Toeing the Line Tuesday - Constructively Bullish?

As I said yesterday, we're still looking "constructively bullish" on our Big Chart as long as we hold those lines:

Looks can, of course, be deceiving. Keep in mind that this entire pop to form the right-hand top of a very nasty "M" pattern, that can take us right back to the June lows by the end of the month, is the result of the G20 holding hands and singing Kum Ba Yah – along with a few hundred Billion in extra stimulus and, of course, RULE CHANGES that create stealth stimulus.

So, when you have a leak in a $60Tn pool and the water level is down to $55Tn and you pour in $12Tn worth of stimulus and, 3 years later, the water level is only back to $59Tn – do you say "all we need is another Trillion and we're done" or should you be looking for the leak that continues to drain $8Tn over 3 years from the Global Economic Swimming Pool?

If we don't address the problem (unemployment, inadequate tax collections) – we're never going to find a lasting solution, are we?

On the other hand, if your pool is leaking at a rate of $8Tn over 3 years, that's "only" $222Bn a month so any month you dump more than $222Bn worth of Global Stimulus into the pool, you will see the economic levels rising and you can declare things to be "fixed" and all the bulls can jump in and play again until the next time the activity levels get dangerously close to the line at which the pumps seize up and then we have more meetings and do it all over again.

We have to accept the fact that our "leaders" are unwilling or unable to fix the actual leak and this is essentially the cycle we will have to put up with. If we assume we have an infinite amount of stimulus to keep pumping our economic pool back up – then this system is just fine but, judging from the way they had to scrape up this recent few hundred Billion – do we even have enough ($1.2Tn) fresh water to get us through the end of the year?

As planned in yesterday's pre-market post, we cashed in our DIA $129 calls in the morning and that left us a bit bearish in our small portfolios. Our main portfolio, the Income Portfolio, still remains bullish as it's long-term. In fact, it's very long-term as we already took the money and ran on our July and January positions, leaving us with all 2014 short puts and spreads but up a stunning $17,180 in our first month of virtual trading with our new portfolio:

Note that $11,420 of our gains are unrealized (NLY needs to come off as it's too far ahead to risk) so the question is – do we need to protect them? As our goal was to make $4,000 a month and we're already 3 months ahead of schedule with very little of our cash deployed. To some extent our gains become a hedge but that does not mean we should be cavalier about giving them back, does it? On the other hand, if we hedge we are essentially spending part of our gains on insurance and, although we did very well with last year's Income Portfolio – our biggest mistake was over-hedging – playing it a little TOO cautious.

So, we will pay very close attention to the 5% lines on our Big Chart especially our 1,360 line on the S&P (see Blain's charts in Chart School) and we'll have no tolerance for a failure of our indices to hold that "constructively bullish" posture because we certainly did not get enough stimulus to give us much more than the quick little boost we've gotten so far and only rumors of more to come are really keeping things going at the moment. As with our $25,000 Portfolio – after getting so much ahead of our goals, it would be a relief to get back to cash and wait patiently for the next real buying opportunity.

We have no technical reason to be bearish and there WAS a lot of stimulus pumped in over the last couple of weeks so we SHOULD be good at least until earnings kick off in a week – at which point 9,000 reporting companies will have a chance to poke fresh holes in the economic dyke.

To some extent, we are probably having a bit of a short squeeze on G20 action but it's done nothing to shift the EXTREME bearishness we're seeing on the Sell Side Consensus Indicator, for example.

Conventional wisdom dictates that, when bearishness gets this extreme – it's a good idea to bet against it and we have been but in Jan of 2009, people were right to be bearish as the Dow dropped 25% into March. I think it's a bit silly to look back another 10 years and try to compare the situation at that time. What this chart tells you is that analysts are idiots and sheep and you follow them at your peril – THAT is an important lesson to learn!

As to the logic that "if everyone is bearish, we should be bullish" – that's nonsense. If my daughter's 10-year old football team is given the opportunity to square off against the NY Giants in a game the Giants need to win – I'm pretty sure even the proud parents of her football squad would have a hard time placing bets on the Panthers winning the game. Would the fact that we are all bearish on my daughter's chances mean you should bet on her team to win or might it be the accurate assessment of the situation? Don't get sucked into being a Contrarian "just because."

