Greece 5Y CDS Spikes to 3,399 bps, Judgment Day is Near (Chart, 9/9/2011)

Greece's five year credit default swap spiked to 3,399 basis points today, up 20.37%. The detailed quote on Bloomberg.com today showed the contract hitting a high of 3,623 basis points. In other words, the cost to insure 5-year Greek government bonds rose to 33.99% per year, or $3,399,000 to insure $10 million of Greek five year bonds. Judgment day is near. Will selling off (or collateralizing) state assets prevent a default? Links: "Greece says to speed up privatisation plan" (AFP, 9/7), "Greek state assets seen as collateral for new bailout" (EurActiv, 8/26). GGB yields are very high as well.

1-year Greece Government Bond yield, 97.964% (Bloomberg)
2-year Greece Government Bonds Yield, 56.97% (Bloomberg)
5-year Greece Government Bond Yield, 25.62% (Bloomberg)
10-year Greece government Bond Yield, 20.55% (Bloomberg)

"German Finance Minister Prepares for Possible Greek Bankruptcy" (Spiegel)
"Germany Is Said to Prepare Plan to Assist Banks If Greece Defaults on Debt" (Bloomberg)
"Papandreou to Defend Austerity as Greek Default Bets Mount" (Bloomberg)
"Greece Dismisses Default ‘Rumors,’ Says Committed to Agreements" (Bloomberg)
"Market Chatter Of Greek Default Over The Weekend" (Zero Hedge)
"Truglia Says Greece Is `Very Close' to Debt Default" (Washington Post/BloombergTV)
"A Greek T-bill oddity" (FT Alphaville)  - 3, 6-month bill yields aren't updating on Bloomberg.com


Greece 5Y CDS (Source: Bloomberg.com)

Euro Looks Broken For Now (EURUSD), Ashraf Laidi Gives Update on BNN

EUR/USD (courtesy of FreeStockCharts)
Unless China steps in here, EUR/USD looks broken to me, at least for a while. It broke the uptrend line from June 2010, so it needs an injection from somewhere to get back on path. You can see the nasty sell off that occurred recently in the first chart and the near-term downtrend line to break for a relief rally. It could roll on down to test support in the descending channel.  On BNN yesterday, Ashraf Laidi, of Intermarket Strategy, had interesting views on the Euro.
"Only a very aggressive QE from the U.S. will do the trick for the Euro. Meaning, only something so aggressive easing policy of the Fed will be bad enough for the Dollar to come down and good enough for the Euro. We think the Fed is not going to be that aggressive and we think that the Euro is going to come back down."
"But the big trades we are talking about right now is, Euro/Dollar is going to test 1.37. If we do break below that, I think we are going to look at 1.30." (Ashraf Laidi on BNN)

Here is analysis on the ECB.
"The European Central Bank, or ECB, is most likely to reverse its recent rate hikes due to weak economic outlook and fading upside risks to price stability, Jennifer McKeown, a senior economist at Capital Economics, said." (INO.com)

"If it remains a market crisis, the ECB may just give banks more liquidity but if it spreads to the real economy, they may even cut rates,” said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets Europe in London." (Bloomberg)

Obama's Speech on the $447 Billion American Jobs Act (Video, Full Text, Fact Sheet)

Below I embedded Presiden't Obama's speech on the American Jobs Act. If you can't watch it, I put up the full speech transcript and fact sheet with a table showing where the $447 billion would be allocated.
"THE PRESIDENT: Mr. Speaker, Mr. Vice President, members of Congress, and fellow Americans:

Tonight we meet at an urgent time for our country. We continue to face an economic crisis that has left millions of our neighbors jobless, and a political crisis that’s made things worse.

This past week, reporters have been asking, “What will this speech mean for the President? What will it mean for Congress? How will it affect their polls, and the next election?”

But the millions of Americans who are watching right now, they don’t care about politics. They have real-life concerns. Many have spent months looking for work. Others are doing their best just to scrape by -- giving up nights out with the family to save on gas or make the mortgage; postponing retirement to send a kid to college.

David Tepper Has a Large Cash Position, Update on Appaloosa's Q2 Holdings

David Tepper (Appaloosa Mgmt)
Yesterday, an article in Institutonal Investor mentioned that David Tepper, founder of $15 billion hedge fund Appaloosa Management, was 30-40% in cash.

"Sources say he has gone 30 percent to 40 percent in cash, which is very high for him. Some of his cash is invested in U.S. Treasuries, which have in turn risen in value in recent weeks."

