The past week brought us history: on Tuesday, GETCO and Citadel's HFT algos were used by the Primary Dealers and the Fed to send the Dow Jones to all time highs, subsequently pushing it to new all time highsevery single day of the week, and higher on 8 of the past 9 days: a 5ish sigma event. But there is never such a thing as a free lunch. And here is the invoice: in the past 5 days alone, total Federal Debt rose from$16.640 trillion to $16.701 trillion as of moments ago: an increase of $61 billion in five days,amounting to $198,697,068 for every of the 307 Dow Jones Industrial Average points "gained" this week. Because remember: US debt is the asset that allows the Fed to engage in monetization and as a result, hand over trillions in fungible reserves to banks... mostly foreign banks.
The good news is that debt is no longer and issue, and only the level of the stock market matters. Because if the wealth effect at $16.7 trillion and a record DJIA is staggering, just wait until the Obama administration takes the debt to $22 trillion in under 4 years.
At that point, nobody will have ever ever have had more money. Sadly, at some point, all that money will be used to buy a loaf of bread....
The media's ecstatic read through of today's Nonfarm payroll beat can barely end: after all, a print of 236,000 on expectations of 165K, why that has to be great. Well, it is. Until one looks to the number from February 2012, which happens to be 271,000.
And even the Keynesians will agree that February follows January, which in 2013 was a downward revised 119,000. January 2012?311,000. Which in turn happened just as Europe was fixed again - after all who can forget the LTRO euphoria (and what happened after).
In other words, the first two months of 2012 saw a 582,000 increase in non-farm payrolls. In 2013: 355,000. But something else happened between February 29, 2012 and February 28, 2013... Oh yes, the US government issued some$1,198,397,883,967.30 in debt. Oh, and the Fed monetized about half of this amount, and virtually all of the Treasurys issued to the right of the ZIRP period (i.e., risky debt).
To summarize: $1.2 trillion in debt buys the US.... 61% of the jobs created a year ago. But at least the Dow Jones is at an all time high.
Who else can hardly contain their excitement at what the jobs number a year from today will reveal that yet another $1.2 trillion in debt will do to the US job market...
The France-based ratings agency has just joined China's Dagong, and US Moody's by Fitch-slapping Italy with a BBB ratings handle. Citing four main reasons: election results which and 'non-conducive' for further structural reforms, deeper than expected recession, greater than expected budget deficits, and a weak government less able to respond to shocks. But apart from all that, as we noted earlier, Italian stocks and bonds are bid.
BTP Futures not happy...
Via Fitch:
FITCH DOWNGRADES ITALY TO 'BBB+'; OUTLOOK NEGATIVE
Fitch Ratings-London-08 March 2013: Fitch Ratings has downgraded Italy's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BBB+' from 'A-'. The Outlook on the Long-term IDRs is Negative. Fitch has simultaneously affirmed the Short-term foreign currency IDR at 'F2' and the common eurozone Country Ceiling for Italy at 'AAA'.
KEY RATING DRIVERS
The downgrade of Italy's sovereign ratings reflects the following key rating factors:
The inconclusive results of the Italian parliamentary elections on 24-25 February make it unlikely that a stable new government can be formed in the next few weeks. The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession.
Q412 data confirms that the ongoing recession in Italy is one of the deepest in Europe. The unfavourable starting position and some recent developments, like the unexpected fall in employment and persistently weak sentiment indicators, increase the risk of a more protracted and deeper recession than previously expected. Fitch expects a GDP contraction of 1.8% in 2013, due largely to the carry-over from the 2.4% contraction in 2012.
Due to the deeper recession and its adverse impact on headline budget deficit, the gross general government debt (GGGD) will peak in 2013 at close to 130% of GDP compared with Fitch's estimate of 125% in mid-2012, even assuming an unchanged underlying fiscal stance.
A weak government could be slower and less able to respond to domestic or external economic shocks.
The 'BBB+' rating reflects:
- The rating remains supported by the relatively wealthy, high value-added and diverse economy with moderate levels of private sector indebtedness.
