Posts Tagged: what this means

 

HARVARDWhile the annual Harvard senior survey of graduating students always provides an informative glimpse into the past, present and future of graduates from the US’ most prestigious (whether or not this is deserved is a different question) institution, the topics most interesting for us and our readers revolve, not surprisingly, around money.

Here are the key observations of what students in all “non-Harvard” universities across the nation may be missing (or not).

First, work plans:

  • 61 percent of graduates will be employed next year. 18 percent will enter graduate school right away. The rest will pursue fellowships or travel or are among the 10 percent who have not yet determined their post-graduation plans.
  • Of those who will be working, the most popular industry is consulting, drawing 16 percent of employed seniors.
  • Another 15 percent will be working in finance, nearly doubling the 9 percent who entered the sector last year but still paling in comparison to 2007, when before the financial crisis, 47 percent of graduating seniors went into finance. However, of the respondents only 5% said they will still be working in finance ten years down the line. Hilsenrath’s take on what this means for Bernanke’s “taper” is unavailable as of this posting.
  • 9 percent envision a career in government or politics, though only 4 percent will pursue one right away. Of course, Harvard grads will feel right at home at a place like Goldman where the fields of financen and government are finely fused into one inextricable union. >> Read More
 

As is well-known by everyone, the Fed monetizes the US deficit on a daily basis, thanks to the 45 minutes of POMO love each day when it buys Treasuries from Dealers. Of course, the Fed monetizes bonds from across the entire curve (mostly the longer end), which is why it is somewhat complicated to express the amount of risk transfer the Fed takes on every time the S&P posts an uptick as a result of yet another bond purchase by the hedge fund with the largest fixed income portfolio in the history of the world. However, one simple way of expressing just this risk is through the use of ten year equivalents: Ten-year equivalents are the amount of 10-year notes that must be held by the Fed in order to remove the same amount of interest rate risk from the market as its current holdings. What this methodology allows is to represent the Fed’s holdings of all marketable securities on a linear continuum, and represent the remainder, or those bonds held by the private sector, on the side.

So what may come as a surprise to most, is that as of this week’s H.4.1 update, the amount of ten-year equivalents held by the Fed increased to $1.583 trillion from $1.576 trillion in the prior week, which reduces the amount available to the private sector to $3.637 trillion from $3.668 trillion in the prior week. And also, thanks to maturities, and purchase by the Fed from the secondary market, there were $5.219 trillion ten-year equivalents outstanding, down from $5.244 trillion in the prior week. >> Read More

 

We already knew that the US crossed the debt ceiling on New Year’s day. It is, however, one thing to read a Geithner press release, it is another to see America’s ridiculous debt it in action. So here it is, courtesy of TreasuryDirect, in all its debt ceiling glory: $16,432,730,050,569.12, with the debt subject to the ceiling at the limit of $16.394 trillion.

And with that we can close the books on the first quarter of Fiscal 2013, in which US public debt grew by $366 billion, some $122 billion per month on average. >> Read More

 

While Europe continues to plan and scheme, content in the knowledge that Greece can do nothing to derail plans of status quo preservation, especially ahead of next week’s critical parliamentary vote that will see the country imposing even more austerity on its people (see well profile in the AP today in “Hit by crisis, Greek society in free-fall“), Greece has just decided to pull a “Karlrushe Kardinals who say Nein” move, and as Reuters reported moments ago, the entire process may be scuttled by none other than another court, this time in Greece:

  • GREEK COURT SAYS PLANNED PENSION CUTS, RETIREMENT AGE INCREASE  SOUGHT BY EU/IMF LENDERS MAY BE UNCONSTITUTIONAL                    

What this means is that suddenly Greece once again has all the leverage (recall that last year the threat of a Greek moratorium cost G-Pap his job), a development which in June sent Europe plunging on fears that Greece may vote itself out of the Eurozone, leading to a Grexit, the return of the Drachma, redenomination, collapse in risk levels, the apocalypse and other bad things.

Judging by the reaction in the EURUSD, risk is now once again off.

 

While the EUR was soaring, and Spanish bond yield were (very briefly) plunging in the past 48 hours, the reality behind the scenes was very different than what was blasted publicly in the headlines. Namely, Spain was on the verge of requesting a full blown sovereign bailout, one which would see it become the next country after Greece, Ireland and Portugal to fall under the Troika’s control. From Reuters: “Spain has for the first time conceded it might need a full EU/IMF bailout worth 300 billion euros ($366 billion) if its borrowing costs remain unsustainably high, a euro zone official said. Economy Minister Luis de Guindos brought up the issue with German counterpart Wolfgang Schaeuble in a meeting in Berlin last Tuesday as Spain’s borrowing costs soared past 7.6 percent, the source said. If needed, the money would come on top of the 100 billion euros already agreed to prop up Spain’s banking sector,stretching the euro zone’s resources to breaking point, and Schaeuble told de Guindos he was unwilling to consider a rescue before the currency bloc’s ESM bailout fund comes on line later this year.” So why the sudden attempt to talk up European risk in the last two days? Simple - Germany did not agree to fund Spain’s bailout. Which meant it was suddenly up to Europe’s apparatchiks to jawbone markets into cooperation. “De Guindos was talking about 300 billion euros for a full program, but Germany was not comfortable with the idea of a bailout now,” the official told Reuters.”

