Osborne's statement was prepared well in advance, which means Moody's action was not only prepared and distributed long ago but it got the blessing of both the UK government and Goldman Sachs. And why not: so far it has achieved precisely what it was intended to: crush the Pound. The next question: when does talk of GBP-EUR parity begin?
And another AAA-club member quietly exits not with a bang but a whimper:
MOODY’S DOWNGRADES UK’S GOVERNMENT BOND RATING TO Aa1 FROM AAA
Someone must have clued Moody's on the fact that the UK is about to have its very own Goldman banker, which means consolidated debt/GDP will soon need four digits. In other news, every lawyer in the UK is now celebrating because come Monday Moody's will be sued to smithereens. Cable not happy as it tests 31 month lows, which however also explains why the Moody's action has another name: accelerated cable devaluation. Those who heeded our call to short Cable when Goldman's Mark Carney was appointed are now 1000 pips richer. Also, please sacrifice a lamb at the altar of Goldman: It's the polite thing to do.
Today was the best day for the Dow in 3 weeks - of course. In a titanic effort to get back to unch for the week, the Dow managed to reclaim the 'retirement-maginot-line' of 14,000 amid a low volume, low average trade size ramp (which ended the day with some large blocks running through into the highs). The rest of the US equity complex did not recover as gloriously as the S&P saw a red week for the first time this year (Materials -2.8%, Staples +1.7%). Interestingly, from mid-week, gold and stocks recoupled but the USD (+1.2%) and bonds (-3bps) are much more cautious. On the week, despite all the clamor, Gold lost 1.8% with Copper the biggest loser -5.2%. Spot VIX and stocks have been perfectly synced post-FOMC and the vol compression today provided just the lift to disconnect from risk-assets in general. Equities unch, USD high of week, Treasury yields low of week, PMs down, Oil down - the magic will never cease. S&P futures closed testing the under-side of the up-trend channel - that is all.
The saga of the capitalist vs the socialist goes on with Round 3, following round 1 in which the "Titan CEO Crushes Socialist "Work Ethic", Tells France "You Can Keep Your So-Called Workers" and round 2 in which "Socialist France Responds To Titan CEO, Hilarity Ensues." With the entire "developed" world now a real-time parody of itself, in which the truth about the true state of affairs is only revealed in grotesque, farcical, ad-hominem repartees between various members of the insolvent status quo plutocracy, we can only hope for many more rounds of this didactic back and forth.
ViaMat, a Swiss logistics company that has been safeguarding precious metals since 1945, is literally the gold standard in secure storage. They have vaults from Switzerland to Hong Kong to Dubai, and they count among their clients some of the largest mining companies in the world. They know what they’re doing. And now they’re dumping US citizens.... due to US tax structure changes. If history is any guide, storing gold abroad is critical.
... And can't find it: "The reason why the past four years has been so dismal, over and beyond the failure of the labour market to fully recover among other things, is that we have gone through the weakest period in the post-WWII era in terms of growth in the private sector capital stock. We invented the Internet and spent years after spreading its applications and co-mingling the technology with labour so as to bolster multi-factor productivity. But that golden age was 10-15 years ago. Despite some really impressive stuff going on in the biomedical field to be sure, and what Apple has done in terms of introducing its array of impressive consumer gadgets, growth in the private sector capital stock since 2009 has been the softest on record."
With polls blacked out in Italy, the hope and hype is that Berlusconi doesn't get in, banish austerity, and bring the European OMT-inspired 'confidence' party crashing to the ground. While extremely low volume - and famously entirely wrong about Obamacare - the current Intrade odds favor Bersani massively at an 85% probability of becoming PM with comedian Beppe a mere 0.3% - even though it is somewhat ironic that he can still muster such support (for someone with a criminal record... umm Berlusconi?).
