Archive - Jul 2010

The acrobatics in the gold market resume, with ongoing jagged moves in spot indicative not of normal buying or selling but far more fundamentally wrong with the market itself. Gold just jumped $12 in the span of minutes, on what appears to be "reverse liquidation." This is happening as Bernanke notes he is sticking with Keynes and thinks a return to the gold standard would be a mistake. And a quick snapshot of the market where implied correlation is once again approaching unity, and everything is trading on the back of everything else. And a quick snapshot of the market where implied correlation is once again approaching unity, and everything is trading on the back of everything else. Apparently the catalyst was a "better than expected" existing home sales number, which came at 5.37MM on expectations of 5.1MM, still a material decline from the prior 5.66MM but the first piece of good news out of the past 18. Of course, the fact that ever more houses are being "sold" at distressed prices and that banks may finally be rotating the shadow inventory is completely lost on binary speculators. So the market thesis now is we may just have a slow down in the double dip based on accelerating job losses (see today's initial claims for the ignored data).

I don’t even think these guys bothered to read the results at all. They are comparing revenues pre-multi billion dollar acquisition with the post acquisition entity. Hey, I can double my revenues if I purchased a company that had 3x my revenues too! This is just sloppy! Yet, these euphoric headlines were all over the place as MS stock climbs nearly 10%. Yes, MS did relatively better than GS, but GS is a federally insured hedge fund (that’s right, I said it)...

Same prepared remarks, different audience, identical theater. Watch the full thing live and commercial free here (CSPAN).

As long as OI continues to decrease, look to fade rallies. When you see the market sell off and OI go up, then shorts are getting in, and that should put you on alert for a possible bottom coming, but not a buy signal. The buy signal comes when OI turns upward in a rally, then selling rallies is not advised, as weak hands are out and fresh longs are coming.

"The current positives for investors include moderate valuations, rising corporate earnings and the likelihood we’re already in a recovery. On the other hand, I continue to feel consumers are too traumatized to resume spending strongly, and I see unpleasant and rarely contemplated long-term possibilities including those discussed above. In particular, conservatism, austerity and increased savings are good for economic units individually but bad for a stagnant overall economy. Bottom line: anyone who invests today in a pro-risk fashion out of belief in the recovery must be confident he’ll be agile enough to take profits before the long-term realities set in." - Howard Marks, Oaktree

• Every bankrupt bank prepares to pass the Stress Farce, latest one: Bank of Ireland, Allied Irish Said to Pass EU's Stress Tests (Bloomberg)
• The tax tsunami on the horizon (IBD)
• Merkel hails "robust" German recovery (FT)
• BOJ Official Voices Caution on Yen (WSJ)
• British economy set for triple whammy, admits Bank chief (Independent)
• IMF Sees Euro-Zone Debt Hobbling Growth (WSJ)
• Bernanke's Fed exit door now swings two ways (Bloomberg)
• EU Banks May Disclose Sovereign-Debt Holdings With Stress Tests (Bloomberg)

Markets in a Flash
• Markets in Asian countries had mixed sessions over night. China and Hong Kong rose while Japan fell.
• The Nikkie fell as the Japanese Yen gained hurting the countries exporters.
• European equity markets are trading higher after European economic data beats expectations.
• Commodities markets are looking strong today as European data is strong. Gold falls back further from $1200.
• The USD looks weaker today after investors sought safety in the currency yesterday after Bernanke’s comments.
• US equity futures are following to European lead and are pointing to a higher open.

And some were skeptical that bankrupt continents could not put up industrial numbers that beat every single expectation.... And if you thought these numbers are amazing, just wait until the next 5 Year Plan is implemented.

• Euro-Zone PMI Composite 56.7 higher than expected Consensus 55.5 Previous 56.
• Euro-Zone PMI Manufacturing 56.5 higher than expected Consensus 55.1 Previous 55.6.
• Euro-Zone PMI Services 56.0 higher than expected Consensus 55.0 Previous 55.5.
• Euro-Zone Industrial New Orders SA for May 3.80% m/m 22.70% y/y
  higher than expected Consensus -0.10% m/m 20.00% y/y Previous 0.60% m/m
  21.90% y/y (Revised from 0.90% m/m 22.10% y/y).
• Germany PMI Manufacturing 61.2 higher than expected Consensus 58.0 Previous 58.4.
• Germany PMI Services 57.3 higher than expected Consensus 54.5 Previous 54.8.
• France Business Confidence Indicator for July 98 higher than expected Consensus 94 Previous 96 (Revised from 95).
• France Own-Company Production Outlook for July -9 lower than expected Consensus -7 Previous -7.
• France Production Outlook Indicator for July -2 higher than expected Consensus -6 Previous -4.

etc.

