Welcome to the New Gold. It moves as a proxy for itself. A weak dollar, a strong dollar, it doesn’t matter. It moves because of its own fundamentals. It is a hedge for inflation like your house but is far more portable. It earns no interest, but it will if someone can’t make delivery or a mine strike stops supply. It can be used as working capital now: Clearing Brokers are now permitted on Comex to count delivered Gold at cash value in their trading accounts. “As an enhancement to our Performance Bond Collateral schedule, firms are now able to post physical gold to CME Clearing to cover non-segregated (NSEG) Performance Bond requirements. Currently, gold is being posted to JP Morgan Chase Bank in London, England. In the near future, we hope to add additional depositories. – CME April 2010.” That would be another word for money folks.
Following up on the earlier report from El Economista that Spain is about to resort to another €50 billion in US taxpayer generosity and use €250 billion from the EU/IMF rescue fund, is this piece in the FT which confirms our disclosure from yesterday that Spanish banks have borrowed a record €85.6 billion from the ECB in May. And this is even before all the Cajas were scrambling to merge into Europe's biggest insolvent megabank. From the FT: "Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month. This
was double the amount lent to them before the collapse of Lehman
Brothers in September 2008 and 16.5 per cent of net eurozone loans
offered by the central bank. This is the highest amount since the launch of the eurozone in 1999
and a disproportionately large share of the emergency funds provided by
the euro’s monetary guardian, according to analysis by Royal Bank of Scotland and Evolution. Spanish banks account for 11 per cent of the
eurozone banking system. The rise in borrowing from €74.6bn in
April, or 14.4 per cent of the net liquidity pumped by the ECB into the
eurozone financial system, provides further evidence of the acute
tensions in the Spanish banking system." And here is the piece de resistance: "'If the suspicion that funding markets are being closed down to Spanish banks and corporations is correct, then you can reasonably expect the share of ECB liquidity accounted for by the country to have risen further this month,' said Nick Matthews, European economist at RBS." You can also expect the army of bureaucrats to deny, deny, deny until the US taxpayer has to fund another trillion dollar bailout. And speaking of spin, here is Goldman's take on all things Spanish.
Markets this morning are a bit rattled by more sovereign woes out of Europe. EURUSD has retraced almost a figure from the highs yesterday down now at 1.2265. This was mainly triggered by talks of general strikes in Spain as mr. Zapatero announced an overhaul of labor laws. Strikes, riots, car burning, eventually looting and possible insurrection are all very likely outcome in Spain, Greece, Portugal, France, and Italy as governments are trying to figure out how to balance their check books. They will not succeed in the end and either the Euro area will partially break up, or the Eurozone will be simply disbanded. The only thing that can delay the crisis is for European politicians to stop talking. Otherwise since there is no solution every thing they say will be analyzed, criticized, proven stupid, and the market will sell EURUSD and PIIGS debt. - Nic Lenoir
- Asian shares were solidly higher Wednesday after Wall Street rallied Tuesday.
- China boosts holdings of US Treasury debt by $5 billion.
- Euro zone May inflation confirmed at 1.6 pct y/y.
- France may raise retirement age from 60 to 62 in 2018.
- Obama says oil spill shows US must cut oil 'addiction’.
- OECD recommends Dutch workers stay on the job longer, accept less when they retire.
- Russia preparing to buy Canadian, Australian dollars to diversify reserves.
- Yen trades near 1-week low on improving global economic outlook.
As If A Million HFT Frontrunning Voices Cried Out And Were Suddenly Silenced: Fannie And Freddie To Delist From The NYSESubmitted by Tyler Durden on 06/16/2010 - 07:21
The two stocks that have been a perennial churn magnet for every liquidity-rebate collecting, and predatory HFT algorithm in existence, and on occasion have amounted to 20% of total market volume, have been halted and are announcing their intention to delist from the NYSE after receiving a directive from the FHFA. Look for some really strange market behavior today as quants have to gut and completely recalibrate their signals. The FHFA noted that the decision to delist FNM and FRE is related to "stock exchange requirements of price levels, curing deficiency." How about the decision is based on the requirement to not trade companies which are so bankrupt not even the US government wants them on its balance sheet. And as we have reported previously, the FRBNY is perfectly ok with even taking bankrupt stocks as collateral in the discount window. Tells you something about the quality of the GSE "assets."
