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After taking 2 days off last week, the mysterious but persistent US Treasury bond seller is back. Like clockwork as the US markert awakes, no matter what the trend overnight, Treasuries are offered in size and yields snap higher...

Around 8amET each day, bonds become magically offered...


Bernanke's new gig must be working out?


Chart: Bloomberg

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And by extension for executive bonuses.

Update: Well that didn't take long to entirely reverse course... Stocks still down but so are bonds and gold now... Dollar up...


It appears bad news is not great news when it comes to GDP. Having missed consensus by a mile, GDP's weakness has sparked a more 'normal' reaction across asset classes for now. Weakness in the dollar and stocks along with bond yields tumbling (10Y back under 2.00%) and strength in precioius metals. Crude is uncaring for now.

After missing GDP expectations by a mile...


The reaction is not positive...


Charts: bloomberg

And so the Atlanta Fed, whose "shocking" Q1 GDP prediction Zero Hedge first laid out nearly 2 months ago, with its Q1 GDP 0.1% forecast was spot on. Moments ago the BEA reported that Q1 GDP was far worse than almost everyone had expected, and tumbled from a 2.2% annualized growth rate at the end of 2014 to just 0.2%, in a rerun of last year when it too "snowed" in the winter.  This was well below the Wall Street consensus of a print above 1.0%.

In other words, in the quarter in which the S&P rose to unseen highs, the economy ground to a near halt.

Only this time it wasn't the snow, as the main reason for the plunge in economic growth was not only personal consumption which was cut by more than 50% from last quarter, tumbling to just 1.31%, but fixed investment, i.e., CapEx, which subtracting 0.40% from the bottom line GDP number, was the lowest print since 2009!


The fact that trade also subtracted a whopping 1.25% from the final number shows that while one can blame the weather for anything, the reality is that in the start of the year global trade did indeed grind to a halt, a picture which is only getting worse with every passing day.

The only good news: the massive inventory build, the largest since 2010, boosted GDP by nearly 3.0%. Without this epic stockpiling of non-farm inventory which will have to be liquidated at some point (and at a very low price) Q1 GDP would have been -2.5%.

Here is the full breakdown of the GDP number:


And a historical breakdown showing that the Q1 "snow in the winter" curse is alive and well.

Europe’s Largest Airline Falls Prey to $5 Million Cyber Theft

- Europe’s largest airline says $5 million (€4.5m) taken from bank accounts
- Ryanair confirms hackers stole via Chinese bank
- Cash siphoned from one of its bank accounts
- Hackers transfer $5 million from a Ryanair dollar account to Chinese bank
- Highlights growing risks of cyber crime and lack of protection
- Cyberattacks as the “New Cold War” and risk to all our wealth
- Cash no longer king - deposits more risky due to cyber crime 

Europe’s largest airliner in terms of passengers, Ryanair, has had $5 million siphoned from one of its bank accounts. It is alleged that Ryanair were hacked by cybercriminals and had the cash illegally transferred to a bank account in China.

Cyber thieves managed to initiate a single fraudulent transaction using a Chinese bank when stealing the money from the airline, according to reports. The hacked account held dollars which the Irish company uses for fuel purchases.

In a statement Ryanair said the following:

“The airline has been working with its banks and the relevant authorities and understands that the funds – less than $5 million – have now been frozen.”

“The airline expects these funds to be repaid shortly, and has taken steps to ensure that this type of transfer cannot recur.”

Ryanair Boeing 737
Ryanair Boeing 737

Although the sum stolen was relatively small in corporate terms and appears to have been tracked and frozen quite quickly, the incident - yet again - highlights the threat posed by cybercrime to today’s banking and financial systems.

Legislation to deter cyber theft is only as effective as the means to enforce it. It is a relatively new phenomenon that a theft could be committed without the thief having to set foot in the jurisdiction from where the asset is stolen.

If the perpetrators are above the law or reside in a different jurisdiction legislation is not an effective deterrent.

In February, we covered how Moscow based cybersecurity firm Kaspersky Lab had uncovered the operations of an international group of cybercriminals who stole up to $1 billion from “over 100 banking and financial institutions in 30 different countries across the world”.

To date, there appears to have been no progress in identifying the hackers demonstrating the comfort and impunity with which very savvy cyberthieves can operate.

Guy Haselmann from Scotiabank has described cyber attacks as the “New Cold War.” In his piece “The Invisible Enemy” he refers to President Obama’s recent State of the Union address where he described “foreign cyber threats as a ‘national emergency’.”

Obama said that the “if the US government does not improve cyber defenses, we leave our nation and our economy vulnerable”.

Haselmann goes on to suggest that warfare ideology has moved from the insane doctrine of Mutually Assured Destruction (MAD) through nuclear weaponry to “Multilateral Unconstrained Disruption” - MUD.

“This unrestricted warfare”, he says, “is meant to disrupt societal functioning; to ‘poison’ information to elevate distrust of all computer information.”

That governments are involved in this type of warfare is beyond dispute. We previously covered how a broad spectrum of countries had perpetrated cyberattacks against their rivals.

The outcomes of such attacks, while not on a par with a nuclear holocaust, should not be taken lightly. It is believed that the deployment of the Stuxnet virus by the U.S. and Israel against an Iranian nuclear facility almost caused a major environmental catastrophe.

Trojan malware, apparently of Russian origin, was found in on Nasdaq’s central servers which was capable, according to the NSA, of “wiping out the entire exchange”. The knock-on effects of such an action would likely have led to stock market crashes, recession and possibly depressions and social upheaval across the world.

The new cold war may indeed be one of cyber warfare. If so we can expect an escalation of such attacks should relations between Washington and NATO and Russia, Iran and other Middle Eastern nations deteriorate further.

The fact that cyber theft can occur demonstrates the abstract nature of modern currency. By manipulating digits on a computer screen and through hacking, wealth can be transferred from one part of the world to another and from one bank account to another.

