Euro Rallies After EU Leaders Loosen Bailout Policy at Euro Summit

Read this AP article for details on the Euro summit. Like monetary policy, it looks like EU leaders agreed to loosen bailout policy to make future bailouts more efficient. Here are the big changes.

1. Bailout funds can now recapitalize banks directly.
2. EU countries following budget rules can now apply for bailouts without "stringent conditions."
3. EU leaders agreed on “the four building blocks” of a tighter European Union (more details in October).

The euro initially spiked to 1.2626 on the news but is now trading at 1.2591. I think EUR/USD needs to break through that 1.2624 ceiling resistance level (multi-month low on 1/13/2012, second chart) to attempt a rally to 1.29 (downtrend resistance) in the near-term.

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Roubini Compares Eurozone Crisis to 1931, Warns of Depressions (Bloomberg Video)

source: Bloomberg.com

Economist Nouriel Roubini (aka Dr. Doom since he called the 2008 crisis) was very doom and gloomish on the periphery of the Eurozone on Bloomberg TV yesterday. He thinks that the euro "may turn disorderly in the next few months" and recessions could turn into depressions ("Japan but worse") if Germany doesn't backstop Italian and Spanish sovereign debt. He compared the Eurozone crisis to Europe in 1931 before Austrian bank Creditanstalt failed and fueled a global financial crisis. He runs Roubini Global Economics.

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JPMorgan Trading Loss May Reach $9 Billion

"Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation." (NYT) **Teri Buhl reported this on 6/26

Again, listen to JPMorgan CEO Jamie Dimon explain how the firm's chief investment office (CIO) lost billions (initially $2 billion + another billion during Q2) on trades in its synthetic credit portfolio.

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Soros: This Euro Summit Will Decide if the Euro Breaks Down (Bloomberg TV Interview)

source: Bloomberg.com

George Soros was interviewed by Bloomberg TV's Francine Lacqua on June 25 (watch the 43 minute interview below) and said he believes this Euro summit (June 28-29) will decide the fate of the Euro.

"We are sort of at the crossroads. I think this summit is more important than all the previous summits because what the previous summits have done have been to delay the issue and not to resolve it. And by delaying it, actually the problem got bigger and bigger. So, the idea that the euro actually might break down really a few months ago was pretty much inconceivable. Now it's a real possibility. So, by delaying it, the problem got bigger and bigger. And if you delay it again, as I said one of two things would happen. One: that the euro would break down. But that's actually unlikely because a breakdown of the euro would be very very expensive and destabilizing. And it would be particularly expensive and destabilizing for Germany because Germany is currently sort of the best performing economy, therefore it has the most to lose. And also it has the greater creditor status. And since the inter-bank market has broken down, all the capital flight from the weaker countries has created a claim that the Bundesbank has against the Central Banks of the weaker countries as part of the euro clearing system."

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Iran Finds Oil In Caspian Sea - Guest Post By OilPrice

source: Flickr

Guest post by Daniel Graeber of OilPrice.com

Iran Hunting for Dragons in the Caspian Sea

Iran announced this week that it's made its first oil discovery in the Caspian Sea in more than 100 years. The semiofficial Fars News Agency reports the find, in ultradeep waters, may hold the equivalent of 7 percent of the country's known national reserves. Iran has touted its ability to continue with domestic energy production, notably in the South Pars natural gas field in the Persian Gulf, despite international sanctions targeting its energy sector. In the Caspian, however, Iran's recent claims may put it at odds with its neighbours over their rights in disputed territorial waters.

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SEC: Philip Falcone and Harbinger Charged with Securities Fraud

Source: CSPAN (2008 House Committee
hearing on hedge fund regulation)

Philip Falcone, founder of the hedge fund Harbinger Capital Partners, which tried to make bank on 4G play LightSquared before it went bankrupt, was just charged with securities fraud by the SEC "for illicit conduct that included misappropriation of client assets, market manipulation, and betraying clients". An alleged illegal short squeeze in high yield bonds in 2006! Very efficient over-the-counter bond markets we have. Are all bonds on exchanges yet with options? He hasn't been convicted of anything yet, but it's interesting that 4-5 years ago he was one of the top hedge fund managers that profited immensely from the housing and financial crisis, and testified before the House Committee on hedge fund regulation in November 2008 with other billionaire hedgies John Paulson, George Soros, Ken Griffin and James Simons. Full SEC release below.

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Stockton, California is the Largest U.S. City to Go Bankrupt

The day has finally come.

