In what was the first clear instance of aggression by Israel toward Syria, overnight Israeli jets conducted a bombing run over a military site in Syria, targeting what according to Israel was a military convoy heading to Lebanon. As Al Arabiya reports: "Israeli jets bombed a convoy on Syria's border with Lebanon on Wednesday, sources told Reuters, apparently targeting weapons destined for Hezbollah in what some called a warning to Damascus not to arm Israel's Lebanese enemy. "The target was a truck loaded with weapons, heading from Syria to Lebanon," said one Western diplomat, adding that the consignment may well have included anti-aircraft missiles. The overnight attack, which several sources placed on the Syrian side of the border, followed warnings from Israel that it was ready to act to prevent the revolt against President Bashar al-Assad leading to Syria's chemical weapons and modern rockets reaching either his Hezbollah allies or his Islamist enemies."
Out of the gate, Treasury yields dropped 4bps, Gold rallied $5, Oil popped, and Stocks leaked lower. But 30 minutes after the main-event, it seems that initial excitement has worn off. Gold has reverted (down) and Treasury yields (up) though we note that though it is marginal at best, S&P 500 futures are testing the day-session lows still (down 2-3 points). It would appear that infinity is still a big number and suggesting that they will add moar to infinity has done little to change what is priced in. The most notable change (we can see) is in JPY weakness and Oil strength so far... though stocks are leaking once again
In a slight surprise, the FOMC appears to have seen the recent weakness in macro data as supportive of its ongoing pumpathon even suggesting more is possible:
- *FED SAYS GLOBAL MARKET STRAINS EASED
- *FED SAYS ECONOMY PAUSED DUE TO WEATHER, TRANSITORY ISSUES
- *FED SAYS ECONOMIC ACTIVITY `PAUSED IN RECENT MONTHS'
- *GEORGE DISSENTS FROM FOMC DECISION
Pre-FOMC: ES 1502.5, 10Y 2.025%, Crude $97.75, Gold $1678, EUR 1.3570
Over 75 years ago a trendline was born. From the highs in 1937, the Dow Industrials have logarithmically oscillated around an inexorable drift. The current rally, as all asunder await the 14,000 level amid every boat being lifted non-stop, is testing this trendline for the fourth time in the last three years - and each time prior we have fallen back (unable to break above)... Yesterday saw us get close and this remains the longest trend to watch for more sustained strength.
As soon as the much-weaker-than-expected GDP print hit the tape this morning, precious metals began to rise. Led by Silver, it appears the physical demand of recent weeks is creeping into the reality of prices (suppressed or otherwise) as bad is good enough for moar help from Ben and his buddies. The upward move in the PMs is as good a predictor of what to expect (i.e., not even a hint of tightening) as the sell-side crew, which is expecting merely another boring FOMC statement - as Goldman notes, following the substantial policy changes announced in December - including the shift to outcome-based forward guidance and the introduction of open-ended Treasury purchases - Goldman expects the January meeting will likely be relatively uneventful with few changes to the economic assessment.
The belly of the curve got whacked in today's $29 billion 7 Year auction, when the high yield of today's debt issuance came at some 1.416% (32.5% allotted at the high), outside the 1.408% When Issued, the first tail on a 7 Year of short maturity bond in a while, and a modest cause for concern, if not quite the "massive rotation out of bonds" we have been hearing about for months. The internals were hardly indicative of a major weakness, with a 2.60 Bid To Cover, below last month's 2.72, Directs taking down 19.75%, Indirects 38.21% and Dealers holding on to 42.04%: all in line with recent results as can be seen on the chart below. The yield, however, was well above December's 1.23%, and the highest since February 2012, when as today, things were supposedly getting much better and inflation was just around the corner, when it was really just the LTRO effect and some $1.3 trillion in liquidity courtesy of Europe.
Super Mario Noose Tightens As Another Monte Paschi Derivative Emerges; Investigation Into Bank Of Italy OpenedSubmitted by Tyler Durden on 01/30/2013 - 13:43
As we have been reporting over the past ten days (most extensively here and here), the one European scandal that gets virtually no coverage on this side of the Atlantic, remains the escalating fiasco involving Italy's third largest bank, Banca dei Monte Paschi, which gets worse by the day due to its extensive political implications - the bank is seen domestically as the domain of the frontrunning centre-left candidate, something Berlusconi reminds his followers at every opportunity, but also will likely ensnare the head of the ECB as we predicted a week ago when we noted the aggressive attempts by the Bank of Italy, which was headed by the former Goldmanite at the time, to wash its hands of having had anything to do with the BMPS fiasco (and thus by implication indemnify that other Goldmanite, Mario Monti). As it turns out, and as Bloomberg reports today, the Bank of Italy did know of Monte Paschi's dirty laundry as long ago as 2010, but more importantly, and hence the title, the Italian law (and we use the term loosely) is now in play: "Prosecutors in Trani, Italy, opened an investigation into the Bank of Italy and market watchdog Consob’s supervisory activity on Monte Paschi, consumer group Adusbef said in an e- mailed statement today." Adding fuel to the fire is the just blasted headline from Reuters that Monte Paschi is now under investigation in Siena under law on company responsibility for crimes committed by staff, and suddenly life for the ECB head, not to mention the "stabeeleetee" of the banking sector looks quite problematic.
