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Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk)

Takeaway: ECB to "examine" the purchase of Greek government bonds, which still carry a junk rating, "at a later stage."

Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk) - greece

 

The Mario Draghi-led ECB is already buying junk bonds so why not add Greek sovereign bonds to the list too?

 

That's the latest bit of central planning hocus pocus from the ECB. Yesterday, the central bank granted Greek banks access to cheap funding, after sidelining them for more than a year due to debt negotiations.

 

Draghi & Co. would also "examine" the purchase of Greek government bonds, which still carry a junk rating, "at a later stage":

 

"The Governing Council will examine possible purchases of Greek government bonds under the public sector purchase programme (PSPP) at a later stage, taking into account the progress made in the analysis and reinforcement of Greece’s debt sustainability, as well as other risk management considerations."

 

Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk) - greece owe everyone else

 

Why not?

 

The ECB is already purchasing corporate junk bonds. Here's Bloomberg reporting from earlier this month when the ECB first began buying corporate bonds:

 

"Purchases on the first day included notes from Telecom Italia SpA, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualify for the central bank’s purchase program because Fitch Ratings ranks it at investment grade."

 

And even if a bond is universally downgraded to junk by all ratings agencies the ECB can hang on. Here's more from an ECB press release:

 

"Will the Eurosystem sell its holdings of bonds if they lose eligibility? For example, if they are downgraded and lose investment grade status?

The Eurosystem is not required to sell its holdings in the event of a downgrade below the credit quality rating requirement for eligibility."

 

this is Draghi's "whatever it takes" on steroids.  


2 Charts: A Closer Look At The Fed's "Reverse Socialism"

Takeaway: "Thank God for the Federal Reserve and all its reverse socialism, otherwise where would income inequality be without it."

2 Charts: A Closer Look At The Fed's "Reverse Socialism" - Fed Up cartoon 03.22.2016

 

In a bizzarely tangential exchange yesterday between Republican Representative Scott Garrett and Fed head Janet Yellen, Garrett accused Yellen of lining Wall Street pockets and worsening income inequality.

 

“Why do you see a need to benefit Goldman Sachs?” Garrett asked.

“I’m sorry, we are not trying to benefit the rich,” Ms. Yellen responded, reiterating that, since the recession ended in 2009, 14 million new jobs have been created.

“Excuse me, I have the floor,” Mr. Garrett interrupted irrately.

 

Garrett didn't press the Fed chair and veered off in another direction entirely but, despite his opportunistic invocation of populism, the Congressman's point is taken. 

 

"Thank God for the Federal Reserve and all its reverse socialism, otherwise where would income inequality be without it," Hedgeye Senior Macro analyst Darius Dale wrote wryly yesterday, in response to a Wall Street Journal article that showed a significant rise in upper-middle class wealth. Unsurprisingly, middle and lower class family wealth has stagnated or declined.

 

As you can see in Dale's charts below, the Fed's easy money has actively promoted this trend:

 

Click images to enlarge 

2 Charts: A Closer Look At The Fed's "Reverse Socialism" - darius chart 6 23

 

2 Charts: A Closer Look At The Fed's "Reverse Socialism" - darius chart 6 23  2

 

It's a truly sad outcome.

And yet more proof of the Fed's flawed policies.


Daily Market Data Dump: Thursday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Thursday - equity markets 6 23

 

Daily Market Data Dump: Thursday - sector performance 6 23

 

Daily Market Data Dump: Thursday - volume 6 23

 

Daily Market Data Dump: Thursday - rates and spreads 6 23

 

Daily Market Data Dump: Thursday - currencies 6 23


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McCullough: Chasing European Stocks? Don't Look At This Sobering Data

Takeaway: Investors buying the pop in European equities will have deal with unequivocally bearish data that doesn't go away post today's Brexit vote.

McCullough: Chasing European Stocks? Don't Look At This Sobering Data - eu ref 

 

I guess no Brexit was the 2016 Global Equity bull market catalyst all along!

 

The pound tapped $1.49 this morning and that’s one mother of a move in the context of where GBP/USD has been for the last 6 months – on my immediate-term signal, that’s pricing in a triple-no-exit! I’m going into this with no FX position (sorry, can’t build my research firm on coin tosses) other than long Gold (risk range 1253-1306/oz).

 

 

Meanwhile, the FTSE is up +1.4% to 6349 with a refreshed immediate-term risk range of 5819-6403 so the asymmetry from here is to the downside; same thing with the DAX on a risk range of 9370-10331 – if they leave, many Global Equity markets will resume their draw-downs (and crashes) from their 2015 cycle peaks – if they remain, they probably sell on the news anyway.

 

Here's the unequivocally bearish data that doesn't go away post today's Brexit vote:

 

 

And imagine what happens to these stock market chasers if they vote to leave? No blaming machines...

 


The Macro Show with Christian Drake Replay | June 23, 2016

CLICK HERE to access the associated slides.

 

An audio-only replay of today's show is available here.


Brexit?

Client Talking Points

Pound

Tapped $1.49 this morning and that’s one mother of a move in the context of where GBP/USD has been for the last 6 months – on my immediate-term signal, that’s pricing in a triple-no-exit! I’m going into this with no FX position (sorry, can’t build my research firm on coin tosses) other than long Gold (risk range 1253-1306/oz).

FTSE

+1.4% to 6349 with a refreshed immediate-term risk range of 5819-6403 so the asymmetry from here is to the downside; same thing with the DAX on a risk range of 9370-10331 – if they leave, many Global Equity markets will resume their draw-downs (and crashes) from their 2015 cycle peaks – if they remain, they probably sell on the news anyway.

UST 10YR

Why is it that many investors like to buy things on sale other than long-term Treasuries? At 1.74% on the UST 10YR, I wouldn’t call it a layup (I’m really bad at basketball), but this is just one of the more obvious buying opportunities we’ve had in long-term #GrowthSlowing bonds in the last year.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/22/16 61% 3% 0% 12% 21% 3%
6/23/16 61% 3% 0% 12% 21% 3%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/22/16 61% 9% 0% 36% 64% 9%
6/23/16 61% 9% 0% 36% 64% 9%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

No matter what side of the reflation/deflation trade you’re on, the growth in global demand continues to decelerate on a trending basis. The debate is no longer whether or not growth is slowing. The real debate centers on the policy response and the market reaction to that policy response. While that question presents us with “open the envelope” risk, #GrowthSlowing will continue to be the bull catalyst for U.S. Treasuries whatever the policy response as the slow march to zero yields globally goes on. 

GLD

To sum things up, stay away from the guessing game and stick to what is empirically evident. A stronger USD over the longer term is a probable scenario in our book. We expect the Fed, and all central banks for that matter, will try to combat deflation. That said, global currencies all burning at the same time makes a compelling case for GLD, as gold knows no currency. You can sell it in local currency all over the world. Scary but true.

MCD

There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.

Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road

TWEET OF THE DAY

The Astonishing Audacity Of Central Planners app.hedgeye.com/insights/51883… cc @KeithMcCullough #Fed #ECB #BOJ #Yellen #FX pic.twitter.com/k2f4vp4RM8

 @Hedgeye

QUOTE OF THE DAY

“The day you think there are no improvements to be made is a sad day.” 

-Lionel Messi     

STAT OF THE DAY

John Smoltz pitched 21 years in the MLB, his career ERA was 3.33.


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