Source: http://www.stocktongov.com/files/News_2012_6_26_PendencyPlanApproved.pdf

STOCKTON CITY COUNCIL ADOPTS PENDENCY PLAN

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How to Reinvent Internet Advertising (TechWeek Panel)

AT&T ad on HotWired.com in 1994 (first banner ad)

In the video below, a panel at the 2012 Chicago TechWeek conference discussed how brands (via internet advertising) are having trouble assimilating with the new era of social media. They laid out the main reasons quite well: 1) brands see social media as a huge risk, and 2) the old internet ad model still does the job so they don't want to deal with change. I think they are leaving money on the table and can make hedge fund-type returns on their investment (ROI). In my opinion, ad budgets should work directly with online media channels and publishers (via third parties) to provide premium sponsorship via a free quasi-subscription-based model. Everything would still be free for the user or reader on a site, but ad dollars would be more customized and premium in nature. Instead of bombarding readers with a bunch of random ad banners based on search algorithms and/or browser cookies to fill inventory across the internet, and hoping for clicks or eyeballs that are mostly accidental anyways, companies could purchase content for a user or reader directly (via their marketing budgets) and gain the respect as a premium direct sponsor. In return, the company, or a team of companies, would be an exclusive ad partner and would own/control the ads for a certain period of time. Ad pricing would still depend on an open market like everything else, but I think it would prevent wasteful spending and possibly more interest in the sponsors.

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Chemical Activity Barometer Has Been Falling Since April, Leads NBER By 8 Months On Average

First off, hat tip to Bloomberg.com for introducing me to this indicator. View their interactive chart comparing chemical activity to industrial production since 1990. The American Chemistry Council's Chemical Activity Barometer (CAB) has been falling month-over-month since April. Look at the table from their press release today. The ACC said CAB leads the NBER (National Bureau of Economic Research) by eight months on average. So another forward looking indicator to keep an eye on. The CAB also shows that "construction-related activity has weakened".

source: ACC

Here's more from the release:

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Moody's Downgrades 28 Spanish Banks on Commercial Real Estate Exposures, Sovereign Debt Downgrade

Source: Flickr

After Moody's downgraded Spain's sovereign debt on June 13, today they downgraded 28 Spanish banks. But remember, Spanish banks could receive a 100 billion euro bailout loan from the European Financial Stability Facility/European Stability Mechanism on July 9 if euro zone finance ministers sign the agreement, which could then put senior bondholders at risk (FT). Watch out for more CRE losses. If interested, visit the Spanish Bank and Sovereign Debt Risk Monitor for links to Spanish government bond yields, bank CDS quotes, and the debt maturity schedule.

"Today's actions reflect, to various degrees across these banks, two main drivers:

(i) Moody's assessment of the reduced creditworthiness of the Spanish sovereign, which not only affects the government's ability to support the banks, but also weighs on banks' standalone credit profiles, and

(ii) Moody's expectation that the banks' exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support."

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European Debt Crisis: "Imagine the Worst and Double It" - Elliott Wave International

Here's a syndicated post by Elliott Wave International. See EW's charts of Spanish loan delinquencies and "total Italian bad debt." By the way, 28 Spanish banks were downgraded today.

European Debt Crisis: "Imagine the Worst and Double It"
Just how will the sovereign debt crisis end?
June 20, 2012

By Elliott Wave International

We've all heard the line: Let me give it to you straight.

And in speaking to his counterparts in Spain, an Irish economist did just that.

Ireland has this banking advice for Spain: imagine the worst and double it. [emphasis added]

Like Ireland, Spain sought a bank bailout after being felled by a real-estate crash. Now, just as the Irish did, the Spanish are awaiting the results of outside stress tests gauging the size of the hole in the banking system.

Bloomberg, June 14

Stress test or no, EWI's Global Market Perspective has known that Spain's banking system is frail. In May, the publication gave its subscribers this chart-supported insight:

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Citigroup's Fitzpatrick Sees Stocks Following 1976-78 Bear Market, Gold Rising to $2,000+, EUR/USD Falling

Tom Fitzpatrick, Citigroup's Global Head of Foreign Exchange Technicals, had interesting views on the Dow Index, EUR/USD and gold on CNBC's Fast Money on June 18, 2012. Watch the video after the jump.

1) Bearish on EUR/USD:

source: CNBC.com

"Our bias on the euro is that we're going to see it move an awful lot lower. Not just this year, but possibly over the next couple of years. In terms of this year we've had a view since the start of the year that we could be going down to at least 1.20. Possibly as low as 1.10 to 1.15. We still think that's achievable within this calendar year. Actually over time we think it's quite possible we could see a move down that could take eventually take the euro down below parity against the U.S. Dollar."

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Dr. Michael Burry's Speech at UCLA Economics 2012 Commencement

Former hedge fund manager Dr. Michael Burry ("The Big Short"), who was the first hedge fund manager to short subprime mortgage-backed securities via credit default swaps from his home office in California in 2005-6, courtesy of the TBTF banks that made it all possible!, gave a speech at the UCLA Economics 2012 commencement on June 18. Unfortunately, Burry thinks the U.S. has unfinished business to attend to.

"You started your term at UCLA in the midst of a global financial panic. The consequences of which are far from settled."

"As a result of what happened while you were growing up, you now face a future that will feature either another great recession during your 20s, or during your 40s, a U.S. debt/GDP ratio exceeding 200%. And that's not me, that's the Congressional Budget Office. Me, I think they are ignoring reflexivity, and I think you face both."

Nice, he dropped some reflexivity on them. I wonder how he's positioning for the next great recession. In September 2010, Burry thought gold, farmland with water on site, special situations in distressed real estate, and small tech in Asia were attractive investments.