As you can see from the picture on the right, we have a global economy that is about $60 TRILLION in debt and that is the entirety of our GDP but we can't use the entirety of our GDP to pay off the debt as we use it to live. Not only do we use it to live but we are, as I noted above, running another $3Tn a year (5%) more into debt and this does not, of course, include hundreds of Trillions of Dollars of unfunded liabilities like health care and pension benefits for aging populations and don't even think about $350 TRILLION worth of derivatives that are floating about or it might ruin your holiday.

We've got BIG PROBLEMS and, so far – only small solutions.

Let's be careful out there…

Have a great Holiday,

– Phil

Dark Pools

High-Speed Traders, A.I. Bandits and the Threat to the Global Financial System
Scott Patterson

A news-breaking account of the global stock market’s subterranean battles, Dark Pools portrays the rise of the “bots”– artificially intelligent systems that execute trades in milliseconds and use the cover of darkness to out-maneuver the humans who’ve created them.

In the beginning was Josh Levine, an idealistic programming genius who dreamed of wresting control of the market from the big exchanges that, again and again, gave the giant institutions an advantage over the little guy. Levine wondered, What if the little guy could see all trades in real time and, in the process, cut out the middlemen who picked his pocket with every trade? But for that to happen, the market had to be plugged in.

And so Levine created a computerized trading hub named Island where small traders swapped stocks. Soon after its launch, Island spawned a day-trading revolution that would reshape the market. Eventually, Levine’s creation became the electronic version of the New York Stock Exchange, and in a few short years the world’s capital flowed through a vast jungle of fiber-optic cables.

By then, the market that Levine had sought to fix had turned upside down. The giant institutions and the little guys had developed a shared interest, and they were both imperiled. The solution: “dark pools” – secretive exchanges where the “whales,” big institutional investors that often traded the little guys’ money, could move through the turbulent electronic waters unmolested. But soon the bots acquired night vision; they learned how to peer into the darkness. Growing savvier with each tick of the tape — always learning – they steadily fed on the whales, evolving into a new breed of high-speed middlemen.

Dark Pools is the fascinating story of how global markets have been hijacked by trading robots – many so self-directed that humans can’t predict what they’ll do next. And it shows how the new players moving into artificial intelligence are on the verge of tipping the entire system toward a global meltdown that could happen in minutes – maybe even seconds.

Americans Support Cutting The Deficit, But Not Cutting Specific Programs

By Barry Ritholtz – July 4th, 2012, 7:30PM

Nearly 70% of Americans say cutting the deficit is an important goal for 2012, with 84% Republicans, 66% Democrats, and 64% Independents rating it as their top priority.

These folks are happy to slash spending and raise taxes — only theoretically. Asked about specific programs, wide majorities almost always favor either increasing spending or maintaining the current level, as the following chart from Pew shows:

Source: Think Progress

Libor Scandal Set to Spread

Former Barclays chief Robert Diamond was assailed by British lawmakers for a mushrooming scandal over interest-rate manipulation, in a preview of the scrutiny likely to lie ahead for other big lenders that are under investigation. 13 min ago

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hemas03

Member

July 3, 2012 1:24 pm

Pharm, NSPH on fire.

zeroxzero

July 3, 2012 1:25 pm

Randers: Beautiful boat!! Boy, would I like to sail a carbon fiber scow, although the Great Lakes scare me more than the ocean, when a front blows in and those waves pile up you're in serious trouble [think "Edmund Fitzgerald"]. Yes, I am, and still a member of an east coast yacht club, although I've been away awhile. I started out as a deck ape on big boats, and went smaller with time, the reverse of most people. I raced a Soling, first as crew, then as skipper, great fun because it points so high and has a spade rather than skeg-hung rudder and turns on a dime. Probably the best part was being able to sail against guys like Buddy Melges and Dave Perry, and talk through stuff with them at the bar later — it's not like you get to hang out with Olympic champions if you're a runner or bicyclist!