And now, another cold shower for chasers of unemployment inflection points: last week's jobless claims came at 464k, worse than consensus of 445k, and an increase of 37k from a previously revised 427k (down from 429k). More notably, those collecting Emergency Unemployment Claims plunged by 404k in the week ended July 3 as over a million people have now lost their extended insurance premiums. Yet with futures completely ignoring this data, at this point the market is once again caught in a self-fulfilling momentum driven feeding frenzy in which bad news are ignored and one or two positive straws are latched on with vice like precision. In the meantime the 10Y at 2.90 is once again completely disconnected with the giddy reality that stocks are attempting to portray. With bonds pricing in full blown deflation, while stocks hanging on to inflationary hopes, one or the other will very soon have to be proven wrong.

Yields on Hungary 12 Month Bills surged in the just completed Bill auction, jumping to 5.75%, or by 32 bps, since the last auction two weeks. This is just tight of what Greece would likely have to pay for a comparable maturity. Investors were focused on this deal as it was the first issuance by the troubled country since the breakdown in IMF relations over the weekend, leaving the country in the liquidity cold and without a €25 billion lifeline. Surely, European investors are far more transfixed by backward looking industrial production numbers that served to feed the massive surge in Chinese imports over the past month (not to be repeated for a while), and totally ignoring the continuously deteriorating liquidity situation in their continent (Eur LIBOR just hit a fresh year high). And speaking of China, it was announced by the European Trade Commissioner (proudly at that), that China's SAFE had been accumulating bonds of bankrupt Greece and semi-bankrupt Spain, purchasing several hundred million in ECB-backstopped paper of the two countries. Just like SAFE ran home to its communist parents, asking for rescue capital after its US investments blew up in May, so this too will serve as a preamble to comparable self-punishment.

• Asian shares lower after U.S. losses; stronger yen hits Tokyo.
• Bank failures could be key to European Union's stress test success.
• Bernanke signalled that no moves were imminent to bolster the economic recovery.
• China shares rise for 4th day, led by real estate and metals.
• Dubai World to meet with its lenders to win approval for its $23.5B restructuring plan.
• Financial Overhaul is law, now comes battle over its rules.
• IMF calls for more ‘stress-test’ openness; unconvinced by stringency criteria.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/07/10

Actually, I did tell you last quarter (and 2 years ago) that not only is Goldman basically the world's largest, federally insured hedge fund (with trading influenced earnings volatility to prove it), but that most pundits have forgotten their balance sheet threatens solvency in times of high volatility and rapidly declining prices. 2008, anyone? Anyone???

The White House has released a video (in HD cause its so damn cool, and with subtitles for those immigrants among you who don't quite understand the Enlgish) for idiots who still don't grasp that Wall Street reform is nothing but a farce almost as unabashedly idiotic as the early Friday release of the Farce Test coming out of a thoroughly bankrupt Europe, which will find that of 91 banks on the old continent, only 10x bankrupt Hypo is undercapitalized, and all the Greek banks are perfectly solvent. Right. Whatever. And in keeping with the tradition of Keynesianism for Kretins (sic) released previously by the Goldman HoldCo better known as the New York Fed, the administration has now realized that the only way to touch its intellectually challenged constituency is by summarizing its achievements in cartoon format, easily viewable on an iPhone. Coming soon - "Why Shutting Down Tendentious Blogs Is Great For The Children" in 3-D IMAX. The explanation provided by the "White House" for this pathologically moronic cartoon is: "A quick and simple animated explanation of how Wall Street Reform will work and what the strongest consumer protections in history will mean for you and your family." And yes, this comes from your ruling elite.

Adrian Douglas, board member of GATA, once again takes a long hard look at the gold market and provides evidence of gold price manipulation. His conclusions: 

• the gold price is suppressed through fractional reserve bullion banking
• the gold market is selling on average 45 ounces of gold for every one ounce of real physical gold via “unallocated gold” (fractional reserve bullion banking). In other words the gold market is backed by only 2.3% gold
• The true price of physical gold is currently around $54,000/oz if fractional reserve bullion banking did not exist. In the presence of fractional reserve banking with 2.3% gold backing the market price of “gold” is reduced to $1200/oz
• The US dollar has a purchasing power that is 45 times over valued
• The way to end gold price suppression is for investors to ensure they have allocated physical bullion preferably held outside of the bullion banking system

The solution? Buy physical - "The sick joke of the Gold cartel is that whether you hold dollars or unallocated gold you only have 2.3% of gold backing! However, the trade of the century is to buy actual physical metal with your dollars, or if you have unallocated gold to demand physical delivery. In this way you can trade something with 2.3% gold backing for an investment that is 100% gold."