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Today's WTF Chart

We know it is early in the day for a divergence chart, but the inexorable bid for US equities overnight (amid dismal global economic data from China and Europe) juxtaposed against the seemingly rational response of US Treasuries to drift lower in yield as growth expectations fade just leaves us saying WTF...



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MF Global Trustee Sues Jon Corzine For Firm's Collapse

Just about a year and a half after the bankruptcy filing of MF Global, the first real lawsuit that directly names former MF Global (and Goldman) CEO Jon Corzine and his cronies, has hit the docket with MFG Holdings bankruptcy trustee Louis Freeh as plaintiff. The complaint: breach of fiduciary duty. Of course, when one is a bundler for the president, such trivial concepts as duty to anyone else, be it fiduciary or otherwise, naturally does not exist.



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Asians Drive Gold Demand To 30 Year High

Asia is seeing a new gold rush. Demand for gold bars, coins and jewellery has soared as bargain hunters try to capitalize on the dip in prices. In Hong Kong and Beijing customers lined up outside banks and jewellery shops to make purchases and in some instances there was not enough physical metal to meet the demand. The Shanghai Gold Exchange’s cash contract hit a new record high yesterday (43 metric tonnes, up from 30.4 on April 19th) while gold coin sales at the U.S. Mint have nearly tripled in April against last month’s figures.  Joni Teves of UBS research said, “Physical markets have responded to the much cheaper gold price levels,” and “our physical flows to Asia have been particularly elevated this week.” Asian investors demand for the physical yellow metal has supported the gold price, rallying it up 8.1% from last week’s low.



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Less Austerity? Nein, Nein, Nein Says Germany

"While I think this policy is fundamentally right, I think [austerity] has reached its limits," was EU President Barroso's firestarter comment yesterday. As the WSJ reports, the IMF also said last week that  the bloc should ease back on austerity, while a number of governments outside the EU have made the same call, arguing that its belt-tightening is holding back the global economic recovery and could end up being self-defeating. Of course, the beggars are once again trying to be choosers as Spain's de Guindos pushes his agenda along this 'growth vs austerity' path, "What we are going to do now is strike a better balance between deficit reduction and economic growth," but it is the bagholders (or money-men) of Europe that has the last word. As we noted yesterday, Merkel's expectations are no more money without ceding sovereignty, this morning it is German MPs who are up in arms as Nobert Barthle condemns Barroso's statements on austerity and Hans Michelbach flatly rejects this path of no resistance as it "undermines fiscal consolidation efforts." Perhaps the most clear message was from Volker Wissing who added, "demanding more money or time would send a 'fatal' signal to financial markets on reforms." With German PMIs so bad this morning, we are reminded of Bill Blain's comment, that ultimately growth is about confidence - and right now, Europe is a very unhappy place.

 



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Daily US Opening News And Market Re-Cap: April 23

Yet another round of less than impressive macroeconomic data from China and Eurozone failed to deter equity bulls and heading into the North American crossover, stocks in Europe are seen higher, with tech and financials as best performers. The disappointing PMI data from Germany, where the Services component fell below the expansionary 50, underpins the view that the ECB will likely cut the benchmark interest rates next month and may even indicate that it is prepared to provide additional support via LTROs. As a result, the EONIA curve bull flattened and the 2/10s German spread flattened by almost 3bps to levels not seen since June 2012. In turn, Bund future hit YTD peak at 146.77 and the next technical level to note is 146.89, 1st June 2012 high. However it is worth noting that the upside traction is also being supported by large coupon payments and redemptions from France, the second highest net market inflow for 2013.



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Goldman Closes Gold Short

We have closed our recommendation to short COMEX Gold, as prices moved above the stop at $1,400/toz. We have exited the trade significantly below our original target of $1,450/toz, for a potential gain of 10.4%. The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels. Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year.



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Frontrunning: April 23

  • China’s Recovery Falters as Manufacturing Growth Cools (BBG)
  • Gloomy eurozone output points to rate cut (FT)
  • Limit Austerity, EU appartchik Barroso Says (WSJ)
  • Regulators Get Banks to Rein In Bonus Pay (WSJ)
  • SEC looks to ease rules for launching ETFs (Reuters)
  • Easy come, easy go: U.S. Seizes $21 Million From Electric Car Maker Fisker (WSJ)
  • Japan nationalists near disputed isles (Reuters)
  • OECD in fresh warning on Japan debt (FT)
  • S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics (Reuters)


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Latest Global Economic Slowdown Confirmed After Disappointing Chinese, German PMI Data

If there was any debate about the global economic contraction, driven largely due to pundits confusing manipulated stock market levitation with this anachronistic thing called the "economy" and fundamentals for the fourth year in a row, all doubts were removed after this morning's manufacturing PMI data out of China, which as reported previously was a big disappointment (sending the Composite firmly into the red for the year down 2.57% to 2184.5) only to be followed by just as disappointing manufacturing and services PMI data out of Germany, which tumbled from 49 and 50.9 to 47.9 and 49.2, respectively, missing estimates of 49.and 51. The composite German PMI tumbled to a 6-month low of 48.8 as a result, meaning the European economic deterioration is just getting started, and at the worst possible time for Merkel several months ahead of her reelection campaign. The end result was a miss in the blended Eurozone Mfg PMI, which dropped from 46.8 to 46.5, even as the less relevant Services component eaked out a small gain from 46.4 to 46.6, on the back of a dead cat bounce in French economic indicators. Bottom line: a contraction in both European manufacturing and services for the 15th consecutive month. Some "recovery."