I remember one conversation with Buddy that sounded a lot like Phil. I had plotted the wind oscillations before the race, decided to sail to starboard, and was delighted to see his boat take the same tack at the start — but dismayed to see him bail out almost immediately when headed. I kept on, secure in my prediction, and ended up rounding the windward mark nearly last. Later I asked him why he bailed so quickly, being a world champion of nearly-infinite experience and ability. He told me "because that way, even when I'm wrong, I can round the mark in the middle of the pack, and work my way back up front. If I had kept on, there would have been no recovery." Why do I relate this story? Because it sounds suspiciously like what Phil teaches in trading options — it seems the better at it you are, the quicker you bail when you sense a misstep. I find that quite interesting.

pat_swap

July 3, 2012 1:31 pm

AGQ/TZA … Thanks Phil for your words of wisdom as always 🙂 Happy fourth to all!

randers1

July 3, 2012 2:22 pm

ZZ

Buddy & his sons are still heroes around here. I was fortunate to sail on his old 12 meter
– Heart of America & Stars and Stripes a few times in San Diego. We really felt like
one percenter’s those days! I feel that my son sometimes learns more from his coach
(former Olympian and Law school graduate) than his teachers.

July 3, 2012 2:57 pm

Randers1: That was good luck indeed. Never been on a 12, must be a magnificent feeling. Lived in San Diego, saw them on hoists. Never really forgave Dennis Conner for his rule-beating catamaran "winning is everything" absurdity. I eventually migrated to sailboards in Sprecklesville and Hookipa, Maui, where I bought a house, had more fun than I could imagine for some years, was almost killed against a cliff face on the north coast, and ended up under the knife at Scripps after taking my spine apart. Use it or lose it; worth every second. Fully recovered after a decade of swimming, now I ski and sail cats.

July 3, 2012 3:06 pm

QE – Coming [again] soon? http://www.youtube.com/watch?v=j2AvU2cfXRk

lionel

July 3, 2012 3:27 pm

Stjeanluc/ Austerity at work – Greece
Dont tell me that if you were Greece deputy Finance Minister and it was the day the Troika arrives in town you wouldnt come up with abysmal "predictions" like these?
It is not austerity, it is called bluff! Good on him to try to beg for more money 🙂
On a second point who cares about economic predictions in Greece where 30% of the economy is unaccounted for and growing (Former IMF economist Kenneth Rogoff recently pegged the black market in Greece at 30% of the economy – WSJ)
%GDP figures are only useful when GDP calculation is acurate. In Greece unfortunately it is not the case…yet.
Corruption and underground economy and ineffective taxation enforcement are Greece problems. And it needs to be address now. Only Europe can twist the arms of their gutless politicians or nothing would have changed since they have re-elected the same group of leaders who got them into this mess in the first place.
Since they have voted for fiscal discipline, they will get fiscal discipline. Every European countries went through a crisis in 1997 in order to ratify Maastricht. Greece lied its way through in 2001 (with the help of France and Germany – top arms suppliers). So the hard work will have to be done now.
"I think that tax compliance is a necessary tool to restore any country's situation — Greece, like others," IMF Chief Lagarde
And happy I D to all on this board.

jacalynm

July 3, 2012 7:01 pm

Not sure what George Michael was singing about in 1998 but it seems to resonate today?
"Maybe We Should All Be Prayer for Time"

These are the days of the empty hand
Oh, you hold on to what you can
And charity is a coat you wear twice a year

This is the year of the guilty man
Your television takes a stand
And you find that what was over there is over here

So you scream from behind your door
Say what's mine is mine and not yours
I may have too much but I'll take my chances
'Cause God's stopped keeping score
And you cling to the things they sold you
Did you cover your eyes when they told you
That he can't come back
'Cause he has no children to come back for

It's hard to love there's so much to hate
Hanging on to hope when there is no hope to speak of
And the wounded skies above say it's much too late
So maybe we should all be praying for time

lvmoda

July 3, 2012 10:19 pm

Watching David Einhorn take 3rd place in the The Big One as an amateur. Amazing.

July 3, 2012 10:26 pm

And donating his $4.2mm win to charity.

revtodd64

July 4, 2012 6:33 am

Happy 4th of July everyone! The following is a good quick read on the courage needed to live the true nature of freedom:
http://sojo.net/blogs/gods-politics

jabobeast

July 4, 2012 9:51 am

pcln…yuch
http://seekingalpha.com/article/701111-why-i-think-priceline-is-poised-for-additional-upside?source=email_rt_article_readmore&ifp=0

Phil

Author

July 4, 2012 11:08 am

Happy Holiday!

Happy Birthday to Jbur too.

BCS/LIBOR hearings on CNBC – good holiday viewing.

Sarkozy/StJ – Sounds like a lot of fun in store over there.

Heavy/ZZ – Also nepotism helps, good to hire former agents.

Hope you are having a nice vacation Yodi.

