Historical chart of 10 Year Treasury Note Yield (source table at multpl.com)
$TNX - 10 year Treasury Note Yield (2008, 2011 lows) - StockCharts.com
|A look at the bear market and |
monthly MA's from my previous post
"Although many on Wall Street believe the market is currently undervalued we disagree. The market expected the S&P 500 to earn $108 in early May of 2008 but due to the bursting of the bubble the earnings came in at $50 for operating earnings (excludes write-offs) and $15 for reported earnings (GAAP). The analysts that are using $100 this year and more next year for the S&P 500 and a P/E of 15 to magically come up with 1500 on the index are guilty of faulty reasoning. We believe we will trade at below 10 times depressed earnings which should take us down to the lows of 2009 or below. It is clear to us that there will have to be a global slowdown in the second half of this year and next. The reasoning for the slowdown is again the debt, but not just the sovereign debt, the private debt is even worse than the public debt." continue reading
"if you're going to address the deficit problem even incrementally, low Treasury bond yields make tremendous sense, because addressing the deficit fairly clearly leads to weaker economic growth.
Already, we have $350 billion of fiscal drag coming our way in 2012 if policies are not changed with the sunsetting of tax cuts from the Bush era and also from the payroll tax reduction that was put in place at year-end 2010. $350 billion of fiscal drag is a lot, particularly when we're living with de minimis GDP growth to begin with, in the first half of 2011. Let's remember, the first half of 2011 GDP growth was a beneficiary of stimulus. (from Morningstar transcript)
"I don't see any idea why you should be long the market. What I see is why you should be long the bond market because as you know I've been calling for deflation. And not a recession, I think we could go into a depression during the next couple of years" (Charles Nenner in video #2)
|EUR/USD Judgment Day|
"BNP Paribas , Societe Generale and Credit Agricole CIB's credit default swaps widened sharply on Wednesday amid fears that France could soon lose its triple-A credit rating.
EUR/USD 2 year (freestockcharts)
By 1510 GMT BNP Paribas' five-year CDS had widened 35 bps to 246 bps, Societe Generale's CDS was 65 bps wider at 334 bps while Credit Agricole CIB's CDS had widened 23.5 bps to 265 bps, according to Markit data." (Reuters)
CMA adds CDS data on key sovereign debts to its free-of-charge daily Marketflash
CMA Marketflash helps subscribers keep up-to-date with changes in sovereign credit risk quality
CMA, the leading source of reliable, independent OTC market data, today announced that for the rest of August it is publishing additional credit default swap (CDS) information on key sovereign debts to CMA Marketflash, its daily email sent free of charge to subscribers. This will help keep subscribers informed of changes in the quality of sovereign credit risk in the midst of increasing uncertainty following the rating downgrade of the United States credit rating and the continued volatility in European sovereign debt risk.
|China 5Y CDS vs. FXI (see below)|
|Federal Reserve (Source: Flickr)|
"The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."
"As we had suggested in recent weeks, a U.S. downgrade was going to likely be more negative for the equity market than Treasuries, and that is exactly how the week is starting off. The reason is that history shows that downgrades light a fire under policymakers and the belt-tightening budget cuts ensue, taking a big chunk out of demand growth and hence profits. It is not just the United States — the problem of excessive debt is global, from China to Brazil to many parts of Europe. And let’s not forget the Canadian consumer." -David Rosenberg [continue reading]
"EURUSD remains bearish under resistance at 1.4420.
Source: MIG Bank
- Exited at 1.4205 (Breakeven). EUR/USD’s price activity remains bearish, despite a two-day reactionary bounce which failed in resistance at 1.4420. This confirms another bearish pattern, weighed down by additional failed breakouts from the major “Bermuda” triangle pattern. We prefer to open a trade setup once this pattern triggers a meaningful directional breakout.
- Our long standing bearish view remains in play while the downtrend (from May) holds. A resumption of lower will target 1.3938 (200-DMA), where a large amount of die-hard trend followers will be watching closely for repeat support or a big squeeze lower. Only a close above 1.4580 will lead to a reassessment of this view.
- Inversely, the US dollar index is resuming its oversold bounce from key support at 73.50-73.00. We expect this level to hold (as the last point of defence), helping launch a rebound back into 80.00 over the multi-week/month horizon."
"THE PRESIDENT: Good afternoon, everybody. On Friday, we learned that the United States received a downgrade by one of the credit rating agencies -- not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act. The markets, on the other hand, continue to believe our credit status is AAA. In fact, Warren Buffett, who knows a thing or two about good investments, said, “If there were a quadruple-A rating, I’d give the United States that.” I, and most of the world’s investors, agree.