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BIS: Balance Sheets Threaten Sustained Global Growth (Charts)

Source: BIS (from below)

The Bank for International Settlements had its 2012 annual meeting in Basel, Switzerland this weekend and released its 82nd Annual Report, which pointed out that public and private sector balance sheets need to be managed appropriately during this deleveraging cycle or they will put global growth at risk. So, how long will advanced economies stay at the zero bound? Here's more from the press release (It's time to break the vicious cycles, says BIS in 82nd Annual Report):

"Five years on from the outbreak of the financial crisis, and the global economy is still unbalanced, seemingly becoming more so as interacting weaknesses continue to amplify each other. The goals of balanced growth, balanced economic policies and a safe financial system still elude us.

The Report points out that the financial sector, governments, and households and firms need to repair their balance sheets: "the financial sector needs to recognise losses and recapitalise; governments must put fiscal trajectories on a sustainable path; and households and firms need to deleverage. As things stand, each sector's burdens ... are worsening the position of the other two."

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Groupon Co-Founder Eric Lefkofsky Interviewed By Thinkorswim Co-Founder Tom Sosnoff on TastyTrade

I watched Tom Sosnoff, co-founder of online brokerage firm Thinkorswim (bought by TD Ameritrade in January 2009 for $606 million), speak about entrepreneurship and selling opportunities at the Chicago TechWeek Conference on Friday online (goes on until Tuesday). He now runs the financial media company TastyTrade, and I saw that he interviewed Groupon and LightBank co-founder Eric Lefkofsky on June 13. Watch the videos below.

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Live Video of 2012 Chicago TechWeek Conference (June 22-26)

source: TechWeek

Since Chicago is the new Silicon Valley, watch the Chicago TechWeek Conference live below from June 22-26. I embedded the live stream and video archive. Visit Techweek.com as well, and they are also on Twitter. Maybe an entrepreneur at this conference can break us out of this ZIRPflationary economic environment. I also embedded the NY Tech Meetup on June 5, which had interesting companies.

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Moody's Downgrades Too Big to Fail Banks (BAC, MS, CS, C, DB, RBS, GLE, HSBC, BNP, UBS, GS, ACA, JPM, BCS, RBC)

Credit Suisse in NYC

Moody's downgraded a bunch of TBTF banks yesterday, which was expected given that Moody's put them all on review in February. But, as the SF Gate article pointed out, bank credit rating downgrades affect how counterparty and collateral risk is managed when dealing with OTC derivative contracts. The TBTF banks can't fail because they are on the other side of trillions of dollars of OTC derivatives that are supposed to be managing risk for large financial institutions, corporations, hedge funds, governments, and other TBTF banks globally.

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PIMCO's Gross: "Risk Markets at Risk as Monetary Bag of Tricks Empties" (via Twitter)

Uh oh... (hat tip Bloomberg News)

Gross: Risk markets at risk as monetary bag of tricks empties.
— PIMCO (@PIMCO) June 21, 2012

The S&P is Down 1.5% on Global ZIRP Deflationary Forces (ZIRPflation)

source: freestockcharts.com

The S&P is down 1.5% (SPY) after QE wasn't announced by the Fed; serious risks still remain with the euro and global economy; the Philly Fed manufacturing index collapsed in May; Moody's might downgrade 17 major banks; fiscal cliff risks remain at the end of the year; and people couldn't access Twitter today. SPY, the S&P ETF, might be in for the next wave down here. I'm not going to say that a cyclical bear market has officially been confirmed, but there's nothing wrong with bearish bias, technically. SPY couldn't break above the 50 day moving average recently, so if market gravity still exists in this ZIRP deflationary world supported by Central Banks, SPY could retest the 200dma and June 4 low of 127. It is interesting that gold is getting killed as well.

ZIRPFLATION.

Breaking: Twitter is Down

Breaking News: Twitter is down. Follow me on Google+.

Fitch: High Yield Default Rate Clears 2% in May, First Time Since October 2010

Here's a link to Fitch's U.S. High Yield Default Insight for May 2012. You can view this report with a free login. It is packed with charts of HY credit trends (see HY corporate bond spreads and the high yield distress ratio below).

"HY Default Rate Clears 2%, Secured Bonds Lift Recovery Rate to 56.9%

The trailing 12-month U.S. high yield default rate rose to 2.2% in May, topping 2% for the first time since October 2010. The funding environment for the weakest companies in the high yield universe began to sour in the summer of 2011 and has continued in 2012.

The share of ‘CCC’ or lower rated bonds trading at the distressed level of 80% of par or lower remains significant at $55 billion.

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The Increasing Threats to Global Energy Supplies - An Interview with Jellyfish - Guest Post

Source: L.C.Nøttaasen on Flickr

Guest post by Jen Alic of OilPrice.com

The Increasing Threats to Global Energy Supplies - An Interview with Jellyfish

As global energy supplies come under increasing attack by non-state actors and private energy holdings become key targets of political maneuverings and criminal activities, Oilprice.com discusses the nature of the growing threat and how to reverse the risk with "smart power."

To help us look at these issues we got together with Corporate intelligence specialists Jellyfish Operations and security expert Jennifer Giroux.

