Archive - Oct 12, 2010

Alarm bells are ringing everywhere as Goldman (which joins UniCredit in boosting its gold price target) may have just picked the short-term top in gold, after it revised its 12 month target from $1,365 to $1,650. And while David Greely's track record is nowhere near as atrocious as that of Goldman's FX team which manages to top tick the EURUSD every single time, the fact that Goldman is now opening Long Gold recommendations (to go with its current trading recommendations of long Corn, Copper, Platinum and WTI) is reason for big worry. Recall which bank was getting its clients to go all in in crude 2008 when oil was $140+. We would be very cautious when Goldman is on "your" side of the trade. Nonetheless, the firm is pretty much spot on "We believe that a return to quantitative easing will act as a strong catalyst to carry gold prices to even higher levels."

It seems like it was a short month ago that UniCredit's Jochen Hitzfeld, the most accurate gold forecaster tracked by Bloomberg in the last three quarters, raised his 2011 gold forecast from $1,250 to $1,400. Actually it was (link here). That target price lasted all of one month: earlier today the UniCredit analyst again revised his 2011 gold target price, this time to $1,500. As core revision catalysts UniCredit continues to see a "strong increase in investor demand" but the main driver will be continued risk aversion to "massive government stimulus measures" which have fuelled expectations of higher inflation further down the road. In other words, nothing major, just fine tuning. On the other hand, if China finally relents and admits it is indirectly hoarding gold, look for $2,000 to be the next Unicredit 2011 revised target.

A week ago we asked whether "Europe was getting ahead of itself as excess cash in the euro banking system drops to post-Lehman low" following the most recent LTRO roll. In it roughly €225 billion in 3,6 and 12 month liquidity providing ECB credit facilities to Eurozone banks expired and were rolled into a far lower amount of replacement maturities: only 64% of the full amount was retendered, meaning about €80 billion in system liquidity was drained. As we then assumed this action was nothing than a myopic attempt to put some lipstick on the slaughtered European banking pig, which in exchange for demonstrating that it has liquidity matters under control was willing to cut its excess liquidity buffer to almost zero. Sure enough, the market now seems to agree. As the chart below demonstrates, virtually every unsecured funding metric has exploded since the action, with the rate on Commercial Paper nearly doubling from the pre-LTRO days, while three month Euribor has once again surged to just under 1%. In other words the market is making liquidity provisioning for European banks very costly, and a threshold may soon be passed when it is cheaper to borrow via the Fed's currency swap arrangement than approaching the interbank market, once again confirming that while the ECB is backstopping all the financial activity in Europe, it is the Fed which is on the hook should the ECB fail.

Ben B is going to buy a Trill in bonds for a 1/2% boost in GDP. SSA just took that away from him.

• Marc Faber Says World Heading for "Major Inflection Point" (Bloomberg)
• French Strikes Disrupt Air and Rail Travel (NYT, BBC)
• Jobless America threatens to bring us all down with it (Telegraph)
• Will they be paid in gold? Fed's latest reflation attempt comes via Wall
  Street, which is expected to pay $144 billion in bonus this year (WSJ) - this number represents 8% of M1
• Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory, Christopher Lewis Peterson, University of Utah (SSRN, h/t Karl Denninger)
• States to Probe Mortgage Mess: Attorneys General Hope Lenders Will Re-Write Loans With Troubled Documents (WSJ)
• Citigroup Stops Using Foreclosure Law Firm Facing Florida Probe (Bloomberg)

Another quiet day with just small business sentiment and more from Fed speeches. However, bonds are now reopen, and the 10 year was trading at 2.35% last. This means the Fed has about 235 basis point to extract out of it before it starts buying stocks in the open market.

• Aluminum prices in China may gain more than 10% on output cuts.
• Asian stocks fall on lower commodity prices, Yen concerns; Toyota declines.
• China may worsen trade tensions with biggest quarterly surplus since 2008.
• China reportedly lifts reserve ratio for top banks.
• Greece raises $1.6 billion in oversubscribed 26-week treasury bill auction.
• Japan's Noda says ready to take 'bold' action after Yen hits 15-year high.
• Oil falls a second day after stronger Dollar reduces appeal of commodities.

My theory of currency relativity sufficiently exposes, as frauds and charlatans, Geithner and other Western bankers that have created, as a diversionary tactic to bury the truth, an artificially divisive East-West hostilities among the serfs that inhabit their kingdoms. Despite Mr. Geithner’s attempts to convince the world that the Chinese yuan is insufferably weak compared to the other world’s major currencies, the below charts expose that, well, a fiat currency is a fiat currency is a fiat currency is a fiat currency is a fiat currency.

The media is staring at the wrong target. Each major media outlet is copying what is popular or what the next outlet broke as a story versus where the true economic risks actually lie. Here's what's truly at stake – the United States is now at risk of losing its hegemony as the financial capital of the world!

European Morning Briefing - Stocks, Bonds, FX – 12/10/10

The big banks are saying that these are simply "procedural defects" which don't affect their ability to foreclose.

Are they right?

This daily report is designed to help traders find opportunities to trade against this group. The premise is very simple we are looking for 66% of retail traders to be trading either long or short a currency pair, we then look for opportunities to fade (trade against) this group. For example if 72.99% of traders are long the USD/CHF we look for opportunities to short that pair. The pairs that we feel offer the highest opportunity for success are described in the Shortand Long Zones.

"And in the last analysis, success is what matters--Adolf Hitler"...

I know I will be accused of engaging in dangerous hyperbole by making this comparison. Allow me to differ...