The means to acquire goods and services is now almost entirely determined by an intangible and virtual medium of exchange. This renders cash little better than cryptocurrency, although in theory cryptocurrency should not and cannot be printed and electronically created with reckless abandon as is happening to the dollar, euro, pound and other paper and electronic currencies today.

The risks posed by cybercrime, cyber warfare and cyberterrorism to this type of monetary system should not be underestimated.

If the system were to become severely compromised or even collapse - through cyberattacks or any of the myriad risks to the system that exist today - it is highly likely that in the ensuing panic gold and silver buying, prices would surge to levels never seen before.

That would see gold and silver rise well above the inflation adjusted record highs or real record highs above $2,500 per ounce and $150 per ounce.

Owning physical gold in segregated, allocated accounts is essential financial insurance to protect wealth today.

Important Guide: 7 Key Gold Storage Must Haves



Today’s AM LBMA Gold Price was USD 1,204.80, EUR 1,095.45 and GBP 783.99 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,201.40, EUR 1,100.56 and GBP 788.17 per ounce.

Gold climbed 0.82 percent or $9.80 and closed at $1,212.20 an ounce yesterday, while silver rose 1.4 percent or $0.23 closing at $16.61 an ounce.

Gold in US Dollars - 1 Year
Gold in US Dollars - 1 Year

In Asia overnight, Singapore gold prices ticker marginally lower and hovered at $1,209 an ounce near the end of day trading after gaining almost 3 percent the two previous trading sessions. Gold eked out small gains this morning to trade to its highest price in three weeks as a weak U.S. data and a weak dollar have lowered expectations for a U.S. interest rate hike in June.

Today's focus will primarily be on the U.S. Federal Open Market Committee statement at 1900 GMT and the U.S. GDP data out earlier at 1330 GMT.

Most analysts are expecting a dovish statement from the Fed especially if the GDP data published today is weak. A softer dollar will should  help the yellow metal’s safe haven appeal and boost prices.

China’s gold bullion imports from Hong Kong fell this March to its lowest level in seven months. Q1 saw a 9 percent fall in Chinese physical gold buying cited an industry report. Although demand as seen on the Shanghai Gold Exchange withdrawals remains near record highs.

Iran and the U.S. Navy appear poised for a battle that could degenerate into another theatre of war in the Middle East.

Yesterday, a cargo ship was shot at, boarded and confiscated by Iranian naval forces and taken to the Persian Gulf port of Bandar Abbas, on the Strait of Hormuz. 34 sailors on board the vessel are American, although U.S. officials later said that the ship, bearing the flag of the Marshall Islands, has no American sailors on board.

Iran's FARS news agency said the vessel had been detained "for trespassing in Iran's territorial waters." The Pentagon said the action was “provocative.”

Some 17 million barrels per day – about 30 percent of all seaborne-traded oil – passed through the Straits of Hormuz in 2013, according to the US Energy Information Administration.

Just last week, the president directed the USS Theodore Roosevelt to the Gulf of Aden to “ensure the freedom of navigation” through its strait, US officials said, as Iranian ships approached Yemen’s shores.

Geopolitical risk remains underestimated by markets. There are a number of geopolitical Black Swans out there - from the Ukraine to the Middle East which could flare up and be the catalyst for the next stage of gold’s bull market.

Gold in late morning trading in London is down 0.53 percent at $1,205.28 an ounce. Silver is off 0.83 percent at $16.46 an ounce while platinum has dipped 0.32 percent at $1,151.49 an ounce.

Breaking Gold News and Research Here

Stratasys, Ltd. (NASDAQ: SSYS) shares ...

Full story available on Benzinga.com

Following the previous report that during dinner yesterday Yanis Varoufakis, whose political position is currently in limbo, was attacked by young anarchists and whose wife promptly swooped in to protect him from literal stones (if not sticks), as opposed to the Eurogroup's metaphorical ones, the is the statement he just issued, courtesy of the Guardian:

Contrary to the conjecture that has been heard, it was not an organised attack or attempt at seriously injuring us, provocation or part of the much wider attempt to politically “econstruct” me in recent days.


I have the impression that their goal was not to hurt us, because if they had wanted to hurt us, they had the opportunity and ‘arithmetic’ supremacy to do so. I think their aim was to force me to flee with a few light humiliating swipes. This, however, will never be known because Danae before the anti-establishment protestors [and before I could stop her], stood up and hugged me hard, turning her back towards them so that they would have to hit her before me.”

Meanwhile, with much confusion over who is now in charge when negotiating with the Troika, Yanis tried to clear things up:


In other news, the person who is now really in charge of the negotiations, Euclid Tsakalotos, the Oxford-educated economics professor who as described by the Guardian, now heads up the Greek negotiating team in debt talks, has just made statements saying Greece has to keep to its “red lines” and that any “areas of compromise” should be within the “political plan”.

In other words, the new boss may or may not be the same as the old boss, but the political party line remains, and Syriza is still terrified of disappointing one of the two core parties: either the Troika or its voters, and as a result it will try to appease both until it runs out of all funds.

There is a financial crisis on the horizon. It is a crisis that all the Central Bank interventions in the world cannot cure. It is a financial crisis that will continue to change the economic landscape of America for decades to come. No, I am not talk...

From Bloomberg's Richard Breslow whose recent pieces have been spot on.

Dear Fed, It’s Time to Lean, or Leave

At long last we’ve reached April’s FOMC day.

Interesting that while almost everyone agrees on what the statement will/should say, there is no clarity on what the members, especially the core members, are really thinking.

Communication policy -- the professed desire for "transparency" - and the crutch of “data dependency” crutch have turned market participants into great Fed staffer clones but not the Board Governors.

I for one think this is a golden opportunity for policy makers to lean the right way.

Not that I am unsympathetic to concerns about weaker than forecast 1Q economic numbers, or the the tenuous global situation. But given the Fed has QE everywhere (just today the Riksbank extended their QE), it really must consider that today represents a chance to move toward normalcy without anyone thinking they are going to get (overly or even mildly) aggressive.

