Archive - Jun 2010

The entire energy complex was lower yesterday, and traders appear to have been reacting to a number of economic reports which came out on the negative side this week. Add to that Monday’s atrong opening and relatively weak close, and one has both fundamental and technical reasons for prices to have moved lower. Tuesday’s report on home sales was bearish and the euro weakended after two fairly solid weeks of improvement. Traders were also selling in response to Monday’s inability to hold above $78.40, which would be the Fibonacci (61.8%) retracement of the decline from $87.15 to $64.24. Many technical traders saw that as an important number, and oil prices spent Monday morning in trading on Globex, and then part of Monday’s regular session on the Nymex, above that level, but could not close there. - Cameron Hanover

On June 17, we wondered whether the "parabolic blow off in gold accumulation by ETFs is about to cause a gold price explosion?" Sure enough, yesterday, Goldman Sachs came out with a bullish report on gold in which the firm stated that should gold purchasing by ETFs continue at the recent pace, then gold at $1,400 is a virtual certainty. A quick look at the closing NAV in the gold holdings of GLD, as a proxy of the broader Gold ETF community, indicates that $1,400 - here we come. Just overnight, GLD added another 5.2 tonnes of gold, bringing its new total to a fresh all time high of 1,313.13 tonnes, a whopping 76 tonnes higher than a month ago. As the indexed chart below demonstrates, what we thought could become a positive feedback loop whereby non-physical ETFs scramble to at least catch up to a par NAV, is already in process: the ETF accumulation by GLD, which is now the 6th largest gold-owning entity in the world, has become a self-fulfilling prophecy. If the ETF is indeed purchasing said gold in the open market, there is no way this would not be moving the price much higher, absent massive synthetic shorting by the LBMA. Yet at some point, internal risk controls at even a firm with infinite margin like JPMorgan will take over, and force the bank to cover its record short exposure. When that happens, the already disclosed demand by entities such as ETFs and Central Banks, will catch up with the most manipulated and distorted supply curve in the history of economics.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/06/10

President Obama and Secretary of Interior Ken Salazar, Secretary of Energy Steven Chu, and Defense Secretary Robert Gates were informed that BP would drill an unprecedented 35,000 feet well bore at the Macondo site off the coast of Louisiana. In September 2009, the Deepwater Horizon successfully sunk a well bore at a depth of 35,055 below sea level at the Tiber Prospect in the Keathley Canyon block 102 in the Gulf of Mexico, southeast of Houston... According to the Wayne Madsen Report (WMR) sources within the U.S. Army Corps of Engineers and the Federal Emergency Management Agency (FEMA), the Pentagon and Interior and Energy Departments told the Obama Administration that the newly-discovered estimated 3-4 billion barrels of oil in the Gulf of Mexico would cover America's oil needs for up to eight months if there was a military attack on Iran that resulted in the bottling up of the Strait of Hormuz to oil tanker traffic, resulting in a cut-off of oil to the United States from the Persian Gulf. Obama, Salazar, Chu, and Gates green-lighted the risky Macondo drilling operation from the outset, according to WMR's government sources.

Dylan Grice is out with his latest must read analysis, in which the SocGen strategist attempts to reconcile the seemingly intractable: bottoms up, or micro analysis and its polar opposite - top down, macro decision making. In doing so, he does a brilliant detour into the realm of what some may call Talebian philosophy, by evaluating the impact of non-Gaussian phenomena, such as grey and black swans, which, after the past two years, everyone has learned occur far more often than expected, as we all now live in (Socialist) Extremistan. And in a world, where fat tails can occur any day (May 6), how does one hedge, regardless of marco or micro opinions? At the end of the day, one of the messages of Grice is that as we all perceive ourselves as much better traders, thinkers and predictors than we are in reality, should we not just stop trading altogether and focus on actual productive labor? One favorable side-effect would be starving the TBTF beast, which everyone complains about, yet most continue to play according to its rules. If this is too drastic, Dylan suggests that every micro analyst/trader should always be familiar and at least aware with the catastrophe situation, which is always best represented by keeping the macro picture in mind: "Perhaps we should embrace our limitations by accepting that ‘outlier events’ are actually quite regular, and use macro research to aid in the search for appropriate insurance strategies." Must read.

As expected, support was breached. EURJPY has to follow to the downside for the move to be confirmed or ES will bounce right up as the gap is filled (yes, it is 3pm and decoupling is here).

A sudden drop in the EUR takes stocks down. No immediate catalyst, and the Schapiro-Gensler cabal sure hasn't said anything to make the market nervous. Which means it is a charting astrology and technicals: the 200 DMA in the SPY has been breached, leading to a 5th consecutive onslaught at the DMA in the much more critical ES. Should this break, watch out below.

