Archive - Jun 2010

The Gulf oil spill seems to one of the events which markets are having anxieties over. However, the recent pullback on commodities due to this mis-reaction should serve as a good entry point for long-term investors. A few options are discussed here.

Rosie brushes off the WSJ's allegations that gold is nothing but a ponzi, and explains why despite a prevailing (currently) deflationary environment, savers throughout the world have forced global gold dealers to run out of inventory. "It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground." - pretty simple really. Everything else is just obfuscation.

Goldman is still off the Zero Hedge estimate of +700k. However, seeing how Goldman has the hot line to the BLS, especially on matters relating to NFP revisions 24 hours prior to actual announcement, we will go Hatzius on this one: "We are raising our estimate for tomorrow's nonfarm payrolls release for May to +600,000 from +500,000 previously. This is composed of a Census contribution of +450,000 (vs. +350,000 in our previous estimate) and a private sector contribution of +150,000 (unchanged). We also expect the unemployment rate to decline from 9.9% to 9.7% and average hourly earnings to rise 0.1% (both unchanged from our previous estimate)." - Goldman Sachs

The title says it all...

Headlines from Reuters. Kim, unlike Donny, is not a pacifist it seems.

Update 2: think tank report making rounds saying SNB cannot keep intervening in CHF.

Update: fresh round of euro weakness due to rumor that the ECB will recommend further unlimited Long-Term Refinancing Operations (liquidity providing) in a major dovish reversal. This is very EUR negative as is just more fuel for the currency debasement game.

Just as the EUR decoupled from risky assets two days ago, with the broader market dropping far more than the EURJPY pair suggested it should, so the opposite is occuring currently. The far too obvious trade, which in this market is apparently the right one, is the buy the EURJPY and sell stocks.

The WSJ issues an amusing hit piece on why gold is nothing but a "Ponzi Scheme", ignoring the fact that by its definition the stock market is precisely the very same. Either way, since we are seeing no let up in the currency debasement department of Central Banks, and gold continuing to trade near record highs, it is a good thing to occasionally have a shake out of the weak hands. After all it will merely provide far better entry prices for countries like Russia, which as we disclosed recently, have been buying up all the IMF has to sell in the open market. At the end of the day - the opinion of Brett Arends or of David Einhorn, David Rosenberg, Jim Rickards, Eric Sprott, and, oh yeah, John Paulson.

If you are wondering where the latest bout of Euro weakness is coming from, look no further than long-forgotten Eastern Europe. From Bloomberg: "Hungary’s forint weakened against the
euro, erasing earlier gains after Napi.hu reported deputy
chairman of the ruling Fidesz party, Lajos Kosa, said that the
country has a “slim chance to avoid the Greek situation” and
that the new government’s primary objective is to avoid a
sovereign default." It is rather amazing how long Eastern Europe has managed to squeek through the cracks. Will Hungary be the first rerouting of the PIIGS crisis into this latest European market. This means that another under the radar player, Austria, is about to get whacked big.

BOTTOM LINE: ADP report weaker-than-expected, showing an increase of 55k in May. Initial claims fall while continuing claims rise from upward revised level. Productivity revised down a bit more than expected, but unit labor costs are still falling. - Goldman Sachs

The recent surge in stocks is setting up a classic “head and shoulders” top. Anything short of the 500,000 blockbuster number some analysts are expecting for Friday’s nonfarm payroll could tank the market. Is the Dow still overvalued by 3,000 points? Watch out when those low interest rates depart for nether regions. Reversion to the mean can be a bitch.

Moody's, as usual, needs someone to take the lead on any controversial call. As expected, nothing insightful contained in the report. "While recognising that BP is the largest operator and producer in the Gulf of Mexico, Moody's will also seek to ascertain how the spill may affect (1) BP's long-term business prospects in the US, particularly in the Gulf of Mexico; (2) future drilling and producing costs in the US and other deepwater provinces around the world; and (3) therefore also BP's business profile and future financial performance."

• As reported yesterday, the ECB liquidity crunch gets even worse: banks's overnight deposits with ECB increased to new record (Bloomberg)
• BP may sell Pruhoe Bay stake as spill costs mount (Bloomberg)
• Greek transport, media in 24 hour strike against austerity plan (Bloomberg)
• Aboard Marmara, skirmish turns deadly (WSJ)
• Confirming the Omen of May's flash crash (Minyanville)
• Jamie Gorelick to head BP legal team (Main Justice, h/t Josh)
• UK hits JPM with record GBP33.3 million fine (Telegraph)

JP Morgan's history of alleged fraud committed against their clients continues today when they were charged with commingling $8.6 billion of client assets with the firm's without their clients' knowledge for 7 years.

Today's activity will continue to be influenced by the "risk-on" crowd. Sell bonds, buy stocks, buy oil, sell gold, rinse repeat. But we see less and less people selling what they buy in the gold market. Sell side activity is more dominated by hot money liquidation than ever before. PIMCO's El Arian said their fund cut its gold holdings in half, citing the liquidation deflation drivers at play. That will not help today's activity either. We can only hope he is right. Our order underneath remains unfilled.

• Asian stocks rise, default risk falls on US home, car sales; Yen weakens.
• China warns US over a decision to slap duties on imports of Chinese steel gratings.
• China plans to subsidize purchases of energy-efficient vehicles to help cut emissions.
• Chinese tech stocks rise most on govt plans to increase investment in these industries.
• European stocks climbed, following positive sessions on Wall Street and in Asia.
• May sales at store open a year or more expected to rise 2-2.5% YoY - ICSC.
• ARM, IBM and allies announce plans for software venture.