ZeroHedge on how the oil spill and the financial crisis are similar - in that most of the effort is being spent to hide how bad it is. He talks about regulatory capture in relevant ways here. On a related topic, Karl Denninger talks about how despite outright acknowledgement of massive illegality, banks will not be investigated or prosecuted. Money quote: "The whole investment process was rigged across the board." In this particular case, it's massive admitted bid rigging on municipal bonds that cost taxpayers tens of billions of dollars. But the participating banks won't be touched.
There's talk of "capitulation" regarding the Euro. Germany, for one, is taking positive steps to reign in some of the fraud, which I see as Euro-bullish in the long run; naked short selling is bullshit. But the ban on naked shorts is under a lot of fire, and a lot of to-my-mind invalid comparisons are being made to the temporary (failed) bans on covered short selling tried over the last couple of years. These aren't the same; in one, you're gambling without money, in the other, you have the money to lose, and you can actually deliver if you have to. Naked short selling is particularly bad if you can count on getting bailed out in the event of losses, which is exactly what has kept happening. Basically, with naked swaps, you can bet huge amounts of money you don't have and keep any profits, but - thanks to taxpayer-funded bailouts - not have to worry about any actual pain in losses. It's been one of the primary looting tools. Investment banks are predictably furious; watch this as it unfolds.
There's a follow-up here, but what I find interesting in that commentary is the note that Spain failed to make a bond auction yesterday, so doesn't have the money to fund their share of the Greek bailout. Oops. ECB president Juean-Claude Trichet says, "There is a need for a quantum leap in the governance of the euro area. There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by "peers" and to ensure real and effective sanctions in case of breaches (of the Stability and Growth Pact)." This is basically a call for a shift in sovereignty. Good luck with that.
Zero Hedge outlines what austerity budgets would look like across Europe. Bulgaria is closing embassies to save money. China is complaining about the weak Euro. (I remind everyone that the Euro is still above its initial value at time of creation.)
Euro bank lending is in trouble as European bank bonds hedge costs spike 62%. Remember I mentioned a few days ago that the LIBOR was spiking up? That's what this is about. The TED spread is now solidly over Federal Reserve/Treasury target rates. India Times says fear is back. Italy has suspended mark-to-market accounting on Eurozone bonds, and is moving to mark-to-model, which gets back to the cover-it-up approach discussed above. This is what the US has done.
Macleans talks about why the recession is here to stay - talking about basically the American lost decade now underway, and how that affects Canada. They note correctly that most of the current rebound is not based on fundamentals but is instead based on massive government borrowing, and that the stock market rebound has been almost entirely disconnected from fundamentals. Recommended reading. Unfortunately, Canada is facing a housing bubble implosion in the immediate future which won't make anything better, and Canadian exports to the US are down 50% thanks in no small part to the US government's 'Buy America' programme. There's been some recovery, but it's not what you'd call a "V".
S&P's ratings continue to be garbage, as demonstrated by the sudden downgrade of year-old AAA mortgage securities to junk. Calculated Risk asks what the point is of ratings, then? We should all be aware by now that these ratings are garbage. Meanwhile, Las Vegas is attempting to build its way out of a housing glut by building more housing. I should've put that in yesterday's episode of Cascadia's Favourite Game Show, but fundamentally, the gamble is that the foreclosed houses will all be radioactive, and builders are advertising to encourage that idea - running ads talking about foreclosed homes being filled with cockroaches, and so on. And it may not just be Vegas; US homebuilder confidence is up overall in May, while still very, very low.
Of course, all this is happening as the 'dropout' rate from the US government's loan-modification programme has been climbing sharply and mortgage applications plummet the week after the first-time homebuyer tax credit expired, reaching a 13-year low. Awesome.
Don't ignore this: the Empire State Manufacturing Index fell dramatically in May. Shipments were one-third of projected. That's bad. Oil is below US$70 despite the huge risk/fear factor added by the Gulf spill; that implies the manufacturing slowdown is quite real. Pfizer, for example, is cutting 6,000 jobs and closing plants.
A lot of "temporary" tax hikes being exacted or floated as tax revenue continues to fall, and the walk-away/strategic default rate continues to climb.
American intra-state conflicts continue to climb. Los Angeles is talking about boycotting Arizona over its immigration policy, and Arizona is talking about cutting off power supplies to California. Texas's education commission's actions to promote an evangelical fundamentalist view of American history - which goes so far as to exclude Thomas Jefferson entirely from history - is prompting California to study textbook revisions by publishers with specific intent of isolating California schools from Texas-driven revisions. Todd Harrison at Minyanville says to watch out for this social shift, and the results it will have on markets.
US and Canadian stocks have picked up about half their losses from today while I've pulled this together. Have a good day, and good luck.