Wow, look at Corn on StJ's chart – that's CRAZY! You can see why I liked silver for an up move but a little slow out of the gate so far. Nat gas facing a big test and oil can run to $100 with little resistance after such a steep decline.

S&P charts showing a little overbought but not too much – can still be jacked up another few percent with a bit more stimulus.

Thanks Mill!

Sailing/ZZ – Good point one changing tacks sooner rather than later… I think that's why a lot of financial guys like sailing – tides, winds, equipment and a little bit of skill that also depends on the actions of others – not too different than the way we try to get a feel for our own market currents and then make our best move, trying to keep the wind in our sails. Very impressive recovery story.

You're welcome Pat.

Greek underground/Lionel – I love how they say they can't measure GDP but they always seem to have exact figures on the "underground economy." If they are so sure it's 30% – then just add it to the GDP figure and stop whining about how you can't measure the true GDP. That would then focus the issue on properly taxing the revenues. Maybe they should do that in America too, with our supposed $1Tn+ shadow economy – that'd double Greece's ENTIRE economy. As to corruption and ineffective taxation – US corporations paid just $192Bn in taxes last year – not even 10% of the Government's collections, yet they took in 80% of all revenues and made 60% of the profits. Now THAT's ineffective taxation!

This is a World-Wide problem but consider that, in the US, the Average Corporate Tax Rate is 6% (12% of companies declaring profits, the rest pay zero), not even half of the Global Average.

Don't believe the above graphic? Check out this report.

Driving people closer to the light/Rev – That's what I tell my brother I'm doing when I question his dogma but he doesn't see it that way…

July 4, 2012 11:12 am

I’ve talked to these guys, book sounds very good:

Dark Pools

Dark Pools

High-Speed Traders, A.I. Bandits and the Threat to the Global Financial System
Scott Patterson

A news-breaking account of the global stock market’s subterranean battles, Dark Pools portrays the rise of the “bots”– artificially intelligent systems that execute trades in milliseconds and use the cover of darkness to out-maneuver the humans who’ve created them.

In the beginning was Josh Levine, an idealistic programming genius who dreamed of wresting control of the market from the big exchanges that, again and again, gave the giant institutions an advantage over the little guy. Levine wondered, What if the little guy could see all trades in real time and, in the process, cut out the middlemen who picked his pocket with every trade? But for that to happen, the market had to be plugged in.

And so Levine created a computerized trading hub named Island where small traders swapped stocks. Soon after its launch, Island spawned a day-trading revolution that would reshape the market. Eventually, Levine’s creation became the electronic version of the New York Stock Exchange, and in a few short years the world’s capital flowed through a vast jungle of fiber-optic cables.

By then, the market that Levine had sought to fix had turned upside down. The giant institutions and the little guys had developed a shared interest, and they were both imperiled. The solution: “dark pools” – secretive exchanges where the “whales,” big institutional investors that often traded the little guys’ money, could move through the turbulent electronic waters unmolested. But soon the bots acquired night vision; they learned how to peer into the darkness. Growing savvier with each tick of the tape — always learning – they steadily fed on the whales, evolving into a new breed of high-speed middlemen.

Dark Pools is the fascinating story of how global markets have been hijacked by trading robots – many so self-directed that humans can’t predict what they’ll do next. And it shows how the new players moving into artificial intelligence are on the verge of tipping the entire system toward a global meltdown that could happen in minutes – maybe even seconds.

July 4, 2012 11:29 am

Also, in case anyone is interested – good day to read well-done SparkNotes commentary on Declaration of Independence (yes, I am that kind of nerd!).

This declaration is based on certain truths. All men are meant to be equal and to have certain rights ("unalienable rights") that the government should never take away. These rights include "life, liberty and the pursuit of happiness."

Governments exist to support the rights of men. Governments exist only through the power of the people that they represent. When a government fails to grant rights to the people and removes the involvement of the people, the people have the right to change their government in a way that will allow for their unalienable rights to be protected. Governments should not be overthrown for trivial reasons; it is not typical for people to change a system that they are accustomed to. However, when the people have suffered many abuses under the control of a totalitarian leader, they not only have the right but the duty to overthrow that government.

Commentary

The Declaration of Independence is important because it inspired many revolutionary efforts throughout the world and contributed to Americans' understanding of their values as a new nation. The introduction, called the preamble, to the Declaration of Independence is especially important because it builds connections between philosophical theory and practical politics, expresses the fundamental values of the new American government, and also appeals to other nations to accept the new nation.