- Italy has progressed substantially over the past two years with fiscal consolidation. Public sector deficit was 3% of GDP in 2012, a result of 2.3pp fiscal consolidation in structural terms, according to the recent estimate of the European Commission.
- The fiscal measures already adopted should be sufficient to deliver a further narrowing of the budget deficit in 2013 despite the continuing recession. Fitch expects the deficit in 2013 to be around 2.5% of GDP. In structural terms, this would be close to the constitutional requirement of a balanced budget.
- Low contingent fiscal risks from the banking sector; an underlying budgetary position close to that necessary to stabilise the government debt to GDP ratio; and sustainable pension system underpins confidence in the long-term solvency of the Italian state.
- The Italian sovereign has demonstrated its financing flexibility and resilience during the crisis reflecting a strong domestic investor base and average duration of 4.74 years.
RATING SENSITIVITIES
The Negative Outlook reflects the following risk factors that may, individually or collectively, result in a downgrade of the ratings:
- Deeper and longer recession than currently forecast by Fitch that undermines the fiscal consolidation effort and increases contingent risks from the financial sector.
- Economic and fiscal outturns that reduce confidence that GGGD will be placed on a firm downward path from 2014, after peaking in 2013.
- Sustained deterioration in fiscal funding conditions with adverse implications for financial conditions for the private sector and public debt dynamics.
- Re-intensification of the eurozone crisis could lead to a direct increase in GGGD through contingent liabilities due to additional EFSF/ESM commitments and could further weaken the economy through a fall in external demand, weaker confidence and tighter credit conditions.
- Prolonged uncertainty over economic and fiscal policies, failure to comply with the constitutional requirement of balanced budget.
The current Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade. However, future developments that may, individually or collectively, lead to a revision of the Outlook to Stable include:
- Sustained economic recovery that supports ongoing fiscal consolidation.
- Confidence that the public debt to GDP ratio is on a firm downward path.
- Further structural reforms that enhance the competitiveness and growth potential of the Italian economy.
Financing conditions have been relatively benign in recent months. The potential backstop of external support from the ESM and ECB reduces the tail risk of a sovereign liquidity crisis for Italy and is supportive of the rating. While it remains uncertain under what conditions Italy would apply for official assistance, the request itself would be neutral for the rating.
KEY ASSUMPTIONS
The rating incorporates Fitch's assumption that the medium-term fiscal trajectory and commitments made by Italy under the Stability and Growth Pact and implied by the constitutional balanced budget amendments will be sustained by any new government.
Fitch assumes that Italy will start recovering in H213 from its deep recession as the large shocks causing the current recession (fiscal consolidation, tight financing conditions, and weak external demand) gradually fade away.
Fitch assumes that the contingent liabilities from the banking sector for the Italian government are limited. Nonetheless, if the recession is deeper and longer than currently anticipated, the risk that the government may be required to make further injections of capital, beyond the Monte dei Paschi recapitalisation, cannot be discounted.
Fitch maintains its assumption that medium-term potential growth is 1% even in light of structural reforms adopted over the last two years.
The current rating reflects Fitch's judgement that Italy will retain market access and, if needed, EU intervention would be requested and provided to avoid unnecessary strains on sovereign liquidity.
Furthermore, Fitch assumes there will be progress in deepening fiscal and financial integration at the eurozone level in line with commitments by euro area policy makers. It also assumes that the risk of fragmentation of the eurozone remains low. http://hat4uk.wordpress.com/2013/03/07/monti-paschi-suicide-sparks-banker-terror/
Events in Italy and the US are suggesting that the end of the road may be near
If you ever felt like 1929 is about to happen again, only this time without the laughs, last night’s news from Monte Paschi Bank might represent the final conviction that we have time-warped back to the past: David Rossi, the head of communications at the bank, committed suicide by jumping off the building yesterday afternoon. While I understand that these days, the words ‘banker’ and ‘suicide’ are strangers to each other (suicide requires remorse) Rossi wasn’t a banker, he was an adman. It’s the business I emerged from, and yes, people in it do shows signs of having a conscience here and there. Personally I can’t see conscience catching on, but that’s not important to David Rossi any more because he’s dead.