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RANsquawk EU Market Re-Cap - 23rd April 2013



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Guest Post: Poker And Trading

The parallels between games like chess and poker and trading are many-fold, but poker is probably a little closer to trading, as it involves things like incomplete information, bet sizing and 'reading opponents', none of which play a role in chess. The following infographic, from tradimo.com, lists a number of famous traders and poker players who are good at both activities as well as a number of characteristics applying to both trading and poker. What really caught our attention though was the statistic right at the end...



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BitCoin, Or BetaCoin? What The Venture Capitalists Are Thinking

After a disastrous few days in early April, bitcoin is back over $100 and up on the month, the year and its short lifetime.  ConvergEx's Nick Colas is intrigued and continues to believe that this phenomenon is the most provocative economic experiment since the invention of the euro and well worth watching.  The next chapter of the story, he believes, will be the entry of a host of "Smart money" venture capitalists looking to build the currency's infrastructure.  Money and currency are exactly the kind of large, scalable and complex opportunity that gets VCs very, very excited.  Yes, it could all still end in tears, either by regulation or mismanagement.  But bitcoin isn’t dead just yet, and it remains one of the most potentially disruptive forces in modern finance. In summary, bitcoin is what he calls a "Beta currency." How it all shakes out, however, will be both instructive to watch and potentially profitable for those on the right side of this very novel trade.



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Guest Post: Boston Marathon Attacks, Chechnya And Oil - The Hidden U.S. Connection

As Boston and U.S. security agencies congratulate themselves over the apparent neutralization of a pair of Chechens that bombed the Boston Marathon, troubling questions are beginning to arise. First and foremost is, why a pair of Chechens, born in the former Soviet republic of Kyrgyzstan, apparently committed the attack? For possible answers, one must looks beyond the present and delve into Russia’s and the USSR’s past policies towards Chechnya, and since 1991, U.S. policy in the Caucasus, which since the 1991 implosion of the USSR had a single focus – the exploitation of the Caspian’s massive energy reserves. It is a history that makes for deeply uncomfortable reading, but one that may eventually provide some answers to seemingly intractable questions. The history below, virtually unknown in the US, is deeply known to the Chechens; and while nothing excuses the terrible actions, the US is hardly blameless about the carnage visited on the Tsarnaev's ancestral homeland.



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China PMI Miss Slams JPY-Carry Trades

Thanks to a drop into contractionary territory for both New Export Orders and Employment, HSBC's Flash China Manufacturing PMI missed expectations and dropped to its equal lowest 'expansionary' print in six months. Also struggling with pricing power, as the China industry minister notes the country is "clearly facing over-capacity problems," commodity currencies (and the Shanghai Composite) are getting monkey-hammered. As we noted earlier, China is somewhat hamstrung in its ability to save itself this time, and further to that, the China industry minister added, "companies have no strong desire to invest."



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Housing's Trek From America's "Socialism", Through UK's "Communism" Ending in China's "Capitalism"

Socialism is a dirty word in many parts of the US, but as the FT reports, the government has turned its mortgage market into a giant nationalised enterprise on a par with China’s Red Army with over 90% of mortgages subsidized by the state and aided by so-called "progressive" or "redistributive" policies. In the UK, the government have also become entwined with the housing market, albeit in different ways. Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under 'shared equity schemes'; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); very reminiscent of supposedly communist China, where most banks are majority-owned by the state with small public floats. The question remains how can they avoid another crash if and when they withdraw support from the market? "It’s broadly accepted nowadays that China still lives under the banner of ‘communism’ despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place."



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Does Netflix' $3.3 Billion Off-Balance Sheet Liability Make It A "House Of Cards"?

While the mainstream media, seemingly comprising of accounting 101 rejects and completely unaware that "profit" is merely an ephemeral, intangible accounting concept, and that for true business model viability one has to look at actual cash generated (or in this case lost), has been praising the Netflix "beat" ever since its announcement, the reality is uglier. On one hand, as reported, the incremental cost per subscriber on a true free cash flow basis is continuing to deteriorate, and while it is only a matter of time before the content providers decide to jack up content costs and crush the firm's margins. But far more disturbing is the ongoing attempt to push a massive amount of unfunded content liabilities and committments off the company's balance sheet. Because while NFLX discloses just $2.4 billion in total content liabilities (or 69% of total liabilities), it is the massive $3.3 billion in off-balance sheet liabilities, up half a billion in just one year, that is truly disturbing.  This means that cash flow-negative NetFlix has a liability amounting to 76% of its total assets, which is off-balance sheet, which gets zero auditor scrutiny, and which as so often happens, will blow up in everyone's face just when it is least expected. 

 



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