Archive - Jul 2010

Gold fell a staggering $36.30, or 3.5% per 100 troy ounces on Thursday. The dollar, another safe haven asset, dropped 2%. Some analysts have suggested gold’s move was the result of a large fund unwinding a position by selling gold and buying back the euro. Yesterday’s activity was the decisive battle for the time being between the “it’s a commodity crowd” versus the “it’s money stupid” folks. Put another way, if you believe that we are in a deflationary cycle (like us), and you believe that gold is a commodity only (not like us), then its price must go down relative to currency during deflationary meltdowns.

If however you believe that Gold is not a commodity, and that it is money, then you believe it should hold value , or even appreciate in a deflationary spiral.

Private payrolls were a disappointment at just +83k, versus consensus of 112k. Birth-death added 147k. Census removed 225k, in line with consensus. Temporary help was another terrific "green shoot" increasing by +21k. And the Unemployment rate dropped to 9.5% because 652k people walked out of the labor force, which dropped from 154.393 million to 153.741 million. Another big miss for the recovery story and another confirmation of the data point. The only improvement was the percentage of those unemployed 26 weeks and longer dropped from 46% to 45.5%, or from 6.763 million to 6.751 million. Yet the most troubling indicator was the downward inflection in the average workweek, which once again dropped by 0.1 hours to 34.1 hours, while in manufacturing the drop was a severe 0.5 hours, following a rise of 0.4 hours in May. The slack in the laborforce is once again building up. Also, average hourly earnings declined by 0.1%, after an increase of 0.2% in May.

Today we end Fix It week on my show, although we hope to keep this recurring theme. But the largest hindrance to solutions for all of the problems we've discussed - be it the Deficit, Energy, Education or the Wars -- goes back to one place: the current Political Process in our country. We practically all share the same list of problems, regardless of ideology: The undue influence of moneyed interest, the focus on inane Culture Wars instead of proper governance, the low quality of our politicians coupled with their high incumbency rates, the lack of ethics, disclosure etc. The only question left is how to fix them and then, how do we muster the will? These are the questions we will address for my entire show today - and just to get the ball rolling, here are four of my favorite solutions. - Dylan Ratigan

Well that was quick. On June 17 the SNB announced it was ending currency interventions. After much ridicule, a straight line appreciation, and a SNB balance sheet bloated with euros, the SNB has realized the folly of its non-interventionist ways in a manipulative, Keynesian world, and at midnight eastern time came storming back into FX intervention by gobbling up another roughly ten billion in EUR, causing a 200 pip spike in the EURCHF. And as we have discussed previously, such episodes of lunacy do nothing but load up the country's balance sheet with even more euros, while the intervention half time is so low now to be negligible. Bloomberg reports, "The franc is already expensive but above 1.30 it will become a serious issue,” said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt. “They’ll wait for the right moment to punish speculators. It’s only a question of time, the appreciation is simply too fast." Unfortunately for the SNB it will be speculators who have the last laugh, and with Switzerland now the target of every new deposit account opened in a bank-distrustful Europe, nothing that the SNB does will matter to curb the inflow of funds.

• Aussie PM Gillard scales back Australian mining tax in boost for election prospects.
• Crude oil fell below $73 a barrel, after slipping 6.8 percent in the previous four days.
• Employment fell in June for the first time this year.
• Gartner cuts 2010 global IT spending view cut on Euro woes.
• Germany, France to press Brussels on transaction tax.
• Greece sealed a deal with the European Investment Bank for €2B in financing.

I am more convinced than ever that a Treasury bond short will have its day in the sun. The next financial crisis will be a chain reaction that has already started in small, peripheral European countries, will spread to large European countries, and then eventually hit Japan and the US. Debt service will soar from the current 11% of the federal budget to a gob smacking 28% as early as 2014. Washington is doing nothing to avert the impending crisis.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 02/07/10 (Non-Farm Special)

Today, during the FCIC's second day of hearings, Goldman CFO David Viniar was forced to provide additional data about the firm's AIG CDS trades. Luckily the firm kept a record of all entry and exit points, and thus will be able to confirm just what the P&L of the associated trades is (and if not, we are happy to teach Goldman's risk department how to use the Bloomberg CDSD function in conjunction with RMGR run scraping to build a real time CDS portfolio tracker)... Which is ironic, because when asked by Brooksley Born why the firm has not yet provided a break down of its derivative revenue Mr. Viniar by all accounts perjured himself. As Bloomberg reported: “We don’t have a separate derivatives business,” Viniar
told the panel. “It’s integrated into the rest of our
business.”

Uh... what?

Thursday was Canada Day but most people up here are fixated on what's going on Down South.

This could work. I think it is "fair". What do you think?

Paul Kedrosky has posted an informative chart from JPM's Michael Cembalest indicating that ownership of gold in dilutable terms (aka dollars), as a portion of global financial assets has declined from17% in 1982 to just 4% in 2009. And even thought the price of gold has double in the time period, as has the amount of investable gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.

Oil prices were down dramatically again yesterday, and heating oil prices have lost more than 20 cents in four days, so far, this week. We had a change in contract over the period, so it got lost in the switch, but the total of the lost points so far is 20.63 cents. Gasoline prices have lost 17 cents this week, and August is down 16.12 cents a gallon. August crude has lost almost $6.00 this week, up through Thursday.
Fundamentally, these declines seem a long time in the making. Distillate inventories are 32% higher than they were two years ago, and crude oil inventories are 21% higher. Cushing crude oil stocks are 72% higher than they were two years ago. More than anything else, though, it seems that prices were reacting to the latest economic numbers, which have been disappointing. Pending home sales were down 30%. It was the biggest drop in this measure since records started being kept in 2001. Bloomberg’s survey of economists had shown an average expectation of a 14% decline. - Cameron Hanover

Hideous ...

In its latest update of Maiden Lane assets the Fed has marked the net value of the CDO-legacy portfolio at multi year highs. Yet at the same time, it, together with Blackrock, has stripped away 60% of the interest rate hedges previously protecting ML1 from a blow out in interest rates. We ask why the Fed is increasingly certain there is no risk of a violent widening in rates, and how can it be certain of this occurring, without continuing to actively manipulate the Treasury/MBS market way past the QE due date?

If you ever happen to eavesdrop on a conversation between energy investors, two words are sure to crop up – China and oil. Usually, they’re used together and usually, it’s about China’s increasing presence on the global oil scene.

It’s a pretty safe bet that, as one of the world’s fastest growing economies, China needs a lot of energy. And with an oil appetite that grows by 7.5% each year, seven times faster than the U.S., the country’s reserves don’t even begin to compare to the consumption.

But fuelling the blistering pace of its economy is China’s number one priority, and it is on a mission to lock down its energy interests all around the world. The emerging powerhouse has often felt that it was the last one onto the energy playing field with a lot of catching up to do.