Tag: finance

Former Federal Reserve Chairman Alan Greenspan admitted in an interview with Sara Eisen that quantitative easing did what it was supposed to do, which was to inflate stock prices and drive multiple expansion.

He was confused as to why things such as corporate earnings, capital spending, and productivity have declined given how much QE was pumped into the system. The answer to the riddle of course, is that QE was never intended to help fix anything fundamentally, it was as Kyle Bass said recently, simply a mechanism to transfer wealth and make the rich richer.

"Monetary policy has done everything it can, unless you want to put additional QEs on and QEs on, they're not helping that much.

 

What ultimately determines whether or not you're getting an effect from the QEs are what has happened to the price/earnings ratio, and that obviously has done what you'd expect it to do.

 

You bring long-term rates down, and the price/earnings ratios in the equity markets go up, which is exactly what they planned to do and it's happened that way."

All of this is precisely what we've been saying all along, which is that QE has always been about one thing, and that is to take wealth from many (savers), and transfer it to a select few (asset owners).

 

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Submitted by Howard Kunstler via Kunstler.com,

The elephant’s not even in the room, which is why the 2016 election campaign is such a soap opera. The elephant outside the room is named Discontinuity. That’s perhaps an intimidating word, but it is exactly what the USA is in for. It means that a lot of familiar things come to an end, stop, don’t work the way they are supposed to – beginning, manifestly, with the election process now underway in all its unprecedented bizarreness.

One reason it’s difficult to comprehend discontinuity is because so many operations and institutions of daily life in America have insidiously become rackets, meaning that they are kept going only by dishonest means. If we didn’t lie to ourselves about them, they couldn’t continue.

For instance the automobile racket. Without a solid, solvent middle-class, you can’t sell cars. Americans are used to paying for cars on installment loans. If the middle class is so crippled by prior debt and the disappearance of good-paying jobs that they can’t qualify for car loans, well, the answer is to give them loans anyway, on terms that don’t really pencil out — such as 7-year loans at 0 percent interest for used cars (that will be worth next to nothing long before the loan expires).

This will go on until it can’t, which is what discontinuity is all about. The car companies and the banks (with help from government regulators and political cheerleaders) have created this work-around by treating “sub-prime” car loans the same way they treated sub-prime mortgages: they bundle them into larger packages of bonds called collateralized loan obligations. These, in turn, are sold mainly to big pension fund and insurance companies desperate for “yield” (higher interest) on “safe” investments that ostensibly preserve their principal. The “collateral” amounts to the revenue streams of payments that are sure to stop because the payers are by definition not credit-worthy, meaning it was baked in the cake that they would quit making payments — especially when they go “under water” owing ever more money for junkers that have lost all value.

It’s easy to see how that ends in tears for all concerned parties, but we “buy into it” because there seems to be no other way to a) boost the so-called “consumer” economy and b) keep the matrix of car-dependant suburban sprawl in operation. We took what used to be a fairly sound idea during a now-bygone phase of history, and perverted it to avoid making any difficult but necessary changes in a new phase of history.

Health care is now such a blatant, odious, and ruinous racket that it is a little hard to believe that it hasn’t ignited an outright revolution or, at least, a workplace massacre in some insurance company C-suite. It is a well-known fact that most Americans don’t even have $500 to pay for a car repair. How are they supposed to cope with a $5,000 deductible health insurance incident? Answer: they can’t. Their mental health is destroyed in the process of attempting to fix their physical health. Not uncommonly, they have to declare bankruptcy after a routine appendectomy or a visit to the emergency room to set a broken arm. Sometimes, they don’t even bother to go to the doctor, seeing clearly how this plays out. The pharmaceutical industry has, of course, been allowed to convert itself into a simple extortion racket. Got an unusual kind of cancer? We have something that might help. Oh, it costs $43,000 a month….

What kind of a polity allows this cruel and indecent grift to go on? Why, the Obama administration, which allowed the health insurance company lobbyists and their colleagues in Big Pharma to “craft” the Affordable Care Act — the name of which must be the biggest public lie ever floated.

