Category: zerohedge

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“I don’t like you Mr Banzai7.”

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As we have reported frequently over the past few months, the ‘with and wisdom’ not to mention the ‘foresight’ of Chairsatan Emeritus Ben “subprime is contained” Bernanke is now available for a fee. A $250,000 fee. For this amount one can join the company of such Fed-frontrunning hedge fund luminaries as David Tepper and Michael Novogratz who, side by side Bernanke at Le Bernardin, heard him says that there would be “no rate normalization” during his lifetime, just in case anyone was wondering what the state of the US “recovery” was.

According to the NYT, “The setting was so intimate that the group took up just one of the four-star restaurant’s three private dining rooms.”

Some recently “nervous” people overcontemplated the whole thing and imagined there were hidden signs to be caught.

David A. Tepper, founder of the $20 billion hedge fund Appaloosa Management, who was also at the Le Bernardin dinner, expressed regret that he did not trade on Mr. Bernanke’s guidance at the dinner.

 

“He gave this stuff out, but I didn’t realize what he was saying at the time, so I didn’t do a great trade,” Mr. Tepper said at the conference in Las Vegas last week.

That’s ok David, he didn’t realize what he was saying at the time either.

Unfortunately, Bernanke will continue to get paid handsomely for “as long as it takes” for the “experts” to realize that Bernanke is as clueless about the economy now as he was during his time at the Fed, and that no actionable information can be extracted from him:

“He’s being paid … for sharing his wisdom and predictions, and presumably not to exert his influence on the Fed,” he added. This will go on “until he’s proven to not be all that clairvoyant.”

And yet, the days of Bernanke’s “non-Giffen good” speech circuit may come to an end far sooner than the ex-Chairsatan wishes: “UBS and Goldman Sachs considered his fees too high, according to two people briefed on the discussions between Mr. Bernanke’s representative and the banks but not authorized to speak about either publicly.”

Others were quick to point out the obvious. According to infamous bear now uber-bull, whose recent short bonds call leaves a bit to be desired, David Rosenberg, “You can spend $250,000 for Bernanke’s time at a private dinner, or you could just sit down and read what people like Janet Yellen and Mark Carney have to say,” Mr. Rosenberg said, referring to the governor of the Bank of England. “You can actually do that for free and pretty much draw the same conclusions.“

Spot on: then again, one can also not pay thousands of dollars to subscribe to newsletters of writers whose bullish “opinion” is regurgitated for free 24/7 by CNBC anchors.

But the worst news is that actual, not implied, deflation in demand for Bernanke speeches is already appearing:

Since his busy week jetting around the world in March, Mr. Bernanke has made several other appearances, including at a private equity conference hosted by the Blackstone Group a few weeks ago. He is scheduled to speak in Pennsylvania at the Lancaster Chamber of Commerce’s annual event on May 28, where members will pay $225 for a ticket.

Alas, at $225 a ticket, this means that his next speaking venue better be filled to the brim (by Amish listeners?) to satisfy the generic $250,000 speaking fee. And since that means that Bernanke’s insight will be extensively diluted (get it), it means that the willingness of people to listen to what he has to say will plummet, alongside the real disposable income of the US middle class as overseen by none other than Bernanke himself.

Indeed, this is one deflation which we are confident the Fed Chairman wishes he was 100% certain he could stop in 15 minutes. Sadly, like in the case of everything else relating to Bernanke, when paying for smoke and mirrors it is only a matter of time before everyone, even the uber-richer poseurs, realize that the product they are buying is nothing but a cheap commodity.

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Following the ongoing uncovering of increasing issues at the Department of Veterans Affairs – after reports surfaced a month ago detailing patients dying while waiting for treatment in a Phoenix VA facility – it appears its time for the teleprompter-in-chief to smooth things over, start a probe, and put everyone straight on who is to blame for the disgusting treatment of US veterans… Perhaps – as we noted here – it is worth remember the ‘full price’ of war.

 

Live Feed (due to start at 1045ET):

 

 

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Actor Robert Benchley gives a spoof on the economists and pundits who tried to explain the depression during his time.

Obviously, you’ll note that everything he says still applies today with the nonsense everyone spews. 

Wash, Rinse, Repeat.

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As Vladimir Putin proudly comments on pulling back troops ahead of this weekend’s elections in Ukraine, it appears he is massing an increasingly number of airplanes.. and Ukraine is not happy, as the Foreign Ministry urged Russia to cancel the Aviadarts 2014 international competition (Russia’s “Top Gun”), calling it a military drill. The commander of the Russian air force was direct, blasting Ukraine to stop “poking nose” into Russia’s affairs.

 

As RIA reports,

Ukraine is meddling in Russia’s affairs by asking Moscow to stop the Aviadarts 2014 international competition, calling it a military exercise, the commander of the Russian air force said Wednesday.