Just today BlackRock was quoted as predicting an emerging market “taper tantrum” whenever the Fed begins to tighten. They are probably right but only as a knee-kerk reaction. Any “severe tension” or “major shock”, to quote BLK’s Amer Bisat, is likely to be followed by tactical and then strategic investors realizing what a great opportunity to get in at better levels just presented itself.

This is not 1994 because Yellen and Fischer remember that episode well. The Fed is not about to enter a sustained campaign of tightening. And everyone knows it. The rest of the world has had plenty of notice to get their ducks in a row.

Reserves held by emerging countries are at vastly different levels than they were 18 years ago. The expected weak GDP could actually help here to temper concern.

Goldman Sachs has a very interesting piece this morning comparing the causes and levels of increased corporate leverage in the US and Europe. As they say, corporates are releveraging (some would say their balance sheets are deteriorating) but showing “similar symptoms, different causes”

A big part of the U.S. equation is U.S. executives are looking at yields and realizing that to not borrow at these unsustainable levels could be a missed opportunity they will sorely regret. If you run a viable business and “investors” are throwing free money at you for future growth, why not leverage up and buy back some stock.

This is ultimately something the Fed needs to focus on and lean against.

Norway’s  sovereign wealth fund, the world’s largest (although I would argue that all central banks are now sovereign wealth funds) reported today record gains of $53B in the first quarter. Equity holdings were the driver of this. Good for them. Bad for global markets if monetary policy decisions become tied to any greater extent to the level of the SPX.

* * *


  • Police enforce curfew in Baltimore, disperse protesters (Reuters)
  • Saudi king resets succession to cope with turbulent times (Reuters)
  • Euro-Area Bank Lending Increases for First Time Since 2012 (BBG)
  • Riksbank Increases Bond Purchases as Key Rate Left Unchanged (BBG)
  • Greek Banks Get More Funds as ECB Weighs Collateral Discount (BBG)
  • Greek bank deposits drop 1.36 pct in March for sixth month in a row (Reuters)
  • Sarao Remains in Jail After Failing to Pay Bail at Hearing (BBG)
  • Barclays Boosts Expected Bill for Foreign-Exchange Fines to More Than $3 Billion (WSJ)
  • Thailand Unexpectedly Cuts Rate After Growth Forecast Cut (BBG)
  • Berlusconi to meet Thai businessman over Milan stake sale (Reuters)
  • European Bond Rally Set to Stall (WSJ)
  • Indonesia executes drug convicts, sparks anger from Australia, Brazil (Reuters)
  • Fewer Parents Are Saving for College (WSJ)
  • Europe Unseats U.S. as Best Place to Invest in Bloomberg Poll (BBG)


Overnight Media Digest


* Saudi Arabia said Wednesday that King Salman bin Abdulaziz had replaced his crown prince and foreign minister, in a dramatic shuffling of his top officials. (http://on.wsj.com/1bSejRZ)

* Twitter got a taste of its own broadcasting power today when Selerity, a New Jersey firm that crawls the Web for financial data, found and shared its earnings on the social-media service nearly an hour before its intended release.(http://on.wsj.com/1bSeixp)

* The Indonesian government executed eight people - seven of them foreigners - for their roles in drug crimes, after 11th-hour appeals for clemency by families, heads of state, and international organizations failed to sway President Joko Widodo.(http://on.wsj.com/1bSgzbU)

* The Securities and Exchange Commission is set to propose long-awaited rules that would force thousands of companies to tell investors how the pay of top management tracked the firm's financial results. (http://on.wsj.com/1bSeuN5)

* Fewer than half of American parents with children under age 18 are saving for college this year, and the average balance in savers' accounts for college has declined, according to a study by lender Sallie Mae and researcher Ipsos Public Affairs.(http://on.wsj.com/1bShyIT)



* AOL Inc and NBC Universal will share content and develop programming together as part of a licensing and distribution agreement that the two companies announced on Tuesday. (http://nyti.ms/1zbRD97)

* Takeda Pharmaceutical Co Ltd has agreed to pay $2.4 billion to settle thousands of lawsuits from patients and their family members who said that the company's diabetes drug Actos caused bladder cancer, it announced on Tuesday. (http://nyti.ms/1DzRd7Y)

* U.S. agriculture officials say it is "highly probable" that the virulent avian flu viruses that have hit U.S. poultry operations hard in recent weeks will return next fall when wild bird populations migrate south, potentially spreading the viruses into new regions of the country. (http://nyti.ms/1FwcTaV)

* Tyson Foods Inc, one of the country's largest meat producers, said on Tuesday that it planned to eliminate the use of human antibiotics in its chicken production by 2017. The company had been working toward that goal for some time, ceasing the use of antibiotics in its hatcheries last year and adopting feed free of antibiotics this year. (http://nyti.ms/1EmextJ)


Hong Kong


- Cathay Pacific's biggest cabin crew union is threatening to follow the airline's pilots in taking industrial action over pay and working conditions. The Cathay Pacific Airways Flight Attendants Union is demanding talks with management over what it says are unfair changes to staff contracts and is warning of a summer showdown unless bosses relent. (bit.ly/1Dzl40k)

- Fewer than half of respondents interviewed by three universities support the government proposal for the 2017 chief executive election. The latest poll, commissioned by Now TV and conducted by the three institutions, found that 47 percent support the government proposal, while 38 percent oppose it. The remaining said they were undecided. (bit.ly/1EBhR5F)

- California's Long Beach Transit will buy up to 60 electric buses this year from China's BYD, the company's biggest overseas order to date. BYD, partly owned by Warren Buffett's Berkshire Hathaway, won the bid at a public hearing in Los Angeles on Monday, according to Sherry Li, marketing director of BYD's overseas group. (bit.ly/1JzcE19)


- Eight Hongkongers remain missing four days after the Nepal earthquake, with another one has been confirmed dead and 33 others safe. The overall death toll in the quake rose above 5,100. (bit.ly/1OBFhyq)

- Drinking bottled water is more prevalent among men, youngsters and the more educated, a survey found. The study by the Civic Exchange think-tank found that those drinking bottled water were not likely to switch to tap water. It estimated that 1,826 tonnes of plastic waste is generated every day in the city. (bit.ly/1JzdT0u)

- The Travel Industry Council estimates that the number of mainland tours to Hong Kong for the Labor Day holiday will drop by 10 percent year on year. The Retail Management Association expects retail sales during the holiday will post a single-digit decline for the second year in a row. (bit.ly/1bBzUwZ)


- Huatai Securities is set to raise up to $5 billion in its public offering of H-shares in Hong Kong, surpassing GF Securities to become the city's biggest IPO in terms of funds to be raised by a Chinese enterprise in the city, according to market sources.



