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US Stocks, Bonds, & Gold Jump As European Banking System Collapses

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By Tyler Durden

Another day, another short squeeze…

Today's bounce bought to you by the fact that traders forgot that Europe will open again in a few hours…

Post FOMC Minutes, bonds and stocks were bid, crude and gold sold modestly…

VIX was monkeyhammered lower in a desperate bid to get the S&P 500 back to 2,100…BUT FAILED!

But Nasdaq outperformed (another major short squeeze) with Trannies underperforming (presumably on the disaster in trucking)…

Post-Brexit, Trannies and Small Caps remain laggards…

The long-end managed a small gain on the day as the short-end of the Treasury market sold off in unison starting at 8amET… 10Y yield hit a new record low at 1.3180% and 30Y at 2.0971%

Bonds and Stocks remain bid…

The USD Index leaked lower with GBP and JPY the most active once again…

Commodities were mixed despite the lagging USD. Copper lagged, PMs rallied holding gains post-FOMC, and crude jumped for no good reason at all…

Charts: Bloomberg

…read more

Source: US Stocks, Bonds, & Gold Jump As European Banking System Collapses

    

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Europe Wasn’t "Fixed" and Now It Is Even MORE Bankrupt Than It Was in 2012.

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By Phoenix Capital Research

So the world has woken up and realized what we’ve been pointing out for four years now… that Europe wasn’t fixed in 2012.

European Financials have fallen back to levels not seen since the Crisis was raging to the point that France and Germany floated the idea of imposing capital and border controls.

The whole mess was “saved” based on a lie. Mario Draghi claimed he’d do “whatever it takes… and believe me it will be enough” and the markets took him at his word.

Unfortunately the math doesn’t support this. The EU banking system is leveraged at 26 to 1. Many banks are leveraged far above this. Lehman was leveraged at 30 to 1 when it imploded. People laugh that somehow that was allowed to happen in 2007… without realizing that Europe’s entire €46 trillion banking system is just below that.

Since Draghi “saved” Europe in 2012, he’s cut interest rates to negative FOUR times and has implemented over €1 trillion in QE expanding the ECB’s balance sheet well above its previous record high set at the depth of the crisis.

Meanwhile, EU GDP has remained below its pre-crisis highs (both 2008 and 2011).

Meanwhile, Debt to GDP has risen to 90% for the whole of the union, with problem countries like Italy and Spain seeing their Debt to GDP ratios soar to new record highs.

The whole mess is one giant house of cards. Bankrupt nations whose debt is owned by insolvent banks which use said debt to backstop trillions of Euros worth of derivatives trades.

If Lehman was an obvious disaster waiting to happen what are the EU banks? And with the ECB itself now leveraged at over 36 to 1… who’s going to bailout this mess out?

More and more the financial system feels like it did in late 2007/ early 2008: the obvious cracks have emerged, but 99% of investors are ignoring them.

Smart investors, however, are preparing for what’s to come.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

We are giving away just 1,000 copies of this report for FREE to the public.

To pick up yours, swing by:

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

…read more

Source: Europe Wasn’t "Fixed" and Now It Is Even MORE Bankrupt Than It Was in 2012.

    

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FOMC Minutes Reveal Fed Wanted More Info Before Hiking

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By Tyler Durden

Since June's FOMC statement, bonds and bullion have been well bid with stocks unchanged as rate-hike hopes collapsed. For those looking to glean insight from a confused Fed's minutes today, we wish them luck. As WSJ notes, the minutes can prove to be dated and that will be especially so given that Brexit occurred just days after, so the best we could hope for from today's minutes was “what-ifs.”

  • *ALMOST ALL FED OFFICIALS SAW MAY PAYROLLS RAISING UNCERTAINTY
  • *SOME OFFICIALS SAID LOWER PAYROLLS MAY SIGNAL BROADER SLOWDOWN
  • *FOMC: PRUDENT TO WAIT FOR CONSEQUENCES OF U.K. VOTE

So nothing new whatsoever but definitely a Fed that is increasingly facing the realization that normalization is over as we draw readers' attention to the fact that the wordcount for 'uncertain' soared to 38.