It’s interesting to see how a parallel fraud is playing out in higher ed. I submit the reason that college presidents are not pushing back against the Maoist coercions of the undergraduate social justice warriors is because the marvelous theater of the gender, race, and “privilege” melodrama is a potent distraction from the sad fact that college has turned into a grotesquely top-heavy and high-paying administrative racket offering boutique courses in fake fields (Dartmouth College: WGSS 65.06 Radical Sexuality: Of Color, Wildness, and Fabulosity… Harvard University: WOMGEN 1424:  American Fetish) in order to pander to their young customers (students) conditioned to tragic “oppression” sob stories. All in the service of paying huge salaries + perqs to the dynamic executives running these places.

Then there is banking, a.k.a. the financial system, certainly the greatest racket of rackets, since the fumes it’s running on — combinations of ZIRP, QE, and “forward guidance” (happy talk) — is all that there is to maintain the illusion that “money” remains a reliable gauge of value. Finance is the racket that will go down first and hardest, and when it does, all the other rackets currently running will go up in a vapor. That elephant will storm into the room before the political conventions, and when it does, it will usher in the recognition that nothing can go on as before.

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Currently the US Dollar, traded on the stock market as (UUP), and (USDU); is the world’s reserve currency. Although there is talk of the fall of the US Dollar as the world reserve currency, it’s all talk and there’s no signs that this will happen any time soon. Hungary recently issued sovereign bonds in Yuan – but so what? It’s just a drop in the bucket. The practical fact is there is no real threat to the US Dollar’s status as a reserve currency. However, there may be one. When Richard Nixon essentially created the modern Forex system by defaulting on the previous Breton Woods agreement, he cleverly supported the US Dollar with the one commodity the world needs most: Oil. By making an agreement with Saudi Arabia and then other Oil producing nations, it created natural support of the US Dollar. Nixon told them the following: Sell Oil in US Dollars, and we’ll provide you with military technology, security, and other benefits. We’ll do business, you’ll invest in our markets, and recycle those dollars you get from our partners. It all works like a well oiled machine (pun intended) for 40+ years. There’s only one thing that could disrupt it – Saudi Arabia chooses to end it. And they’ve threatened to do so, if the US releases classified documents about 911 which implicate Saudi Arabia.

How it could impact the markets

Under the Petro Dollar agreement, Saudis’ re-invest their US Dollars in US markets, most notably, the treasury market – but also US Stocks. ETFs for US Treasuries include (GOVT) and (SCHO). Large selling of US Treasuries, the US Dollar, and US stocks, could cause the market to go down. Some worry that it could cause others to panic sell because of momentum. These fears are unfounded. It can cause temporary volatility, but nothing systemic. As the Fed says in a 19 page letter, if something is going to cause the US financial system to melt down, it’s likely going to be JP Morgan (JPM).

About 911

911 was the event of our lifetime, that changed Wall St., and changed America. Although the 911 Commission ‘investigated’ the event, many questions remain unanswered. Families of victims want those questions answered, and have taken measures into their own hands. They want more information made public, such as 28 pages that have been classified. A lawsuit filed in New York by the victims families, headed by attorneys Jim Kreindler and Sean Carter:

A federal lawsuit moving forward in Manhattan could open the floodgates to tightly held government secrets about foreign connections to the 9/11 attacks.While the Obama administration refuses to make public the censored 28 pages of the congressional intelligence report implicating the Saudi government in the terror strike –defying bipartisan requests from lawmakers – the two investigators who authored the long-secret section will more than likely be called to testify in the lawsuit brought against the kingdom of Saudi Arabia.

Former FBI investigator Michael Jacobson and former Justice Department attorney Dana Lesemann ran down FBI leads tying Saudi officials to some of the Saudi hijackers and documented their findings in the report.Jacobson and Lesemann went on to work for the independent 9/11 Commission, where they uncovered more evidence and connected new dots to the Saudi Embassy in Washington and the Saudi Consulate in Los Angeles.During a July 30 court hearing, lawyers for 9/11 victims’ families and insurers revealed that the staffers’ most serious allegations against the Saudis were stricken from the final draft of the 9/11 Commission report as well.“They were removed at the 11th hour by the senior staff,” plaintiffs’ attorney Sean Carter of Cozen O’Connor said, explaining that the decision was a “political matter.”

These removed 28 pages can have huge implications not only for the lawsuit, but for the markets in general. Saudi Arabia has said that they will sell up to $750B in treasuries, should Congress pass a bill allowing the lawsuit against the Kingdom to take place, as reported here on SA:

Saudi Arabia has told the Obama administration that it willsell up to $750B in treasuries and other American assets if Congress passes a bill that would allow the Kingdom to be held responsible in U.S. courts for any role in 9/11.

