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Buyers historically confuse PRICE with VALUE.

In the Bond Market PRICE is what you pay for the PAPER.

VALUE is the YIELD the paper delivers.

EU PARLIAMENT ELECTIONS - Populists Leaves Mainstream Parties Soul Searching

Rise of Populists leaves mainstream parties soul searching

Once-fringe parties strongly opposing what they view as a loss of sovereignty to Brussels claimed first place in France, the U.K. and Denmark

Politicians were raking over the ashes of elections for the European Parliament that have shaken mainstream political parties across the continent and challenge some of the European Union's fundamental policies.

Once-fringe parties strongly opposing what they view as a loss of sovereignty to Brussels claimed first place in France, the U.K. and Denmark. Traditional parties suffered a drubbing across most EU countries.

• Nigel Farage's UKIP was the top vote getter in the UK with about 29% of the vote
• Marine Le Pen's Front National party was the top vote getter in France with 26% of the vote
• The Danish People’s party is the largest party in Denmark with about 25% of the vote
• Beppe Grillo's Five Star Movement is a likely second-place finisher in Italy 
• Alexis Tsipras' Syriza part is the top vote getter in Greece with about 26% of the vote

The EU parliamentary elections showed that:

1. A growing number of voters in Europe feel either disappointed or uninterested in the continental bloc.
2. These elections have weakened the European Union.
3. Issues such as immigration and the role of the welfare state will be at the heart of the political debate in most European nations, particularly in northern Europe.
4. Many moderates will join the far right in resisting the pro-European elites' attempts to deepen continental integration.
5. The French and the Germans will move further away from each other. They will agree on the need to redesign the European Union's institutional framework, but will disagree on how and when to do it.
6. The debate over the value of the euro and the role of the European Central Bank in fighting unemployment will intensify.
7. Countries in Central and Eastern Europe, seeing a fragmenting European Union to the west and a more assertive Russia to the east, will intensify their regional collaboration, even if it leads to further fragmentation in Europe as a whole.
8. The next European Parliament will have to deal with a particularly hostile political environment, since some member states will resist its push to give EU institutions more power.
9. It will also face a European Union in which some of the most crucial decisions are made through intergovernmental treaties instead of EU procedures.

In other words, the next European Parliament will fight to defend its role amid political fragmentation, which is leading to stronger nationalist tendencies across Europe.

National leaders and officials in Brussels, who will go over the results at a summit, can take comfort from the knowledge that many voters use European elections to register a protest vote, then return to their traditional parties in national elections.

Race for Commission Presidency

The coalition infighting begins. The Euroscpetics will not vote for either Juncker or Schulz so it is going to be a difficult process coming up with 376 votes.

Should Juncker ultimately prevail, he will not be willing to bow down to UK prime minister David Cameron's proposed rule changes.

The whole setup is messier than it appears at first glance. Significant rule changes which Cameron has promised before an up-down vote on the UK staying in the EU seems highly unlikely, at best, no matter who triumphs as EC president.

Steen Jakobsen on "Slow Growth Impact" of European Parliamentary Elections 05-26-14 Mish

Rising Unemployment, Slowing Growth

On his blog, Steen offers his detailed view in Europe's lurch to right will see unemployed, growth, emerge as losers.

• Massive eurosceptic bloc breakthrough at parliamentary elections impossible to ignore,
  
• European project at risk as voters reject Brussels' push for ever-further integration,
  
• Real losers in vote continue to be unemployed and growth prospects as Europe divisions rise

Across Europe, EU-sceptic voters gained ground, but it could be in vain as the overall majority of the old guard: Conservative, Liberals, Greens and Social Democrat’s still carry 70 percent of the mandates.

How the protest votes engage with the main stream parties will set the tone for Europe over the next five years. If the protest parties just want a floor to shout “No thank you to Europe”, then we will see the old parties align themselves more towards the middle and dilute the negative votes. On the other hand, if the EU-sceptic votes want real influence, then compromise and seeking real influence on key votes will be the strategy.