The suicide note (I’m serious) said something along the lines of ‘bullsh*t’, but whether it was ‘my bullsh*t’ or ‘it’s all bullsh*t’, I have to observe that Rossi – by all accounts a very bright man – was clearly of sound mind when he went.
In last night’s post, you may have detected that a strong whiff of bullsh*t had affected my tone of voice. It’s clear that the lunatics intend to leave the asylum they’re burning only at the very last minute, but events like Rossi’s jump show that sometimes events evade their control. ‘Unforeseen’ is easily the most inaccurately and over-used word in the spin lexicon in 2013 so far, but this tragic end to a high-achiever’s life really wasn’t on anyone’s radar. What it does do, however, is underline the fact that Italian scandals aren’t going away, Spanish bank insolvency isn’t going away, and she in Berlin who snaffles the fridge when leaving home faces some pretty unedifying choices at the moment when it comes to Spain and Italy.
The last few weeks in those two countries have come close to making the terms PIIGS and ClubMed redundant: from here on, the fate of the euro in general (and the CDU in particular) lies entirely in the hands Manuel and Luigi. Neither has any intention of being pushed around any longer, and as the Left gains ground across the region, the battle lines are reverting to the traditional ones of exploiters versus exploited.
The man who might be thought most likely to grow his power as a result of this is the French Socialist President Francois Hollande, because he has far more credibility for the ClubMed Left. But he too faces an insoluble problem: default would solve the EU debt, but exacerbate France’s. It’s exposure to Greece and Italy is massive, and not far off being critical re Spain as well. As Merkel must also be mainlining imodium at the thought of Spanish default (Germany’s exposure to empty cajas is mind-boggling) once again the two founder-nations find themselves pulled together by adversity. And once again, it seems to me, the floodlight turns enticingly towards the young leader of the Greek Syriza leftists, Alexis Tsipras.
Tsipras’s hour, one senses, is coming. He speaks fluent Italian, would be sympathetic to Italian rejection of Brussels lunacy, and is widely admired by the Left in Spain. But perhaps more important than any other factor, he should – all things being equal – wind up in the right place at the right time once the Dollar-euro contagion becomes a two-way street.
The signs that the US Federal has run out of road are now, I think, near-impossible to deny. And while those in charge didn’t jump off the ledge yet, they seem to be heading for a suicide so multiple, only the larger jumping-windows will suffice. On February 26th last, Bloomberg ran a story of complete factuality. It reported that the top risk assessment company MSCI had just completed a stress test on the U.S. Federal Reserve System itself. The test found that the market losses incurred from QE would be some $547 billion over three years. That is many times the value of the Fed’s capital, and thus technically, the US Federal Reserve is bankrupt.
It would be the job of only a minor-league spin doctor to rubbish the report, were it not for the fact that MSCI is the company used exclusively by the Fed itself to undertake stress tests on the Big League U.S. banks. I’m afraid there just ain’t no wriggle-room for Ben Barberbeard here, and this will make his next appearance before Congress a less than happy one. GOP Senator Bob Corker did indeed fire off a public corker to Valium Ben the following day, asking him to rate the chances of avoiding Fed insolvency on a scale from zero to minus fifty-four. To the best of my knowledge, that is completely unprecedented.
So too is the crazy existence of a $1.5 quadrillion derivatives Thing sitting out there somewhere. Most of it – around 80% – isn’t real derivative use at all, but rather the use of derivatives for borrowing after other bets already went bad. Bill Gross of Pimco is now calling this “the creation of a hyperinflationary firestorm with no end in sight”. That’s an odd way to end his thoughts on the subject, given that such things mean, in the end, everyone is flat broke and burned to a crisp; but you can see where he’s going with it. This is the world’s biggest bond trader opining that we’re in Dresden, and the RAF is twenty minutes away.