What’s inside these 28 pages is likely only the tip of the iceberg. Many information has come to light since the 911 commission which leaves more and more questions unanswered. One such information is the large amounts of Tritium found at Ground Zero.

Senator Bob Graham believes that 911 could only have been carried out with sophisticated logistic support from within the United States,as reported in his recent 60 minutes interview:

Bob Graham: I think it is implausible to believe that 19 people, most of whom didn’t speak English, most of whom had never been in the United States before, many of whom didn’t have a high school education– could’ve carried out such a complicated task without some support from within the United States.

Petro Dollar system

The US Dollar enjoys global supremacy for a number of reasons, one of them being the Oil for US Dollars Petro Dollar system. Oil producing nations have agreed to sell Oil in US Dollars thus providing a natural demand for US Dollars. This is explained in detail in Splitting Pennies:

The American Forex system is a global financial Monopoly. The best example is the “Petro Dollar” trade. By pricing and selling crude oil in US Dollars, it guarantees a constant supply of buy orders for USD. This is a triple slam dunk for the global USD financial Monopoly:

Oil producing nations who want to participate in the Petro Dollar system buy USD naturally and invest much of those USD in US markets, US Treasuries, and other US denominated instruments. There could be no greater mechanism to support a currency, if one was to be constructed. …

Remember that these are intra-country business deals, that take generations to come to fruition. Sons and Grandsons who inherit these relationships, aren’t fully aware of the importance of them or the mechanics of their global operations. For example, when this de facto Forex system was created by Nixon in 1971, there was no electronic trading. This was a different market. What would happen in today’s environment, if the Kingdom of Saudi Arabia decided to in one moment sell all of its US Treasury holdings?

Analysts agree however, this strategy isn’t feasible, as the Kingdom has internal financial problems. Cutting off it’s biggest economic and political ally in the West would be a disaster for them. On the other hand, you never know what ‘event’ may trigger drastic moves.

But although Saudi Arabia is a significant market player, it is dwarfed by its competition. There are other places in the world that have oil (anyway – most of the Oil from SA is not the Oil we need). Saudi Arabia’s significance declines over time as their Oil fields are depleted and the rest of the world develops alternative energies. In fact, it is pressure from US Oil companies that keeps many alternative energies on the shelf. There are literally hundreds of alternatives that in 1 year could replace Oil, but are not politically feasible. The most powerful of these alternatives at the moment is Thorium Nuclear Reactors, a more potent and safe alternative to current Uranium reactors. They don’t melt down, Thorium is abundant in nature, and they can even consume Nuclear waste! Why this technology isn’t being used? Because Chevron (CVX) and Exxon (XOM) are making too much money. And they pay taxes (interestingly, Oil companies famously avoid offshore tax havens and pay the maximum possible tax to Uncle Sam). Suffice to say – energy is big business, and big business for Washington. So if you’re worried about a Saudi fire sale and how it will impact the markets – don’t. With electronic markets, there is a concern that any big orders can cause a market panic, but it would likely be very temporary. As far as the fundamental concern that Saudis’ selling debt or stocks could cause a market crash, it’s not possible.

Stock Investors

The Saudis’ invest big in US stocks. The most notable investment was from Prince Alwaleed Bin Talal’s Citigroup investment:

In the early 1990s it was almost unthinkable that a Saudi Arabian, and a Royal at that, would burst onto the global banking investment scene from seemingly nowhere – but in 1991 that is exactly what happened. Effecting a significant coup that would catapult him into the global spotlight, HRH invested heavily in Citibank (subsequently Citigroup) stocks in a bold move that surprised many. That surprise rapidly turned into admiration as the Prince’s guidance helped restore the banking giant to full health, returning it to its place as the world’s leading financial institution. Prince Alwaleed’s investment in Citigroup has since delivered an extraordinary level of return, and represents the largest proportion of HRH’s personal wealth.

The Saudis’ have unknown investments in USA but they are substantial. The central bank doesn’t disclose it’s holdings, billionaire princes and other ‘charities’ controlled by the Kingdom may only disclose their holdings when it is suitable for them, politically.