The introduction relies heavily on the philosophical and political ideas of the Enlightenment period of 18th century Europe, including the ideas of Thomas Hobbes, Jean Jacques Rousseau, and, most particularly, John Locke. Locke believed that humans, by nature, had the right to protection of life, health, liberty and possessions. Jefferson altered this slightly when he claims the unalienable rights include "life, liberty and the pursuit of happiness." Locke also strongly opposed the divine right of kings–which held that kings held absolute power because they were placed on their throne by God–and insisted that the people had the right to consent to their government and that the power of law making resides with the people. Jefferson included this theory when he writes "to secure these rights, governments are instituted among men deriving their just powers from the consent of the governed." Jefferson's declaration helped to put Locke's philosophies into the realm of real-world politics. Many revolutions that occurred after the American Revolution cited Jefferson's Declaration of Independence as justification in overthrowing a corrupt and dictatorial power.

Savi

July 4, 2012 12:26 pm

Happy 4th everyone
may I add
"the care of human life and happiness and not their destruction is the first and only legitimate object of good government"—said Thomas Jefferson to a Maryland gathering of Republicans in 1809

July 4, 2012 12:49 pm

"The Higgs traces back to 1964, when several physicists independently dreamed up the idea of an energy field that would have permeated the early universe (and persisted to the present). “In all honesty we were trying to solve a more modest problem,” said theorist Carl Hagen of the University of Rochester in New York. In certain theoretical calculations, particles with zero mass kept inconveniently popping up: In trying to get rid of those particles, Higgs, Hagen and others realized that once the universe cooled enough from its initial Big Bang, this energy field would have had to emerge.

Like a puddle of molasses, the field resists the motion of particles moving through it. Such resistance to motion, or inertia, is the defining quality of mass. Subatomic particles therefore acquire differing amounts of mass depending on how strongly they interact with the energy field." This field more or less describes my brain trying to learn option trading, I've realized with a certain dismay.

July 4, 2012 1:16 pm

Phil/dogma – While I'm fairly good at influencing people, I've never had much luck questioning dogma with family members, with either my father or my sons. Fortunately my wife and I already agree on most things. 🙂

Birdman

July 4, 2012 2:57 pm

Pharmboy/SRNA
Interesting movement – big dip after drug disappoint – big rip on insider buying. Here's what a friend of mine in the biotech industry has to say about them:
"I'm rather bullish on these guys. I know of them for their mitochondrial drug (it targets the energy production in cancer cell mitochondria), but their lead compound looks very interesting as well. HSP90 inhibitors don't have a good toxicity history, but the Synta drug has a completely novel structure and they claim is a lot less toxic, and it seems to have strong efficacy. Their recent dip doesn't seem to be due to any actual clinical failures, just due to their not releasing interim statistical data on the toxicity profile. Assuming they aren't holding back any bad news it looks like an undervalued stock. Their infrastructure is very solid (lots of in-house capabilities) and they have a decent pipeline of clinical studies underway (with independent sponsorship of some of them by a leading cancer research hospital, which is usually a good sign). Their mitochondrial drug has a very compelling mechanism of action, and assuming it can be delivered selectively to cancer cells, it could be a real gamechanger in certain types of cancer (although it targets cancer cells in normoxic environments, which is the minority of tumor types – most are hypoxic – so it isn't likely to be a blockbuster)."
Interested in your thoughts….

July 4, 2012 5:01 pm

Pharmboy…

Oops. I meant SNTA. July 4th brain fart.

dclark41

July 4, 2012 5:02 pm

Phil:
Is your brother one of those "staunch Republicans"? Must make for interesting family gatherings? He sounds like a great guy. Happy 4th.