While the world's attention has been focused on a precious metals' slide and a 'dire' 2% correction in stocks, another metal has been sending some ominous signals. So-called Dr. Copper is down 5.5% this week dragging it to negative for the year and highly suggestive (see 2011 and 2012 charts below) of a pending slide in US equities. The reason for stocks to extend their losses, we believe, comes back to the little known fact that China is the marginal inflation center of the world. When global inflation gets too hot, it will tend to hit China first/hardest given its high food-weighting and energy demand; China then, subtley mind you, complains to the Big-5 Central Banks and an implicit tightening occurs - which then fades global stocks as the liquidity pump dries up. As we noted recently, the Chinese never had a strong equity tradition and instead the trillions in deposits ($14 trillion last) is mostly going to fund loans used to buy homes (and marginally away from gold). However, the PBoC is clearly nervous and took matters into their own hands - with the largest liquidity withdrawal (tightening) on record in the last week (net repo redemptions). Perhaps, as we have seen again and again, with liquidity all there is left to create 'growth', Dr. Copper's credentials are worth paying attention to.
The GOP is fighting to spare the Pentagon from $500 billion in cuts. Yet, as Bloomberg Businessweek notes, the across-the-board reductions will probably hit Democrats harder than Republicans. A look at the 20 districts that receive the most in defense contracts highlights this shot in the foot.
When in doubt how to justify the latest central-bank funded stocks ramp, take advantage of the fact that algorithmic memory is so short, the entire market can move higher on exactly the same catalyst used twice in the span of three days.
While today's lower than expected LTRO repayment news was largely a strawman set by misguided expectations set under the impression that Europe is fixed (it isn't), and that the ECB is willing to witdraw excess liquidity (it isn't as the result was a spike in the EURUSD so high it got quite a few political officials talking the EUR down to prevent an export-sector crunch), there is a bigger issue facing Europe in the context of liquidity, and that is a maturity cliff of some €1.7 trillion over the next 3 years. As the chart below from Goldman shows, the excess LTRO cash remaining after today is a modest €807 billion, meaning that not even half the required prepayment capital can be funded outright. It is even worse when calculating the closed European Excess System cash in the second chart below, which also according to Goldman has declined to just under €400 billion. This means that while rolling the maturing debt is certainly an option, the incremental pick up in interest rates will mean far more cash leaves Europe's banks, which at a time when virtually not a single European bank can generate any positive cash from operations bank liquidity shortages will once again return.
Europe ends the week very mixed - as real macro data was dismal but sentiment and hope positive. Credit underperforming notably - especially financials - but equity indices varied from a 2% drop in Italy to a 1.8% gain for Switzerland (which seems like a squeeze given positioning). Italian bond spreads also suffered the most this week heading into the election - gaining 15bps. Portugal was the worst on the week with its spread to Bunds rising 18bps. The real news of the week is the EUR which extends its losses - down 1.5% on the week - to the biggest three-week drop in seven months. GBP weakened the most against the USD on the week - down 1.7% as currency wars progress. Europe's VIX closes at its highest of the year at 20.9% - up over 2 vols on the week.
Forget 'red balloons', StreetTalkLive's Lance Roberts expands from his recent visualization of Bob Farrell's investment rules to six more market mavens with insights into money management and being a successful investor. What you will find interesting is that not one of them promote "buy and hold" investing for the long term - probably because in reality it doesn't work.
Yesterday we mentioned the chasm between European union nations' minimum wages from the core to the periphery, but when even the so-called 'core' nations are diverging aggressively in their macro-conditions, we ask - rhetorically once again - how can they expect to hold this together with a single monetary policy. The difference is exhibited in many ways: manufacturing (yesterday's PMIs) differentials are the highest since Feb 2011, and as Bloomberg notes, the third highest on record; France's weakness relative to its German neighbor is also evident in GDP where Germany has recovered its post-2008 losses but France remains lower; Unemployment levels are stunningly wide with Germany at a mere 5.3% relative to France's 10.6%. All of this is summed up perfectly in the 'Taylor Rule' suggesting main policy rates that are 4 percentage points apart - a record since the Euro began - stoking inflationary concerns in Germany (relative to France). The market, as repressed as it ever was, is starting to wake up to this divergence with France 10Y yields at their widest relative to Germany in 2013 today.