Michael Bagley is the president of Jellyfish, a global boutique intelligence firm that combines on-the-ground intelligence collection and analytics with an unprecedented country-to-country economic diplomacy program that helps governments, corporations, institutions and private individuals forge secure partnerships, discover new opportunities and mitigate operational risks.

Jennifer Giroux is a global security expert who specializes in emerging threats to energy infrastructure in conflict-affected regions.

In the Interview Michael & Jennifer talk about the following:

• Why the risk to global energy supplies is increasing
• Violent entrepreneurialism: Why piracy is on the rise
• The most immediate threats to global energy security
• Which countries are most likely to see attacks in the future
• Why Saudi Arabia could be the next country to have its energy infrastructure come under attack
• Why energy companies assets are becoming key targets.
• How energy companies can create opportunities in Conflict-Affected Regions
• Why companies need more than just intelligence to operate in hostile environments

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The Making of Kurdistan: Oil, Investment and a Turkish Gamble - Guest Post

Kurdistan Oil (source: Kurdistan Photo / Flickr)

Guest post by Jen Alic of OilPrice.com

The Making of Kurdistan: Oil, Investment and a Turkish Gamble

As tensions rise among Iraqi Kurds in the country's north, Sunnis in the south and the Shi'ite-led government in Baghdad over the distribution of natural resources, Turkey is setting its sights on an unconventional alliance with the Kurdistan Regional Government (KRG).

This is a gamble Ankara is willing to take, despite the potential implications it could have for Kurds on its own territory. Indeed, as recently as 2009, Ankara had a very different view on the KRG, going as far as to label its leader, Masoud Barzani, a "bandit" who was turning a blind eye (at best) to Kurdish militants using Northern Iraq as a base to launch cross-border attacks on Turkey. The Kurdistan Workers Party (PKK) has been fighting the Turkish government for more rights for decades.

So when Ankara began announcing a series of bilateral deals with the KRG (deals that went above Baghdad's head), everyone's first question was why would Turkey want to align itself with an Iraqi Kurdish leadership that is clearly making a play to create a sovereign Kurdish state?

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UK CPI Falls to 2.8% in May (YoY), Lowest Increase Since 2009; UK in Double Dip Recession

UK's CPI for May 2012 was up 2.8% year-over-year, the lowest increase since November 2009. It peaked at 5.2% in September 2011. The UK has been in a recession for a few quarters now. GDP growth was -0.3% in Q4 2011 and Q1 2012 (revised). On June 7, 2012, the Bank of England maintained the bank rate at 0.5% and the size of their asset purchases program at £325 billion.

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Gary Shilling's Views on Housing, Stocks and Treasury Bonds Haven't Changed Since 2006! (Videos)

Gary Shilling, president of A. Gary Shilling & Co., who was publicly bearish (and correctly so) on the U.S. housing market, stock market and economy, and bullish on the 30-year Treasury bond on CNBC's Kudlow & Company on November 27, 2006 (videos below), still has the same views in 2012. Gary Shilling believes that deflation is still the dominant force affecting the economy even after the U.S. government and Federal Reserve backstopped the collapse of the financial system and worst recession since the 1930s with trillions of dollars (and continues to do so). He told Bloomberg TV on June 5, 2012 that he expects home prices to fall by another 20%, the S&P 500 to fall to 800 when EPS (earnings per share) falls to 80 with a P/E multiple of 10, and the 30-year Treasury bond yield to fall to 2% (price to rise).

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Links: Sovereign and Muni Downgrades (June 14, 2012)

S&P says recovery in Spain implies a 25% fall in house prices (Reuters)

Egan-Jones downgrades France to BBB+ (BloombergBusinessweek)(Sean Egan on CNBC's Fast Money)

Moody's downgrades Dutch banking groups; most outlooks now stable (Moody's)

Moody's Slashes California TABs to Junk (BondBuyer)

Moody's downgrades to Ba1 all California TABs rated Baa3 or above, reflecting sharply increased uncertainty of continued, timely cash-flow for debt service payments; all TAB ratings remain on review for possible withdrawal due to insufficient information (Moody's)

Moody's cuts Detroit ratings deeper into junk (Reuters)

Stockton Deadline Nears, Moody’s Warns of Defaults (BondBuyer)

ECB Tells Court Releasing Greek Swap Files Would Inflame Markets (Bloomberg)

Moody's downgrades Banque et Caisse d'Epargne de l'Etat LT ratings to Aa1 (Moody's)

Italian sovereign debt exposure was 53% of the bank's Tier 1 capital (EUR980 million / 1.8 billion).

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Spanish 10-Year Bond Yield Hits 7% After Credit Downgrades

After Egan-Jones downgraded Spain's government bond rating to CCC+ from B yesterday, and Moody's downgraded Spain to Baa3 from A3 (and Cyprus to Ba3), the Spanish 10-year government bond yield hit 7% this morning, which is a level where Greece, Italy and Ireland got bailouts. Egan-Jones believes there will be full-scale bailouts for Spain and Italy in 6 months. On June 9, Eurozone finance ministers agreed to a 100 billion euro bailout for Spanish banks via the EFSF/ESM. Watch out for sovereigns and banks on bath salts (contagion risk).