The European Parliament makes a new law every second day, which is scary in itself, but it also shows you that Europe today is very much a machine where stopping the momentum is extremely hard. The EU system is built and set up to protect the bureaucratic model and it clearly favours pro-EU inclined political parties.

This biased set-up and momentum makes the results in the UK, Italy, Greece, Denmark, and France impossible to ignore. The implications in France and the UK carries the biggest weight where Marine Le Pen's National Front took 25 percent of the vote foran estimated 25 seats

and Nigel Farage's UK Independence Party obliterated the traditional parties of power to take 28 percent of the poll and an estimated 23 seats.

The chances of a UK voting no in the referendum next year is now a clear and present danger. UKIP has arrived at the national scene, likewise in France where Marine Le Pen has now clearly become a force to reckon with in the next Presidential election.

A move to a more wait-and-see attitude away from the full support for everything European will be the biggest marginal change in Europe. By ignoring the wishes of their voters, a lot of mainstream parties across Europe are now looking for a new strategy – a strategy which after this week’s election will entail less Europe, not more.

It is also in total opposition to EU Commission President Jose Manuel Barosso’s State of the Union speech where he said: “the problem with Europe is not that we have too much Europe, it’s that we have too little”. Europe’s voters clearly disagree and the consequences of this EP election may be slow and small, but significant.

The new European Parliament will have stronger democratic credentials which is anchored in the Lisbon Treaty and includes new lawmaking powers. It will be decisive on the majority of EU legislation. In total, over 40 new fields have been added including agriculture, energy policy(or the lack of it), immigration and EU funds. The Parliament also has the final say on the EU budget.

The biggest immediate change will be that the new President of the European Commission will need to have the approval of the Parliament to take office. We can expect a major fight between the EU Council and the European Parliament on exactly this point. Don’t expect any consensus before the last minute.

The 751 members of the EU Parliament operate through coalitions of interest across countries and sometimes political standpoint. The final date for submitting a coalition is June 23, and a “coalition” has to be at least 25 members from seven different nations.

Here the protest votes can play vital role. The Europe-sceptic vote is divided. The risk is that, similar to the Occupy movement in the US, a lack of common goal, except those of a negative nature, allows the majority get away with ignoring what clearly is a call from the voters to the politicians that Europe is too far away from the daily life of its 500 million citizens.

The Banking union, high unemployment and low growth remain formidable challenges. I still see a dramatic slow-down in Germany into 2015 as the biggest risk for Europe. Germany has been the locomotive so far, surviving by exporting to Asia during this crisis, but now Asia is slowing down leaving us with less export in Europe.

The EU “economic police” will be tested. France and Spain is already in violation of budget deficits for 2014 and 2015. The so called “recovery” is actually a stabilisation, not recovery. In history, unions, even primitive ones, fail when economic times turns negative. A new test is upon us as we leave 2014 in my opinion, and has not been made easier by the new European Parliament. Voters and politicians are clearly not agreeing. Putting anything European to a referendum will be risky and hence Europe is now on move to a pace of speed walking from jogging along.

The market is ignoring the European Parliamentary 2014 results, they see the glass as half-full. However, as the new European Parliament gets down to business, the in-fighting will continue in the European Council, in the European Parliament, between the EU Council and European Parliament, and between the EU and the voters of Europe. That is the ultimate conclusion: Europe’s politicians and its voters have never been further apart. The price for that is a continued flow of miscommunication which will leave Europe weaker, with less decision power and ever-widening rifts.

As George Bernard Shaw once said: "The single biggest problem in communication is the illusion that it has taken place".

What Europe needs is to move forward with a political and fiscal union to consolidate and progress. It will clearly not happen. It also needs to simplify its business. Also very unlikely to happen. We have just increased the complexity of politics and decision making. The loser, as always remains the unemployed, growth and reforms. The victor: Buying more time. Sad. Really.