1020

July 4, 2012 6:55 pm

zeroxzero/dismay You too huh? 🙂

July 4, 2012 10:10 pm

A little "explosion" humor…. 🙂

http://www.youtube.com/watch?v=A44an20sPik&feature=related

newbie

July 5, 2012 2:21 am

When "Mutually Assured Destruction" becomes "Self Assured Destruction":

http://www.reuters.com/article/2012/07/04/us-iran-nuclear-missiles-idUSBRE86308I20120704?feedType=RSS&feedName=topNews

July 5, 2012 4:01 am

Phil/ US corporations tax revenues
I agree that US Corporations are left off the tax hook but I can t see the link with tax avoidance in Greece.
I know just too many well off Greeks who have never paid income tax in their whole life and do officially own properties with registered mortgages! I won't even go into luxury cars and boats…on no income!
How is that possible in a so called Euro country?
And it will take much more than voting new taxation bills to collect the money. Greece needs a new Tax Office, new administrative tribunals…a fully reformed tax collection system.
On the other hand the US have a very efficient IRS but there is no political will to tax corporations. And Unfortunately I doubt there ever will be…

July 5, 2012 5:58 am

Krastings says Euro devaluation of 20%++ is only policy option left.
http://www.businessinsider.com/new-euro-bailout-devalue-2012-7

July 5, 2012 6:32 am

Good morning!

Looks like we didn't miss much as the Futures are flat to where we left them on Tuesday.

Dollar a bit stronger without tanking the market is a good thing if it holds up but lots of data coming up today.

Oil nice and high at $88.25 but should max out on run into inventories and then I'll like a short.

Half day for me today as I'm off for Vegas at 1pm.

Euro down a full point from Tues morning, back to $1.25 and Pound $1.5571. Yen bouncing off 79.50 (too strong) and Swiss are in overdrive, trying to hold the Euro at $1.25 with EUR/CHF spiking to $1.2017. We're waiting on ECB rate cut expected around 8am so sloppy trading until then.

Still a huge amount of stimulus rumors keeping us up and you know I don't like that:

Thursday's economic calendar:

Chain Store Sales

7:00 MBA Mortgage Applications

7:30 Challenger Job-Cut Report

8:15 ADP Jobs Report

8:30 Initial Jobless Claims

9:45 Bloomberg Consumer Comfort Index

10:00 ISM Non-Manufacturing Index

10:30 EIA Natural Gas Inventory

11:00 EIA Petroleum Inventories

4:30 PM Money Supply

4:30 PM Fed Balance Sheet

2:20 AM Asian markets trend lower ahead of European rate decisions and a Spanish debt sale. Japan -0.3% to 9079. Hong Kong flat at 19712. China -1.2% to 2201. India +0.1% to 17476.

Which is real? 2:25 AM China's Beige Book, a new private survey of around 2,000 executives and bankers, shows retail sales and manufacturing strengthened last quarter, property sales increased, and 80% of retailers expect higher sales in six months, suggesting an economic pick-up not fully captured in China's official statistics.

The HSBC China Services PMI drops to a 3-month low of 50.6 in June from 51.9 in May as conditions point to declining new business orders and a softening job market.

A long but interesting piece by Michael Pettis on how to achieve real financial reform in China.

4:08 AM China could be preparing for a fresh round of policy easing, analysts say, with Chinese authorities said to be considering cuts to the reserve requirement ratio.

4:10 AM South Korea may cut its benchmark rate next week, according to Credit Suisse, after recent data showed consumer inflation had cooled and after Gov. Kim Choong Soo said last month consideration had been given to measures that could help the economy.

6:00 AM Overseas: Japan -0.3%. Hong Kong +0.5%. China -1.2%. India +0.4%. London +0.3%. Paris -0.1%. Frankfurt +0.%.

The ECB is widely expected to cut its benchmark rate by 25 bps to a record-low 0.75% today, though it's unclear where the bank goes from there. Stay tuned for the announcement at 7:45am ET and Draghi's press conference at 8:30am ET. Euro flat against the dollar at 1.2527.

Is the eurozone crisis finally easing? S&P thinks it might be, pointing to the stabilizing agreements that came out of the June 29 summit. There is significant implementation risk but the measures "can provide a more stable funding framework" while governments work to "implement growth-enhancing structural reforms and reduce their budgetary imbalances."

Markit's eurozone composite PMI rises to 46.4 in June from 46 in May and above the flash estimate of 46. Services PMI 47.1 vs. 46.7 and 46.8. "The rise failed to avoid the region seeing the strongest quarterly downturn for three years in the second quarter," says Markit's Chris Williamson, adding that the data point to a 0.6% decline in GDP. (PR)

German factory orders come in better-than-expected in May at +0.6% M/M and -5.4% Y/Y vs. consensus of 0% M/M and -6% Y/Y. (via)

Spain sells €3B ($3.8B) of 3-, 5- and 10-year debt, achieving the top-end of its target range but again experiencing a rise in borrowing costs. The average yield on the 10-year bond increased to 6.43% from 6.04% in an auction in June. In the secondary market, yields are +14 bps to 6.55%.