 

Earlier this week, the Ukrainian Foreign Ministry urged Russia to cancel the event, scheduled for May 21-27 in the Voronezh region bordering Ukraine, saying it would escalate tensions.

 

“The Ukrainian side does not know what it is doing itself and it is prying in other people’s affairs,” Lt. Gen. Viktor Bondarev told journalists.

 

Aviadarts is a contest aimed at showing piloting skills, he stressed. Pilots will compete in the precision firing of unguided air-to-surface missiles and shooting ground targets with their aircraft’s guns.

 

The pilots will also try to overcome air defense systems, including the newest Pantsir-S1 missile air defense systems and the Kornet anti-tank guided missiles. Unmanned aircraft will control the aerospace.

 

The official opening ceremony for the Aviadarts 2014 competition is due on Wednesday at the base of the Air Force Academy in Voronezh. The international stage of the competition will take place in mid-July.

So boots on the ground may be pulled back but Russia’s top fighter pilots are amassing right on the border… just in case.

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In a greatly ironic moment for capital markets, minutes ahead of the Fed’s Bill Dudley speaking about “low volatility in markets is a cause for concerns, indicates complacency,” VIX just collapsed in a pile of “we don’t need no stinking protection” volatility selling to its lowest level since December 2013 and almost its lowest since April 2013 recovery lows.

 

Dudley yesterday…

• *DUDLEY SAYS VOLATILITY IN MARKETS UNUSUALLY LOW
• *DUDLEY SAYS LOW VOLATILITY IN MARKETS MAY INDICATE COMPLACENCY
• *DUDLEY SAYS LOW VOLATILITY IN MARKETS CAUSE OF CONCERN

And VIX today…

 

Don;t fight the Fed – unless they say “sell” stocks or “buy” vol.

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With everyone focusing on the “Holy Grail” deal between Russia and China, and debating who got the upper hand in the 30 year price delivery arrangement, a just as notable story is that quietly overnight Goldman’s China team just took China to the cleaners. In a flurry of reports covering everything from Chinese banks to property developers to the Chinese, Goldman effectively mirrored what Hugh Hendry said several years ago when he correctly concluded that China is drowning in overcapacity, and concluded that a “two year property downcycle is imminent.”

From Goldman, who sees “Two-year property downcycle imminent; negative implications for banking/commodity/machinery”

With demand poised to slow given a tepid economic backdrop, weaker household affordability, rising mortgage rates and developer cash flow weakness, we believe current construction capacity of the domestic property industry may be excessive. We estimate an inventory adjustment cycle of two years for developers, driving 10%-15% price cuts in most cities with 15% volume contraction from 2013 levels in 2014E-15E. We also expect M&A activities to take place actively, favoring developers with strong balance sheet and cash flow discipline.

Can there be a prolonged downturn? Why yes, but there is hope:

Mortgage key to avoid prolonged downturn: We believe lower mortgage downpayment/rates, RRR cuts, and developers’ price cuts should help improve affordability and allow transaction volumes to hold at a level sufficient for the industry to restore supply-demand balance by end-2015E.

… but also risks:

Policy delay poses significant downside risks: We believe China has the flexibility (in terms of potential policies, e.g. RRR cut, mortgage easing, removal of L/D ratio, etc.) to prevent a severe property downturn. However, we are concerned about the timing of their implementation, if any, as possible delays could lead to further slowdown in the property sector and a fall in FAI.

Goldman’s advice to clients: “Time to adopt a defensive stance“

Near-term, we prefer defensive stocks in the property/banking/commodity/machinery sectors, and would closely watch for downside/upside risks especially pertaining to policy changes.

And some excerpts from the Goldman Q&A:

Q. How long will the housing market downturn be for this time?

A: We expect a two-year downturn to restore supply-demand balance. Given developers’ weak balance sheet as discussed in Q3 of this report and “Deteriorating balance sheet to impact property prices in 2Q14E” dated May 5, 2014, we believe developers would need to cut their new starts and construction capex more aggressively in order to lower their leverage and reduce their interest expenses. In the first four months of this year, new starts have already fallen 22% yoy and we expect this trend to continue. By assuming different level of cuts of new starts in cities with different level of oversupply issues for the 200+ cities we analyzed earlier, we conclude that property new starts would need to be about 20%+ lower than 2013 levels during 2014E-15E. We therefore translate it into 17%/14% yoy decline in new starts for 2014E/15E. This would in turn translate into about 5% and 14% yoy decline in GFA under construction for these two years. With our expectation that GFA sold would decline by 15% yoy in 2014 and stay yoy flat in 2015, we estimate the inventory ratio would be restored to end-2010 level of 3X by end-2015E, which we believe should reduce price decline risks. We also expect a further decline in inventory ratio to 2.4X (average level since 1996) by end-2016E assuming GFA sold/new starts are similar to 2015E levels but a further 5% drop in GFA under development in 2016E.

