Archive - Jun 2010

A week after the EUR posted the biggest short covering rally in history, expunging every single weak hand after a move wiped out 44% of all net shorts, the bearish speculative bets on the EUR are once again rising, according to just released CFTC Commitment of Traders data. After dropping from net -111,945 to just -62,360 contracts in the past week, net non-commercial EUR shorts are once again rising, and have increased by 8,614 in the week ended June 22, to -70,974. The easy short covering is over: at this point shakeouts, as claimed last week, will require something much more effective than aGoldman downgrade of the EURUSD. In other COT news, gold fans will be happy to know that the number of commercial gross and net short positions in the precious metal has hit a new all time record of 475,678 gross and 288.916 net shorts. It is getting increasingly more expensive to the commercial players to preserve the price of gold at current levels, even with unlimited paper shorting capacity. As ETF's such as GLD accumulate increasingly more (hopefully real) gold inventory (yesterday's record number of 1,316 tonnes in GLD has not be updated for today yet), it will, in turn, become increasingly more difficult to push down gold price even as all the big players try to gold paper gold down.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/06/10

... to Johns who have insatiable lusts.

As we speculated previously, the sudden and unprecedented departure of Peter Orszag, the day prior to the US Budget's formalization (which incidentally never happened as now the US will likely not have a 2010 budget at all, for fear of disclosing to most Americans just how broke the country is ahead of mid-terms) was due to Orszag's disagreement with the administration's, and particularly Larry Summer's, inability to fathom that reckless spending is a recipe for bankruptcy. As the FT reports: "Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House." And so, as any remaining voices of reason realize they are dealing with a group of deranged Keynesians, soon there will be nobody left in the administration who dares to oppose the destructive course upon which this country has so resolutely embarked, which ends in one of two ways: debt repudiation, or war. And with the only remaining economic "advisers" being the trio of Summers, Romer and Geithner, you know America will somehow hit both of these mutually exclusive targets.

Not like anyone cares what Moody's thinks but if even the rating agency can not spin some data in a benign way, there likely are some major sandtraps in there.

But BP would try to deny it ...

After surviving the start of the Second Great Depression, and living in its first great bear market bounce/short squeeze, where now all the attention is focused on a collapsing Europe, many could be wondering how, if at all, it would have been different to have lived through the first Great Depression. Luckily, courtesy of the recent release of the BIS's full annual reports, history buffs can now replay, year by year, the events in world capital markets from 1931 onward. We have put particular emphasis on the dark days of the 1930s. Below we present the first several such years as seen from the perspective of the BIS. Note the endless similarities - in fact one could say the only difference between then and now is the lack of "liquidity providing" algos (soon, there will be an iPad app for that) to front run slow and stupid retail/pension/mutual fund money. Pay particular attention to the role of gold in the crisis period, the amusing reference to FDR's confiscation of gold in 1933, and how the mood of insecured optimism shifts to one of endless gloom, and ends, as everyone knows, with World War 2.

Kóyo Edo ...

The stock trading pattern, for those who may now have noticed it yet, is now all too clear: the market, completely oblivious to negative fundamentals such as GDP revisions, ECRI, NFP, Retail Sales, various Fed diffusion indices, only cares about the closing of Europe. From the moment Europe opens, the market takes a nosedive as the EUR is progressively weaker during the day. Literally the second Europe closes, the EURUSD surges as nobody in Europe is trading any more, with just various algorithmic bidders remaining in the market, as all revert to their buying bias as their headline fast reading/frontrunning abilities apparently do not extend to reading foreign languages. The second the USD is weaker, the market spikes, and the rest is history.

Some thoughts on the Fannie news this week. We do not know all of this story. Some guesses and a suggestion.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/06/10

Another day, another binary HFT mad finger intervention making a mockery of the NBBO, and the general market. Earlier, following absolutely no news, Merrill Lynch Canada Inc (NYSE: HCH) which had closed at $115.93, decided to trade up 30% for no reason at the open, hitting a price as high as $144.99 after some computerized stock trading Frankenstein blew a fuse and ripped through every offer on its way $30 dollars higher. This continued for about 30 seconds between 9:34:14 and 9:34:49 when 1,700 shares went apeshit about 25% over the NBBO. Yet if this was an isolated incident it would be fine, but just over an hour later, the same algo went berserk again, going to town with the stock in the upper $130s, trading another 1,200 shares (see below). An embarrassed NYSE had to immediately come out and DK all the trades, providing no explanation for the DK'ing. After all, we all know that when it comes to HFT algos blowing up the market, be it 5/6, today, or last week when WaPo traded a few million percent higher for a second and tripped circuit breakers, nobody knows nothing. And as long as the HFT lobby continues to hire every single person from the SEC who believes they are owed a far greatersalary from the frontrunning lobby, the lack of knowledge will continue.

The National Hurricane Center has identified a low pressure area developing over Honduras, which is now expected to become a tropical depression shortly as it approaches the Yucatan Peninsula, and has a 70% chance of becoming a full-blown tropical cyclone as it heads into the Gulf of Mexico. And just to keep things real, there is a second storm farther out east, which currently has a 10% chance of becoming a cyclone. Keep an eye on those BP shares.

It's getting close: the fabled -10% annualized change (see David Rosenberg) which guarantees a recession is now just 3.1% away, which at this rate of collapse will be breached in two weeks. The ECRI is now at December 2007 levels, the time when the last recession officially started. The index dropped from an annualized revised -5.8% (previously -5.7%) to -6.9%. As a reminder, from Rosie, "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." We are practically there.

Gone are the days when "green sh#%ts" was bleated daily on CNBC amongst a chorus of permabull snorts. Even the experts now recognize the recovery as a BLS swindle, and it is important to reintroduce the possibility of not only a low growth future, but one of outright and persistent contraction.