It was noticed in January of this year that the Saudis started unloading US Treasuries by Bloomberg:

SAMA’s own figures show reserve assets held in foreign securities have fallen by a record $108 billion in 2015. The Saudi central bank, which doesn’t disclose separate figures for Treasuries, owned $423 billion in overseas securities as of November. “I come down on the side of thinking there should be more transparency,” said Jeff Caughron, chief operating officer at Baker Group, which advises community banks with more than $45 billion in investments. But at the same time, “the Treasury is constrained by political sensitivities and that comes into conflict with market participants that crave more transparency. It’s an understandable conflict.”

So although we do not know the extent to which they are invested in US markets, we know that it’s substantial, and we know they have an incentive for doing so.

If there’s any take-away from this scenario, it might be a time to go long US based energy companies with an established track record of dealing with the US government, such as Chevron and Exxon . Or maybe that’s part of the reason they’ve been seeing a rally recently, as pointed out by an SA author:

The latest rally in the energy firms is very curious. A stock like Chevron (NYSE:CVX) now trades at the highs going back for nearly a year while oil is only creeping above year-end lows.

Alternative energy stocks, which still haven’t proven themselves in this tricky political environment, should be individually researched carefully. Here’s a few:

• Pattern Energy (PEGI)
• Green Plains Partners, LP (GPP)
• Enviva Partners, LP (EVA)
• Terraform Global (NASD: GLBL)

If you’re concerned about how the release of classified 911 information will impact the markets – consider going long energy. Don’t worry about the selling of US debt. If there really was a fire sale of US Treasuries, the Fed can easily print money and buy them. As the Fed has unlimited supply of US Dollars, there’s no chance in this universe or multi-verse that the US can default on its debt obligations.

Maybe it’s time the “Petro Dollar” system be replaced with “Nuclear Dollar” system. It’s outdated, things have changed. Since 1971, the population of the Planet Earth has more than doubled. Advances in technology are immense. Maybe it’s about time we started using them.

We talk about this in our book “Splitting Pennies – Understanding Forex” 

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Back in 2014 Obama promised that as part of the US war against ISIS, there would be “no ground troops in Iraq.” Moments ago U.S. Defense Secretary Ash Carter gave the latest confirmation that Obama was not being exactly “honest”, when during a visit to Baghdad in which he met U.S. commanders, Iraqi Prime Minister Haider al-Abadi, and Iraqi Defence Minister Khaled al-Obeidi, he announced that the US would send another 200 additional troops, raising the number of U.S. troops in Iraq to about 4,100.

This follows a report two weeks ago according to which the US would “greatly increase” the number of special forces deployed to Syria under the same pretext: to fight the same Islamic State, which only exists due to a CIA operation to destabilize and overthrow Assad’s regime in Syria.

 

To be sure, the incremental deployment to Iraq is not exactly surprising: at the end of March, the Daily Beast reported that as many as 21 generals have been deployed (to a war the US denies fighting). More:

There are at least 12 U.S. generals in Iraq, a stunningly high number for a war that, if you believe the White House talking points, doesn’t involve American troops in combat. And that number is, if anything, a conservative estimate, not taking into account the flag officers running the U.S. air war, the admirals helping wage the war from the sea, or their superiors back at the Pentagon.

 

At U.S. headquarters inside Baghdad’s fortified Green Zone, even majors and colonels frequently find themselves saluting superiors at a pace that outranks the Pentagon and certainly any normal military installation. With about 5,000 troops deployed to Iraq and Syria ISIS war, that means there’s a general for every 416 troops, give or take. To compare, there are some captains in the U.S. Army in charge of that many people.

 

* * *

 

But if the U.S. footprint is so small, why does the war demand so many generals?

This was our response on April 3: “Why so many generals to so few troops? Perhaps because, just like the Syrian “special forces” reinforcements, the U.S. troops are about to be deployed in Iraq as well where they will have more than enough generals to guide them.”

Sure enough, this is precisely what happened.

However, it’s not just troops: as Pentagon spokesman Peter Cook says in tweet, the DOD also announced the authority to employ AH-64 Apache helicopters in support
of operations to retake the city of Mosul in Iraq.  DOD also will provide additional advisers, more financial aid and firepower.

And then there is the money: “To accelerate momentum” in fight against Islamic State, Defense Sec
Ashton Carter “says we will provide up to $415MM in financial assistance
to Peshmerga fighters,” Cook says in a tweet.

