ISM manufacturing index, construction outlays and vehicle sales/GM channel stuffing.
Tired of all the trite meaningless propaganda from Economic PhDs who crawl out of the woodwork every time there is a downtick in gold, proclaiming in big bold letters that the Gold "bubble" has burst, only to crawl right back in when gold soars $100/oz in the days following their latest terminally wrong proclamation? Or, alterantively, wondering what will happen to gold from this point on? Then the following report from Nomura is for you. As Saeed Amen analyzes: "In this article we explain why the price of gold has fallen in recent weeks. Notably, price action during Asian hours has become very bearish, which had not been the case in previous unwinds earlier in the year. In addition, it is likely that losses in risky assets such as equities helped precipitate unwinding of very heavily extended long gold positions. However, the key reasons for being bullish gold remain; namely, a very low interest rate environment and the potential for long-term demand from Asia. Also, the potential for gold’s status as a safe-haven hedge to tail risks arising from various uncertainties due to the European debt crisis is likely to be enhanced, especially now that short-term speculative positioning is relatively light. Also on a short-term basis, we have begun to see some reversal in gold back upwards during Asian hours, after the unwind." Overall, informative but nothing new to regular readers: gold liquidations on market plunge (confirming ironically that gold is now among the most liquid types of investments in the market) as had been predicted months ago, and the same long-term fundamentals for the metal once the current stock downturn shakes out all the weak hands.
- German conservative MP says "Greece is bankrupt" (Reuters)
- Eurogroup to discuss EFSF leveraging, Greek reforms (Reuters)
- Europe Aims to Dodge ‘Scapegoat’ Label (BBG)
- UK Treasury Fears Effects of a Euro Break-up (FT)
- Dollar Beating All Assets in September Undermines S&P Downgrade (BBG)
- Japan Tankan Sentiment Below Pre-Quake Level on Global Slump (BBG)
- Osborne Reaches for Middle Ground (FT)
- Hong Kong Banks Face Higher Credit Risks in Midterm, KPMG Says (BBG)
- Greece to Miss Deficit Targets Despite Austerity (Reuters)
- US Congress Presses China on Currency (FT)
Just when you thought the latest round of liquidity improvement rumors out of the ECB (such as the resumption of a 12 month refinancing operation from last week) would buy the European financial system some time (not like many did, but for the sake of sentence construction bear with us), here comes reality confirming that it took about 4 days before liquidity got hopelessly snarled up again. As of Friday, the ECB Deposit Facility usage soared to a fresh 2011 high of €200 billion, beating the previous high of €198 billion set on September 12. Once again banks are scared of keeping excess cash with each other (as confirmed by the nearly 50th consecutive increased in LIBOR) and instead have dumped a 2011 high amount with the ECB. And the flip side, or looking at the ECB's Marginal Lending Facility, which does just as it says, shows that €1.4 billion in cash was loaned out from the ECB to "needy" banks - the highest since the €3.4 billion lent out September 14.
Dexia Tumbles After Moody's Puts It On Downgrade Review Citing "Deteriorating Liquidity And Worsening Funding Conditions"Submitted by Tyler Durden on 10/03/2011 - 05:34
If there is one thing Zero Hedge readers should be well aware of, it is that the biggest Belgian bank (whose assets are 180% of Belgian GDP) Dexia is in trouble. Potentially very big trouble. Sure enough, even those embarrassingly late to the party "analysts" at Moody's have just figured it out: "Moody's Investors Service has today placed on review for downgrade the standalone bank financial strength ratings (BFSRs), the long-term deposit and senior debt ratings and the short-term ratings of Dexia Group's three main operating entities -- Dexia Bank Belgium (DBB), Dexia Credit Local (DCL) and Dexia Banque Internationale à Luxembourg (DBIL). The review for downgrade of Dexia's three main operating entities' BFSRs is driven by Moody's concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market." Immediate result: stock plunges up to 15% overnight. We are still confident the outcome will be a full or partial nationalization, with all the ensuing bells and whistles for the various trading securities.
On the policy front, a series of critical EFSF votes went through last week without any hiccup, including the German, Finnish, and Slovenian decisions. Though the clearing of these hurdles provided some support to markets in the earlier part of the week, renewed Greek headlines pushed risky assets lower. In FX, a similar pattern persisted as in other asset classes, with most Dollar crosses matching the round trip during the week, including in EM. Only a few currencies marked notable new lows last week, in particular the Canadian Dollar. Positioning has continued to move in favour of defensive currencies, in particular the USD. The latest IMM report hints at very stretched short positioning in currencies like the EUR, AUD, and CAD. The upcoming week will provide more detail on both key subjects. Firstly, we will get the latest round of PMIs, though regional US surveys and preliminary readings in Europe suggest that macro data will continue to stabilise at relatively low levels, as mentioned earlier. The second important issue is the upcoming ECB meeting.
With the weekend full of on-again-off-again comments from various European, Asian, and US politicians and central bankers with regard the chances of various incarnations of the EFSF solving all of our ills (or not), Nomura's Fixed Income Research team has what we feel is one of the most definitive analyses of the various options. We have discussed the self-exciting strange attractor nature of the endgame that will be a leveraged EFSF many times recently. The Nomura team, however, does a great job of breaking down various scenarios, such as Structural Weaknesses of EFSF 2.0, Proposals for an EFSF 3.0 (and their variants), Leverage-based options, and EFSF 2.0 as TARP and how these will result in one of three final outcomes: fiscal union, monetization, or major restructurings risking the end of the euro, as everyone searches for a steady state solution to the 'problem' of the eurozone.