The Times

* Sainsbury's chief caught up in Egypt court drama

Mike Coupe, the chief executive of J Sainsbury, was forced to fly to Giza on Sunday to appeal against his conviction last September. (http://thetim.es/1HPiauF)

* UK economy slows sharply ahead of election

Britain started the year with the weakest economic growth since the country faced risks of a triple-dip recession, dealing the Conservatives a damaging blow just nine days before the general election. (http://thetim.es/1Gu1V1L)

The Guardian

* Greek finance minister denies being sidelined from debt talks

The Greek finance minister has denied that he has been sidelined from talks with Greece's creditors as he resumed outspoken attacks on the country's eurozone partners. (http://bit.ly/1bQKAsB)

* Alliance Trust strikes deal with Elliott Advisors

Alliance Trust, one of the UK's oldest investment firms, has reached an 11th-hour compromise with its rebel investor Elliott Advisors, which had been pushing for change at the company. (http://bit.ly/1zlW1my)

The Telegraph

* Gatwick oil project suspended amid permit confusion

Drilling for oil at Horse Hill near Gatwick will not be allowed to proceed because its backers, including entrepreneur David Lenigas, do not have the necessary approvals from government agencies. (http://bit.ly/1HPjeP6)

* Louis Vuitton's chequered pattern under threat from EU

Louis Vuitton's signature chequered squares are not distinctive enough to deserve a trademark, a European Court has ruled, following a challenge from German retailer Nanu-Nana. The European General Court has cancelled two community trademarks registered by Louis Vuitton for its leather products. (http://bit.ly/1AdoV2T)

Sky News

* BP profits fall 39 pct on oil price collapse

BP Plc has confirmed a drop of almost 40 percent in first quarter profits, blaming oil price weakness and its actions to address the issue. The company said its replacement cost profit in the first quarter came in at $2.1 billion - a decline of 39 percent over the same period a year ago. (http://bit.ly/1Krx21V)

The Independent

* Struggling Morrisons pays out 3 mln pounds to sacked boss Dalton Philips - with more to come

Dalton Philips, the former Morrisons boss, has walked away from the supermarket with nearly 3 million pounds ($4.60 million) and could get a further 1.6 million pounds in payouts over the next two years, despite presiding over a collapse in the company's profits. (http://ind.pn/1Ii2gJG)

Thanks to a dangerous combination of willful ignorance and sheer incompetence, regulators are (and will continue to be) years behind when it comes to cracking down on an HFT industry that has corrupted the “market” beyond all recognition and we all know that when it comes to things like leveraging a systemically important financial institution 40-1 or colluding to rig the world’s benchmark rates on which trillions in debt is based, no one ever goes to jail. And of course no central planners in Japan or the US will ever be brought up on charges of running the largest ponzi schemes the world has ever seen. 

Having said all of that — and as the CFTC proved with flash crashing “mastermind” Navinder Sarao — every so often individuals have to take one for the global ponzi perpetuating white collar crime team just to prove the authorities are not entirely asleep at the wheel and today’s example is apparently a 57-year old former currency trader from London who, according to police, was running a £30 million ponzi scheme. Here’s more via CityWire:

The City of London Police has arrested a currency trader who was linked in a global Ponzi scheme worth in excess of £30 million.  


A 59 year old was arrested in East Yorkshire by detectives on suspicion of fraud by false representation and money laundering.


The investment scheme attracted 375 complaints across the world from investors. One consortium of investors put £4 million into the scheme.


The investigation into the fraud began in December 2014. The National Fraud Intelligence Bureau linked 70 Action Fraud reports with a value of £10 million. This prompted an investigation by Humberside Police.

And from Bloomberg:

City of London Police arrests currency trader as part of ongoing investigation into a suspected Ponzi fraud worth ‘tens of millions of pounds.’ 

We’re anxious to discover which, if any, systemtically important financial institutions were complicit (either knowingly or by turning a blind eye) in facilitating this "global" fraud. 

Today we get a two-for-one algo kneejerk special, first with the Q1 GDP release due out at 8:30 am which will confirm that for the second year in a row the US economy barely grew (or maybe contracted depending on the Obamacare contribution) in the first quarter, followed by the last pre-June FOMC statement, in which we will find out whether Janet Yellen and her entourage of central planning academics will blame the recent weakness on the weather and West Coast port strikes and proceed with their plan of hiking rates in June (or September, though unclear which year), just so they can push the economy into a full blown recession and launch QE4.

This is how Deutsche Bank previews today's macroeconomic twofer:

By tonight we should have a lot more to talk about with regards to the US economy and the Fed as we see the first estimate of Q1 GDP and the FOMC conclusion. As we discussed earlier in the week the consensus for growth is 1% with DB now at 0.7% and the Atlanta Fed GDPNow at 0.1%. While we think some of the likely weakness is temporary we still believe that the US will continue to struggle to get close to its former trend rate of growth as far as the eye can see. That's partly due to sympathy with secular stagnation views and partly due to global weakness combined with a stronger dollar in a beggar thy neighbour world. We don't think the Fed shares this view so the FOMC statement (no press conference) will be interesting as to how much they put recent weakness down to transitory factors. DB’s Peter Hooper expects that the Fed will leave the door open for a June hike but sound balanced enough to leave market expectations for a rate hike by December (with high probability) if not September in place. However our read on this is that it leaves plenty of the time for the data to go either way so although we'll learn a lot about their thoughts on the recent weakness, the reality is that data will blow everything out of the water over the coming months.