And, once again, as we asked rhetorically in April 3, all this begs the question: “as the ongoing proxy war in the Middle East has been gradually pushed back from the front pages, are all these stealthy reinforcements indicative that something far bigger is about to be unleashed in the region.”

This indeed appears to be the case: on Friday Reuters reported that Iranian Major General Qassem Soleimani had flown to Moscow for talks with Russia’s military and political leadership on Syria and deliveries of Russian missiles, sources said on Friday. Soleimani met Russian President Vladimir Putin and Defence Minister Sergei Shoigu on Friday, one source said.

The main purpose of his visit was to discuss new delivery routes for shipments of Russian S-300 surface-to-air missile systems, sources said. Several sources also said Soleimani wanted to talk about how Russia and Iran could help the Syrian government take back full control of the city of Aleppo.

 

“General Soleimani traveled to Moscow last night to discuss issues including the delivery of S-300s and further military cooperation,” a senior Iranian security official told Reuters.

That is hardly all he is doing in Moscow: as a reminder, Soleimani, the commander of foreign operations for Iran’s elite Revolutionary Guards, flew to Moscow in July last year to help Russia plan its military intervention in Syria and forge an Iranian-Russian alliance to support Syria’s President Bashar al-Assad.

We are confident he is doing the same now, and with the US deploying ever more troops to the region, it is only a matter of time before Russia once again reciprocates.

 

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By EconMatters

 

We reported last week that BP is facing a revolt from its shareholders over the salary of its CEO Bob Dudley. What happened was BP’s Board approved an executive compensation package including a 20% raise in 2015 to nearly $20 million for its CEO Bob Dudley. Although we do not have the detail of other executive compensations, they must be pretty generous judging from Dudley’s 20% raise.

 

The Board Does Not Have to Listen

 

On Friday, BBC reported that 59% of BP shareholders voted against the company’s executive pay policy for 2015 including the proposed 20% raise for CEO Dudley. BBC also reported that the vote is at or above the fifth-largest in the UK against a boardroom remuneration deal.

 

Do you think this vote means anything? Nope, as BBC said, “BP’s pay policy is subject to a binding shareholder vote every three years. It was last set in 2014 meaning new proposals are due to be put forward for shareholder approval again in 2017.”

 

The formula that rewarded almost $20 mm for Bob Dudley was approved in 2014 by 96% of shareholders (before the oil price crash, talk about impeccable timing that only a major oil company with a team of full time oil economists and analysts can do….Just speculating here)

 

No use crying over the spilled milk now as the rejection vote in 2016 is “non-binding” on BP, and Dudley and executives still get their disproportionate raises regardless.

 

Not to be too despair though, BP chairman Carl-Henric Svanberg promised to “review future pay terms” and said “Let me be clear. We hear you…..We will sit down with our largest shareholders to make sure we understand their concerns and return to seek your support for a renewed policy.”

 

Svanberg’s statement is totally moronic for a Chairman of a major multi-international corporation. I mean do you really need to have a sit-down with institutional shareholders to understand their concerns? But again what can you expect? Svanberg is the one who said “We [BP] care about the small people” during the BP Gulf Oil Spill disaster.

 

Dividend Cut, More Layoffs Coming to BP

 

In the heyday of $100+ oil, a 20% raise for an oil executive was nothing. However, this came right after BP just reported a record loss of $6.4 billion and laid off 5,000 workers in 2015 (7,000 more jobs to be cut in 2016).

 

To top it off, WSJ also reported that earlier in the day of the shareholder vote, BP also “signaled in its clearest terms yet that it may have to reduce its dividend, as low oil prices continue to threaten the once-sacrosanct investor payouts across the industry.”

 

A 20% Raise After the Worst Loss in 20 Years?

 

Typically corporation executive compensation is performance-based tied directly to company’s performance. So why are BP executives getting so richly rewarded after BP reported its worst annual loss in 20 years? It is almost like laying off thousands of workers just so BP Board could give fat raises to executives. You can see why BP shareholders have a problem with this.

 

Shareholder Activism: Europe vs. U.S.

 

Many experts argue that Dudley is merely “earning the market rate for international executives” as bosses at Exxon and Chevron got paid even more than Bob Dudley even though the value of their companies fell by more than BP.

 

I think this is just a matter that shareholder activism and rebellion over executive pay is more “robust” in Europe and hasn’t yet really spread to the U.S. Shareholders in U.S. are used to rubber-stamping proposals by the company board including executive compensation plan.