As we surmised yesterday, when we pointed out that the IMF's Strauss-Khan is now officially getting involved in Spain's bailout, that the next step would be flat out denials that Spain is going to get a rescue package, sure enough Market News reports that "A European Commission spokesman today “firmly” denied a Spanish press report that Spain was in negotiations with the European Union, the International Monetary Fund and the U.S. Treasury for a credit line of up to E250 billion." Of course, this means that Spain is about to spring a half a trillion rescue request. The rumor of the latest Spanish rescue package appeared in Spanish business journal El Economista which reported that officials from the EU, the IMF and the US Treasury were in talks to provide Spain with a €250 billion liquidity lifeline. "The publication, citing sources close to the process, ran the headline of the story along just above a tease to an inside editorial urging Spanish Prime Minister Jose Luis Rodriguez Zapatero to resign." Subtle. And of course, here comes the IMF itself denying the self-evident reality: "“I have a very simple line for you: There is no truth to these rumors,” Simonetta Nardin, an IMF spokesperson told Market News International." Additionally, the IMF made it all too clear that Strauss-Khan is in Europe purely for sightseeing purposes: "He is in Europe this week, and is taking this opportunity to discuss global economic developments with the Prime Minister, and to consult with him on developments in Spain, including the government’s economic policies and reforms." Not to mention bail outs. One thing the ECB was perfectly happy not to comment on, was the question whether Trichet is pushing European countries to express their support for Spain. In truth, they don't have to say anything - just buy up their quota of Spanish bonds at the next "successful" auction, with the ECB gobbling up the rest, and somehow make this seem EUR positive. Now just throw in a few automatic lies from Tim Geithner, and the short EURUSD trade will be back firmly on the table.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 16/06/10
Some, like Sal Arnuk and Joe Saluzzi, who have long been warning about the imminent threat of a May 6-like event, only to be proven correct, not only on that score, but also on their admonitions that the entire market structure is broken, end up being interviewed by such exalted financial figures as Kate Welling. Others, like their arch nemesis Irene Aldridge, who has long been warning about the imminent extinction of all those who do not buy into the religion of "HFT or bust", end up being mocked by the cash cow from The Jon Stewart Show. We present the complete interview in which Sal and Joe deconstruct market topology, HFT, innovation, market manipulation, front running, Flash trading, collocation, VWAP, Reg NMS, and everything else you have always wanted to know but been afraid to ask.
Cramer Calls Market "Stupid, Rapacious, Arbitrary, Capricious And Downright Ridiculous", Tells Viewers To Stay OutSubmitted by Tyler Durden on 06/15/2010 - 19:36
After catching a few soundbites of Cramer's spiel today, we were stunned: for once theStreeter did not lose his marbles over an engineered, 20 handle, 200DMA breakout rally. Quite the opposite. In what is likely a first, the Mad Money host actually told his viewers it is time to get out of the market: "I am calling this a bad rally. This market has now become more depressing than Ethan Frome. Even the good days are now bad days. It's almost as if the whole market is caught between 1st base and 2nd base. So we get an endless rotating short squeeze in oil, in the banks, in tech, in discretionary.... But once the shorts are done getting picked off, we've got no more reason to run. It is a rally that stops that a blast of future selling comes in. It is a rally that stops the moment the buyers just walk away. We used to have fundamentally based rallies - that's not how this market works." The 10 minute rant against the market by the legendary permabull is simply shocking: he actually describes all the different dimensions in which the stock market is completely busted and discredited in a way that makes us jealous: "This market is stupid. And it is hated for a very good reason. The market seems rapacious, arbitrary, capricious and downright ridiculous. It is a tale told by an idiot, full of sound and fury, signifying nothing."