EU PARLIAMENT ELECTIONS - Vote Shows Doubts About Integration

GLOBAL RISK - World Economic Forum

For the 3rd time in the last 4 months, world trade volumes dropped. The 0.5% fall in March - it must have been weathery all over the world? - continues the biggest plunge in global trade since May 2009. As WSJ reports, exports from developing economies in Asia recorded the largest decline, a drop of 4.5%. Central and Eastern Europe was the only region to record a rise in exports as the decline in trade flows is consistent with other evidence that suggests the global economy got off to a weak start this year. So, $12 trillion of global money printing and world trade is unable to sustain growth...

The last 4 month shave seen the biggest tumble in world trade since the financial crisis...

As World Trade has decoupled from the money-printing mania of the central banks as transmission mechanisms everywhere are saturated and broken...

Must mean that the central planners just need to print more?

Charts: Bloomberg

BUYBACKS - 1H 2014 Has the Potential to be the greatest annual buyback tally in market history.

Here Is The Mystery, And Completely Indiscriminate, Buyer Of Stocks In The First Quarter 05-27-14 Zero Hedge

With the Fed having tapered its liquidity injections into the stock market from $85 billion to "only" $45 billion per month, retail investors getting burned by the recent high beta and momentum stock flame out and "greatly unrotating" into the renewed safety of bonds, not to mention a churning market that until last week was unchanged for the year, and hedge funds ever shorter into this latest ramp, many are asking themselves: who is buying?

Here is the answer.

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter!

Should the Q1 pace of buybacks persist into Q2 which has just one month left before it too enters the history books, the LTM period as of June 30, 2021 will be the greatest annual buyback tally in market history.

And now for the twist.

Unlike traditional investors who at least pretend to try to buy low and sell high, companies, who are simply buying back their own stock to reduce their outstanding stock float, have virtually zero cost considerations: if the corner office knows sales and Net Income (not EPS) will be weak in the quarter, they will tell their favorite broker to purchase $X billion of their shares with no regard for price: the only prerogative is to reduce the amount of shares outstanding and make the S in EPS lower, thus boosting the overall fraction in order to beat estimates for one more quarter.

Compounding this indiscriminate buying frenzy is that ever more companies (coughaaplecough... and IBM of course) are forced to issue debt in order to fund their repurchases. So since the cash flow statement merely acts as a pass-through vehicle and under ZIRP companies with Crap balance sheets are in fact rewarded (as even Bloomberg noted earlier) the actual risk of the company mispricing its stock buyback entry point is borne by the bond buyer who in chasing yield (with other people's money) serves as the funding source for these buybacks.

In short, corporate CEOs and CFOs couldn't care less if your friendly Wall Street broker uses the repurchase allocation to buyback the stock at all time highs.

In fact, since a vast majority of executive compensation agreements are tied to company stock "performance" C-suites are perversely happy if their own corporate cash is used to buy the stock near or at all time highs: after all management year end bonus will simply benefit that much more, while keeping activist investors delighted (and away from the embarrassing public spotlight).

So the next time someone asks who keeps on buying stock despite all the negative newsflow, despite the bond yield sliding ever lower despite relentless broken-record pleas that a "recovery is just around the corner", and with vol near all time lows confirming peak complacency... now you know.

* * *

Want more data? Here is buyback activity by year. While the 2007 S&P500 buyback record of just over $560 billion is safe for a few more weeks, should companies buyback as much stock in Q2 as they did in Q1 2014, then the Q2 2014 LTM buyback total will rise an all time high:

Don't forget: there is no such thing as a free lunch, bought with stock buybacks or otherwise. Contrary to all the lies you may have heard, corporate debt - both total and net - is now at an all time high!