Watch the highly conflicted trading industry representatives, and the highly corrupt regulators try to convince each other that the May 6th events were totally unique, will never happen again, why there is no need to change anything, and why the joke of that is single stock circuit breakers (another reactive not proactive "solution") is all that is needed to return investor confidence. We wish them all the best as they continue to buy and sell stocks from each other, now that everyone else is out of the market permanently. Readers can watch the "Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues Meeting" here. (click here if stream does not show up).

All this bickering and ongoing pissing contests are getting just a little confusing. So now Obama appeals, as Gibbs just announced, and appellate court overturns the overturned decision, only to capture even more of the rig workers' wrath? Drillers now all over the place, and for some reason BP is up, as if the firm will be doing fresh drilling in the GoM any time soon. And somehow this news is causing the EUR to spike, (luckily temporarily), just to demonstrate how every asset class now correlates with everything else and any reason, whatever reason, is good enough to cause a move in interconnected markets. Sigh. From the judge's language: "plaintiffs have established..likelihood.. showing..Administration acted arbitrarily and capriciously. Plaintiffs assert..they have suffered and will continue to suffer..irreparable harm..Court agrees." (via Platts)

The $40 billion 2 Year closed at a high yield of 0.738%, about 2 bps inside of expectations of 0.751%. The traditional bizarro day Bid To Cover came in at the second highest in history, or 3.45, lower only to the 3.63 from October of 2009. Not surprisingly, Direct Bidders once again carried the auction, taking down 21.3%, which also was just short of the second highest ever, compared to the 26.14% that the UK based "funds" took down in October of last year. The median yield came in at 0.72% and the low was 0.647%. 70.18% was allotted at the high. Primary Dealer hit ratio was 16.58%, one of the lowest ever as PDs continue to launder the Fed's dirty monetization scheme via prior auction repo cash. All in all, the farce will continue until it can't.

House Democrat leader Steny Hoyer will today announce that the US will not pass a budget in 2010 as “It isn’t possible to debate and pass a realistic, long-term budget until we’ve considered the bipartisan commission’s deficit-reduction plan, which is expected in December." Yet "the House has never failed to pass an annual budget resolution since the current budget rules were put into place in 1974." The real reason of course is that the budget would indicate new and unprecedented trillions in deficits, which would wreak havoc on Democrat chances to contain their upcoming mid-term election loss to just "landslide" status, instead of what is increasingly shaping up as being more in the "apocalyptic" category. Those whose memory spans longer than 24 hours, will recall that Peter Orszag resigned yesterday. Something tells us these two events may be correlated. In the meantime, we are now convinced that realizing the hopelessness of its political situation, the administration and the Fed will now create the most ridiculous, unprecedented, destructive and historic market melt up in history to preserve any chances of demonstrating just how "effective" their market manipulation, pardon, economic resurgence efforts are. If you are short, be ready to have all your shares forcibly called in over the next 4 months. At least the humor of the situation is not lost on one person: House Republican leader John Boehner has taken out a page on his website to lampoon the tragicomedy that US economic and fiscal reality has become.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 22/06/10

Regions Bank looks fairly weak with a negative Net Operating Income figure in 5 of the last 6 quarters. That said, they do have some good things going for them.

So early in the morning, Bloomberg runs a story, "Sales of Existing Homes in U.S. Probably Climbed on Tax Credit". A few hours later, the housing report comes out and Bloomberg then runs "Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May". Hmmm! BoomBustBlog readers saw this coming way back in March with "It’s Official: The US Housing Downturn Has Resumed in Earnest". Thus far, we've been right on the money. Hey Bloomberg editors, I'm available if you need me...

Der Spiegel conducts a stunning interview with Norway's foreign minister Jonas Gahr Støre, in which the Scandinavian official rips the G-20 (which is meeting this weekend in Toronto), in a manner far more vicious than any of the tens of thousands of protesters could hope to ever do. Støre essentially compares the Group of Twenty to the most cataclysmic event in the history of mankind: calling it "the "greatest setback" for the international community since World War II." Any other day, this would result in a diplomatic gaffe, and the expulsions of various ambassadors. Today, with the entire world agreeing with the Norwegian, except those, of course, in attendance in Toronto, nobody bats an eyelid. One of the smartest countries in Europe (having refused to join the utter disaster that is the European Union... twice) once again proves its wit, when its minister "questions the legitimacy" of the G-20, stating "We no longer live in the 19th century, a time when the major powers met and redrew the map of the world. No one needs a new Congress of Vienna." Ah, but we do, as otherwise the spoils from the greatest generational wealth transfer would go equally and ratably to all, instead of being concentrated in the greedy hands of those who have already stolen so much, they have no place to put the loot. Which is why the G7, G8, G20, etc. will continue to exist as the world's most potent parasite until there is nothing left to steal anymore.