Pre-Minutes: S&P Futs 2086, 10Y 1.385%, Gold $1367, BBDXY 1188.5

Further headlines:

  • *MANY OFFICIALS SAID MAY PAYROLL REPORT UNDERSTATED JOB PACE
  • *SOME FOMC MEMBERS ARGUED AGAINST DELAYING RATE HIKE TOO LONG
  • *MOST OFFICIALS IN JUNE SAW HIKE WARRANTED IF GROWTH PICKED UP
  • *FOMC: PRUDENT TO WAIT FOR CONSEQUENCES OF U.K. VOTE

Confirming what we had noted previously (via WSJ),

The minutes can prove to be dated, even though they are now released 3 weeks after the latest gatherings. That will be especially so given what happened a week after the June meeting: Brexit. While uncertainty about how that vote would pan out helped keep central bankers on the rate-hike sidelines (though the jobs report 2 weeks earlier did most of that work for them), don't expect much insight beyond what ifs. And with Fed-fund futures putting 2016 on ice regarding a rate hike, the minutes likely won't change minds on that.

Since June's FOMC Statement…

And extending the post-payrolls plunge and Brexit drop, rate-hike expectations are now negligible for the rest of the year…

As it seems traders are shifting their NIRP bets to 2017…

Full FOMC Minutes below…

Zero Hedge (zerohedge@gmail.com)

…read more

Source: FOMC Minutes Reveal Fed Wanted More Info Before Hiking

    

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Spot The "Outlier" Who Bought Stocks In Q2

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By Tyler Durden

Over the past five month, we have been dumbounded by the relentless selling by “smart money” clients of Bank of America, who until a week ago, had sold stocks for an unprecedented 21 out of 22 consecutive weeks. As BofA reported last week, “BofAML clients sold US stocks for the third consecutive week (and in 21 of the past 22 weeks), led by institutional clients’ sales.”

In BofA’s latest report on client activity, we find that in the best week for stocks in years, even the smart money joined the buying scramble:

“last week, during which the S&P 500 rallied 3.2% (its best weekly return year-to-date), BofAML clients were net buyers of US stocks in the amount of $824mn, following three weeks of net sales.… clients were buyers of the post-Brexit dip after selling stocks the majority of weeks since January. Net buying was led by hedge funds, who have now bought stocks for four consecutive weeks, while private clients were net buyers for the first week since February. Institutional clients were net sellers, as they have been for the majority of the selling streak this year. Small, mid and large caps all saw inflows.

Putting the recent move in perspective, however, shows just how vast the recent derisking has been:

However, what caught our attention was snot activity by client, but rather by corporations: as BofA reports, “buybacks by corporate clients accelerated for the second week to their highest level since mid-March, though buybacks for the full 2Q were their weakest in six quarters (and the weakest of any 2Q since 2011).”

Still, putting it in context, this is who bought, and who sold, stocks in the second quarter. The buying “outlier” sticks out like a sore, debt-funded, thumb.

Confused? It’s simple: the slow motion LBO of the market by the market continues, as more debt is issued fund stock buybacks and push stocks briefly, and artificially, higher, even as corporations lever themselves up to all time highs now that the even the merest risk of rising rates has been buried for years to come.

…read more

Source: Spot The "Outlier" Who Bought Stocks In Q2

    

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And The Biggest Loser From The UK’s "Falling Dominoes" Is…

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By Tyler Durden

Now that not just 3 (as of last night) but 5 UK property funds, with Henderson and Columbia Threadneedle became the latest two entrants to this exclusive club of clueless asset managers who have no idea how to factor in liquidity mismatch during market stress, have “frozen” their assets and gated investors from accessing assets, concerned traders are wondering how far the downstream effects of this domino chain will go. Luckily, overnight analysts at Morgan Stanley, JPM and SocGen did the math and found what they believe is (are) the most impacted bank(s) from UK’s commercial real estate troubles.

Here is the verdict, first from SocGen:

  • RBS exposure to CRE is GBP26b, most of U.K.’s major banks, and equivalent to 63% of tangible equity
  • Lloyds 2nd most exposed at 46% of tangible equity, Santander 3rd at 24%, Barclays 4th at 23% and HSBC 5th at 17%
  • U.K. banks debt financing of CRE is down 34% since 2008 to GBP168b, according to De Montfort University
  • Says watch out for other banks, challenger banks have relatively high proportion of more highly leveraged CREs on books
  • Lloyds is most preferred, will be able to absorb Brexit bumps; RBS is least preferred

Next, from JPM:

  • RBS, Lloyds and Bank of Ireland are more exposed to risks from U.K. commercial property prices than Barclays, HSBC and Standard Chartered
  • RBS, Lloyds TNAV sensitivity in stress scenario may be up to 5.5% with CT1 sensitivity at 90bps-100bps
  • Major U.K. banks’ exposure is GBP69b
  • Is “cautious” on U.K. domestic-exposed banks
  • U.K. lenders exposure is GBP86b down from GBP150b in 2011
  • Flags BOE remarks that U.K. challenger banks have high proportion of more highly leveraged commercial real estate loans
  • Says BOE research shows 10% drop in U.K. CRE prices leads to 1% drop in economy-wide investment

Finally, Morgan Stanley is outright negative on everything:

  • Morgan Stanley analysts see potential for further stress with GBP25b-40b of AUM in property funds, or 2-5% of total U.K. mutual fund assets, according to note.
  • Outflows are always high when REIT discounts are wide, whilst Henderson, Aberdeen and Schroders have some exposure among asset managers
  • Number of redemption requests normally correlated with discount to NAV for listed property stocks, currently close to historical wides
  • Fund suspensions designed as circuit-breakers, but sentiment generated can still drive negative feedback loop similar to that seen during last financial crisis
  • Liquidity mismatch the main concern:
  • Liquidity of investment funds is a significant concern for global regulators, particularly where illiquid underlying investments are being sold in daily dealing fund structures to retail investors

* * *

The conclusion: Italy has Monte Paschi, Germany has Deutsche Bank, and the UK is now saddled with RBS.

At this rate, all three will soon require taxpayer bailouts. Just remember: it’s all Brexit’s fault that 7 years after the financial crisis, not a single of Europe’s most systemically important banks were actually “fixed.”

Domino #4: Henderson Suspends $5 Billion UK Property Fund Over "Exceptional Liquidity Pressures"

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By Tyler Durden

Does '4' make a trend? First Standard Life, then Aviva, followed by M&G and now this morning, due to “exceptional liquidity pressures” Henderson has suspended trading in its $5bn UK property fund and all of its feeders. Is it time to panic yet?

Things are getting bad fast in Britain…

Domino #1: *STANDARD LIFE INV PROPERTY DROPS 15%; TRADING IN FUND SUSPENDED

In a stark flashback to the catalytic event that ultimately brought down Bear Stearns in 2008, and subsequently unleashed the greatest financial crisis in history, last night we reported that Standard Life, has been forced to stop retail investors selling out of one of the UK’s largest property funds for at least 28 days after rapid cash outflows were sparked by fears over falling real estate values.

As we further noted, citing an analyst, “given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices,” said Laith Khalaf, senior analyst at Hargreaves Lansdown. “The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.”

As we concluded, whie Brexit is not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together, it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead. And, indeed, if Standard Life was the first domino, moments ago the second domino also tumbled when as Bloomberg reported that Aviva Investors Property Trust is as of this moment “frozen” citing “extraordinary” market conditions.

Domino #2: *AVIVA SUSPENDS TRADING ON AVIVA INVESTORS PROPERTY TRUST

As the FT adds, Aviva Investments said it had prevented retail investors from selling out of its £1.8bn UK Property Trust since Monday afternoon.

Cited by Bloomberg, Aviva said in an email that “market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity” adding that “we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect…. Suspension of dealing will give Aviva Investors greater control in managing cash flows and conducting orderly asset sales in order to meet our obligations to investors.”

Domino #3: *M&G SUSPENDS TRADING IN M&G PROPERTY PORTFOLIO FUND

As Bloomberg reports, M&G suspends trading in property portfolio, feeder funds, according to statement on website.

Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum.

Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading.”

And now Domino #4: *HENDERSON SUSPENDS UK PROPERTY PAIF & PAIF FEEDER FUND
Henderson temporarily suspends all trading in the Henderson U.K. Property PAIF and the Henderson UK Property PAIF feeder funds to safeguard the interests of all investors, according to statement.

European Market Breaks: Stoxx 50, Stoxx 600 Have Not Calculated Prices For Nearly An Hour

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By Tyler Durden

With European stocks tumbling, it was only a matter of time before someone pulled the biggest circuit breaker of all, i.e., the plug. And sure enough:

  • EUREX SAYS IT DOESN’T CURRENTLY HAVE STOXX UNDERLYING PRICES
  • EURO STOXX 50 AND STOXX 600 HAVE NOT CALCULATED FOR 50+ MINS
  • DEUTSCHE BOERSE SPOKESWOMAN CONFIRMS STOXX 600 NOT CALCULATING

And from the exchange:

Emergency Information Failure STOXX underlying feed

Due to technical problems with the price data feed, the Eurex system does not currently have STOXX underlying prices. Please do not hesitate to call Market Supervision for any questions you may have. Aufgrund technischer Probleme beim STOXX Preisdatenstrom werden derzeit die Basiswertpreise nicht aktualisiert. Sollten Sie Fragen haben, wenden Sie sich bitte an Market Supervision.
Market Supervision +496921111210

We expect the exchange to promptly fix itself just as soon as a bid reappears.