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Iran Looks to China and Russia for Military Support as Pressure from the West Increases - Guest Post by OilPrice

Heads of the Shanghai Cooperation Org Member States 6/2012 (Kremlin.ru)

Guest post by John C.K. Daly of Oilprice.com

Iran Looks to China and Russia for Military Support as Pressure from the West Increases

Beset by rising rhetoric about a possible Israeli attack against its nuclear facilities, Iran is seeking full membership in the Shanghai Cooperation Organization as an additional layer of international diplomatic "life insurance." On 12 November 2011 Iranian Supreme National Security Council's Secretary Assistant Ali Bageri said that Iran is seeking full membership in the SCO, upgrading its current observer status, telling journalists in Moscow, "We have already submitted a relevant application."

Now, Iran has gotten an endorsement from the SCO about the unacceptability of force - sort of.

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CNBC Partners With Yahoo Finance

Big news for financial media. CNBC is partnering with Yahoo Finance. Finally, some big news for Yahoo Finance. So what will Bloomberg do next? And what will happen with Business Insider?

Yahoo!, CNBC Announce Online Alliance

"Beginning Wednesday, CNBC will be the premier content provider for Yahoo! Finance, dramatically increasing its presence on the site, which attracts an audience of close to 40 million a month. The Yahoo! Finance audience will notice immediate changes to the homepage, where CNBC news articles, video clips and analysis pieces will be more prominently featured. This content will also be featured across other Yahoo! properties." (source: Yahoo Finance)

Press Release: CNBC AND YAHOO! FINANCE ANNOUNCE STRATEGIC CONTENT, PROGRAMMING AND DISTRIBUTION ALLIANCE (CNBC.com)

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S&P Tests June 8 Low After Spanish Bank Bailout Optimism Fades (Chart)

The market did not care about the EUR 100 billion Spanish bank bailout. Next up, the Greek election on June 17 to see if they leave the eurozone, and the Fed's FOMC meeting on June 19-20 to see if there's another round of QE. The S&P is now testing the low on June 8.

S&P 500 (source: freestockcharts.com)

Hedge Fund Manager Felix Zulauf's Investment Ideas (June 2012)

Hedge fund manager Felix Zulauf, founder of Zulauf Asset Management in Switzerland, had interesting investment ideas at the Barron's 2012 Midyear Roundtable on June 9, 2012.

"I am sticking with my January recommendations. In the short-term, equity and commodity markets are making a low. They are oversold. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. But I see a cyclical bear market continuing well into 2013.

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30-Year Treasury Yield Tested 2008 Crisis Low (2.5%), S&P Says 1/3 Chance U.S. Gets Downgraded Again By 2014 ($TYX)

In a press release on Friday, Standard & Poor's affirmed its 'AA+' credit rating and negative outlook on U.S. sovereign debt, and warned there was a "one-in-three" chance of another downgrade by 2014 if U.S. debt kept rising as a percentage of GDP and there was no fiscal consolidation in the "medium-term."

Remember when S&P downgraded the U.S. to AA+ on August 5, 2011 and the market crashed after Congress raised the debt ceiling and passed the Budget Control Act? Something to keep an eye on. U.S. gross debt/GDP is currently 101.9% (15.7 trillion/15.4 trillion). Here are S&P's views on U.S. net debt/GDP:

"we expect net general government debt, as a share of GDP, to continue to rise, from 77% in 2011 to 83% in 2012 and 87% by 2016. These expectations are in between those of our base-case scenario of August 2011 (74% in 2011 and 79% in 2015) and those of our downside scenario of the same date (74% in 2011 and 90% in 2015), keeping the U.S. at the high end of our indebtedness range and highlighting the deterioration in our expectations since last summer."

30-year Treasury Bond Yield (index)  (StockCharts.com)

Going forward, it will be interesting to see what catalyst triggers a flight from Treasury bonds and starts the upward trajectory in rates. Or if the U.S. sees structural deflation and lost decades like Japan and the 10-year Treasury yield trades between 0.5% and 2% for 15 years (currently at 1.63%). The 10-year JGB yield has been under 2% since 1997 (currently at 0.85%), while Japan's Debt/GDP ratio increased from 36% in 1997 to 137% today.  Here is a chart of the 30-Year Treasury Bond Yield (index), which recently tested the 2008 crisis low of 2.5%. 2.5% for a 30-year Treasury bond! You can make 0.8% a year in an FDIC insured online savings account! Of course, traders are not only parking money in Treasuries as a short term safe haven, they are also making money on the appreciation.

Here are S&P's views on the fiscal cliff, fiscal consolidation, political risks, Budget Control Act, U.S. Deficit/GDP and U.S. Debt/GDP (read the full release here):

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Eurogroup's Statement on Spain's EUR 100 Billion Bailout to Recapitalize Banks

Source: Flickr (Images_of_money)

Today, EU finance ministers announced that they will (after a formal request) lend Spain EUR 100 billion ($125 billion) from the EFSF/ESM bailout fund to recapitalize its banks.

"The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request. The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total."

Not much of a surprise here. Read the full statement below. Here are a few articles as well.