Speaking of more QE, while hardly noticed in the US, overnight the Bank of Thailand shot a few rounds in the global currency war when it cut rates unexpectedly from 1.75% to 1.50%, followed by the Swedish Riksbank, which kept rates on hold at a negative 0.25%, however boosted its own QE by SEK40-50 billion as yet another bank tries to outpace its competitors in the race to the currency devaluation bottom.

Also overnight we got a German Bund auction which was once again technically an "uncovered" failure with just €3.65 billion in bids for a €4 billion issue, not helped when stops were tripped to the downside earlier, blowing out by a whopping 8 bps, and touching as much as 0.24% following news yesterday that Gundlach was joining Gross in shorting the German Treasury.

But perhaps the biggest catalyst for the selloff in the government complex as well as the jump in the EURUSD above 1.10 for the first time in three weeks is that for the first time in three years, lending by Euro-area banks to companies and households rose, which according to Bloomberg is "a sign that record monetary stimulus is finally reaching the economy."

From Bloomberg:

Bank lending increased 0.1 percent in March from a year earlier, the ECB said in a statement on Wednesday. Loans had posted annual declines in every month since May 2012. Lending climbed 0.2 percent from February.


“With its more aggressive stance, the ECB is finally bringing the euro zone back to at least trend growth,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Money and credit point to a firming business cycle.”

Of course, while one can be skeptical about these numbers and ask just how many of the trillions in NPLs had to be netted out of the calculation, the risk for the liquidity addicts is that loan creation will surge in the coming months and thus force the ECB to halt QE prematurely. As a reminder, commercial bank loan creation has been the all critical missing link from the European recovery.

Then again, Europe did "represent" a loan recovery in early 2012 before the latest credit dead cat bounce faded just as fast.

Back to markets, where we saw Asian stocks trade mostly lower following a mixed Wall Street close, which saw the NASDAQ 100 underperform after Twitter’s poor earnings release, dampening sentiment across Asian tech names. Shanghai Comp (-0.01%) and Hang Seng (-0.15%) fell and are on course for their first 2-day decline in 2 months, weighed on by several poor earnings. ASX 200 (-1.2%) was the worst performer with all sectors firmly in the red after yesterday’s AUD rally. Japanese stock markets were closed due to the Showa Day holiday.

European equities trade mixed with the telecommunications sector outperforming following talk of a possible combination between Sky (+0.6%) and Mediaset (+1.2%). The basic materials sector led the way lower with iron prices retracing some of its 20% gains seen this month. Large cap earnings in the form of Volkswagen saw the DAX heavyweight post a beat on revenue and profit which led to carmaker to initially open higher by 2%, only to pare the move after participants focused on CEO Winterkorn warning that market conditions for the auto-market will be challenging this year.

In fixed income markets, UST’s have edged lower alongside German paper with the UST 10y yield reaching 2% for the first time since March 17th. Weakness in Bunds have also pushed the 10y yield back above 0.2% after tripping stops to the downside at 159.00 and following the recent technically uncovered Bobl auction. German paper is also weighed upon by an influx of supply from the Eurozone in today's session.

Today provides a flurry of central bank releases with the Riksbank kicking off proceedings after they unexpectedly kept interest rate on hold at -0.250% which sent EUR/SEK lower by more than 700 pips. Furthermore, the Riksbank expanded their quantitative easing programme further by SEK 40-50bln and warned of a possibility of further cut in rates in the near future.

The USD-index has ticked lower with market participants exiting their long USD positions ahead of the FOMC meeting today which is expected to be relatively dovish given the slew of lacklustre data throughout the month. GBP/USD has benefitted from broad based USD weakness and reached 8 week highs as investors are caught short shrugging off some of the political uncertainty surrounding the UK. EUR/USD has also seen supported with slightly positive rhetoric from EU’s Moscovici stating that negotiations are close however, maintaining that progress remains slow.

USD/JPY has squeezed higher after RANsquawk sources noted a carry-trade driven hedge fund buying in USD/JPY in addition to favourable yields in UST’s as it trades at 2% for the first time in over a month. For EUR/JPY, main desks are eyeing a break of 131.50 which could result in the cross to test 135.00.

WTI and Brent crude futures reside in modest negative territory after yesterday’s API’s which showed a build of 4.2mln vs. a Prev. 5.5mln, a record 16th consecutive weekly build. In precious metals markets, spot gold is seen lower in a retracement of yesterday’s gains with Chinese gold output rising 14.72% Y/Y to 110,704 tons.

In summary: European shares fall with the basic resources and chemicals sectors underperforming and telco, utilities outperforming. Fed to Release Interest Rate Decision. Saudi King Puts Son Second-in-Line to Throne. Riksbank Increases Bond Purchases as Key Rate Left Unchanged. The Swedish and Dutch markets are the worst-performing bourses, the Italian the best. The euro is stronger against the dollar. German 10yr bond yields rise; French yields increase. Commodities decline, with nickel, silver underperforming and wheat outperforming. U.S. mortgage applications, FOMC rate decision, GDP, personal consumption, core PCE, pending home sales due later.