…read more

Source: European Market Breaks: Stoxx 50, Stoxx 600 Have Not Calculated Prices For Nearly An Hour

    

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Can The EU Survive As A Prison? Who Has The Keys?

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By Tyler Durden

Separate Ways

Submitted by Michael Shedlock via MishTalk.com,

In the wake of Brexit, the EU and German Chancellor Angela Merkel responded to the UK with spite and vengeance.

Merkel insists that if the UK pursues a Norway-style solution, it will have to accept the EU’s migration rules along with it.

Ironically, had the EU’s migration rules been more sensible, the UK would not have left in the first place.

Following a close election in which there were voting irregularities, Austria’s Constitutional Court Orders Rerun of Presidential Election.

Citing serious irregularities in the counting of postal votes, Austria’s constitutional court issued an unprecedented rule mandating a rerun of the presidential election in which Green party candidate Alexander Van der Bellen narrowly beat Freedom Party and anti-immigration candidate Norbert Hofer

Hofer was ahead before postal votes were counted. Perhaps he wins the second chance election.

Hungary Announces Referendum on Migration

Hungary is so fed up with EU’s refugee polices that it announced an October Referendum on EU Migrant Plan.

“Is it the goal of European policy to stop migrants at the borders, to keep processes under control, to conduct procedures outside our borders and to then decide on admitting certain individuals? Is it our goal to let them in and to redistribute them later?” Hungary’s prime minister Viktor Orban said in Brussels last month.

Four Countries Fed Up With EU

Poland, Hungary, Slovakia and the Czech Republic issued a joint statement “The genuine concerns of our citizens need to be better reflected. National parliaments have to be heard.“

Poland’s deputy prime minister Mateusz Morawieck said “The British voice was the voice of reason.”

For details, please see Four Countries Blame Jean-Claude Juncker for Brexit, Two Seek His Ouster.

The EU Prison

Financial Times writer Martin Wolf asks “Is the best way to preserve the EU bloc to make it a prison, rather than a desirable place of refuge?”

Other than a stray sentence here and there, I seldom agree with Wolf on anything.

This time, he generally gets things correct in his article How Europe Should Respond to Brexit.

The UK is leaving. That has to be the assumption of its EU partners, particularly if free movement of people remains an inviolable principle. So how should the rest of the bloc respond?

The UK’s almost certain departure is a threat to the EU on two dimensions.

First, the UK is a neighbour, a market, a financial centre, a security partner and a link to the wider world. It is in the EU’s interest to achieve a mutually satisfactory relationship, however infuriating the UK must be. This argues for the pragmatic position taken by Alain Juppé, frontrunner in the race for the French centre-right presidential nomination. He even suggests that restrictions on free movement of people should be negotiable. If so, that would surely have obviated Brexit.

Second, Brexit is a precedent. The first country to leave the EU is, inevitably, an example to those that wish to follow suit and a warning to those who oppose it. It is natural for …read more

Source: Can The EU Survive As A Prison? Who Has The Keys?

    

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Goldman Warns Of A Sharp Plunge In Stocks In "Next Few Months"

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By Tyler Durden

That Goldman’s David Kostin has been warning about the possibility of a sudden, sharp drawdown in the market, is not new: we first reported on that in early May when we presented “Six Reasons Why Goldman Is Suddenly Warning About A “Large Drop” In The Market” in which we cited the head Goldman equity strategist who said that “unbalanced distribution of upside/downside risks suggests “sell in May” or buy protection.” He adds that “we continue to expect S&P 500 will end 2016 at 2100, roughly 3% above the current level even as “a shift in investor perception of various risks could easily trigger a drawdown.”

Specifically, he warned that “a drawdown during the next few months could find the S&P 500 index falling by 5%-10% to a level between 1850 and 1950. 16 drawdowns greater than 5% have occurred since 2009, including the 13% correction that lasted 3 months and ended in February (Exhibit 1). S&P 500 trades at 2047 and has a forward P/E of 16.7x based on bottom-up adjusted EPS of $123. A 5% pullback would lower the P/E to 15.8x, implying an index level of 1950. A 10% correction would reduce the P/E to 15.0x and the index level to 1850.”