What this means is that, as we suggested yesterday, Draghi really has nothing up his sleeve, and the promises of the last two days from Nowotny and less than Super Mario are very ad hoc and even more hollow, and that the vigilantes are about to come back with a vengeance as Spain has effectively admitted it is broke. So once the euphoria from the latest risk on episode fades, watch out. >> Read More

Soros On Europe: Iceberg Dead Ahead

15 April 2012 - 8:07 am
 

George Soros has been a busy man the last few days. Appearing at the INET Conference a number of times and penning detailed articles for the FT (and here at Project Syndicate) describing the terrible situation in which Europe finds itself – and furthermore offering a potential solution. Critically, he opines, the European crisis is complex since it is a vicious circle of competing crises: sovereign debt, balance of payments, banking, competitiveness, and structurally defective non-optimal currency union. The fact is ‘we are very far from equilibrium…of the Maastricht criteria’ with his very clear insight that the massive gap, or cognitive dissonance, between the ‘official authorities’ hope and the outside world who see how abnormal the situation is, is troublesome at best. Analogizing the periphery countries as third-world countries that are heavily indebted in a foreign currency (that they cannot print), his initial conclusion ends with the blunt statement that “the euro has really broken down” and the ensuing discussion of just what this means from both an economic and socially devastating perspective: the destruction of the common market and the European Union and how this will end in acrimonious recriminations with worse conflicts between European states than before.

However, he offers some hope and a potential solution to the fact that these nations have implicitly handed their ‘seignorage rights’ to the ECB, in the potential for a balance between fiscal austerity and deflation (or at minimum new rules that would remove to a greater extent the vicious circle of the fiscal compact as deflationary debt trap). The punchline being the creation of an SPV that ‘owns the ECB’s seignorage rights – estimated to be worth $2-3 trillion’ that could explicitly be used to acquire bonds without violating the Lisbon Treaty. The sad truth of this admittedly smart financial engineering (pretend austerity and optically no money printing when exactly that is occurring) is that the Bundesbank will never agree to it (as implicitly it ends up at the foot of the German taxpayer to a greater or lesser extent) even though, as he concludes, the future of the Euro is a political one and thus “beyond the Bundesbank’s competence to decide.” 

A must-watch harsh reality check on Europe and a man trying to find answers when the authorities remain blind to the endgame…

Project Syndicate: Reversing Europe’s Renationalization

George Soros

NEW YORK – Far from abating, the euro crisis has taken a turn for the worse in recent months. The European Central Bank managed to relieve an incipient credit crunch through its long-term refinancing operation (LTRO)…

The fundamental problems have not been resolved; indeed, the gap between creditor and debtor countries continues to widen. The crisis has entered what may be a less volatile but potentially more lethal phase.

At the onset of the crisis, the eurozone’s breakup was inconceivable… >> Read More

 

Moments ago Japan’s Kyodo reported that the upcoming North Korean missile launch has entered a “full-fledged state of action.” While not immediately clear what this means, it is not all that surprising: after all this is precisely what Un has said he would do, and so he will. What is more important is that according to VOA Japan is now actively preparing for “countermeasures” and is “preparing for contingencies” should the missile veer off course. Because if Fukushima taught us something is that gusts of wind around Japan always somehow point toward Tokyo. To wit: “The Japanese parliament has approved a resolution condemning North Korea’s planned missile launch, and the country is also preparing contingencies should the missile veer off course and pose a threat to Japan. Speaking in Tokyo Friday, Defense Minister Naoki Tanaka said the Japanese military will be prepared for any eventuality. Tanaka says he is ordering officials toprepare deployment of PAC-3 surface-to-air missiles and Aegis destroyers carrying a state-of-the-art anti-missile system that could attempt to shoot down the rocket.” Of course, by the time the shooting is over, ES will be at least limit up: consider the upside GDP potential resulting from rebuilding the world in the aftermath of armageddon.

More from VOA:

 Pyongyang says it will place an earth observation satellite into a polar orbit in mid-April to honor the 100th birth anniversary of its late founder and perennial president, Kim Il Sung.

 Members of the international community say the launch is a pretext for a long-range missile test, which North Korea is forbidden from conducting under U.N. sanctions.

