Greg Smith's 15 minutes of fame has come and gone, but the muppet crushing at Goldman is only starting to ramp up, courtesy of the man who singlehandedly has made sure Goldman's FX prop trading team should be the most profitable one in the entire universe by simply doing the opposite of what Goldman's clients do. As a reminder, sent out at 5 pm yesterday, as we alerted our Twitter followers: "Go long EUR/CAD on further risk premium compression in the EUR and a more dovish BoC... We recommend going long EUR/CAD at a current level of 1.296 with an initial target of 1.37 and a stop on a London close below 1.26." Big Oops (see chart). Then again, after Stolper epic failure to Impala the muppets on his last EURUSD trade reco, it is great to see him back to 0.000 batting form.
Last week, the misty eyed reminiscences were recalling the 25th anniversary of Black Monday. Today, we look even further back. 83 years back to be precise to this date in hallowed antiquity, when in 1929 the selling had officially begun, with what would ultimately culminate as the Great Crash. Cue Art Cashin: "on this Thursday morning, the market opened nervous but relatively steady. Within the first half hour, prices began to fade and the tape began to run late. By noon the tape was nearly an hour and-a-half late in reporting transactions in a market that had opened only two hours before. To speed the reporting digits were deleted and so "Radio" which had opened at 68 3/4 now showed on the tape at 8 3/4. But prices were moving so fast that the price was not 58 3/4 but 48 3/4 on its way to 48 1/4 before it would bottom in the afternoon at 44 1/2. To avoid confusion the Exchange published flash prices of selected securities on the slower moving bond tape." By early afternoon the cascade of prices caused an emergency meeting at the offices of J.P. Morgan across the street from the Exchange...."
The debates are over; and perhaps last night's 'chat' was the least interesting from any substantive angle of any of the interactions given the candidates tendency to agree on virtually everything (apart from bayonets) - and still say absolutely nothing. In the interests of being fair and balanced - as we always are - we present two sides of this epic farce. First, the Asian animated interpretation - for some light-hearted insight into just how our potential leaders are perceived across the ocean after last night's debate; and second, a more retrospective view by Ben Tanosborn on the three 'meaningless' debates - and the questions that should have been asked. "Mitt Romney and Barack Obama have shown to be equally adept at dealing with trivia and secondary issues... and equally inept at dealing with every substantive issue."
S&P futures are trading down around 18 points in the pre-day-session market. This would be the largest gap-down day in three months, and only the third largest gap-down open in 2012. The market has broken to its lowest since QEtc was announced and retraced more than half of the Draghi 'Believe' moment spike...
With the entire world engaged in global coordinated easing, slashing, burning, and overall lowering rates and printing money by the wheelbarrow, the Bank of Canada just fired a shot across the bow. Here is the kicker: "Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required." Surely they must be punished for this blasphemy in the holy church of Saint John Maynard and the apostles of collapsing fiat.
With Greek tax-collectors under increasing pressure to squeeze their quote out of an increasingly bombastic population, Italy's Rossi arguing for the need to fight VAT evasion, and France taxing anything and everything that moves - all in the name of austerity; it seems, as Bloomberg Brief's Niraj Shah notes today that attempts to bring burgeoning debt levels in Europe under control - by tackling the unofficial, or gray, economy - may backfire. It seems, given the large and growing (average 17.3% of euro GDP or EUR1.5tn) size of the gray economy that the more governments try to capture 'gray' externalities (or hike VATs - up from 18.1% to 20% on average), they merely succeed in pushing more transactions into the gray area. A study by Schneider of Linz University finds that focusing on the gray economy may be counter-productive as some of the activities may act as a safety net and contribute to growth - in a counter-cyclical way - serving as a cushion for people facing wage cuts and job losses. With as much as 24% of Greece's economy now estimated to be 'unofficial', the Troika-inspired 23% VAT rate is having quite the unintended consequence it seems.
Between today and the American elections; virtually nothing else will matter. Gone are the promises of social redemption from Mr. Obama’s speeches because, in my view, the promises were not delivered upon. There is no ground swell of younger voters campaigning and voting for some sort of Orwellian new world order and I wonder just how many in this sub-set will actually vote for anyone. Gone are the speeches promising new hope for the next generation because America has run up the debt to the point that something must be done and we have reached the limit of our social indulgence and so that hard choices, tough choices, are going to have to be made by whoever assumes the American presidency.
German Federal auditors handed in a report slamming the Bundesbank for not inspecting their foreign held gold reserves to verify their book value. The report says the gold bars "have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight." Instead, it relies on "written confirmations by the storage sites." The lion’s share of Germany's gold reserves (nearly 3,400 tons estimated at $190 billion) are housed in vaults of the US Federal Reserve, the Bank of England and the Bank of France since the post-war days, when they were worried about a Cold War Soviet invasion. The Bundesbank stated, “There is no doubt about the integrity of the foreign storage sites in this regard". In contrast with best industry practices Germany’s gold reserves do not seem to be independently verified by a third party. Philipp Missfelder, a politician from Merkel’s own party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German’s daily Bild reported. The Bundesbank won't let German parliament members inspect the German gold vaulted abroad because the central bank vaulting facilities supposedly lack "visiting rooms." And yet one of those vaults, the Federal Reserve Bank of New York, offers the public tours that include "an exclusive visit to the gold vault".