That doesn’t mean we don’t have a problem. The fact is, we didn’t need a rating agency to tell us that we need a balanced, long-term approach to deficit reduction. That was true last week. That was true last year. That was true the day I took office. And we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least. We knew from the outset that a prolonged debate over the debt ceiling -- a debate where the threat of default was used as a bargaining chip -- could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery.
So all of this is a legitimate source of concern. But here’s the good news: Our problems are eminently solvable.* And we know what we have to do to solve them. With respect to debt, our problem is not confidence in our credit -- the markets continue to reaffirm our credit as among the world’s safest. Our challenge is the need to tackle our deficits over the long term.
|SPX:GOLD (see below)|
|Frankfurt Exchange (Source: Flickr/orb_cz)|
"It's difficult to say, but the only test we have at the moment is the Israeli market which is open today, and it has tanked. The problem I have with that however is there are real significant protests within Israel at the moment, so I can't tell whether it's one or the other. But considering the momentum at which the market went down over the last week, it is very unlikely, if history is any guide, that this isn't going to take a while to bottom out. So the initial reaction in my judgment is going to be negative."
"The only thing that works is to face reality. Let people who are bankrupt go bankrupt. The Japanese tried it this way, they have not let anybody go bankrupt for 20 years. You remember zombie banks, zombie companies. The Japanese stock market is 75% below where it was 21 years ago. This system doesn't work. The Americans have already had one lost decade, we're going to have two lost decades or three lost decades at the rate things are going"
7 August 2011 - Statement by the President of the ECB
1. The Governing Council of the European Central Bank (ECB) welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.
2. The Governing Council underlines the importance of the commitment of all Heads of State or Government to adhere strictly to the agreed fiscal targets, as reaffirmed at the euro area summit of 21 July 2011. A key element is also the enhancement of the growth potential of the economy.
3. The Governing Council considers essential the prompt implementation of all the decisions taken at the euro area summit. In this perspective, the Governing Council welcomes the joint commitment expressed by Germany and France today.
4. The Governing Council attaches decisive importance to the declaration of the Heads of State or Government of the euro area in the inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.
5. It equally considers fundamental that governments stand ready to activate the European Financial Stability Facility (EFSF) in the secondary market, on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability, once the EFSF is operational.
6. It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.
European Central Bank
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
|Tel-Aviv Index Courtesy of Bloomberg.com|
|Treasury Secretary Tim Geithner Watches|
Senate Vote on Debt Ceiling Bill (Flickr)
"In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one." (read more at Treasury.gov)
"United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative
• We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.
• We have also removed both the short- and long-term ratings from CreditWatch negative.
• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.
• The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
"Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, retail trade, manufacturing, and mining. Government employment continued to trend down."
|1-Month Net Change in Nonfarm Payrolls Since 2001 (BLS)|
"We are experiencing a severe cash crisis and are unable to continue to maintain the aggressive prepayment schedule," Joseph Corbett, the agency's chief financial officer, said in a statement.
"Without changes in the law, the Postal Service will be unable to make the $5.5 billion mandated prepayment due in September."
"The big news today is that the ECB will buy Spanish and Italian bonds. Italy is also announcing a balanced budget amendment. The comedy of errors continues." (Pragmatic Capitalism)
"Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt" (Zero Hedge)
|VIX (see below for a larger chart)|
"Nomura Holdings Inc. advised betting that U.S. two-year interest-rate swap spreads will widen on renewed concern Europe’s sovereign debt crisis will increase demand for dollar-denominated funding in the region." (continue reading)
|Source: The Onion|
"Bernanke, who sources confirmed was "totally sloshed," arrived at the drinking establishment at approximately 5:30 p.m., ensconced himself upon a bar stool, and consumed several bottles of Miller High Life and a half-dozen shots of whiskey while loudly proclaiming to any patron who would listen that the economic outlook was "pretty goddamned awful if you want the God's honest truth." (continue reading)
|$SPY 2002-2011 courtesy of FreeStockCharts.com (click for larger view)|
"New York, August 02, 2011 -- Moody's Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.
US Treasury Building - Wikimedia Commons
Moody's placed the rating on review for possible downgrade on July 13 due to the small but rising probability of a default on the government's debt obligations because of a failure to increase the debt limit. The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa.
In confirming the Aaa rating, Moody's also recognized that today's agreement is a first step toward achieving the long-term fiscal consolidation needed to maintain the US government debt metrics within Aaa parameters over the long run. The legislation calls for $917 billion in specific spending cuts over the next decade and established a congressional committee charged with making recommendations for achieving a further $1.5 trillion in deficit reduction over the same time period. In the absence of the committee reaching an agreement, automatic spending cuts of $1.2 trillion would become effective.
In assigning a negative outlook to the rating, Moody's indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government's funding costs over and above what is currently expected.