Market Wrap

  • S&P 500 futures down 0.1% to 2109.8
  • Stoxx 600 down 0.1% to 405.7
  • US 10Yr yield little changed at 2%
  • German 10Yr yield up 6bps to 0.23%
  • MSCI Asia Pacific down 0.8% to 156.1
  • Gold spot down 0.5% to $1206.6/oz
  • Asian stocks fall with the Shanghai Composite outperforming and the ASX underperforming.
  • MSCI Asia Pacific down 0.8% to 156.1; Nikkei 225 is closed, Hang Seng down 0.1%, Kospi down 0.2%, Shanghai Composite up 0%, ASX down 1.8%, Sensex down 0.5%
  • Euro up 0.19% to $1.1002
  • Dollar Index down 0.18% to 95.92
  • Italian 10Yr yield up 6bps to 1.44%
  • Spanish 10Yr yield up 6bps to 1.39%
  • French 10Yr yield up 7bps to 0.49%
  • S&P GSCI Index down 0.4% to 432.7
  • Brent Futures down 0.5% to $64.3/bbl, WTI Futures down 0.6% to $56.7/bbl
  • LME 3m Copper down 0.5% to $6088/MT
  • LME 3m Nickel down 1.2% to $13290/MT
  • Wheat futures up 0.1% to 476.5 USd/bu

Bulletin headline summary from Bloomberg and RanSquawk

  • The USD-index is softer ahead of today’s FOMC meeting as market participants square positions before the highly awaited release
  • US Treasury yields reach 2% for the first time since March 17th due to an influx of supply this week from the US
  • Looking ahead sees the release of German CPI, US GDP, Pending Home Sales, DoE crude inventories as well large cap earnings from Mastercard, Mondelez, Valeant and Time Warner
  • Treasuries steady before FOMC statement at 2pm and as week’s auctions conclude with $15b 2Y FRN, $29b 7Y notes; WI yield 1.765% vs 1.792% in March.
  • FOMC statement today likely to mention weaker 1Q due to temporary factors, reflect reduced chances of June liftoff, based on published research and interviews
  • Lending by euro-area banks increased 0.1% in March from a year earlier, according to ECB, after posting annual declines in every month since May 2012
  • Germany received EU3.649b bids at an auction of 5Y notes, missing EU4b goal; Bundesbank retention rose
  • ECB raised the amount of emergency liquidity available to Greek banks while signaling that access to such funds may become more difficult as bailout talks remain deadlocked
  • Greek Finance Minister Yanis Varoufakis said he and his wife were attacked by a group of hooded anarchists while they dined in central Athens Tuesday night
  • Hillary Clinton’s presidential run is prompting new scrutiny of the Clintons’ financial and charitable affairs—something that’s already proved problematic for the Democratic frontrunner, given how closely these two worlds ove rlap
  • Sovereign bond yields higher.  Asian, European stocks lower, U.S. equity-index futures decline. Crude oil, gold and copper lower

US Event Calendar

  • 7:00am: MBA Mortgage Applications, April 24 (prior 2.3%)
  • 8:30am: GDP q/q, 1Q, est. 1%  (prior 2.2%)
    • Personal Consumption, 1Q, est. 1.7% (prior 4.4%)
    • GDP Price Index, 1Q, est. 0.5% (prior 0.1%)
    • Core PCE q/q, 1Q, est. 1% (prior 1.1%)
  • 10:00am: Pending Home Sales m/m, March, est. 1.1% (prior 3.1%); Pending Home Sales y/y, March, est. 5.1% (prior 12%)
  • 2:00pm: FOMC Rate Decision, Upper Bound, est. 0.25% (prior 0.25%)

DB's Jim Reid concludes the overnight recap

Turning to markets it looks like Asian investors are mostly on the back foot overnight. Indeed The Shanghai Composite (-0.35%) is having its first back to back loss in two months on news that one of the biggest brokerages in China has restricted the number of shares eligible for margin lending. The softer tone also comes after the numerous press chatter of Chinese QE over the last few days. Our former colleague Jun Ma has made some comments on the QE story. Indeed the now Chief Economist for PBOC said that he sees no need for PBoC to inject funds via bond purchases as the Chinese central bank has sufficient tools to maintain liquidity at reasonable levels, including targeted re-lending, interest rates and reserve requirement ratios. He also added that direct funding to government by central bank is forbidden according to China’s law. China’s 1yr rate swaps rose the most in a month following comments by Jun as markets scaled back hopes of QE.

Elsewhere in Asia the Hang Seng, KOSPI and the ASX 200 are down -0.5%, -0.6% and -1.3%, respectively. The Dollar is holding firm overnight against major currency pairs ahead of the Fed meeting announcement. Asian credit markets are focused on digesting new supply while the 10yr Treasury is largely unchanged at around 2% as we go to print.

Speaking of Treasuries the 8bp move higher in the 10yr was perhaps one of the more notable market moves during yesterday’s trading session. This was the biggest one day spike since early March and the first flirtation with the 2% mark for about 6 weeks. The 30yr yield rose 9bps higher to 2.70%. Staying in the US the S&P 500 (+0.28%) finished the day a little higher helped by gains across all sectors except Consumer Discretionary. Sentiment was boosted by positive earnings and encouraging signs from Greece’s debt negotiations even though the data flow was quite mixed. On the earnings front it was a busy day for US companies yesterday. A total of 40 companies reported of which 68% of them exceeded EPS estimates but only 40% of them did the same with sales forecasts. Data wise we saw Consumer Confidence in April plunge to the lowest level in four months whilst the Richmond Fed manufacturing index fell more than expected. US credit spreads were fairly stable with the market continuing to focus on the heavy supply. Oracle’s new deal was the largest print of the day as the company raised US$10bn across six tranches to fund cash dividends and share buybacks.

Moving to Europe, DB’s resident Greece expert George Saravelos had a note out yesterday with his latest views. In it he highlighted, “a ray of sunshine” in the situation due to three recent developments. First that opinion polls have started to turn with the electorate turning more cautious on the Greek government's negotiation strategy whilst support for a European solution has remained consistently strong both of which have been increasing pressure on the government. On the second positive recent development George points to the reshuffle of the Greek government’s negotiation team which has seen officials more closely aligned to the moderate deputy PM who has being given a greater role. The third and most important development according to George is PM Tsipras’s Greek TV news interview on Monday evening in which the PM signaled that a referendum would be his preferred route (rather than a general election). The implication of this is that it signals that an agreement which crosses the government’s “red lines” is being actively discussed and represents an internally consistent strategy from the PM for breaking the deadlock. Given these developments George believes the most likely outcome for Greece is a "reluctant agreement" followed by a referendum for popular approval. George sees this as the most positive outcome as it would likely pass and be a catalyst for the inclusion of more moderate parties into the government.