*Euro zone agrees to lend Spain up to 100 billion euros (Reuters)
*Spain Seeks EU’s Fourth Bailout With $125 Billion Request (BusinessWeek)
*Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout (Zero Hedge)
*Finland Wants Collateral For Spanish Bank Aid From EFSF (Bloomberg)

"9 June 2012

Eurogroup statement on Spain

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Robert Prechter Makes a Huge Call on Treasury Bonds (Video)

CBOE 10-year Treasury Yield Index (freestockcharts.com)

On June 4, Robert Prechter, founder of Elliott Wave International, told Lauren Lyster on RT's Capital Account that he is still very bearish on the stock market, which he sees making a major secular low in the next four years. But, he also thinks Treasury bonds are in the process of topping out (yields bottoming), which is interesting because he still thinks we are headed for a deflationary depression!

In the beginning of the interview, Prechter explained why he believes credit risk will rise across all bond classes (from high yield bonds to munis). And he even thinks credit risk will eventually spread to Treasury bonds, which means he thinks credit downgrades will eventually matter and printing money won't help a solvency crisis. Right? His call makes sense that the thirty year bull market in Treasury bonds is in the process of topping out (or yields in the process of bottoming, see the chart), but what will be the catalyst that brings bond vigilantes to the Treasury bond market during a deflationary depression?

Here is Robert Prechter making the case that Treasury yields are bottoming out.

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News: Fitch Downgrades Spain Again, China Cuts Rates, Fitch Warns U.S., Germany to Save Spain? (6/17/2012)

Source: aidanmorgan (flickr)

First up, Spain was downgraded to 'BBB' from 'A' by Fitch Ratings (down three levels):

Fitch Ratings-London-07 June 2012: Fitch Ratings has downgraded Spain's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BBB' from 'A'. The Short-term IDR has also been downgraded to 'F2' from 'F1'. The Outlook on the Long-term IDRs is Negative. Fitch has simultaneously affirmed the common Euro Area Country Ceiling for Spain at 'AAA'.

The downgrade of Spain's sovereign ratings by three notches reflects the following factors:

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Spain's El Corte Inglés Cuts Prices on 4,500 Products By 20% (Retail)

Source: simbiosc (flickr)

With Spain in all kinds of crises right now (sovereign debt, employment, banking, economic, etc), it's interesting to see what is happening on the field. El Corte Inglés, one of Spain's largest department stores, is cutting prices on 4,500 food and drug items by 20% to compete with its rivals Carrefour and Mercadona. And because people think their products are too expensive.

This company is huge. In 2010 it had a "consolidated turnover" or revenues of 16.413 billion euros, gross operating profit (EBITDA) of 1.017 billion euros, and consolidated net profit of 319.41 million euros (datos económicos).

Telecinco.es  (translated):

For this, the distribution group cut their margins, consolidate its purchasing center and optimize its internal processes. "We've lowered our margins because we are completely sure that the customer will react and gain in volume," said the director of group purchasing power, Victor del Pozo, who has estimated that sales will grow in a "significant".

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Janet Yellen: Additional Asset Purchases Possible If Recovery Slows

Janet Yellen's speech (6/6/2012) - federalreserve

In a speech yesterday, Federal Reserve Vice Chair Janet Yellen said she was in favor of "further policy accommodation" and perhaps another round of QE or Operation Twist if headwinds affect the economic recovery. The next FOMC meeting is on June 19-20, and tomorrow Fed Chairman Ben Bernanke testifies before the U.S. Joint Economic Committee at 10:00am on the U.S. economy. Question: Can QE (quantitative easing) push up the stock market even during a recession and EPS capitulation? That would be impressive.

"Conclusion
In my remarks this evening I have sought to explain why, in my view, a highly accommodative monetary policy will remain appropriate for some time to come. My views concerning the stance of monetary policy reflect the FOMC's firm commitment to the goals of maximum employment and stable prices, my appraisal of the medium term outlook (which is importantly shaped by the persistent legacy of the housing bust and ensuing financial crisis), and by my assessment of the balance of risks facing the economy. Of course, as I've emphasized, the outlook is uncertain and the Committee will need to adjust policy as appropriate as actual conditions unfold. For this reason, the FOMC's forward guidance is explicitly conditioned on its anticipation of "low rates of resource utilization and a subdued outlook for inflation over the medium run."23 If the recovery were to proceed faster than expected or if inflation pressures were to pick up materially, the FOMC could adjust policy by bringing forward the expected date of tightening. In contrast, if the Committee judges that the recovery is proceeding at an insufficient pace, we could undertake portfolio actions such as additional asset purchases or a further maturity extension program. It is for this reason that the FOMC emphasized, in its statement following the April meeting, that it would "regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.""

Read the full speech here with slides.

Money Velocity Has Been Falling Since 2010 (GDP/M2, GDP/MZM)

Nominal GDP/MZM and Nominal GDP/M2 (source: St. louis Fed)

The velocity of money (nominal GDP/M2 or nominal GDP/MZM) has been falling since 2010, which means the boost in M2 from 8.4 trillion in January 2010 to 9.8 trillion today hasn't translated into GDP growth. M2 = M1+ savings deposits, time deposits, and retail money market funds. MZM = M2 less small-denomination time deposits plus institutional money funds (St. Louis Fed).