 

In contrast, BP’s European rival, Royal Dutch Shell, probably has learned its lesson not to “incite” shareholders during an economic downturn. Back in 2009, Shell suffered a stunning rebuke when investors shot down its executive compensation plan (the voting was broadcast live in London to UK). Fast forward to 2015, the salary package of Ben van Beurden, chief executive at Shell, fell from €24.2m in 2014 to €5.58m last year.

 

Arrogant and Out of Touch

 

Some experts were also quick to point out that it can be difficult to compare apple-to-apple with regards to exec compensation and incentive package. Well, regardless of whatever complicated formula is involved, it is very obvious that BP’s Board and executives are arrogant and so very out of touch with reality and “small people”.

 

The Board Is NOT Responsible for Shareholder’s Interest

 

People usually have the wrong impression that the Board is supposed to oversee the executives and safe-guard shareholder’s interest. In most cases, corporate executives are close buddies with board members, so all of them are riding the very same corporate gravy train.

 

Attacking the Corporate Gravy Train

 

Governments do have an excuse to act over outrageous executive pay packages, but usually not very effective. For example, according to the Economist, the U.S. government had two unsuccessful attempts (1984 and 1993) to cap executive severance pay, and imposing a special tax. But corporate army of legal and tax experts quickly structure executive employment agreements to include other forms of share options and pay outside of the limits set by the government.

 

The global downturn from China slowdown and oil price crash has sparked outrage over executive compensation. We probably will see more examples of corporate greed to surface in the coming months.

 

Unfortunately, within the current existing system, shareholder activists (particularly led by large institutions) are the only ones that can put pressure on the Board to influence executive pay decisions….or until “say on pay” votes by shareholders becomes mandatory at public companies.

 

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Sometimes you have to laugh…

• *BRENT CRUDE ERASES DECLINE, TRADES 22C HIGHER AT $43.32/BBL

While WTI is still not quite there, Brent Crude has erased a 7%-plus decline…

 

Credit Suisse suggests a few reasons for the Market Bounce – Pain trade higher, Energy covering, Gorman comments, NAHB elevated, HY/Equities decoupling from oil

1-HF exposures remain at 3 year lows + long only cash parked on sidelines – Pain trade higher, dips being bought most cited reason for this morning’s bounce

 

2-Oil & Gas high short interest vs float names leading higher since open, ranging from 3 – 5% rally off opening lows (WPX QEP, SDRL, CIE, EPE, CNX, NFX, CLR, APC)

 

3-MS #s good enough, add to continued momentum in financial space.  Gorman comment “M&A pipeline strong” helping

 

4-NAHB homebuilder sentiment index still elevated, comes in at 58 (same as before)

 

5-Oil has been decoupling from HY and equities – possibly because earnings expectations have gotten too low for this quarter

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Almost exactly two years ago, in April 2014, Greece issued €2.5 billion in 5 year bond yielding around 5%, which was met with huge investor interest and ended up being 8x oversubscribed. Fast forward to today when another former shutout from global bond markets, Argentina, is in the FT’s words, “on the cusp of one of the most anticipated comebacks in recent history, as the Latin American country ends a 15-year exile from the international debt market with a multibillion-dollar sale.”

According to the FT, “initial pricing puts the yield on new 10-year debt at 8 per cent, with shorter dated three and five-year bonds yielding 6.75 per cent and 7.5 per cent respectively. Its 30-year bond is slated to yield 8.85 per cent.”

As a reminder, the Latin American country has been locked out of global debt markets since defaulting on close to $100bn in 2001 while in the midst of recession. “The government’s subsequent battle with creditors who refused to accept a restructuring deal, including a fund managed by Paul Singer’s Elliott Management, led to a lengthy and rancorous fight in international courts that sparked a global effort to redesign the way that countries borrow money.”

Argentina then officially redefaulted in 2014 as a result of its ongoing legal feud which prevent the country from repaying both normal creditors as well as holdouts.

However, last year’s election of President Mauricio Macri’s market-friendly government ignited renewed investor interest in Latin America’s third-largest economy. Read: a scramble to obtain some yield, just like in the case of Greece. And since the dramatic change in sentiment meant Argentina would be once again able to roll over debt, it had little problem reaching an agreement with holdouts such as Elliott and repaying them in full, in what has been perhaps the biggest IRR for Paul Singer’s hedge fund to date.