Looking back to the European session yesterday, it was a weak day for European markets with the Stoxx 600 down -1.6% led by a -2% fall in the DAX. European credit also struggled with iTraxx Crossover around 5bps wider. Performance wasn’t helped by a day of relatively weak data and some earnings disappointments. Indeed only about 56% of the European companies that reported yesterday managed to surprise EPS on the upside (TNT Express, MAN, and Santander were some of those who missed). That said sales performance was quite strong with over three quarters of those beating estimates. In terms of other data, UK Q1 GDP came in weaker than expected at +0.3% QoQ (vs. +0.6% previously and +0.5% expected).

On the topic of geopolitics the US Navy is said to have sent a destroyer towards the Persian Gulf on Tuesday after Iran took control of a cargo ship it accused of trespassing territorial waters. The cargoship carried 24 crew members and Iranian forces were said to have fired shots across the ship’s bow. The episode raised tensions between the two countries a few weeks after world powers and Iran reached a tentative agreement in which Tehran would drastically cut its enrichment of uranium in exchange for an easing of sanctions.

Looking to the day ahead, in Europe we have Spanish March retail sales (expected up +3.6% YoY), Italian April consumer confidence (expected steady 110) and German CPI April inflation (expected to fall to -0.1% MoM). Over in the US the big events will be the already previewed Q1 GDP and FOMC statement. In terms of earnings in Europe we will get results from the likes of VW, Barclays and Fiat whilst in the US we will get reports from Time Warner, MasterCard and others.

  Stocks and Interest Rates How important are macro-economic fundamental data and valuations in deciding on whether or not to buy stocks, and how does this influence long term returns? Are there any universally valid rules that can be applied? At the very least we can state that there is plenty of empirical evidence that […]

When it comes to the Eurogroup's sentiment for the still relatively new Greek FinMin, it is no secret how Europe's financiers feel toward the self-described Marxist academic: earlier today European commissioner Pierre Moscovici made it quite clear when he said that the Varoufakis "job change" is a "good signal" for Greece adding that the Greek negotiating team is now more coherent. And sadly for Varoufakis, who is becoming increasingly estranged from European negotiations, there is nobody to "have his back" as even Tsipras appears resigned that Yanis' days are numbered.

However, when it comes to far more personal and direct attacks, Varoufakis can at least rely on his wife. As AP reports, last night while dining with his wife in the bohemian Exarchia district of Athens, "a neighborhood popular with extreme leftists and anarchists" a group of "young anarchists" barged into the restaurant telling them to leave "their area" at which point they "threw glass objects at Greek Finance Minister Yanis Varoufakis and his wife" according to a finance ministry statement.

According to Reuters, Varoufakis said his wife hugged him to shield him from the attack, the finance ministry said. They tried "for a few seconds to reach me without hitting her," he said in the ministry statement.

Then "they retreated fast continuing their curses and threats, got out of the courtyard and waited for us outside the restaurant," Varoufakis added.

The statement did not go into details on what prompted the attack. The outspoken economist has won fans in Greece for opposing austerity policies but has also garnered criticism at home for his brash style and a celebrity photo shoot in a French magazine.

The minister said he thought the group was more interested in embarrassing him than injuring him.

The couple left the courtyard and got on their motorcycle to leave.

"I started a dialogue with them, saying that I wanted to hear them out, even if that meant that I would be hit," said Varoufakis. "After 15 minutes of a tense but non-violent talk spirits calmed."

And while Varoufakis' blazing game theoretical star may be setting, if only among his European finance minister peers, this morning he was the talk of the town. As the Guardian's Helena Smith reports, "if Varoufakis has been sidelined, he has definitely not lost the interest of media at home and abroad. Waiting for him as he turned up for work on his powerful motorbike - without a security detail as he has done from his first day in office - the finance minister was assailed by scores of journalists wanting to ask him about his run-in in Athens last night.

Rucksack on back, Varoufakis smiled broadly for the cameras but was uncharacteristically mealy-mouthed - perhaps not wanting to further inflame passions amongst the anarchist bloc and extreme left with which the governing Syriza party has long had ties.


Varoufakis may be Europe’s most vocal anti-austerian but to this day has not signed up to Syriza unlike the new man coordinating Athens’ negotiating team Euclid Tsakalotos, who was shadow finance minister when Syriza was in opposition and is a member of the party’s central committee (both however are university economic professors).


Last night’s incident in Exharcheia - with Varoufakis, his wife and a female friend being rounded on by a group of around 30 masked protestors - has sent tremors through the government with some officials fearing it could be a warning sign of worse to come.

If only Varoufakis' wife could have also shielded him from the vicious, if non-stoning, attacks of the European commission...

As for the attack being a "warning sign of worse to come", well all the "radical leftist" government will need to do to find out, is agree to become an extension of the hated Samaras government, and concede to all Troika demands. Then the answer will promptly manifest itself.

Some of the stocks that may grab investor focus today are:

Wall Street ...

Full story available on Benzinga.com

 Matthias Ripp

Photo Credit: Matthias Ripp || Some bad ideas should be locked away…

Dan Primack of Fortune wrote in his daily email:

Saving unicorns from themselves? There was an interesting piece last week from Martin Peers in The Information (sub req), arguing that the private markets need some sort of shorting mechanism so that there is a check on unreasonable valuation inflation. It would make the market more efficient, Peers argues, even though implementation would require several structural changes (particularly to stock transfer rules). He writes:

“Private companies will probably resist the development of a short-selling market, given it would hurt valuations, which in turn can undermine the value of employee option programs, and give them less control over their shareholder group. But those risks are likely to be outweighed by the long term benefits of bringing more buyers into the market and ensuring the company’s valuation can be sustained outside of the constraints of the private market.”