Two months, and one brief Brexit swoon later, Goldman is back with another similar warning, now expecting a 5-10% drop in the “next few month”, which Goldman expects will be met with another round of BTFDing, and pushing stocks once again higher, as they close the year at 2,100. To wit:

The S&P 500 enters 2H 2016 just 3% above where it began the year. Tactically, we continue to expect the market will experience a pullback of 5%-10% during the next few months before ending the year at 2100. Strategically, we expect a continuation of the range-bound market that has challenged investors for nearly two years. Although investors appear complacent in the wake of Brexit, a maturing economic cycle with elevated valuations, decelerating buybacks, and growing political uncertainty provide the basis for potential market weakness in the second half. At the same time, above-trend US economic growth, a return to positive but slow earnings growth, a cautious Fed, and the lack of investment alternatives around the globe will support equity prices without providing a catalyst for further upside. Our 3-, 6-, and 12-month S&P 500 price targets are 1950, 2100, and 2150.

Just like in May, Kostin blames the upcoming selloff on a “drawdown” in risk, one which he expects will trough when PE multiples hit 15x.

Most recent drawdowns have troughed at a forward P/E of roughly 15x. Given consensus bottom-up next-12-month EPS of $123, this same multiple would value the S&P 500 at roughly 1850, or 13% below its recent high of 2115 reached in early June. In 16 S&P 500 pullbacks of 5% or more since 2009, the S&P 500 has declined by a median of 7%, which would bring the S&P 500 to roughly 1950.

A small problem emerges if …read more

Source: Goldman Warns Of A Sharp Plunge In Stocks In "Next Few Months"

    

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"We’ve Never Had A Shock To The System Like This" – Global Selloff Accelerates On Brexit, Italy, "Unknown" Fears

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By Tyler Durden

The flight to safety following last week’s quarter-end window dressing is accelerating, with constant news and flashing red headlines of record low yields across DM government bonds once the norm, and as of moments ago Denmark’s 10Y bonds joined the exclusive club of sub-zero yields; gold has soared to fresh multi-year highs above $1,370, the risk-off currency, the Yen, soaring and sending the USDJPY just above 100, while sterling crashed overnight once again below 1.27, levels not seen since 1985.

European banks continue to struggle and while Monte Paschi was halted up 10% earlier following the previously halted shorting ban, both Deutsche Bank and Credit Suisse have plunged to new all time lows, this time on concerns that the two trouble banks could be forced out of the Stoxx 50 Europe index according to an LBBW analysis while BlackRock cutting the region’s shares to underweight, with a negative view on the euro area’s banking sector, did not help. To be sure, all eyes remain on both Italian banks as well as UK property funds, where the announcement of more gating is widely perceived as imminent.

Indeed, as Bloomberg summarizes, it’s safety first for investors around the world as Brexit, no longer a risk on catalyst as it was a week ago, has instead become a reason to offload risk. Demand for haven assets sent bond yields to record lows after Federal Reserve Bank of New York President William Dudley said Brexit’s significance could escalate if it triggers turmoil in markets beyond the U.K.

Based on overnight analyst quotes, the euphoria is certainly gone by now: “Everyone is trying to react to a situation we’ve never been in before,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “We’ve had shocks to the system before, but we haven’t had one like this. And we won’t know the answers for a long time.”

Mitsuo Shimizu, deputy general manager with Japan Asia Securities, also opined saying that there are “fears the global economy will worsen due to Europe. The U.K.’s economic outlook is blurred with uncertainty and the pound’s recent weakness is likely to encourage speculative buying in the yen.”

After rallying last week on bets central banks will work to limit the fallout from Britain’s referendum, global equities are retreating again as the knock-on effects become evident and as central bank credibility and efficiency is once again questioned. Three asset managers froze withdrawals from U.K. real-estate funds on Tuesday following a flurry of redemptions and the Bank of England relaxed capital requirements for lenders. Societe Generale SA Chairman Lorenzo Bini Smaghi said a banking crisis in Italy, stoked by the referendum, could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered.

As noted earlier, yields continue to plunge: 10-year US Treasury yields fell as much as six basis points to 1.318% and was at 1.33% at 10:44 a.m. London time. Yields on 10-year government bonds in Australia, Japan, Germany, France and the U.K. also …read more

Source: "We’ve Never Had A Shock To The System Like This" – Global Selloff Accelerates On Brexit, Italy, "Unknown" Fears

    

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