Investors are clearly excited at the opportunity to park other people’s money and to pocket a roughly 7.5% coupon. “Argentina has one of the best economic policy teams in emerging markets and they have the potential to transform the economy,” said Anthony Simond, investment analyst at Aberdeen Asset Management. “They are still unproven so at the moment the country has to pay up to borrow, but we are positive.”

Incidentally, this is identical to the prevailing sentiment that preceded the Greek bond issue .

And just like in the case of Greece, the preliminary demand for Argentina bonds is already off the charts: according to Reuters the total issue is already almost three times oversubscribed:

• ORDER BOOKS ON #ARGENTINA’S BOND SALE REACH AROUND US$40BN: SOURCES – RTRS

What happens next? According to the FT, “while some investors had expected the country to issue more than $18bn this year, Secretary of Finance Luis Caputo has said today’s debt sale will be the only one until 2017.”

“It’s a complex issue to price,” said Simon Lue-Fong, head of emerging market debt at Pictet Asset Management. “You can look at existing Argentina debt or comparable issuers such as Brazil, Lebanon or Ecuador. But Argentina has been absent from markets for a long time and is about to issue a lot of supply so there is no easy comparison.”

The sale of debt, led by Deutsche Bank, HSBC, JPMorgan and Santander, will be used to pay holdouts and finance the country’s budget deficit.

So should you rush to demand an allocation to the Argentina bonds, or buy them at the open?

Well, if Greece is any indication it didn’t take too long for the bonds to see their price cut by 25%. As the chart below shows, the same bond that was issued at a yield of 5% is now yielding just over 10%, at a price of 86 cents on the dollar.

 

Will Argentina’s bond fate be the same? We will have the answer in about a year. For now, however, with central banks doing their best to rekindle animal spirits we expect that the final oversubscription on the Argentina bond issues will be well north of $50 billion before the books finally close.

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Why not… makes perfect sense, right?

June up 5% off the lows…

 

And May up 5.6%…

 

As we suspect hedges are being lifted and the vol tail is wagging the oil industry’s dog…

 

Buy the rumor, buy the news, but the total disappointment… Just Buy Stupid!!

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Having already exposed the fakeness of China's most recent trade data (and implicitly its GDP data), we were not entirely stunned by the fact that, as Bloomberg's Tom Orlik reports, China’s growth rates for quarter-on-quarter and year-on-year GDP for the past year don’t match.

 

So to start with, we have this entirely unsustainable "data"…

 

 

That, combined with confirmation that 1Q output was underpinned by an unsustainable resurgence in real estate, tarnishes the newly acquired shine on the country’s economic prospects.

And now, as Bloomberg's Tom Orlik and Fielding Chan expose…

The initial reaction to the 1Q GDP data, published Friday, was a sigh of relief. Growth at 6.7% year on year was in line with expectations and comfortably inside the government’s 6.5-7% target range. If anyone noticed that the normal quarter-on-quarter data was missing from the National Bureau of Statistics release, few thought anything of it.

 

YoY Versus Accumulated Annual QoQ GDP Growth

h/t @S1moncox

 

Then, on Saturday, the quarter-on-quarter data was published, and some of the relief turned to consternation. Quarter-on-quarter growth in 1Q was just 1.1% — an annualized growth rate of 4.5%, and the lowest print since the data series became available in 2011. Worse, based on the accumulated quarter-on-quarter data over the last year, annual growth in 1Q was just 6.3% — substantially below the NBS’s 6.7% reading for year-on-year growth.

 

Explaining the inconsistency between the two data points is tough to do. Accumulated quarter-on-quarter growth over four quarters should add up to year-on-year growth. In the past, it has. The divergence in the 1Q readings might reflect something as simple as difficulties with seasonal adjustment. Even so, against a backdrop of concerns about data reliability, it can only add to skepticism about China’s true growth rate.

As The Economist's Simon Cox sums up:

China's Q1 growth was either 6.7% y/y, 4.5% q/q saar (1.011^4) or 6.3% y/y (1.018*1.018*1.015*1.011)

But then again – in the infamous words of Hillary Clinton – what difference does it make? Now that manipulation is so exposed and unhidden, why worry?

via http://ift.tt/1XEHXMa Tyler Durden