Leaving out the technical difficulties — including the lack of ongoing price discovery — one big counter could be that shorts didn’t so much to stop the earlier dotcom bubble (which largely took place in the public markets).

Adam D’Augelli of True Ventures pointed me to a 2002 academic paper (Princeton/London Biz School) that found “hedge funds during the time of the technology bubble on the Nasdaq… were heavily tilted towards overpriced technology stocks.” They add that “arbitrageurs are concerned about attacking the bubble too early without support from their peers,” and that they’re more likely to ride the bubble until just a few months before the end.

That would seem to be too late to impose price discipline in private markets, but I’m curious in your thoughts. Does some sort of private shorting system make sense? And, if so, how would it be structured?

I’m going to take a stab at answering the final questions.  There is often a reason why the financial world is set up the way it is, and why truly helpful financial innovations are rare.  The answer is “no, we should not have any way of shorting private companies, and it is not a flaw in the system that we don’t have any easy way to do it.”

Two notes before I start: 1) I haven’t read the paper at The Information, because it is behind a paywall, but I don’t think I need to do so.  I think the answer is obvious.  2) I ran into this question answered at Quora.  The answers are pretty good in aggregate, but what exists here are my own thoughts to present the answer in what I hope is a simple manner.

What is required to have an effective means of shorting assets

  1. An asset must be capable of being easily transferred from one entity to another.
  2. Entities willing to lend the asset in exchange for some compensation over a given lending term.
  3. Entities willing to borrow the asset, put up collateral adequate to secure the asset, and then sell the asset to another entity.
  4. An entity or entities to oversee the transaction, provide custody of the collateral, transmit payments, assure return of the asset at the end of the lending term, and gauge the adequacy of collateral relative to the value of the asset.

Here’s the best diagram I saw on the internet to help describe it (credit to this Latvian website):

short selling

I’m leaving aside the concept of naked shorting, because there are a lot of bad implications to allowing a third party to create ownership interests in a firm, a power which is reserved for the firm itself.

The Troubles Associated with Shorting Private Assets

I can think of four troubles.  Here they are:

  1. The ability to sell, lend, or buy shares in a private company are limited by the private company.
  2. Lending over long terms with no continuous price mechanism to aid in the gradual adjustment of collateral could lead to losses for the lender if the borrower can’t put up additional capital.
  3. The asset lender can decide only to lend over lending terms that will likely be disadvantageous to the borrower.  Getting the asset returned at the end of the lending term could be problematic.
  4. It is difficult enough shorting relatively illiquid publicly traded assets.  Liquidity is required for any regular shorting to happen.

The first one is the killer.  There are no advantages to a private company to allow for the mechanisms needed to allow for shorting. That is one of the advantages of being private.  Information is not shared openly, and you can use the secrecy to aid your competitive edge.  Skeptical short-sellers would not be welcome.

The second problem is tough, because sometimes successive capital rounds are at considerably higher prices.  The borrower will likely not have enough slack assets to increase his collateral, and he will be forced to buy shares in the round to cover his short because of that.  The lender could find that the borrower cannot make good on the loan, and so the lender loses a portion of the value his ownership stake.

But imagining the first two problems away, problem three would still be significant.  If the term for lending were not all the way to the IPO, next capital round or dissolution/sale, at the end of the term, the borrower would have to look for someone to sell shares to him.  It is quite possible that no one would sell them at any reasonable price.  They know they have a forced buyer on their hands, and there could be informal collusion on the price of a sale.

Perhaps another way to put it is don’t play in a game where the other team has significant control over the rules of the game.  One of the reasons I say this is from my days of a bond manager.  There were a lot of games played in securities lending, and bonds are not the most liquid place to short assets.  I remember it being very difficult to get a bond back from an entity that borrowed it, and the custodian and trustee did not help much.  I also remember how we used to gauge the liquidity of bonds we lent out, and if one was particularly illiquid, we would always recall the bond before selling it, which would often make the price of the bond rise.  Games, games, games…

What Might Be Better

Perhaps using collateralized options or another type of derivative could allow bets to be taken, if the term extended all the way to the IPO, the next capital round, or dissolution/sale of the company.  The options would have to be limited to the posted collateral being the most the seller of the option could lose.  Some of the above four issues would still be in play at various points, but aside from issue one, this would minimize the troubles.

What Might Be Better Still

The value of the shorts is that they share information with the rest of the market that there is a bearish opinion on an asset.  Short-sellers are nice to have around, but not necessary for the asset pricing function.  It is not unreasonable to live with the problem that some assets will be overvalued in the intermediate-term, rather than set up a complex method to try to enable shorting.  As Ben Graham said:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

The weighing machine will do its job soon enough, showing that the overvalued asset will never produce free cash adequate to justify its current high price.  Is it a trouble to wait for that to happen?  If you don’t own it, you shouldn’t care much.

If you want to short it, I’m not sure that will hasten the price adjustment process that much, unless you can convince the existing owners of the asset that it isn’t worth even the current price.  Given that buyers have convinced themselves to own the asset, because they think it will be worth more in the future, intellectually, convincing them that it is worth less is a tough sell.

In the end, only asset and liability cash flows count, regardless of what secondary buyers and sellers do.  Secondary trading does not affect the value of assets, though it may affect the perception of value in the short run.  Thus, you don’t need short sellers to aid in setting secondary market prices, but they are an aid there.  In the primary markets, where whole companies are bought and sold, the perceived cash return is all that matters.


Ergo, live with short run overvaluation in private markets.  It is a high quality problem.  Sell overvalued assets if you own them.  Watch if you don’t own them.  Shorting, even if possible, is not worth the bother.

Mastercard Inc (NYSE: MA) is projected to report its Q1 earnings ...

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