Wonder why people are getting nervous?

Have we learnt anything from last crisis, or is it merely another same same situation setting up like 07/08? People’s psychology, and stupidity, remains the same. With leverage once again at high levels, the market could be up for some rock and roll if 1295 is taken out on the SPX.

Although we are long term bearish, we expect the market to hold these levels and expect the big drop later this autumn. For the big move down, everybody needs to be long, and wrong…..

Charts, Macro Story

Some points from Gold Core,

Gold is marginally higher against most currencies today and is trading at USD 1,614.40, EUR 1,130.50, GBP 990.08 and CHF 1,294.50 per ounce. Gold is flat against the dollar but remains just less than 1% from the record nominal high reached yesterday ($1,628.05/oz).  The euro is under pressure again today and gold is 0.7% higher against the euro and is just less than 1.5% away from the record euro high of EUR 1,144.80/oz reached last Monday.

Early gains in Europe saw gold fix at USD 1617.50/oz in London prior to a bout of selling saw gold fall and then rise again. Volatility has increased but remains low compared to levels seen in the late 1970’s.

Investors were made nervous by comments from chemicals major BASF, which said it saw global economic growth slowing as it posted weaker-than-expected earnings, sending its stock down 4.9%.

Siemens AG, Europe’s largest engineering conglomerate, warned that global economic risks were increasing and posted below forecast results. Its shares fell 1.3%.

As per yesterday, Spanish and particularly Italian bonds are under pressure today with the Spanish 10 year rising to 6.06% and the Italian 10 year rising to 5.94%.

One-year CDS (credit default swap) prices on U.S. debt have moved above five-year CDS prices, signaling that the risk of financial contagion remains real.

Europe’s STOXX bank index has lost about 25 percent since mid-February suggesting jitters regarding the possibility of a second phase to the banking crisis.

The Dow to Gold Ratio has again turned down suggesting gold may continue to outperform U.S. stocks and the DJIA, in particular, in the coming weeks. The long term target of below 2:1 remains viable.

Dow-to-Gold Ratio: Financial Assets vs. Hard Assets

It all sounded so good before Obama joined the White House. He spoke of great words, but delivered no more than bail outs of the banks. Does the charismatic leader lack the skills of a leader? Reich reports,

How did we get into this mess?

I thought I’d seen Washington at its worst. I was there just after Watergate. I was there when Jimmy Carter imploded. I was there during the government shut-down of 1995.

But I hadn’t seen the worst. This is the worst.

How can it be that with over 9 percent unemployment, essentially no job growth, widening inequality, falling real wages, and an economy that’s almost dead in the water — we’re locked in a battle over how to cut the budget deficit?

Part of the answer is a Republican Party that’s the most irresponsible and rigidly ideological I’ve ever witnessed.

Part of the answer is the continuing gravitational pull of the Great Recession.

But another part of the answer lies with the President — and his inability or unwillingness to use the bully pulpit to tell Americans the truth, and mobilize them for what must be done.

Full article, click here.

For all news continue below,

Ft.com
Diageo, the world’s largest spirits company, has agreed to pay $16m to resolve US allegations that it bribed government officials in India, Thailand and South Korea to boost sales and receive favourable tax treatment. http://ftalphaville.ft.com/thecut/2011/07/28/636686/diageo-to-settle-with-sec-over-bribery/

Ford plans to invest $1bn to build a factory in western India in a drive to gain a greater share of one of the fastest-growing car markets, the FT reports. The factory in Gujarat, which should be in production by 2014 employing 5,000 people, http://ftalphaville.ft.com/thecut/2011/07/28/636671/ford-to-build-1bn-indian-factory/

Visa, the world’s largest electronic payments company, exceeded Wall Street’s expectations by reporting a 40 per cent surge in quarterly profit as more consumers turned to credit cards and other forms of electronic transaction, http://ftalphaville.ft.com/thecut/2011/07/28/636646/visa-results-beat-expectations/

Royal Bank of Scotland has been ordered by the US Federal Reserve board to improve compliance and governance in its US operations, the WSJ reports. The Fed issued similar cease-and-desist orders to HSBC and Barclays in 2010. http://ftalphaville.ft.com/thecut/2011/07/28/636566/fed-demands-rbs-improve-compliance/

Standard & Poor’s president told a US House of Representatives panel that the country is unlikely to default on its debt obligations but its credit rating could still be lowered if it doesn’t come up with an adequate plan to address spending and its soaring budget deficit Representatives of leading emerging market countries at the International Monetary Fund have warned the fund’s management against pouring more large sums of money into another Greek bail-out with uncertain prospects http://ftalphaville.ft.com/thecut/2011/07/28/636591/emerging-markets-warn-imf-over-greek-loan/

The cost of buying insurance against a default by the US rose to a record on Wednesday, the FT reports, in a sign of growing unease that gridlock in Washington over raising the federal debt ceiling may result in the Treasury failing to pay interest to bondholders. Premiums for one-year US sovereign CDS rose sharply this week and traded at about 90 basis points in London on Wednesday, http://ftalphaville.ft.com/thecut/2011/07/28/636576/treasury-cds-reach-record-highs/

