RANsquawk European Morning Briefing - Stocks, Bonds, FX – 21/12/10
Doug Kass appeared on CNBC today and attempted to present a bearish case on gold (along with his 3rd, or is that 33rd, case for a market top...) based on a verbatim recitation of half of Howard Marks' letter that we posted as a must read over the weekend. Naturally, had he recited the other half, he would have had to defend a diametrically opposing view, as that is the difference between great minds, who present both sides to the argument, and, well, everyone else. Nonetheless, we thank the bottom and top-ticker for offsetting some of the fervor his far more amusing boss at theStreet has imparted on gold, and which we find extremely worrying, as any time Cramer stands behind an asset, it is time to sell, no matter how much we like it. That said, and since we enjoy providing Doug and others with reading material for their "original" content for the next time they appear on CNBC, here is an excerpt from Bert Dohlmen's latest letter which explains not only why gold is an "investment for the ages" but also ties it in with the much discussed here topic of commodity manipulation: a far more important concept that we are surprised receives far less attention on such momentum chasing shows as Fast Money.
Is JP Morgan Shifting Its Silver And Gold Shorts To Non-US Domiciled, And Thus Unregulatable, Banks?Submitted by Tyler Durden on 12/20/2010 - 23:07
Going through recent bullion bank shorting information, Adrian Douglas has stumbled across a nugget that may explain the sudden willingness of JPM to admit to the FT, via proxies as obviously the bank would never expose itself to even remote market manipulation claims, that it has collapsed its silver short. The reason: even as US bank silver (and gold) shorts by US banks have been gradually declining, those positions established by non-US bank, and thus entities not under the CFTC's control, have seen their silver shorts surge, increasing by orders of magnitude over the past several months. Is there a stealthy transfer of precious metals market manipulation taking place, one that exonerates the domestic, and therefore regulatable, suspects, while making foreign banks carry the burden of suppressing silver and gold prices? The reason: hand over the silver shorts to entities that would not be subject to the CFTC's upcoming size limit rules. Per Douglas: "The sudden and massive increase in their short positions in both
metals is conspicuous when compared with historical trading patterns.
The fact that it occurs at a time when the US banks that are mega-short
appear to be covering makes it doubly intriguing. It looks like a
strategy to shift suppression and manipulation of the market to banks
that are not under the direct supervision of the CFTC. Will these non-US
banks be expecting to receive an exemption to position limits where US
banks might not be successful?" We hope to get an answer to all these questions soon - Douglas has sent out the following letter to the only honest man at the CFTC, Bart Chilton, which explains Douglas' findings, and demands an inquiry into just who these foreign banks are that are suddenly shorting silver and gold on the margin at alarming rates.
According to an advance preview of an interview with Julian Assange by the Times of London's Alexi Mostrous, the Wikileaks founder has announced that he has "enough material to make bosses of a major US bank resign." While this can be merely the latest step in the chess game between Wikileaks and Bank of America, with the former assumed to hold destructive material on the other, with the latter escalating last Friday and blocking all of Wikileaks payments, as we reported over the weekend, it may potentially hold some insight into just what material Assange has on either Brian Moynihan, or some other bank executive. On the other hand, keep in mind that the Times of London is the only newspaper which has recently instituted a paywall with unpleasant result: as previously reported the Times, has scared off its advertisers and readers in droves, so there is always the possibility that this is merely a publicity stunt along the lines of how the Guardian got its traffic to explode and kill its site several times during the original cablegate releases.
EURCHF has been making all time lows, and so it did get one meager headline on Bloomberg but it wasn't exactly the talk of the town. However, the attached chart shows that EURCHF selling off implies that something bad is brewing for sovereign bonds in Europe. The chart represents the EURCHF against the spread between the 2Y average sovereign yield (weighted by notional outstanding) and the 2Y EONIA which is 2Y compounded overnight rate. One can see fairly quickly that over the past couple 18 months one rarely goes without the other. Practically it just means that whenever money is flying out of Euro into Swiss Franc it's highly likely that people (the same people) are getting rid of their Eurozone sovereign bonds. This is not the widest divergence we have seen but the EURCHF is breaking out lower, and with reports that last week's purchases of Eurozone bonds by the ECB was the lowest since the beginning of November it is not crazy to expect renewed selling pressure to manifest shortly. - Nic Lenoir
Even as the S&P closed modestly positive, there is yet another indicator added to all the other "massively overbought" technical signs we have discussed recently: namely the cumulative TICK. As can be seen on the charts below, both the S&P and the Nasdaq's cumulative TICK readings closed at the lows of the past several days, despite the fact that stocks once again rose to 2010 highs, while the Nasdaq hit 3 year high levels. For those who need a quick refresher course on what the TICK indicator shows, here is a great rehash by Brett Steenbarger. So how does explain this very apparent divergence between underlying buying, or as the case may be, selling pressure, and actual price dynamics? We wish we could tell you. At this point, with no volume, little volatility, stock markets are increasingly the plaything of those who continue to dabble in vol and other Greek letters. It is merely another indication that contrary to actual bid/offer interest, the market continues to do what the marginal market maker decides. In a normal world, we would claim there is some risk for a substantial reversion to the mean. However, for that to happen it would require at least some participation by trading interests which are not aligned with that of the Fed. And at last check, and following an endless equity fund stream of outflows, such did not exist.