 South Korean and Japanese diplomats met in Seoul to share their responses to the upcoming launch.  Japan’s nuclear envoy, Shinsuke Sugiyama, says Tokyo and Seoul are also in contact with other capitals. >> Read More

 

And while the bankers (on both sides of the table) haggle about how to best leech Greece even dryer (with a solution due any hour, day, week now), the actual people are starting to wave the white flag of surrender. Because the opportunity cost of every additional coupon payment is having a direct, immediate and increasingly more dire impact on virtually every aspect of the economy. Kathimerini reports that “about 160,000 jobs will be lost this year in the commerce sector, according to the National Confederation of Greek Commerce (ESEE) as the constant decline in disposable income has led to a sharp drop in turnover and a steep rise in the number of enterprises shutting down.” Indicatively, the latest Greek employment figures per the IMF, show  that 4.156MM people are employed. So commerce alone is about to lead to a 4% drop in total jobs. As the chart below shows, net of just this sector, Greek jobs are about to go back to 2010 levels. What this means for the Greek unemployment rate, and for GDP we leave to our readers, although the ESEE does a good job of summarizing what to expect: the “ESEE warns that soon Greece will be in a condition of absolute poverty.” And that, ladies and gents, is how Europe slowly but surely reentered the Feudal age, and what every other country in the European periphery that has a massive debt load, and no surplus (actually make that every country in the world), has to look forward to: absolute poverty, aka debt slavery. >> Read More

 

And while the bankers (on both sides of the table) haggle about how to best leech Greece even dryer (with a solution due any hour, day, week now), the actual people are starting to wave the white flag of surrender. Because the opportunity cost of every additional coupon payment is having a direct, immediate and increasingly more dire impact on virtually every aspect of the economy. Kathimerini reports that “about 160,000 jobs will be lost this year in the commerce sector, according to the National Confederation of Greek Commerce (ESEE) as the constant decline in disposable income has led to a sharp drop in turnover and a steep rise in the number of enterprises shutting down.” Indicatively, the latest Greek employment figures per the IMF, show  that 4.156MM people are employed. So commerce alone is about to lead to a 4% drop in total jobs. As the chart below shows, net of just this sector, Greek jobs are about to go back to 2010 levels. What this means for the Greek unemployment rate, and for GDP we leave to our readers, although the ESEE does a good job of summarizing what to expect: the “ESEE warns that soon Greece will be in a condition of absolute poverty.” And that, ladies and gents, is how Europe slowly but surely reentered the Feudal age, and what every other country in the European periphery that has a massive debt load, and no surplus (actually make that every country in the world), has to look forward to: absolute poverty, aka debt slavery. >> Read More

 

The most recent addition to the “I am Jack’s complete lack of surprise” pile comes from Reuters, which reports that the latest out of Greece is a proposal for even greater cuts for creditors than previously expected. From Reuters: “Greece’s private sector creditors could take a loss of more than 70 percent in a planned debt swap, Finance Minister Evangelos Venizelos said on Tuesday. “There is a very serious discussion based on new factsWe are talking about a PSI much greater than the original,” he told lawmakers, referring to private sector involvement in the deal. “We are talking about a haircut on the net present value exceeding 70 percent,” he said.”

What this means, simply, is that when calculating the NPV of the post-reorg bond, the Yield to Maturity is now less than 30%, and thus is likely going to have a cash coupon of about 3.6%. This is relevant because as is known, one component of the creditor recovery is receipt of EFSF bill in lieu of cash to the tune of 15 cents of notional, and the balance, at least until this point, would have been a 35% yielding piece of post-reorg paper (for a 50 cent total cut as agreed upon in the October bailout). That was the case when the cash coupon was 4%. Going forward, and assuming a 3.6% cash coupon, the return on this fresh start debt drops substantially. Needless to say, creditors will almost certainly balk at this, because when it comes to calculating real yield, most are expecting a roughly 90% recovery at best on the EFSF strip (as every fund will scramble to dump their paper), so 14 cents on the total, and then funds are also hoping for at least 1 year of current yield, i.e., cash coupon. It becomes iffy around the 2 year mark, as it is a roughly 90% probability that Greece will file for bankruptcy yet again just after the first coupon is paid, at least according to hedge fund return calculations. It also means that nobody gives a rats ass about the IRR (as nobody expect to get post-reorg bond principal at maturity), and all are solely concerned with what the cash coupon will be that they can collect for one, max two years.

Which explains why at 14 cents + 3.6 + 3.6 or 21.2, which is where Greek paper trades currently, there is absolutely no upside for creditors, and the only real upside option is to hold out for sovereign debt litigation, where the recovery could be as high as par. Expect no deal to come out of this, despite what the IFF, which now likely represents just Deutsche Bank and SocGen, says. So much for that upper hand.

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Technically Yours,
Team ASR,
Baroda, India.