Archive - Jul 19, 2010

Insomniac market observers everywhere are watching with stunned horror at what is going on in Yen crosses, and thus futures markets. Per preliminary market rumors, the JPY is plunging following BOJ FX intervention, and picking the pockets clean of trend speculators everywhere. Unlike the SNB, which specs have grown to love and ridicule, as every €10 billion CHF intervention attempt is neutralized in the span of hours if not minutes, the BOJ is a far more reputable, and deadly opponent. And with implied cross-asset correlation at 1.000, and the only driver of all risk on or off being the YENXXX carry cross, the plunge in the Japanese currency is forcing a massive squeeze in futures, which were halfway to the moon at last check. This will prove especially painful for those who shorted the market on IBM's and TXN's misses after hours, and went to bed, only to wake up and find themselves with a several million dollar hole to fill, a barrel-sized vat of vaseline to make the pain a little more bearable, and an IOU to the BOJ. Bloomberg was kind enough to share some insight: "The yen declined for a second day against the dollar on speculation Japanese authorities may intervene to weaken the nation’s currency after it climbed to a seven-month high last week. “The strengthening of the yen has added to pressure on the BOJ to implement more reflationary policy,” said Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB. “The risk is for a shift higher in dollar- yen in coming sessions from oversold levels.”

Just like the stock market, gold runs in cycles (all markets do because the humans that trade these markets go through periods of optimism and periods of pessimism). For the purposes of this discussion we will concentrate on the intermediate and daily cycle, after a quick explanation of the two larger degree cycles. At this point all one needs to know is that gold's 8 year cycle bottomed in `08 and isn't due to bottom again until 2016. The yearly cycle bottomed in February, and no yearly cycle except the one at the 8 year cycle low has ever moved below a prior yearly cycle low since the secular bull started in 2001. That means in order for gold to move below $1044 we would have to entertain the fact that the current 8 year cycle has already topped in only two years. That would also mean the secular bull has likely topped. I just don't buy that, as no secular bull in history has ever topped before reaching the bubble stage and gold is clearly a long way from that. So all this nonsense about gold falling back below $1000 is just that - nonsense. The odds of a move back to $1000 anytime during the remainder of this bull market are probably less than 1%. I don't know about you, but I make it a rule to never bet on something with odds of success at only 1%.

Toronto-based Onex and the CPPIB have not launched a formal bid but have proposed a deal, worth more than $4-billion, for Tomkins PLC. Due diligence on the company is now “at an advanced stage,” Tomkins said in a statement Monday.

And some thought FX-Risk decoupling only occurred during the non-vampire hours. After tracking stocks tick for tick all day, the AUDJPY has developed some late night schizophrenic tendencies. So for any insomniac traders with a taste for virtually risk free arbitrage, here is your opportunity to take advantage of one of those ultra rare occasions where the ES is actually cheap to the AUDJPY - buy spoos, and sell carry, for a roughly 6 point indexed spread convergence. If discount window access is available, lever to infinity and retire or threaten systemic implosion if and when trade goes awry.

Just to confirm the earlier post about the uselessness of sellside research, here is the latest overview of global themes and risks (risks? what risks?) from Goldman's former head of something something and the world's biggest permacow. As usual, ignore the conclusions, and focus on the primary data and the charts, which provide useful methods to attain independent conclusions. Slides 43 onward are among the more insightful.

The Guardian reports that the prominent Greek reporter and blogger Socratis Giolas was allegedly murdered by the Sect of Revolutionaries terror group, after being shot 16 times in front of his pregnant wife. "The 37-year-old radio chief is the first journalist to be killed in the country since newspaper publisher Nikos Monferatos was gunned down by the infamous 17 November terror group in 1985. Giolas, who was also a frequent blogger, posting reports on popular online newsblog Troktiko, sought to illuminate Greece's seamier underside. The shooting came days before he was due to release an investigative series on corruption, colleagues said." It is always unfortunate when the investigative media loses inquisitive and intelligent minds, either outright violently (Giolas) or otherwise (Mark Pittman). Yet for every voice silenced, ten new ones appear. And even recent attempts in the US for a wholesale quieting of wide swath of the blogosphere will likely succeed in nothing more than merely roiling the hornets' nest of discontent. Luckily, no violent interventions have occurred in America (to date) - with the establishment fully aware it can simply throw a few dollars bills at and "capture" the better journalists out there, in exchange for 30 pieces of silver and "guaranteed" book sales, there is no need for bloodied hands. However, if this lack of inquiry results in merely more and more dirt being buried under the surface, when someone finally does hit the paydirt, the unfortunate events from Greece may be transplanted to a newsroom much closer to home.