"Word is he will remain cautious until there is improvement in the European bank crisis." (continue reading)

This doesn't surprise me. On 6/13/2011 he told CNBC:

"Basically Bernanke said no QE3. If SPX is down a couple hundred points and financial conditions tightened maybe they would reconsider. There is no logic to QE3 now and the only result might be more food and energy inflation. We're in a difficult investing environment."

In the Aftermath of Fukushima, Germany's Renewable Energy Sources Rise to 20 Percent - Guest Post

Wind Farm In Neuenkirchen (Source: Wikipedia)
Guest post by OilPrice.com

In the Aftermath of Fukushima, Germany's Renewable Energy Sources Rise to 20 Percent

The worldwide implications for nuclear power advocates in light of the 11 March disaster at Japan's Daichi Fukushima nuclear complex, battered first by an earthquake and a subsequent tsunami, are slowly unfolding.

Nations committed to nuclear power are being subjected to a relentless PR barrage by nuclear construction firms, who stand to lose billions if current contracts are suspended or, even worse, cancelled.

Despite the bland reassurances of the nuclear power industry that "it can't happen here," in Europe, Italy has canceled plans to construct nuclear reactors, while Germany's Bundestag last month passed a resolution to close all 17 of the nation's nuclear power plants. Seven NPP plants were immediately shuttered with the remainder to be passed out by 2022.

So, where to go for the juice?

Shifting gears since the beginning of the year, a trend accelerated by Japan's Fukushima debacle, in a statement released by the German Association of Energy and Water Industries (BDEW), commenting on renewable energy input to the country's national grid since January, "Renewable energies have crossed the 20 percent mark in Germany for the first time." Last year, Germany's green energy consumption totaled 18.3 percent of total demand.

2012 Republican Presidential Candidates Debate (Full Video, 9/7/2011)

Watch the full debate below on MSNBC.
"NBC’s Brian Williams and Politico’s John Harris moderate a debate between 2012 GOP presidential candidates live from the Reagan Presidential Library in Simi Valley, California."

Republican Candidates: Jon Huntsman, Rick Perry, Mitt Romney, Herman Cain, Michele Bachmann, Rick Santorum, Ron Paul and Newt Gingrich.

Links 9/7/2011 (Yahoo, Eurozone, Swiss Franc, Jim Rogers, Bill Gross)

Swiss Central Bank Move 'Huge Mistake': Jim Rogers (CNBC)

Swiss Franc Ceiling (1.20) May Not Heal Eastern Europe Mortgage Pain (Bloomberg)

In Euro Zone, Banking Fear Feeds on Itself (New York Times)
“This crisis has the potential to be a lot worse than Lehman Brothers,” said George Soros"

Bill Gross of PIMCO: ‘Helicopter Ben’ risks destroying credit creation (Financial Times)

Obama Said to Seek $300 Billion Jobs Package (Bloomberg)

CMA: Greece Cumulative Probability of Default is 88% (PragCap)

Albert Edwards Says It's Time To "Stiffen Up The Sinews, Summon Up The Blood, And Gird Your Loins" (Business Insider)

Chris Whalen: Bank Of America Should Declare Bankruptcy (Business Insider)

2-Year Greek Bond Yields 50%, 10-Year Treasury Yields 1.93% (Both At Records)

2-year Greek Government Bonds yield 50% which is a record high. Is it pricing in a default? The cost of insurance on 5Y Greek debt is testing the July highs at 2,500 bps (Greek 5Y CDS). The 10-year U.S. Treasury Note yield is at 1.93% which is a record low. See my previous post on 8/15/2011: "10 Year Treasury Note Yield Near 1941, 2008 Lows (1.95%, 2.04%)". Investors are rushing into Treasury bonds as a safe haven to hedge against recessions and euro-zone default risk, unless there's a war coming somewhere. This UBS report at Zero Hedge probably has the answers: "Bring Out Your Dead - UBS Quantifies Costs Of Euro Break Up, Warns Of Collapse Of Banking System And Civil War". Watch gold and the U.S. Dollar. Is China going to save the euro-zone and European banks?

