trade Is Making Wall Street A Super Awkward Place

 

#452525522 / gettyimages.com

Intro by Ilene

If you're following Valeant's proposed takeover (or merger) of Allergan and the lawsuit by Allergan against Valeant and notorious hedge fund manager William Ackman, for insider trading this is a must-read article. 

Linette Lopez describes the roles played by key Wall Street hedge fund owners--Jim Chanos, John Paulson, and Mason Morfit, a major shareholder in Valeant. Linette goes through the con...



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Option Review

LUV Options Active Ahead Of Earnings

There is lots of action in Southwest Airlines Co. November expiry call options today ahead of the air carrier’s third-quarter earnings report prior to the opening bell on Thursday. Among the large block trades initiated throughout the trading session, there appears to be at least one options market participant establishing a call spread in far out of the money options. It looks like the trader purchased a 4,000-lot Nov 37/39 call spread at a net premium of $0.40 apiece. The trade makes money if shares in Southwest rally 9.0% over the current price of $34.32 to exceed the effective breakeven point at $37.40, with maximum potential profits of $1.60 per contract available in the event that shares jump more than 13% to $39.00 by expiration. In September, the stock tou...



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Digital Currencies

Goodbye War On Drugs, Hello Libertarian Utopia. Dominic Frisby's Bitcoin: The Future of Money?

Courtesy of John Rubino.

Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?

With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no tr...



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Pharmboy

Biotechs & Bubbles

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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