In other words, via the St. Louis Fed:

"velocity is a ratio of nominal GDP to a measure of the money supply. It can be thought of as the rate of turnover in the money supply--that is, the number of times one dollar is used to purchase final goods and services included in GDP."

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FED WATCH: Next Meeting is on June 19-20 (Links)

*Two Fed officials cool to more easing (Reuters)
*Fed Considers More Action Amid New Recovery Doubts (WSJ)
*Evans Sees Need for 'Extremely Strong' Accommodation by Fed (Bloomberg)
*Fed's Bullard: Weak May Jobs Report Doesn't 'Substantially Alter' Outlook (Dow Jones)
*Fed's Fisher questions need for more policy action (Reuters)
*Fed(wire) to the rescue (FT Alphaville)

Other news:
*The TIPS curve has become inverted (Sober Look)
*ECB to keep pressure on governments, could signal rate cut (Reuters/CNBC.com)
*Fed's Rosengren: "Further Monetary Policy Accommodation is Appropriate and Necessary" (DistressedVolatility, 5/31/2012)

JPMorgan's Thomas Lee on When to Buy Stocks (VIX, SPX, SPY)

source: CNBC.com

On CNBC yesterday, JPMorgan's chief U.S. equity strategist Thomas Lee had positive views on the jobs report even though it missed analyst estimates, but I think his views on the market were more important. When CNBC's Simon Hobbs asked him if "now was the time to buy", Lee replied:

"I think we are getting close, Simon. I think the things we just haven't seen yet is capitulation. You know, I think we need to see the VIX (volatility index) get to that 30 to 40. We need to see the percentage of stocks trading above the 200 day drop to that 10 to 20% level. So, a real sign of a washout.

Overall he is bullish on U.S. stocks and the U.S. economy, which he's been since early 2009. Watch the CNBC video clip for more details. I also included charts of the VIX and % of NYSE stocks trading above the 200 day moving average with links.

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CHK's May Volume Matches October 2008 Spike

For those watching CHK (Chesapeake Energy), I thought this was interesting.

source: freestockcharts.com

Hussman on Market Valuations (June 4, 2012)

source: Business Insider

John Hussman, who manages the Hussman Funds, is sticking with his view that the market is overvalued in his weekly note.

"Valuations have improved marginally, but the market remains dramatically higher than levels typically associated with run-of-the-mill bear market lows, not to mention secular ones.

I expect that the U.S. economy is presently entering a recession, which is global in nature. It is unlikely to respond meaningfully to monetary stimulus, which has already gone well past the point of diminishing returns, and on to the point of recklessness.

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Reports of Nabucco Pipeline's Death are Exaggerated - Guest Post by OilPrice

Source: Publics.bg (flickr)

Guest post by Daniel Graeber of Oilprice.com

Reports of Nabucco Pipeline's Death are Exaggerated

The refining director at BP caused a stir last week in Berlin when he was interpreted as saying the full version of the Nabucco natural gas pipeline was no longer an option for the consortium working in the Shah Deniz natural gas field in Azerbaijan. Wire services had reported that his statements meant Nabucco was effectively dead despite years of political maneuvering. Not so, said the European Commission, and several other players involved in the 2,149-mile project. It makes sexy headlines to sink a $10 billion ship, but there are plenty of reserves to keep Nabucco at least on standby.

By mid-May, proposals for Nabucco West, a smaller version of the original proposal, and the South East Europe Pipeline were sitting on the desk of BP's offices in Azerbaijan. By next month, the BP-led consortium managing the second phase of the Shah Deniz natural gas field in the Caspian Sea is expected to pick one of them.

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Raoul Pal: "2012 and 2013 Will Usher In The End" (Report)

Since Zero Hedge, Business Insider and now Glenn Beck are covering this, here is the doomsday report written by former co-manager of the GLG Global Macro Fund and Goldman Sachs alum Raoul Pal, who now writes a monthly global macro advisory newsletter at The Global Macro Investor. Zero Hedge mentioned that GLG Partners is one of the largest hedge funds in the world. Read the full report at Business Insider as a one page slide show.

"Raoul Pal expects a series of sovereign defaults, the "biggest banking crisis in world history", and asserts that we don't have many options to stop it." (Business Insider)

Here are interesting quotes from the slides:

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More on Soros' Call That Germany Has 3-Months to Save Eurozone, Spain's Prime Minister's Call For Banking Union, Key Dates to Watch (Bloomberg Video)

Today, Sara Eisen of BloombergTV (h/t Pension Pulse) showed a clip of George Soros saying that Germany has a "three month window" to save the euro, and mentioned that Spain's Prime Minister Mariano Rajoy is calling for a banking union to save its banks. She also mentioned key dates to watch. Pretty much sums up what's going on. By the way, $SPY is now up 0.14% and $GLD is down 0.21%.