3-year chart of 2-year GGB Yield (courtesy of Bloomberg.com)
 


Intraday chart of 10-year UST Yield (Courtesy of Bloomberg)

Hussman: Under Extreme Secular Undervaluation S&P Hits 400

John Hussman
John Hussman, of Hussman Funds, had an interesting Weekly Market Comment out last week (there's a new one out tonight) that included a range of S&P targets based historical "prospective returns". He also thinks there's a possiblity that the S&P could revert back its secular valuation lows, with the potential of overshooting. He's not alone, Felix Zulauf sees the S&P reverting back to book value. In this case, Hussman values the S&P 500 between 600 and 1000 based on the historical prospective returns listed below; but under extreme secular undervaluation and/or macroeconomic conditions, he thinks the S&P could hit 400!

"Historically, the typical bull-bear market cycle has produced a range of 10-year prospective returns in a band between about 7.5% and 13%. That band presently corresponds to a range for the S&P 500 index between 600 and 1000. A 10% prospective return is right in the middle, at about 800 on the S&P. Once you recognize that profit margins are in fact cyclical, that range is about right, as uncomfortable as it may be to contemplate. Jeremy Grantham of GMO estimates that fair value is "no higher than 950." A tighter norm for prospective return between 9-11% maps to an S&P 500 between 750 and 850.

Finally, while I certainly would not expect it in the absence of extreme macroeconomic upheaval, major secular undervaluation as we observed in 1950, 1974 and 1982 would presently map to about 400 on the S&P 500. When you think of "once in a generation" valuations and "secular bear market lows" - that number, not anything near present levels, should be what crosses your mind. I am well aware that even discussing numbers like these, given the present mindset of investors, is likely to be dismissed as utterly ridiculous. Frankly, I would rather risk the ridicule of those who pay lip-service to research, cash flows, fundamentals, and value than to pretend these outcomes are impossible, when the historical record (and even the experience of the past decade) strongly indicates otherwise." (continue reading at HussmanFunds.com)

Links: Euro Crisis, Post Office Crisis, Employment Crisis, Banks Sued By US, China Services PMI

LaSalle Street Chicago (Flickr)
Crisisfest for 9/5/2011

The worst of the euro crisis is yet to come (Financial Times)

HSBC China Services PMI (Markit Economics)
"August data pointed to another marginal expansion of Chinese private sector activity, with the headline seasonally adjusted HSBC Composite Output Index recording 50.4. The index was unchanged on July’s 28-month low, and much lower than the long-run trend for the series"

Postal Service Is Nearing Default as Losses Mount (New York Times)
"the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances."

ABN Amro Complains About Interbank Liquidity Crunch, As CEO Says End Of Euro Would Make 1930s Seem Like "A Trifle" (Zero Hedge)

Senior IMF Official - "I Expect A Hard Greek Default This Year" - Chart of 3-month USD LIBORs (Zero Hedge)

Here It Is: Presenting Goldman's "The World Is Ending So Let's All Profit" Report (Zero Hedge)

SPY, SPX, and ES_F — charts do not get much clearer or uglier than these (Peter Brandt)

Another Historic, Incredibly Boring Bond Market Event! (10-year yield below 2%, 1950 level) (WSJ Market Beat Blog)

ECB's Coene says crisis heading to 2008/9 level: report (International Business Times)

BofA, JPMorgan Among 17 Banks Sued by U.S. for $196 Billion (Bloomberg)

FHFA Sues 17 Firms to Recover Losses to Fannie Mae and Freddie Mac (FHFA Statement)
"Ally Financial Inc. f/k/a GMAC, LLC, Bank of America Corporation, Barclays Bank PLC, Citigroup, Inc., Countrywide Financial Corporation, Credit Suisse Holdings (USA), Inc., Deutsche Bank AG, First Horizon National Corporation, General Electric Company, Goldman Sachs & Co., HSBC North America Holdings, Inc., JPMorgan Chase & Co., Merrill Lynch & Co. / First Franklin Financial Corp., Morgan Stanley, Nomura Holding America Inc., The Royal Bank of Scotland Group PLC, Société Général.."

David Rosenberg on the employment report, recession and Fed (Bloomberg Video)

El-Erian Calls U.S. Employment Report ‘Grim and Scary’ (Bloomberg Video),

Non-Farm Payroll Report (BLS.gov)
"Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent. Employment in most major industries changed little. Health care continued to add jobs; a decline in information employment reflected a strike. Government employment continued to trend down."

California Employment at Record Low (Bloomberg)

Unemployed face tough competition: underemployed (AP)

Nouriel Roubini Sees 60% chance of Recession Next Year (Bloomberg Video/ Baltimore Sun Blog)