Archive - May 20, 2010

Nobody cares about the euro any longer, but the following chart shows why EUR traders just ran out of money to even prepay their bodybags. The EURJPY just plunged 100 pips in one block!!! This is complete capitulation and the BOJ has no choice but to intervene. Too bad about that GDP miss and record low deflator announced yeterday.

The FDIC's quarterly banking profile has been released. Inbetween all the fluff we find that the deposit "insurance" agency has exactly negative $20.7 billion to satisfy any upcoming bank runs and liquidations. Thank god for that ongoing Treasury lifeline. Atatched is a chart of the Deposit Insurance Fund-to-Deposit ratio. Negative is, well, bad. Luckily, depositors decided to get the hell out of deposits in the last quarter, pulling out $29 billion from the not all that Too Big To Fail any longer.

Yesterday we disclosed that the reason for numerous SNB interventions in the EURCHF was due to billions in deposits rushing out of Germany and seeking the relative stability of Swiss neutrality. A quick look at the trading pattern of the GBPCHF shows that it is now UK depositors who are panicking and shifting their money to unnamed (not so much anymore) Zurich bank vaults. The result: a 300 pip move in the GBPCHF as the SNB rushes to put out this particular capital flight fire. Too bad it only succeeded for about 12 hours. The run on the bank (to another bank) in Europe is now on.

Today, banks are being widely castigated for their stupidity and cupidity. In both the US and in Europe, legal restrictions on leverage, on off-balance sheet vehicles, and on proprietary trading are widely supported in government circles and by the public. Universal banking is probably on its way out in the US. In Europe the rage against those who foresaw the weakness in Greece and protected themselves or profited has fanned the political desire to curb the movement of capital. Protecting weak credits by banning short selling or restricting offshore investors’ access to the markets will drive capital away. If banks can’t protect themselves against risk, they won’t invest at all. Eliminating SIVs and offbalance sheet vehicles may seem smart, but they are the investors in government debt and private bonds. Who will own this debt? Less leverage and smaller banks, plus restricted hedge funds, mean that the global money supply will drop and global GDP will too. Welcome to Smoot-Hawley v.2.0. - John Taylor, FX Concepts

What does it say that we simply expect things like this ten minutes before EU's open now?

Massive firepower and resources are devoted to the activity of evolved trading (scalping). Huge financial institutions called Exchanges cater to this activity so myopically, that they have lost all perspective of the real role of financial markets. And sadly, our regulators have allowed them to do so. In the name of evolution and “adapt or die” mentality, our markets have been hijacked and stripped of its most important role and function. We need to all adjust our thinking, because our economy demands it. We need to adjust our perspective, because our economy demands it. Markets need to be fair, and inspire confidence! That confidence is needed so that those with capital can feel confident in investing. This confidence is unfortunately on the wane. You hear it at parties, and you hear it on the street. Amazingly you hear it from brokerage firm executives (one who yesterday wrote an article suggesting that the source of our markets problems is the market order! Yes… he thinks the solution is to eliminate the market order and tell the world that our “most efficient and liquid markets” can’t handle the 100yr old market order!)

Just like two Thursdays ago the market plunged to give Europe a heads up on what will happen if the $1 trillion bail out contemplated that weekend is not passed, so in advance of tomorrow's critical Bundestag vote to ratify the European aid package we will likely see another unprecedented market collapse. Why critical? Dirk Schumacher from Goldman explains.

Initial claims come in at 471k, increasing the divergence from consensus which was at 440k. Continuing claims 4,625k vs expectations of 4,610k. Not much to be said: the economy is now openly double dipping in the all important housing and employment sectors. The market, which is now below the 200 DMA will shortly follow.

How far will gold Run? You now no longer need to believe in wild conspiracy theories or unban legends. The long term structural demand for the yellow metal is now so well known that it has become the conventional wisdom. Surely peak gold is upon us. Next stop: $6,250. (GLD), (ABX).

On Tuesday I mentioned that I had turned neutral and cautiously wondered whether the Euro was now a buy on dips rather than a sell on rallies. Not for one moment did I envisage the collapse down to 1.2144 nor amidst the panic did it feel like a buy when we were down there and yesterday I was part of the huge herd that chose to sell into the eur/chf brick wall at 1.4005, only to pay the price later. - Goldman Sachs

Ambac CDS is quoted at 36,289.9, or up 19,827 bps for the day. Yes, yes we know this should be quoted in points up, but this is looks so much prettier this way. For those who want to see what rolling high beta worthless nameliquidations will look like, check out this chart from CMA: this is soon coming to pretty much every HY/distressed name that enjoyed the most spectacular bear market rally in history.

Well that didn't take long. After European Commission announced last week that centralized fiscal policy is the only reasonable way to achieve Maastricht defined deficits by 2013; French president Nicolas Sarkozy is cited by Le Monde saying constitutional changes will be needed if France wishes to achieve Commissions mandated deficit of 3% by 2013.

• Asian stocks fall for fifth day on Europe concern; Commodity shares gain.
• British government plans to partially privatize struggling Royal Mail.
• China officials say won't yield to yuan pressure at U. S. talks.
• China's growth unexpectedly accelerated in the first quarter of 2010: Poll.
• Euro falls to lowest since April 2006 on European debt crisis.
• Fed officials are in no rush to sell mortgage assets, Meeting minutes show.