Though economists might wish otherwise, economics is, at its core, behavioral. Modern economies are too complex to be reliably modeled; but put an economist in a powerful government job and provide levers that can be pulled to start the printing presses, set reserve requirements, fiddle with the Fed funds rate, expand the Fed’s balance sheet, and deliver indecipherable communiqués, and that economist will feel compelled to pull those levers. He or she, like a monkey with a typewriter, might even give us Shakespeare (or Adam Smith) on occasion. But mostly that economist will spout gibberish, a mélange of untested and potentially counterproductive measures that unleash all manner of unintended consequences.
A titanic political battle is brewing between the parasitic aristocracy, the dependent class and the two classes creating value with their labor. In the conventional view, America's socioeconomic classes are divided by income and wealth into various layers of Wealthy, Middle Class and Poor. Extending recent analysis, we get an entirely different framework that breaks naturally into four classes: 1. Parasitic financial Aristocracy (creates no value, skims national surplus); 2. High value creation (employed, heavily taxed); 3. Low value creation (employed/informal economy, lightly taxed); and 4. No value creation (unemployed, dependent). In this context, America is filling the gap between the value we create and what we spend by borrowing $1 trillion+ a year on the Federal level and hundreds of billions more on the local-government and private-sector levels. All this debt isn't being "invested" in new value-creation; it is funding consumption and cartel skimming on a monumental scale.
Wherever you looked today in Italy, shares were halted. From Saipem to Seat and From Banco Popolare to BMPS, individual stocks fell between 5% and 45% in some cases. Spain also fell alongside its incorrigible risk-on peripheral neighbor as dividend suspensions, outlook cuts, rating downgrades, and a growing concern about the banking system's legitimacy wear on sentiment. Italian sovereign risk was largely unchanged but as the US opened it started to bleed wider - but in general bonds ignored the stress in stocks. FX markets also were un-phased as EUR continued to test higher. CHF did, however, strengthen notably (against the USD, EUR, and mostly against the JPY - up 28% in the last six months!). The CHF strength did nothing for demand for Swiss rates though as they pushed higher to 10-month highs. The big problem though lies in credit. Just as in the US, credit markets in Europe are massively divergent from stocks' exuberance - and today's surge in Europe's VIX also echoes the disconnect we are seeing evolve in the US. Things are shifting...
Back in 2011, BlackRock's Larry Fink revealed one of the great unspoken truths of capital markets, namely that "markets like totalitarian governments." They also like authoritarian socialism, sprinkled in with a healthy dose of nationalization, because as Bloomberg reports, one of the biggest beneficiaries of over ten years of the "glorious socialist revolution" in Venezuela, coupled with over 1000 nationalizations by the bed-ridden and roughly 15 times deceased Hugo Chavez (if one believes all the rumors), is none other than Goldman Sachs, which generated some 681% in returns due to "aligning its interests" with those of the unshakable Venezuelan ruler.
One risk factor for the economic outlook is the exchange rate. The trade-weighted Euro has appreciated by 2.5% since the beginning of this year and by almost 5% since the announcement of the OMT in September - though the Euro TWI is still more than 1% below its average since 2008. So far, based on PMIs, there is no indication that the exchange rate is putting the 'gradual recovery' scenario at risk. But a further strengthening at a similar same pace to what we have observed in recent months would eventually weigh more meaningfully on the economy, and this in turn, Goldman believes, would lead to a change in the" medium-term outlook for price stability". The ECB, Goldman thinks, would react in this case by cutting rates, in an attempt to slow the upward momentum of the exchange rate. And while they believe that deposit shifts have begun to 'normalize', fragmentation remains and lending to corporates continues to decline, with the Governing Council 'believing' that it will simply take more time for the improvement in funding conditions for banks to be passed on - leaving the ECB in 'wait-and-see' mode.
RIM is now Blackberry but it would appear the charisma-less Heins promise of a "personal internet of things" with no Home button is not going down so well with shareholders... thinner, lighter, stronger, camera, keyboard, touch-screen, replaceable battery, social media hub, blah blah blah... No Pony? Two words - 'catch' 'up'.
While everyone knows that devastation and cataclysm are wildly bullish in a broken-window-fally-based Keynesian world where everything is incrementally positive and bad is good. It would appear that China has taken that 'fallacy' one step too far as a giant sinkhole is 'gobbling' up buildings across Guangzhou. We assume this sinkhole was unleashed to help maintain GDP amid the now factual decline in labor force that we discussed yesterday.