It is in the face of all this horrendous outlook that values and stock prices and gold falls and libor rates have been manipulated to such an extent, there isn’t a single fundamental left on the planet that has any meaning….and the smart rich are piling into top-end glitz brick property as being the only physical asset whose worth isn’t a negative or positive sham. It is because of all this that Italian big-hitters are jumping off banks and the Fed has rendered itself technically skint. And it is because of all the insane and increasingly desperate attempts to hide the truth, that within two years only those leaders capable of showing clean hands to the populace will be taken seriously.
Alexis Tsipras is a man shaping up for that destiny. I’d love to hear his thoughts on it. In a few months I want to go to Greece and get an interview with the bloke, because he looks to me like the nearest thing we have to a potential Wise Man. If you’re in a position to do so, I’d be grateful if Greek readers of The Slog could get this piece in front of him. Mainly, I’d like your help in getting me in front of him.
Submitted by Tyler Durden on 03/08/2013 12:55 -0500
According to the Hellenic Statistical Authority (ELSTAT), Greek inflation eased in January to +0.1% - its lowest in 45 years. However, as ekathimerini notes, the prices for certain goods (like food, energy, phones, medicine) rose just a little more than that, leaving us with a simple question: 'what's Greek for hedonics?'
Property prices used for taxation purposes to be adjusted to market reality, reducing burden on owners
The commission charged with preparing the new system for the valuation of property prices for tax purposes, known as objective values, will deliver its report to the Finance Ministry in the next few days. It is expected to include significant reductions for several areas around the country, in line with the drop in market prices.
The commission has collected data from estate agents, notaries and the Bank of Greece in order to create a reliable database for the automatic adjustment of objective values, although it has been rather hard to establish actual sale prices of properties, given the low number of transactions in the last couple of years: From an annual average of 150,000 houses sold in the previous decade, there were only 11,000 transactions in 2011, which prompted the New York Times to brand Greece as the ideal market for house hunters on Friday, given the drop in prices that it said ranges between 30 and 50 percent.
As soon as the commission has delivered its report to the ministry, the revision of objective values will get under way. The first stage concerns the inclusion of properties outside town-planning zones in the objective value determination system, and then the values across the country will be adjusted.
Top Finance Ministry officials say that the new values will include reductions as well as increases. They add that in the last few years the market prices of properties have dropped considerably in several parts of the country, leaving objective values much higher than the market reality.
For instance, the average objective value in Maroussi, northern Athens, is about 30 percent higher than the commercial price used for transactions. The difference comes to 22 percent in Holargos, 26.3 percent in Palaio Psychico and 41.8 percent in Vouliagmeni, all upmarket Athens suburbs.
The level of objective values is particularly significant for taxpayers as it determines the level of a number of property taxes they pay as well as the estimate of their annual revenues used for the calculation of income tax.
Capital gains levy on Greek stocks may be put off or scrapped
By Anestis Dokas
The repeatedly postponed imposition of a capital gains tax on Greek stocks might not be implemented at all, helping the local bourse in its struggle to retain its position among the world’s mature stock markets, sources have told Kathimerini.
A preliminary revision of the Greek stock market’s status by British firm FTSE will take place by March 22, as it may be removed from the mature markets category at the next annual valuation in September.
The only serious friction between the Athens Exchange and FTSE is the capital gains tax on stocks, whose implementation has now been marked for July 1, after repeated postponements since 2007. The main argument of the firm’s assessors is that there is no developed bourse in the world where foreign investors are burdened by a tax on the capital gains of their stock holdings.
However, sources have told Kathimerini that thanks to application of the pan-European “Tobin” tax on financial transactions, the capital gains tax may be postponed again until early 2014 or even abandoned altogether.
Earlier this week FTSE removed five Greek stocks (OPAP, PPC, National Bank, Alpha and Eurobank) from its European mid-cap index, effective after March 15. Several analysts consider this to be a sign of the possibility of a Greek market downgrade for the first time since 2001.