In his traditionally curt and to the point way, Hugh Hendry proclaims his "love" for the president, in this rare profile piece on the Scottish fund manager by the NYT. While none of his opinions will come as a surprise to Zero Hedge regulars ("The euro? It’s finished, Mr. Hendry proclaims.  China? Headed for a fall."), we do recommend the article to those still unfamiliar with one of the truly iconoclastic fund manager still left in the open. While Hendry does not run a fund nearly as large as some behemoths out there (his Ecletica is less than $1 billion, John Paulson is $30), it does afford him a nimbleness that JP (whose recent rumored liquidations in the gold market are destined to create feedback loops that further accelerate liquidations) or, much more blatantly, Pimco (with its $1 trillion + in Treasuries, Corporates, Sovereigns and Mortgages) which is the market in all its verticals, can only dream about. It also affords him the opportunity to say what is on his mind, and on those of many others, who however dread the political consequences for being a little too honest. It is this forthrightness and honesty that has reserved Hendry a sterling place within the Zero Hedge community, his candor regularly scoring posts receiving well over 20k reads (and at 60k hits, his "I recommend you panic" is among the Top 20 most popular Zero Hedge posts of all time.

In what will come as a surprise to precisely nobody, a new study by McKinsey has confirmed that sellside analysts were "typically overoptimistic, slow to revise their forecasts to reflect new economic conditions, and prone to making increasingly inaccurate forecasts when economic growth declined." In other words, as V.I. Ulyanov may wall have said, useless idiots, had he lived in a time when Tesla was being pitched to him at a N/M PE multiple. One only needs to recall AJ Cohen's bold (and slightly more than idiotic) 2007 prediction for an S&P at 1,675 (dot 11235813*) in 2008, when the market closed at least than half that number, to see just how utterly worthless these people and their garbage predictions truly are. Yet day after day they serve as content filler inbetween ads on CNBC, as they sucker whatever remaining viewers the propaganda organization has left into one failed investment idea after another.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 19/07/10

There. Is. No. Double. Dip.

And with the weakness in macro finally spilling over into micro, and especially in the formerly indomitable tech space (now the TXN plunge keeping IBM company) please repeat this mantra a few hundred thousand more times each day, to use up all available brain cycles, and to prevent any independent thought as well as the realization of just how broken things truly are.

Save for Intel, the Q2 earnings seasons is not going as well as the bulls had hoped for.

You can't make this stuff up ...

A most welcome summer gift by Jeremy Grantham, who discusses:

1 Portfolio Outlook and Recommendations
2 Finance Goes Rogue (But Volcker Wins a Round!)
3 The Fearful, Speculative Market
4 Everything You Need to Know About Global Warming in 5 Minutes
5 “Seven Lean Years” Revisited
6 Aging Populations, Pensions, and Health Costs

Update: Stock right back up to pre drop levels, as BP says scientists conclude seepage naturally occurring, not related to Macondo well... The market seems to be buying it - after all it appears all the scientists have Ph.D.'s

A White House spokesman says BP's ruptured oil well is leaking at the top, along with seepage about two miles away.

Robert Gibbs also says officials are monitoring bubbles that can be seen on an underwater camera.

Leaks could mean the cap on the well has to be opened to prevent oil and gas from escaping elsewhere.

The mechanical cap on the well stopped the flow of oil into the Gulf of Mexico on Thursday.

In an odd development, today bond traders have been fielding calls to express an interest in a $50 million bond BWIC. Two observations: traditionally any recent BWICs percolating have usually involved loans, and typically in the form of much larger baskets. This one, however, is all bonds, consists of 17 names, the largest of which are UPS, DIAG, TGT, HARVRD and PEP, and even more interesting is that this is for the most part 2030 and longer-maturing paper. It appears some fund has decided to unwind a big portion of its duration exposure. Granted, the bonds are mostly IG, with the biggest coupon at 7.9%, but nonetheless, the fact that $50 million in HY can not be placed in the traditional bond pipeline speaks volumes about the lack of liquidity in the bond market, especially for longer-dated, and thus inflation sensitive paper. As for stocks, it is very obvious that any liquidity in equities has long gone, as stocks undergo 0.5% rallies in the span of seconds, on no news, just momentum-driven HFT block order frontrunning.