Not everything continues to be happily melting up courtesy of today's first, of two, POMOs in progress. Across in Europe, the EURCHF continues to flash a red alert, demonstrating that despite the overeager attempts by the various central banks to paint a rosy picture into year end, just like in 2009, not all is good, as the EURCHF freefall refuses to abate, and the pair dropping as much as 100 pips on the day in a day of otherwise quite trading. The relevance of this pair was previously discussed extensively by Nic Lenoir and Bruce Krasting. At this point one has to wonder just how XXX-rated are the pics of Hildebrand that are in Ben Bernanke's possession for him to have so much leverage over the Swiss National Bank, which has pretty much given up on monetary intervention/stimulus. Oh well, who cares: it's only the current account side of the GDP. The country can simply stock up on a few hundred billion in inventories just like the US and call it growth. Mission accomplished.
Traveling to Europe? Not so fast. Most airports in western and central Europe are at best open on an intermittent basis, and at worst completely shut down, with the UK taking the brunt of the storm. Disruptions in traffic continue for a fourth day as travellers across the continent are paralyzed and scrambling to find way to get home, with just 4 days until Christmas. For all those reading Zero Hedge from some airport terminal, our condolences. As always, nothing conveys the story as well as a few simple pictures: we have compiled a representative sample of snapshots from across Europe to show just why all those hoping for a strong holiday retail season in Europe will be very disappointed.
Jim O'Neill, who after migrating to his latest and greatest position within Goldman as Chairman of GSAM, was expected to keep a low profile, has realized he has yet to meet his match at Goldman in the permacheer department. Which is why he now has a weekly column sent out as pep talk to all Goldman clients. His latest, "2010 was exciting with risks. 2011 will be even more so!" is basically a call to arms, in which he gives everyone to all clear to buy double inverse VIX ETFs on margin. And yes, in pursuing the last margina consumer, O'Neill has once again abandoned the BRICs and continues to pound on his latest N-11 concept, which contains such pent up purchasing powerhouses as Nigeria, the Philippines and, yes, Iran. Although with the prevalent thought for 2011 now being an inverse decoupling, in which the US is supposed to lead the world to new heights (so contrary to just 4 months ago... and all it took was a payroll tax cut), we fail to see how any of this is relevant. Then again, we often have the same question about Jim's writing in general. Full commentary presented below.
Following Doug Kass' Prediction Of A 25% Drop In Gold, Here Is How His Other Recent Forecasts Have FaredSubmitted by Tyler Durden on 12/21/2010 - 10:14
Last night Doug Kass appeared on CNBC's Fast Money and caught the attention of the few who were watching the show with his gloomy prediction that gold would drop by 25% in the next year. As we noted last night, Kass' "thesis" was nothing more than a recap of the bearish half of the "All that glitters" letter released by Oaktree's Chairman Howard Marks, and not even a mention of the bullish section of the letter. That's fine. In fact, we welcomed this development as it at least partially offset the bullish sentiment on gold espoused by Kass' partner at The Street Jim Cramer, whose glowing recommendation of gold has had us very concerned about the price action in the precious metal into year end: after all there is no surer kiss of death that Cramer liking something. That said, as for Mr. Kass' predictive abilities, we would like to present his prior set of forecasts, specifically his prediction for 2010 issued a year ago almost to the day. With a predictive "hit rate" of about 25%, it is rather safe to assume that gold's path to $2,000 and higher is probably quite safe...
As gold is currently breaking out courtesy of another concerted take down of the dollar, which has sent futures surging, and the EURCHF to a fresh all time, and very ominous, low, FMX Connect provides some insight on how to trade the current gold bounce.
- Snow Extends European Air Travel Delays as Holiday Nears (Bloomberg)
- Bank of Japan Pledges to Steadily Buy Assets, Provide Liquidity (Bloomberg)
- China's Wang Says `Concrete Action' Taken on EU Debt (Bloomberg)
- Spain Says its Regions Are Financially Sound (WSJ)
- Senators in Bipartisan Push to Cut Deficit (FT)
- The great bank heist of 2010: Commentary: Wall Street wins, Main Street pays — again (MarketWatch)
- Bond Market Rejects Fed's Unconditional Love (Bloomberg)
- ECB Reins in Government Bond Buying (FT), as reported first on Zero Hedge
One look at the overnight EURUSD chart shows a straight vertical line up earlier in the session (at least before an almost comparable and equal line straight down following the Portugal action by Moody's), which was driven by news that Chinese vice premier Wang Qishan expressed his support for EU efforts to ensure financial stability. Yet the biggest indicator of just how bad sentiment in Europe continues to be, China support or not, are the results from the Spanish T-Bill auction. And after auctioning €3.88 billion in 3 and 6 Month T-Bills off earlier today, the yields rose once again to record highs. The 3-month T-Bill auction for €3Bln came at a bid to cover 2.14 vs. Prev. 2.34, at a yield 1.804% vs. 1.743% previously. Just as disappointing the 6-month T-Bill for €0.88bln, came at a bid to cover of 5.15 vs. 2.65 previously, importantly at a yield of 2.597% vs. Prev. 2.111%. In other words, despite billions of ECB sovereign bond purchasing, and despite the recent shift in sentiment that Europe is not in free fall, arrested after Reuters spread false rumors that the IMF would bail out Europe, things are once again turning ugly for the continent, as there is no way that a country can sustain its funding needs when the 3 Month cost of credit is at such a huge differential over 3M Euribor, which today clocked at 1.022%. If not even the arbs, who are the only ones left active in this market, want to put the compression trade between unsecured and sovereign debt, then there is little reason to be optimistic.
After S&P put Portugal on "watch negative" on November 30, citing "little progress on any growth-enhancing reforms to offset the fiscal drag from these scheduled 2011 budgetary cuts" by the government, today Mark Zandi's rating agency, with a 3 week delay, has decided to prove once and for all, that in the ascent to the rarefied intellectual air of the now obsolete business model of the rating agencies, S&P always takes the not too long bus. In what can be classified as a virtually plagiarized report, Moody's says: "Moody's says that an important driver of its decision to review Portugal's ratings is its concerns over the economy's sluggish growth, driven mainly by weak domestic demand. In addition, deflationary pressures as a result of fiscal consolidation and bank deleveraging may put additional downward pressure on nominal GDP growth." There was a time when the EUR would plunge on news like this. Now that nobody really cares about any newsflow (and certainly not about the rating agency's opinion), this is barely sufficient to push the EURUSD down 40 pips.
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