Some eurozone officials admit it may have been overambitious to set an end-of-year deadline for creating a new eurozone banking supervisor. Even under the best of circumstances, getting the overseer up and running could take 9-12 months.

The ECB tightened its lending conditions yesterday, capping at current levels the amount of government-guaranteed debt that banks can post as collateral in return for its loans. Case-by-case exceptions will be made to banks presenting "an acceptable funding plan." The tightening could be a taste of things to come as the ECB takes on a more active regulatory role.

Bank shareholders have no idea what kind of liability they're facing from the Libor probe. Barclays, for example, dropped 16% the day after being blindsided by a $451.4M regulatory fine. More than a dozen banks are being probed, are providing minimal disclosures and are probably failing to put enough funds in reserve for potential fines.

The Libor scandal isn't Barclays-specific or even U.K.-specific, says EU Competition Commissioner Joaquin Almunia, and the rate-fixing accusations will likely involve banks in several countries. Yesterday, more than a dozen banks (including C, BAC, UBS) asked a U.S. judge to throw out Libor antitrust suits.

Moody's lowers Barclays (BCS) standalone outlook to negative from stable, as shareholder and political pressure could push Barclays' away from I-banking. It's also no small feat to replace three senior execs, and will be especially hard to find a CEO with I-banking expertise and the credibility to swiftly address the Libor scandal.

From Bob Diamond's testimony to U.K. lawmakers: Apologizes for BCS's "reprehensible" behavior; says the conduct waslimited to 14 traders out of 2,000 employed; feared the bank would be nationalized in 2008 because of high funding costs; did not believe he got tacit permission BoE's Paul Tucker to lower rates; only found out about the Libor accusations "this month."

Bob Diamond's banking career may be over, but that doesn't mean he'll be slinking quietly into his retirement years. He's likely to be a highly sought-after candidate at P-E firms and hedge funds. He might be toxic to a publicly-traded firm but he's got the money and the experience to thrive at a less-regulated private company.

The Reserve Bank of India has spent billions of dollars trying to support the rupee, but it's still Asia's weakest-performing currencyagainst the dollar over the past year (-19%). The rupee's decline is partly because of capital flight from emerging markets, but has been exacerbated by concerns over India's deteriorating financial health.

Brazil plans to continue cutting rates in 50 bps increments as the economy recovers more slowly than expected, according to a government source familiar with the matter. The eurozone crisis, though somewhat stabilized, and the U.S. fiscal situation are hurting investor and consumer confidence in Brazil, said the official.

Mammoth Lakes yesterday filed for bankruptcy protection, becoming the 2nd Californian city in 6 days to do so after Stockton entered Chapter 9 last week. Mammoth Lakes, which has assets of over $100M and debt of more than $50M, made the filing after its largest creditor refused to negotiate concessions on a $43M legal judgement. (previous)

California's San Bernardino County and two of its biggest cities, Ontario and Fontana, want to use the concept of eminent domain to forcibly buy underwater mortgages from investors, lower the loan principal to match the value of the property, and then resell the reduced mortgages. Proponents believe they have a strong legal case, but mortgage investors are unsurprisingly opposed. (SeeShiller)

Corn and wheat may be trading near ten-month highs, butfarmers are hardly profiting. With razor-thin margins and food crops priced well-below the cost of production, many growers are quitting. From the U.S. to Australia, from beef to vegetables, farmers globally are facing the same crunch.

Virgin Australia orders 23 Boeing (BA) 737 MAX 8 planes in a deal worth $2.19B at list prices.

Volkswagen agrees to buy the 50.1% stake in Porsche it doesn't already own for €4.46B ($5.6B), ending a seven-year takeover saga.

Carlyle (CG) acquires 49% of mid-market Chinese hotel chain Mandarin Hotel Holdings for an undisclosed sum.

Manchester United files for an IPO of $100M on the NYSE after abandoning plans to float in Asia, where its supporter base is much higher. The British soccer club will use the proceeds to pay off its debt, which was £423.3M ($663.67M) at the end of Q1. Similarly to Mark Zuckerburg and Facebook, United's American owners, the Glazer family, will retain 67% of the voting control via their class B shares.