The advantages of ATHEX retaining its developed market status are the following: First, it secures the presence of funds that invest exclusively in developed markets or of the so-called index funds that only invest in mature market indices; second, long-term investment funds such as pension mutual funds continue to have Greece on their radar; and third, as soon as the country’s capital adequacy improves, the inflow of foreign capital to the local bourse will revert to normal.
In 2001, the first time the Greek bourse was upgraded to mature market status by Morgan Stanley, over 1 billion euros came in from foreign investment funds. The most productive years were those between 2004 and 2007, when a total of more than 17 billion euros flowed into the local bourse from abroad.
The local market has been on the watch list since 2004. In September it will be reviewed ahead of a possible relegation to the advanced emerging markets category.
February payrolls rose by a whopping 236,000, much better than the 165,000 expected, and 1K higher than the highest Wall Street forecast of 235K. However this takes place as the January number was revised from 157K to 119K. The unemployment rate slides to 7.7%, on expectations of a 7.9%. This was the lowest unemployment rate since December of 2008. The civilian labor force dropped as usual from 63.6% to 63.5%. The household survey saw an increase of 170K jobs in February, following a 17K increase in January.
More details:
Change in Private Payrolls: +246K, on Exp. 170K, last revised from 166K to 140k
Change in Manufacturing Payrolls: +14K on Exp. 9K, last revised from 4K to 12K
Average hourly earnings M/M rose by 0.2%, and 2.1% Y/Y, in line with expectations
Average hourly hours for all employees rose from 34.4 to 34.5
Birth death adds 102K to the unadjusted number
Getting ever closer to that economic state where, like three times perviously, the Fed thought the economy was ready to stand on its own two wheels. How close: not very at all.
Total non - farm payroll employment increased by 236,000 in February, with job gains in professional and business services, construction, and health care. In the prior 3 months, employment had risen by an average of 195,000
per month. (See table B-1.)
Professional and business services added 73,000 jobs in February; employment in the industry had changed little (+16,000) in January. In February, employment in administrative and support services, which includes employment services and services to buildings, rose by 44,000. Accounting and bookkeeping services added 11,000 jobs, and growth continued in computer systems design and in management and technical consulting services.
In February, employment in construction increased by 48,000. Since September, construction employment has risen by 151,000. In February, job growth occurred in specialty trade contractors, with this gain about equally split between residential (+17,000) and nonresidential specialty trade contractors (+15,000). Nonresidential building construction also added jobs (+6,000).
The health care industry continued to add jobs in February (+32,000). Within health care, there was a job gain of 14,000 in ambulatory health care services, which includes doctors' offices and outpatient care centers. Employment also increased over the month in nursing and residential care facilities (+9,000) and hospitals (+9,000).
Employment in the information industry increased over the month (+20,000), lifted by a large job gain in the motion picture and sound recording industry.
Employment continued to trend up in retail trade in February (+24,000). Retail trade has added 252,000 jobs over the past 12 months. Employment also continued to trend up over the month in food services and drinking places and in wholesale trade. Employment in other major industries showed little change over the month.
In February, the average workweek for all employees on private non - farm payrolls edged up by 0.1 hour to 34.5 hours. The manufacturing workweek rose by 0.2 hour to 40.9 hours, and factory overtime edged up by 0.1 hour to 3.4 hours. The average workweek for production and nonsupervisory employees on private non - farm payrolls increased by 0.2 hour to 33.8 hours. (See tables B-2 and B-7.)
Average hourly earnings for all employees on private non - farm payrolls rose by 4 cents to $23.82. Over the year, average hourly earnings have risen by 2.1 percent. In February, average hourly earnings of private-sector production and nonsupervisory employees increased by 5 cents to $20.04. (See tables B-3 and B-8.)
The change in total non - farm payroll employment for December was revised from +196,000 to +219,000, and the change for January was revised from +157,000 to +119,000.
Junior coalition partner tells lenders 'Greece at limits'
The head of the junior partner in Greece's coalition, Fotis Kouvelis of Democratic Left, appealed to the troika and to the country's European partners on Friday "to realize and accept that Greek society has gone beyond the limits of what it can endure» and could handle no further austerity.