Matt Simmons Revises Leak Estimate To 120,000 Barrels Per Day, Believes Oil Covers 40% Of Gulf Beneath The SurfaceSubmitted by Tyler Durden on 06/15/2010 - 17:53
Matt Simmons was on Bloomberg earlier, adding some additional perspective to his original appearance on the station, in which he initially endorsed the nuclear option as the only viable way to resolve the oil spill. Simmons refutes even the latest oil spill estimate of 45,000-60,000 barrels per day, and in quoting research by the Thomas Jefferson research vessel which was compiled late on Sunday, quantifies the leak at 120,000 bpd. What is scarier is that according to the Jefferson the oil lake underneath the surface of the water could be covering up to 40% of the entire Gulf of Mexico. Simmons also says that as the leak has no casing, a relief well will not work, and the only possible resolution is, as he said previously, to use a small nuclear explosion to convert the rock to glass. Simmons concludes that as punishment for BP's arrogance and stupidity the government "will take all their cash." Now if only our own administration could tell us the truth about what is really happening in the gulf...
IMF head Dominique Strauss-Khan is flying to Spain "to discuss global economic developments with the Prime Minister, and to consult with him on developments in Spain, including the government's economic policies and reforms" according to Reuters. The last time the IMF sent a delegation to a country was on April 15th when the IMF together with representatives from the EU and ECB took a jaunt over to Athens. A month later the country was insolvent. We can't wait for the official denial that this visit has nothing to do with the frozen Spanish liquidity market (like Greece), and that there is nothing to worry about (like Greece), only to end up with a full blown IMF rescue package of the Pyrenean country (just like Greece). This merely confirms the move in PIIGS spreads which despite the joke that is the market moved 10%+ wider on the day. The next domino is about to fall, and no matter how much rumored collusion between two French banks and the Federal Reserve is injected, the EURUSD is likely about to tank. At this point it is wisest to get out of any EURUSD longs, and finally follow Goldman's "advice."
US Revises Estimate For The BP Oil Spill Higher For Third Time, Now At 35,000-60,000 Per Day As BP Cries Foul Over Counterparty ExposureSubmitted by Tyler Durden on 06/15/2010 - 16:30
The US government has revised its estimate for the daily oil spill for the third time, now decidedly higher than the last iteration which was at 25,000-40,000 barrels per day. The latest estimate puts the high end another 50% higher, at 60,000 barrels. If this is indeed the case, it means that the amount of oil already having leaked could be as high a 3 million barrels, or 12 times the amount spilled in the Exxon Valdez. Whether this means that the previous estimate of a total possible BP liability and other payments of $80 billion have to be adjusted higher once again, is still unknown. We hope the president's speech at 8pm will provide some more clarity on whether or not today's BP CDS Spread around 500 is justified.
The scramble for physical is accelerating. Following in the footsteps of PHYS and GLD, yet another gold trust announces a follow-on offering, in which the entire $800 million outstanding under the firm's previously filed Shelf will be used up. "Substantially all of the net proceeds of the offering will be used for
gold bullion purchases, in keeping with the asset allocation provisions
outlined in Central GoldTrust's Declaration of Trust and the related
policies established by its Board of Trustees." $800 million is equivalent to 640k ounces at today's fixing, or about 20 tonnes. With this 20 tonnes of gold being sucked out of the market, and GLD's
gold NAV hittinging another all time high of 1,306 tonnes, (not so) slowly
all the gold is being sucked out of the system. So yes, even as stocks were off to the headless chicken races, gold once again staged a rally, which would make absolutely no sense if the market was at least a little bit less broken. The good thing is that the Fed's chairman, as confirmed by his last week's testimony, is just as clueless in justifying this "inexplicable" move in the precious metal. Perhaps if he were to look at the Frankenstein monster of a balance sheet he has created, all his questions would be answered.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/06/10
Technically there is no denying it we are breaking out, and the next resistance is at 1,150 in the S&P future. We had indicated 1.2154 as the resistance for EURUSD. We had a textbook test at 1.2152, then a break, and a retest at 1.2168 last night... It does not get much more friendly like this technically, and those who bought are now almost 2 figures in the money so they have a bit of room to hang in case of volatility. AUDUSD has also broken 0.8575. There is intermediary resistance at 0.8737 but just like EURUSD the 50-DMA seem very likely candidates for a retracement. The fact the market broke after a series of rather disappointing economic numbers and on no volume following absolutely nothing positive is precisely what worries me: people could end up chasing it and then chasing it some more because of the lack of initial participation... until another sign of the impending disaster crash creates panic again. - Nic Lenoir