Finally, these are the companies that are the most aggressive repurchasers of their own stock, or said otherwise, the companies that have no organic use for the cash and have zero ideas how to grow their top and bottom line or what capital projects to invest their excess capital, they only have stock buybacks as an option to give the impression of "growth."

Source: CapIQ

RISK 0N-OFF - Smart Money Correlation

SHORT TERM

LONG TERM

RISK 0N-OFF - Smart Money Correlation - 2

Bond Bears Are Scratching Their Heads While Looking At These Charts 05-27-14 Zero Hedge

Large speculators (read - hedge funds or the supposed "smart money") have shifted their S&P 500 positioning to net short, increased their Russell 2000 short positioning and decreased their NASDAQ longs to one-year lows. Market-neutral funds have dropped exposure notably in the last week and long/short funds are well below market norms for their long positioning. But what has the bond bears really scratching their heads (as they added to their shorts in the last week) is that the last time so many people were convinced that rates can only go higher (based on CFTC data), bad things happened in stocks.

The smart money is the shortest it has been in the last few years... and is down 1.15% in 2014 (hedge funds).

Smart money is short and getting shorter...

And the flow is one way...

But bond bears keep adding to their shorts...

Which didn't end so well last time for stocks.

So in summary - Hedge funds are selling (and most short in years), smart money traders are selling, retail (who was buying until recently) has been selling recently (as we noted here)... so who is buying?

RISK ON-OFF - Two-month decline in NYSE margin debt is steepest since 2011

DATA SOURCE: NYSE Margin Debt Dips In April For Second Consecutive Month JJ McGrath via Seeking Alpha

RISK ON-OFF - Markets Exposed to a Macro Shock / Surprise

SMII Q1 2014 - UKRAINE & the PETRO$$

Russian Billionaire Timchenko Calls China Gas Deal "The Most Important Event Of The Past Decade" 05-22-14 Zero Hedge

We may have dubbed Russia's historic, and 30 years in the making until John Kerry et alaccelerated it, gas deal as the "Holy Grail" of New Normal trade arrangements, and it turns out we weren't alone in evaluating the strategic implications of this epic Russian, and Chinese, pivot toward each other. Moments ago, Russian billionaire Gennady Timchenko, shareholder of Gazprom competitor Novatek, chairman of the Russian-Chinese Business Council, and former co-owner of commodities trading giant Gunvor, said that "Economically it’s the most important event of the past decade."

Some of Timchenko's other soundbites via Bloomberg:

• "The contract allows a balance between Europe and China”
• "There will probably come a time when Gazprom’s monopoly won’t be a monopoly"

More importantly, now that the ground has been set, the Gazprom-CNPC deal is just the beginning:

• Timchenko says also seeking to expand Yamal LNG, Sibur business with Asia; Volga Group is looking at China projects
• China Harbour Engineering signed memorandum on Kolmar coal mining, Sakhatrans port projects in Russia’s Far East; may form JV
• Chinese propose participation in domestic pipeline projects, LNG terminals to Timchenko, as Volga Group owner and Novatek board member
  "We have the desire” to invest in China, no specific talks for now
• Volga has water reservoir in China, doesn’t rule out investing in development for bottled water

It may be ironic, but quite soon China could participate in building a bridge between Russia and its latest territorial property: Crimea.

• USK Most, co-owned by Volga, plans to bid in tender to build bridge between Russia, Crimean Peninsula through Kerch strait together w/ Mostotrest, co-owned by Arkady Rotenberg, also on U.S. sanctions list
• Says doesn’t rule out China cos. participating in bridge project

Finally, here is why the next company to feel the "costs" of US sanctions will not be Russian, but America's own Caterpillar:

• If sanctions tightened, Volga Group construction units may seek equipment suppliers in China to replace U.S. cos. such as Caterpillar

Which of course would be even more bullish for CAT as it would force management to lever up even more and to buyback a record amount of its own shares just to give the impression that collapsing revenue and future business prospects is the most bullish thing that could happen to the industrial giant.