In a written statement issued as talks between government officials and the troika gathered pace, Kouvelis said Greece needed «support for growth.»
He called for the immediate reduction of value added tax on restaurants and cafes, which currently stands at 23 percent, for an increase in the number of installments in which debts to the state can be paid off and for additional support to indebted households. He also called for the reduction of a special consumption tax on heating oil.
Emphasizing "the explosive dimensions" of rising unemployment, Kouvelis said a "safety net for social protection" was imperative, noting that the country cannot exit the crisis without social cohesion.
Gov't, troika to discuss plan to help indebted households
A proposed plan aimed at easing the burden faced by heavily indebted Greek households was to be discussed on Friday by senior officials of the Finance and Development Ministries and troika mission chiefs as well representatives of the Bank of Greece and of commercial banks.
Troika officials have reportedly extended their visit to Athens until the end of next week in a bid to tackle several unresolved issues including the streamlining of the civil service, efforts to improve tax collection as well as a payment plan for companies and individuals with social security debts and a program giving bank customers longer to repay their loans.
Businesses and individuals who have agreed payment plans with tax authorities in the past due to difficulties meeting their obligations but which have failed to keep up their monthly payments will be excluded from a new scheme being drawn up by the government, Kathimerini understands.
The program, which the Finance Ministry is likely to have ready next week, foresees those owing taxes or social security contributions being allowed to pay their debt in 36 monthly tranches. The government had proposed extending this to to 60 months but the proposal was rejected by the troika.
Finance Ministry sources said that under the new scheme, it wants to avoid extending the offer to companies and individuals who only intend to pay their first installment in order to get clearance from tax authorities to continue their business activity but not to continue with their payments after that. As a result, those who have failed to keep up with previous payment plans will be excluded from the new scheme.
Another issue still under discussion with the troika is the reduction of civil servant numbers. Administrative Reform Minister Antonis Manitakis took the unusual step yesterday of issuing a statement to deny that he had clashed with Finance Minister Yannis Stournaras over the issue.
German industrial output was unchanged in January (compared with the previous month), missing forecasts for a 0.5% increase.
That follows disappointing factory orders out yesterday, which dropped by 1.9%, compared with hopes of a 0.6% increase.
With the eurozone increasingly relying on Germany for growth, this makes uncomfortable reading. We'll have analyst reaction on that as it comes in.
Italian bad loans shoot up
The Bank of Italy has released some fairly eye-watering statistics, showing bad loans in the country rose 17.5% in January, compared with the same month last year.
At the same time, Italian banks cut lending to the private sector, with business lending down 2.8%, and lending to households down 0.6% on the year.
That is largely down to a lack of demand, as the eurozone's third-largest economy stays mired in recession. Interest rates on loans in January were below their 2012 average even though volumes declined.
Italian bank deposits, however, rose 7.7% in January
Bank of Italy says household lending falls 0.6% on year in January
Bank of Italy says business lending down 2.8% on year in January
China exports crash through forecasts
There was some upbeat data out of China overnight, with export numbers soaring past forecasts to jump by 22% in February. That suggests global demand is on the mend.
But import figures were surprisingly weak, dropping 15.2% from a year earlier, which suggest demand at home could still be a problem.
Economists said on balance the data was good news. The world's second largest economy grew by 7.9% in the last quarter of 2012 (from a year earlier), up from 7.4% the previous quarter.
Analysts say this data suggests that improvement could continue into the first quarter of this year.
Japanese economy stabilises
And there was better news out of Japan (which was relegated to being the third-largest economy in the world by China's rapid growth back in 2011).
Its government has revised official GDP figures, which now suggest the economy stabilised in the fourth quarter after a brief recession. Initial estimates pointed to a 0.1% contraction, but that has been revised to no change.
The Bank of Japan joined the ECB and the Bank of England yesterday in sitting on its hands. But markets expect it to be more aggressive from next month, after new governor Haruhiko Kuroda comes in.
Submitted by Tyler Durden on 03/08/2013 16:30 -0500
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