"The dollar has become the safe haven currency of last resort," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. "The fact that it's still weakening against the Swiss franc and the yen immediately raises a red flag."
"The Institute for Supply Management’s factory index slumped to 50.9, the lowest since July 2009, from 55.3 a month earlier, the Tempe, Arizona-based group said today. Figures less than 50 signal contraction, and the July index was lower than the most pessimistic forecast in a Bloomberg News survey."
"Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter, the Commerce Department said.
While that's an increase from the revised 0.4% growth rate in the first three months of the year, it is hardly good news. The government originally reported that the economy grew at a 1.9% annualized rate in the first quarter."
|Image source: Bloomberg.com|
"Republican leaders, with no extra time before a default threatened for tomorrow, voiced optimism that Congress will pass a compromise with President Barack Obama to raise the U.S. debt limit by at least $2.1 trillion and slash federal spending by $2.4 trillion or more."
"The credit rating agency said it thinks that even if the nation's $14.3 trillion borrowing limit isn't raised by Tuesday's deadline, the government would give priority to making interest payments on its debt and thereby avoid a default."
|EUR/USD intraday (courtesy freestockcharts.com)|
"New York, July 29, 2011 -- Moody's Investors Service has today placed Spain's Aa2 government bond ratings on review for possible downgrade. Spain's Prime-1 short-term ratings are unaffected by today's action.
The initiation of the ratings review is driven by the following concerns:
1.) The continued funding pressures facing the Spanish government, which the precedent set for future euro area support arrangements by the official package for Greece is likely to exacerbate, and the resulting increase in risks to bondholders.
2.) The challenges posed to the government's fiscal consolidation efforts by the weak growth environment and the continued fiscal slippage among several regional governments.
Funding costs have been rising for some time for the Spanish government and for many closely related debt issuers, such as domestic banks and regional governments. Pressures are likely to increase still further following the announcement of the official package for Greece, which has signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits. The package has not relieved market concerns over the position of such sovereigns because (i) it sets a precedent for private sector participation in future sovereign debt restructurings in the euro area, and (ii) while an expansion of powers has been proposed for the EFSF, it is not clear when the powers will be implemented.
Moody's views positively that the central government has been successful in meeting its near-term fiscal consolidation targets, but the rating agency nonetheless notes that challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector." (Continue reading the announcement at Moodys.com)
|Source: Kazuhiko Kawahara at GCClark.net/|
"MOODY'S PLACES Aaa RATINGS OF 177 U.S. PUBLIC FINANCE ISSUERS ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO REVIEW OF U.S. GOVERNMENT'S Aaa RATING
162 LOCAL GOVERNMENTS, 14 HOUSING FINANCE PROGRAMS, AND ONE UNIVERSITY WITH COMBINED $69 BILLION OF DEBT AFFECTED
|Courtesy of FreeStockCharts.com|
|Courtesy of StockCharts.com|
|Img embed source: Aster-oid on Flickr|
"LONDON (Standard & Poor's) July 27, 2011--Standard & Poor's Ratings Services today 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.
Following review of the European Council's (EC's) July 21 statement, Standard & Poor's has concluded that the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology. We view the proposed restructuring as a "distressed exchange" because, based on public statements by European policymakers, it is likely to result in losses for commercial creditors. Moreover, the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default and to give the Greek government more time to undertake fiscal consolidation and policy reforms. 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."
"Matthias Giraud and Stefan Laude capture some of the most incredible content seen by GoPro as they hit the Alps like true heroes skiing the French backcountry while escaping a large avalanche on their tails!" - (GoProCamera on Youtube)
|img source: financeintelligencer|
"BlackRock Inc., Franklin Templeton Investments, Loomis Sayles & Co., Pacific Investment Management Co. and Western Asset Management said the U.S. faces losing its top-level debt rating as officials struggle to raise the $14.3 trillion borrowing limit and reduce spending."
"A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said"
"In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world. The massive trade wasn't placed in bonds themselves; it was placed in the futures market. The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01. The value of the trade was about $850 million dollars." (betting on downgrade of AAA rating)
"Well when the reset comes it will be say a hundred dollar bill will be exchanged for a one dollar bill or something like this. Before we have the Great Reset, the government they will increase the war effort under whatever excuse that will be but I think that is the likely course of action..." (he also talks about gold)
|5Y US Treasury CDS (Bloomberg)|
"There doesn't seem to be a lot of fear reflected in the pricing, as it hasn't been reflected in the Treasurys itself. If Treasurys are still trading at par or close to par that means that the CDS settlement, if there was a credit event and there was an auction, then the settlement would not be at large amounts and therefore protection holders are not going to receive large payouts if anything."