The Brazilian real tumbled on Wednesday after the country introduced measures to curb foreign exchange speculation in a bid to bring down the currency from a 12-year high against the dollar and protect its manufacturers http://ftalphaville.ft.com/thecut/2011/07/27/636521/real-tumbles-as-brazil-imposes-fx-curbs/

As much as half US companies’ record $1,240bn in cash balances is being held overseas, according to Moody’s research, with groups wary of incurring a 35 per cent repatriation tax, writes the FT. While debates rages in Washington about the state of public finances, http://ftalphaville.ft.com/thecut/2011/07/27/636511/us-firms-keep-cash-abroad-away-from-tax/

Continue reading →

We “saved” Greece, but the country will still need to default. The focus has shifted back to the US and the debt ceiling soap opera, but do you remember Spain at all?The country where unemployment is more than twice the figure of the great America. Spain is where youth unemployment is north of 40%. The mass protests are back. BBC reports,

Spanish activists, known as “the Indignants”, have set off from Madrid on a long march to Brussels.

They are protesting against what they see as governments bowing to financial markets and ignoring the needs of their own people in the economic crisis.

As they head north, the protesters plan to hold meetings, collecting complaints and proposals as they go.

Since the movement began in Madrid two months ago, similar groups have sprung up across Europe.

The Indignants have added a new chant to their repertoire: “To Brussels!” they sing.

It will have to keep their spirits up for fully 1,000 miles (more than 1,500k), as they march across three countries.

Many of them have already spent weeks on the road, walking across Spain to Madrid, says the BBC’s Sarah Rainsford in the Spanish capital.

We all know it is the not the absolute amounts that matter in life. All things are relative, especially large sums of money. Maybe Obama is a really good guy, or? Chart by NYT.

You know that the debt kerfuffle is as melodramatically staged as a World Wrestling Federation exhibition when Mr. Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

This is not remotely true. But it has become the scare theme for over a week now, ever since the President used almost the same words in his interview with CBS Evening News anchor Scott Pelley.

Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. I realize that lawyers (such as Mr. Obama and indeed most American presidents) rarely understand economics. But this is a legal issue. Mr. Obama certainly must know that Social Security is solvent, with liquid securities to pay for many decades to come. Yet Mr. Obama has put Social Security at the very top of his hit list!

The most reasonable explanation for his empty threat is that he is trying to panic the elderly into hoping that somehow the budget deal he seems to have up his sleeve can save them. The reality, of course, is that they are being led to economic slaughter. (And not a word of correction reminding the President of financial reality from Rubinomics Treasury Secretary Geithner, neoliberal Fed Chairman Bernanke or anyone else in the Wall Street Democrat administration, formerly known as the Democratic Leadership Council.)

It is a con.

Full must read article by Hudson, click here.

So, is the market finally starting to price in the “unthinkable”? Somebody out there is getting rather scared of the mess Washington is producing.

That “implied vol” skew is showing us the way, once again. Chart Macro story.

From Bloomberg; It costs more to insure U.S. Treasuries for one year than for five years for the first time, as investors anticipate that a failure to raise the debt ceiling will prompt rating companies to declare the nation in default.

The CHART OF THE DAY shows that one-year credit-default swaps spiked to a record 80 basis points today, according to BNP Paribas SA, up from 46 basis points on July 22. The contracts now exceed five-year swaps by 23 basis points.

While the World is waiting for the US Debt resolution, S&P is delivering, yet again, a new downgrade of Greece. Yes, Greece is pissed off again, but the inevitable must happen. Greece must default, irrespective of any future bail outs. The trader is arguing for a referendum later this autumn, where the great Hellenic people reach an Icelandic moment, and tell the creditors to forget the Greek people are picking up the tap. From S&P;

Following review of the July 21 statement by the European Council (EC), Standard & Poor’s has concluded that the proposed restructuring, in the form of an exchange into discount or par bonds or a rollover into 30-year par bonds, of Greek government debt would amount to a selective default under our rating criteria.

In anticipation of the debt exchange, we have lowered the long-term rating on Greece to ‘CC’ and we have affirmed the ‘C’ short-term rating.

The outlook on the ratings is negative.

We view the proposed restructuring as one that would amount to a “distressed exchange” under our criteria because, based on public statements by European policymakers, the debt exchange or rollover is likely to result in losses for commercial creditors, and the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default. Under our criteria, we characterize a distressed borrower as one that would–in the absence of debt relief–fail to pay its debt on time and in full.

While no exact date has been announced to initiate Greece’s debt restructuring, we understand that it will commence in September 2011 at the earliest.

Our recovery rating of ’4′ for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders.

On July 27, 2011, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the Hellenic Republic to ‘CC’ from ‘CCC’. At the same time we affirmed the short-term rating at ‘C’. The outlook is negative. Our recovery rating of ’4′ for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders, including on those bonds subject to a 20% reduction in net present value (NPV) as estimated under the Institute for International Finance (IIF) proposal.