Data this week is relatively light given and it's a holiday week. 3rd Quarter GDP at this point has no informative value regarding current and future economic activity. The slew of housing data is also inconsequential. Everyone knows housing is in a double dip so any slight improvement will be used by pundits to talk up the economy but fundamentals remain in the dumpster. Continuing claims is probably the most important piece of data this week given that durable goods is such a volatile series. As a result I feel the markets this week will be mainly driven by sentiment and price action rather than news flow, especially given thin late December markets. Here are some of the key elements I am watching. - Nic Lenoir
Heading into 2011, assuming there are no major liquidity/insolvency events (and that is a big assumption, considering Europe is out there, somewhere) which will force more countries to come begging to various central banks, and international monetary authorities, and ultimately, the Federal Reserve, the key question is how should one look at rates, particularly on the long-end, opportunities in a world in which suddenly everyone (expect the US of course), is seeing their economies contract courtesy of austerity (which was just voted Webster's word of the year 2010). Demonstrating the continuum when it comes to making credit differentiation conclusions based on fiscal inequality, is Nomura's chart of the week, which provides a convenient tearsheet for the progression from Hong Kong on one end of the fiscal balance shortfall forecast spectrum, and ending with Greece, Ireland and Spain on the other. As Nomura notes: "Heading into 2011, significant fiscal divergence looks like a key theme for markets." This merely goes back to our broader theme from earlier this year, that any real asset upside will have to be made in the FX market, where relative performances are likely underappreciated, as opposed to equities, which are largely shunned by most, and where the only possible trade remains a levered beta play which, as always, takes the escalator up and the elevator down.
The NIA continues with its series of bite-sized video documentaries exposing the stupidity and lies out of the US government. While the previous clip looked at a fictitious world in which the dollar had just died, today's is one which analyzes the plethora of unintended consequences that emerge as a result of the government's centrally planned tinkering. As always, it is a must watch, even if one does not agree with the NIA's overarching theme that government policies will ultimately result in uncontrollable price moves following the destruction of the reserve currency.
Today's second POMO just closed and the Fed has now purchased a total of just over $14 billion in bonds maturing between 2014-2016 and 2018-2020. Brian Sack has bought another $6.8 billion in bonds, at a Submitted to Accepted ratio of 2.4x, higher than the 2.2x earlier in the day as we expected. The flow proceeds appear to have had the express designation of being used to purchase ES as the second the second [sic] POMO closed, equities ramped up. To those who care, are positioned appropriately in this Madoff-style ponzi, and hope that just like in the Madoff case will not one day be forced to clawback proceeds (under calm and collected conditions or otherwise), our sincerest congratulations. To everyone else, we would like to note that today's 2Pm ramp in stocks comes at the cost of the Fed now being the proud owner of $991 billion in US debt. Tomorrow's two POMOs will likely seal the deal, making the Fed the only institutional holder/hedge fund in the world to own 13 digits worth of US paper.
Ben Bernanke is a highly educated PhD from Princeton who has never worked a day in the real world since he graduated from college in 1975. His entire life has been spent in the ivory tower of academia surrounded by models and theories that work perfectly in the comfort of his office. After building his reputation as an “expert” on the Great Depression by studying it and reaching the wrong conclusions, he came down from his ivory tower in 2002 to join an organization that has systematically destroyed the value of the US currency, thereby undermining the well being of the once vibrant middle class...If the Grinch had been pimping for a small pack of Grinchsters who impoverished the honest people of Whoville, then the Dr. Seuss poem would have perfectly described Ben Bernanke, the Federal Reserve and the banksters that run the show here in the USA. The actions taken by Ben Bernanke, Alan Greenspan and their brethren on the Federal Reserve over the last quarter century have destroyed the middle class and left senior citizens impoverished, while enriching its Wall Street masters. Now he is stealing Christmas from the hard working middle class of this country.
The theater of the macabre goes one further following the just released response by Whitney Tilson to this morning's attempted rebuke of the short Netflix thesis by Reed Hasting. StreetInsider cites Tilson, who told the breaking news site the following: ""I'm glad Reed Hastings took the time to reply to some of the issues we raised. He made a number of good points and helped us -- and other investors -- understand him and his company better. I think a friendly, respectful debate like this is healthy and wish there was more of it." We are now holding our breath until we get Reed's response to this follow up response, to his original response, over just how overvalued his company is. Ironically, we don't really see what the reason for this theatrical acrimony is: after all it is pretty obvious that both Hastings (and the firm's CFO prior to his surprising resignation recently) and Tilson are on the same side of the trade.
Nothing to see here: just Brian Sack handing out fitties for the second time today so Prime Brokers such as Jefferies which apparently can't even balance its books (from Jefferies preliminary results: "The results were preliminary because Jefferies is trying to reconcile differences in records between it and an unnamed clearing bank that deals with a portion of its fixed-income business. The clearing bank’s records differ from Jefferies’s figures by $39 million, and if correct, may cause 2010 profit to be reduced by 7 cents to $1.08, the firm said in the statement." All in a day's work when nobody gives two cents about what lies behind the numbers, pun intended) go out and buy some Amazon for prop accounts. This particular POMO will buy Treasurys due between 12/31/2014 - 05/31/2016 for a total of about $7 billion. Results posted here in 45 minutes. We expect the submitted to accepted ratio to be notably higher than this morning's 2.2x.
By now everyone has seen and played with the US debt clock via usdebtclock.org whereby anyone who so wishes, can find every little detail about America's current sad fiscal state. The fact that America currently has just under $14 trilllion in national debt should be no surprise to anyone who professes to having an even modest interest in the state of the US economy. Yet a new feature on the "debt clock", namely one which extrapolates future debt at current rates of advancement (instead of one based on the always completely inaccurate CBO estimates), and looks at US debt in the year 2015 will probably make many stop dead in the their tracks. If anyone thought that $14 trillion in 2010 debt is bad, just wait until we hit $24.5 trillion in total US national debt in 2015. And it gets even more surreal: total US Unfunded Liabilities are estimated at $144 trillion, roughly $1.2 million per taxpayer... Was that a pin dropping?