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GLD, SPY, GLDSY React to Eurozone Crisis, Growth Slowdown (Charts)

After my quick update on GLD and SPY on March 15, it looks like SPY's breakdown was a decent signal for further downside, and GLD's support level ended up being rock solid for a bounce (for now). Of course, all of this set up GLD/SPY to break through its long-term downtrend line after a retest. The setup actually looked perfect on the GLDSY chart (Nasdaq OMX Alpha GLD vs. SPY).

There was downside risk for GLD, SPY and GLD/SPY all throughout March and April; but now with the possibility of Greece exiting the eurozone, banks going under in Europe, and the possibility of more bailouts (globally) and the Fed (*updates 6/4: primary dealer banks, Gartman) and ECB printing money, it made sense that GLD rallied (and broke out relative to SPY) in this deflationary, zero bound environment with growth slowing, in my opinion. But, can this gold rally last?

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Videos of Google's Project Glass, Sergey Brin Demoing Google Glass Prototype

via Gavin Newsom Show Video (below)

I came across a Forbes article today on Google's Project Glass today (5 Ways Project Glass Could Revolutionize Google TV) and wanted to check it out further. I found interesting videos on the new tech around the web. I first embedded Google's intro video of Project Glass on Youtube, and then found a video of Google co-founder Sergey Brin demoing a Google Glass prototype on The Gavin Newsom Show. Brin took pictures from his glasses during the interview. WOW, this is really interesting technology. Brin said he hopes to get the glasses out sometime next year, but it's still just a hope. Next up, hologram tech and communication, graphene tech, teleportation, household robots, and quantum dot solar paint, and the market will rally 5 fold in 5 years (imho).

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What is the Secret Plan to Save the Eurozone?

Articles I found.

Top Officials Drafting Master Plan For Euro Zone - Report (Dow Jones Newswires at Nasdaq)
Der Geheimplan für ein neues Europa/The Secret Plan for a New Europe (Welt.de)

Source: Flicker/Skley

"According to the newspaper "Welt am Sonntag" work van Rompuy, Barroso and Juncker Draghi on proposals for four areas: structural reforms, the banking union, a fiscal union and political union. So far, the work of the master plan is almost unnoticed by the public. These are the proposals that are brought together in the back rooms of the EU institutions, in itself. In the end, would create an entirely new Europe - where some of the 27 EU countries can." (Welt.de translated)

But then I read this at Bloomberg.com:

"Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday."

World Bank's Zoellick: "Summer of 2012 Offers an Eerie Echo of 2008"

Source: Flickr

Robert Zoellick is the president of the World Bank Group. Read his full article at worldbank.org.

"Eurozone leaders may be nearing a “break the glass” moment: when one smashes the pane protecting the emergency fire alarm. While those living in the eurozone building, especially those on the executive floors, will not want to hear an alarm, they had best read the instructions. Events in Greece could trigger financial fright in Spain, Italy, and across the eurozone, pushing Europe into a danger zone.

The summer of 2012 offers an eerie echo of 2008. Markets are signalling anxieties about a major asset class. In this round, eurozone sovereign debt has replaced mortgages as the risky investment. Banks are under stress. Depositors have not yet begun to run, but they are starting to jog. The European Central Bank, like the US Federal Reserve in 2008, has sought to reassure markets by providing generous liquidity, but collateral quality is declining as the better pickings on bank balance sheets are used up."

Gloom and doom.

Soros Sees Likelihood of Euro Surviving, But Germany Has Three Months to Decide!

Source: Flickr (WorldEconForum)

George Soros gave a speech yesterday on the euro zone crisis at the Festival of Economics in Trento, Italy and had two interesting predictions for the euro's endgame: 1) the euro will survive because a breakup, at least for now, would be too devastating for the periphery countries and Germany; and, 2) Germany has three months to decide the eurozone's fate. Does Soros's fund still own $2 billion of distressed European sovereign debt? Here's more from his speech:

"It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years’ time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. (It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

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Groupon's Market Cap is Near Google's $6 Billion Bid (GRPN)

With 643.4 million shares outstanding (Bloomberg statistics), if GRPN falls below $9.32, Groupon's market cap will be lower than Google's $6 billion bid for the company in 2010. With insiders now allowed to sell stock, GRPN is trading at $9.63, down 9.5%.

Source: freestockcharts.com

Global Zero Bound: 2-Year German Schatz Yield Goes Negative, 10-Year Treasury Yield Hits Record Low, 10-Year JGB Yield at Nine Year Low

Yesterday, the 2-Year German Schatz yield dipped below 0% after a bad Italian bond auction, and the 10-Year Treasury Bond yield hit a record low of 1.53%. This action shows how nervous investors are about Greek exit risk, the sovereign debt and banking crisis in Spain, and contagion risk spreading throughout the euro zone and planet. We are in a zero bound world right now. The 10-year Japanese government bond yield is at 0.83%, down from 0.85% on May 22 when Fitch downgraded Japan's credit rating. They see Japan's Debt/GDP ratio at 239% by the end of 2012. Here are charts for the blog archive. It can't last forever.

2-year German Government Bond Yield (Schatz) = 0.002% (at 0.01% right now)

Source: Bloomberg.com

10-Year U.S. Treasury Yield = 1.55%

Source: Bloomberg.com

10-year Japanese Government Bond Yield = 0.816%

Source: Bloomberg.com