* * *

Q: What is the current housing demand/supply situation in China versus its history?

A: We have noticed a significant increase in land sales during 2010-2013, almost doubling the average level during 2007-2009. As an important fiscal revenue source to support local governments’ fixed asset investment (FAI) post the 2008 global financial crisis, land sales in China have significantly increased since 2010, with average land area sold in 2010-2013 almost doubling the average level in 2007-2009 (see Exhibit 2).

By adding up the total residential land sold during 2011-2013 in each of the 200+ cities, and dividing this by the total population in each city, we estimate the potential living space per capita increase for each of these cities. Our analysis suggests about half of these 200+ cities could see potential oversupply of properties and construction activities would need to be cut (with different magnitudes) in the coming years.

In Exhibit 5 below, we summarize the key drivers for China’s housing demand and our estimated trend in the coming years vs. past years (since 2010). We expect policy drivers to mostly move in a favorable direction, but cyclical and half of the structural drivers would either be in a negative or weakening trend over the next decade.

* * *

Q: When did the government start to provide support to the housing market in previous downturns?

A: With further deterioration of the housing market in the coming months, we expect the government to provide policy support to prevent prolonged housing downturn that could trigger a vicious cycle on the economy.

The exact timing of such support is difficult to predict, but we summarize below the indicators that have triggered government support for the industry during previous cycles:

• Decline in quarterly property sales volume yoy (10%-20% yoy decline);
• Decrease in property prices mom in most cities (about 50 out of 70); and
• Land transaction premium over government base land price approaching zero.

We believe poor sales volume/sell-through ratio would lead directly to slow land acquisition and possible price cuts.

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One of Portugal’s biggest companies – Espirito Santo International SA – is in a “serious financial condition” according to a central bank driven external audit by KPMG identified “irregularities in its accounts.” Rather stunningly, the details are nothing short of ponzi-like as WSJ reported in December that Espírito Santo International was highly leveraged and had been relying heavily on selling debt to an investment fund held by the financial group (i.e. funding debt issuance in one entity with another) and overvaluing hard-to-value assets (ring any bells?).

However, the ‘ponzi-like’ maneuver, as WSJ concludes shows that while legal and in line with regulatory rules, highlights how corporations, including banks, used financial gymnastics to survive the region’s financial crisis.

Given the massive domestic bank demand for sovereign paper, one has to wonder if the sudden 60bps spike in Portuguese bond risk is a signal that all is not well in the European periphery.

 

As WSJ reports,

Espírito Santo International SA, a large Portuguese conglomerate whose financial practices have been subject to criticism by outside experts, is in a “serious financial condition” and its accounts have “irregularities,” according to a document published by one of the company’s affiliates.

 

…

 

A regulatory filing late Tuesday by Banco Espírito Santo, which is partly and indirectly owned by the conglomerate, said an external audit ordered by the country’s central bank into Espírito Santo International’s 2013 results uncovered a range of problems.

 

The auditor, KPMG, “identified irregularities in its accounts and concluded that Espírito Santo International is in a serious financial condition,” the bank said in the prospectus that it issued as it prepares to sell €1 billion ($1.37 billion) of shares.

The details of the ‘irregularities’ are stunning in their ponzi-like nature…

The Wall Street Journal reported in December that Espírito Santo International was highly leveraged and had been relying heavily on selling debt to an investment fund held by the financial group and marketed to clients of the bank.

 

It also reported that accounting experts raised questions about the value Espírito Santo International gave to its stake in Espírito Santo Financial Group. The valuation was much higher than the market value of Espírito Santo Financial.

While the bank isn’t responsible for the parent company’s problems, the filing warned, the bank nonetheless could face reputational damage.

Perhaps that is why the sudden rush for the exits in the increasingly tied-at-the-hip sovereign bond market has occurred recently…

 

If one goes – the other follows…

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José Manuel Barroso said in a letter to President Vladimir Putin that “gas flows must not be interrupted.”

 

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Introducing, Ukraine’s Petro Poroshenko…

 

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Remember who relies on your collective support…

VISUAL COMBAT BANZAI7 FINE ART PRINTS

Inquiries: williambanzai7@gmail.com

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Just as we saw yesterday, a pre-open buying panic in stocks has been triggered by a selling scramble in JPY against the USD (which ramped the pair to the crucial 200DMA). Treasury yields are following suit (10Y bounced off 2.50%) and pushing higher (30Y above yesterday’s high yields). The USD is well bid (on EUR weakness) and precious metals are modestly lower. Copper is under pressure. Just remember how yesterday’s pre-open run-stop ended…

 

JPY leading the way…

 

dragging yields higher…

 

Charts: Bloomberg

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