While the most elegant solutions have no official sanction, we think the necessary political resolve is yet to be forthcoming, and the technical issues are challenging if not insurmountable for many of the legal workarounds, resulting in the need for yet another round of parliamentary approvals. Consequently, we see a significant risk that the market, looking for large headlines and enhanced flexibility, will be disappointed at least in the short run.
Two weeks after Bernanke agreed to invest unlimited taxpayer funds in the form of global FX swap lines to prevent a worldwide dollar funding squeeze arising from the Europen financial collapse, the Chairman appears to be getting cold feet. BusinessWeek reports: "The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter. Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said." In other words, not only after Bernanke's pledge to fund as much money as is needed to prevent bank defaults around the world, is he actually going to have enough information to determine if there is any danger of this money not getting repaid. Well, better late than never. But at least we can permanently set aside any latent questions over whether European banks have liquidity problems. When even the Fed no longer believes you, you have far bigger problems than just liquidity (except for Dexia: liquidity there may well be the largest problem, but at least it won't be for long).
Back on Friday, when we closed out the Dexia long sub CDS trade, we said "We expect a partial or complete nationalization to be announced imminently, which in addition to all other side effects, would lead in a Bear Stearnsing of all accrued profit." Sure enough, here is the Sunday Times on the very topic... And while a nationalization of Dexia, which now appears a matter of hours if not days, will be bad for anyone still long the bank's CDS (it should trade down to pari with Belgium tomorrow, just as Bear CDS trades in line with JPM), it is pretty horrifying for SovX and Eurocore CDS in general, now that a bank which holds assets amounting to 180% of Belgium's GDP, is about to be nationalized by the very same country. Anyone who is still not long Belgium CDS, this is probably your last chance to get on that particular train. Of course, if one is waiting patiently in line at a Dexia ATM machine, one is forgiven.
Previously, we brought you parts one, two and three of the Canadian must see documentary "Meltdown." In this final episode "After the Fall", we hear about the sheikh who says the crash never happened; a Wall Street king charged with fraud; a congresswoman who wants to jail the bankers; and the world leaders who want a re-think of capitalism. As one world leader handles the crisis through denial, other leaders try to re-think capitalism. Even though the causes of the 2008 meltdown are now clear, there is no magic formula to stop it from happening again. The world has to start planning for the next crisis, even as we recognise that this one is not over yet.
The September Swiss National Bank balance sheet update is out and while it reportedly indicates balances at the end of August, it appears that the SNB intervention in the FX market (i.e. the currency peg) started early, which would make sense as the first peg rumor hit on August 11. As a result, as the chart below shows, the latest central bank balance sheet to be completely devastated as a result of currency wars is that of Switzerland, where both Foreign Currency Investments and the total balance sheet increased by just under 50%, the biggest such monthly increase. In fact, in September, "aggregate short and long positions in forwards and futures in foreign currencies vis-a?-vis the domestic currency (including the forward leg of currency swaps)" increased by $92 billion CHF or just about $100 billion - a whopping 20% of Swiss GDP! And this is the capital at risk for Switzerland to avoid having its currency trading a parity with the euro since the bulk of this increase is due almost certainly purely to EUR purchases. And here is the bad news: since the bulk of the purchases were made in the 1.40+ area, we can't wait to find out just how NZZ and other Swiss financial publications will react tomorrow when they learn that the SNB has experienced an immediate 5% drop in its "assets" courtesy of the subsequent plunge in the EUR. And with the SNB's total balance sheet at a record (?) CHF 365 billion, something tells us that the days of this latest attempt at repegging the Swiss Franc to some arbitrary number are coming to an end, and with that Hildebrand's futile attempts at preventing parity.
At the Friday close, there was a spurt of rapid EUR selling at the close, taking the currency to the lowest since January 2011, at 1.3367. It turns out it was not a fat finger - with a spate of traditionally euro negative news over the past 48 hours, most notably yet another negative Greek deficit revision which will make the Troika's job that much more difficult in justifying the need to fund the next IMF bailout payment, the EURUSD is now even lower premarket at 1.3344. With the rumormill thoroughly exhausted, and with nobody in Europe having any credibility left whatsoever, we fail to see what can catalyze a move higher before the Asian open, which will likely not be a pretty way to start the final quarter of the year.
Greece To Miss Budget Deficit Targets, As Usual, While Qatar Prepares A Bailout Pennies-For-Gold SwapSubmitted by Tyler Durden on 10/02/2011 - 12:55
As the Greek parliament meets to finalize huge public sector job cuts, Reuters is reporting that Greece will miss the deficit targets set in its EU/IMF bailout this year and next... We would say "again" but at this point "as usual" makes far more sense, Why this should come as a surprise to anyone is beyond us but the next steps by the Troika (as again and again targets are not met and yet still bank-extending-and-pretending-funding is provided) will be fascinating as they switch from carrot to stick and back to carrot perhaps. Assuming, of course, the "wildcat strikes" at any and all government institutions by government workers about to be sacked, allow Troika member access at some point in the near to long-term future. Although using numbers conceived on napkins as a replacement will be nothing new to either Greece, Eurostat or the Troika. Add to this the comment from the Deputy Leader of the CSU (one of Merkel's tri-party coalition) that Greece would find it easier to recover outside the currency bloc and rhetoric remains high, as do expectations for an inverse surge in the EURUSD at open in a few hours. The biggest winner: Qatar which just snuck in some recycled petrodollars into Greece, which will last the kleptocorrupt government about 1 week, in exchange for Greek gold.