Best Buy (BBY) is testing a new turnaround strategy, turning some of its cavernous stores into sleek, Apple-inspired retail outlets in hopes of boosting sales. Skeptics worry the makeover doesn't do enough to dissuade shoppers from browsing in the stores and then buying products online from cheaper e-tailers.

RIM (RIMM) is under pressure from mobile phone companies, including AT&T (T) and Verizon Wireless (VZ, VOD), tocut carrier fees. It's a real pain point for RIM, as the fees generate $4.1B annually and account for more than a third of the BlackBerry maker's revenue. Analysts say that figure could drop to $2.8B in FY'14.

HTC phones don't infringe on four Apple (AAPL) patents related to touchscreen technology, and three of those Apple patents are invalid, according to U.K. Judge Christopher Floyd. The patents in the case were: slide-to-unlock feature, tools to scroll through photographs and change alphabets, and functionality to touch the screen in two spots simultaneously. It's not an insignificant defeat for Apple.

Apple (AAPL) is reportedly planning to roll out a smaller, cheaper iPad by the end of the year, with a screen that's 7-8 inches diagonally vs. the current 9.7 inch version. Apparently Apple's at least a little bit worried about the Nexus 7 (GOOG) and Surface (MSFT).

July 5, 2012 6:38 am

Americans Support Cutting The Deficit, But Not Cutting Specific Programs

By Barry Ritholtz – July 4th, 2012, 7:30PM

Nearly 70% of Americans say cutting the deficit is an important goal for 2012, with 84% Republicans, 66% Democrats, and 64% Independents rating it as their top priority.

These folks are happy to slash spending and raise taxes — only theoretically. Asked about specific programs, wide majorities almost always favor either increasing spending or maintaining the current level, as the following chart from Pew shows:

Source: Think Progress

July 5, 2012 6:42 am

July 5, 2012 6:45 am

deano

July 5, 2012 6:54 am

This was fun:
http://www.ritholtz.com/blog/2012/07/max-keiser-goes-ballistic-on-barclayslibor/

kinkistyle

July 5, 2012 7:11 am

I thought the timing of this strangely appropriate analogy to all the QE, rate cuts and stimulus we are going to be getting to be very humorous:

A Glitch Caused All Of San Diego's Fireworks To Go Off At The Exact Same Time [VIDEO]

I don't know why, but I founnd this just to be the funniest thing. 😀

July 5, 2012 7:43 am

This catastrophe in San Diego may have profound effects on the Global Markets – I will have to immediately (and tax deductably) head out there to check out the situation first hand – I shall report back to you (confirming the business nature of my trip) as soon as I get there to let you know if San Diego has suffered lasting damage from this firework catastrophe!

rookie

July 5, 2012 7:54 am

Good Morning Everyone – I'm the new rookie, new to options, traded stocks reasonably well for the past 3 years.
Busy reading Phil's favs and other info , learning plenty and getting up to speed.
Thanks to Phil and his team for all your great insights.
Looking forward to working with you all.

July 5, 2012 7:55 am

ECB Cuts Rates By 25 Basis Points

The global central bank market propping continues with the ECB following in the footsteps of the BOE and PBOC, and cutting its benchmark rate by 25 bps to 0.75%, and the deposit rate to 0%. EURUSD slides. In other news, today the BOE, PBOC and now ECB have all eased…. and ES is up a whopping 0.2%. Houston: we have a problem.

July 5, 2012 7:56 am

That last from Zerohedge

flipspiceland

July 5, 2012 8:20 am

"…Former Barclays chief Robert Diamond was assailed by British lawmakers .."
wow, he was assailed…what a horror.
But did they DO anything to him??
Last I looked, being assailed did nothing to reduce your current and long term assets, your overall wealth and health, nor did being 'assailed' equal water torture.
Being 'assailed' isn't even as punitive as being told to go stand in the corner.
Way to go, Parliament. You go ahead and assail 'im. We stand in awe of your rule.

July 5, 2012 8:21 am

Welcome Rookie! Just so you know, comments move to new post once it goes up (now) – see you there!

Markets don't know what to make of ECB decision – up, down, up, down and now up again (but only 0.25%). Gold doesn't like it so someone expected more than what they did but they did enough to weaken the Euro and send the Dollar up to 82.72 – that can get ugly if we go over 83 (and makes it a great time to short oil!).

Going to be a crazy day and I'm going to miss the end of it…