The Mañana approach endorsed by the Spanish government is finally beginning to have its toll on investor confidence and after being contained by the so-called Draghi put, 2y bond yields are up over 20bps for the second consecutive day. The decoupling that is being observed is being driven by yesterday’s downgrade of several Spanish regions by Moody’s, citing deterioration in their liquidity positions. As a result, Spain runs a risk of being forced to raise the size of its regional bailout fund which stands at EUR 18bln, with EUR 17.2bln already tapped, as the latest downgrade will likely put an upward pressure on borrowing costs. Major equity markets in Europe are down close to 1%, led by basic materials and oil & gas sectors, as WTI continues to consolidate below the key USD 90 level, while spot Gold continues to lose its shine and is looking to make a test USD 1700. The second half of the session sees the release of the latest Richmond Fed report, as well as the weekly API report.
While the theater of the presidential election hits peak season, and InTrade odds for this candidate or that are approaching flash crash territory, the one person who truly runs not only the US, but the entire "developed" world, Ben Bernanke, is going nowhere. At least not until January 2014. At which point he may be going somewhere - retirement. Reuters cites the NYT: "U.S. Federal Reserve Chairman Ben Bernanke has told close friends he probably will not stand for a third term at the central bank even if President Barack Obama wins the November 6 election, the New York Times reported." In other words: the republican Fed Chairman who mysteriously became a Democrat president's bestest friend (and has been publicly threatened by every other GOP candidate, including Romney, although that would be merely to replace him with Bill Dudley, not Glenn Hubbard) that $4 trillion that the Fed will have in assets at the time of Ben's departure, and $5 trillion at December 31, 2014, just became someone else's problem. Good luck to that someone else unwinding a Fed balance sheet which as we explained previously, will at one point in the next 2 years hold well over half of the marketable US Treasury debt inventory. How the sale of this inventory will happen in a time of spiking rates (because that's what the Fed wants - inflation) is literally anyone's guess, because in practice it will never happen.
- Moody’s Cuts Ratings on Catalonia, Four Other Spanish Regions (Bloomberg)
- And the market top: Billionaire Ross Interested in Buying Spanish Bank Assets (Bloomberg)
- Japan Jojima denies govt seeks $250 bln BOJ asset buying boost (Reuters)
- China hints at move to strengthen Communist rule (Reuters)... well everyone else is doing it
- Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court (Bloomberg)
- Obama, Romney now tied in presidential race: Reuters/Ipsos poll (Reuters)
- Former China Leader Jiang Resurfaces Before Political Transition (Bloomberg)
- Some in Congress look to $55 billion fiscal cliff 'fallback' (Reuters)
- CLOs stage comeback in US (FT)
- TXU Teeters as Firms Reap $528 Million Fees (Bloomberg)
- China’s Factories Losing Pricing Power in Earnings Threat (Bloomberg)
Easy come, easier go. After yesterday's last hour ramp driven by a MarketWatch article that said absolutely nothing new about the Fed's monetization plans and an AAPL surge which saw the firm add $22 billion in market cap in one day (or more than the market cap of CBS Corp) sent stocks green, the overnight session has taken it all away and then some, with futures now trading roughly 12 ticks lower or at yesterday's lowest levels. The catalyst is, once again, Spain where Moody's downgraded five Spanish regions including Catalonia after the market close (for the reason, see our piece from the weekend "Spanish Regional Bailout Fund Runs Out Of Money"), coupled with news from Confidencial that Spain's budget deficit will overshoot the EU target of 6.3% and hit at least 7.3%, driven by a €10.5 billion deficit in the social security system, trashing the promises from last month's Spain's "reform" package, and as BNP said (confirming what we warned weeks ago), making the conditionality hurdle suddenly that much higher for Spain. And just as the world was getting comfortable that Spain will get away with using the OMP with virtually no conditions. The cherry on top came from France where the business conditions index slid to a 3 year low on expectations a trough had been put in place. The result is a tumble in the EURUSD to below the 1.3000 barrier, dragging stock futures, commodities, and of course Europe with it, sending the Spanish bond curve yield higher, and generally giving a very sour mood to the day as traders walk in.
ExxonMobil, for one, appears to have had enough, announcing recently that it may pull up stakes in Iraq’s south and stick to the Kurdish north, where the business arrangements are more flexible and the security situation more manageable, at least outside of Kirkuk. So is Iraq too risky an investment? It depends how far ahead you want to look. For the next two years, we will probably see more of the political status quo, largely thanks to Iranian intervention, which is the only thing keeping things from falling apart at the seams right now. Further down the road, in the absence of a major increase in foreign investment and socio-economic improvement, we are likely to see the start of a failed state, a renewed civil war as more and more provinces jump on the autonomy bandwagon creating tensions among Sunnis and Shi’ites, and a bloody conflict over Kurdish independence.
Whether you believe "your vote doesn't count" or taking productive time out of your day to be a part of selecting the next 'change' agent for the nation is worthwhile, Doug Casey - as ever - has strong views:
"a rational man, which is to say, an ethical man, would almost certainly not vote in this election, or in any other – at least above a local level, where you personally know most of both your neighbors and the candidates."
Don't expect anything that results from this US election to do any real, lasting good. And if, by some miracle, it did, the short-term implications would be very hard economic times. More important, however, is to have a healthy and useful psychological attitude. For that, you need to stop thinking politically, stop wasting time on elections, entitlements, and such nonsense. You've got to use all of your time and brain power to think economically.