Archive - Aug 17, 2010

Gold is following Monday’s buying through this morning and is up 2-3 dollars after yesterday’s solid gain of over $9.00. Stocks and the rest of commodity complex are broadly higher so far today. The USDX is weaker as well. Soros made some comments that investors should buy gold and Goldman Sachs made a buy recommendation last week. The market has behaved strongly since that recommendation, despite the concerns that GS may be creating an exit strategy for itself and/or some clients. But that would be the point wouldn’t it? I mean who takes the cover of Barron’s touting a stock he hasn’t already bought, right? The question remains, is there enough interest and discretionary capital left to spur another buying spree?

Markets in a Flash

· The EUR is starting to push higher this morning and is gaining against the USD, JPY and GBP.

· US equity futures are higher this morning following the European advance and indicating a rise in equity prices at the bell.

· Oil is trading over +1% higher this morning and is above $86.00. Gold is continuing to rise slowly and is at around $1230.00.

Even as the PPI data came out as expected, both on a MoM (0.2% vs exp 0.2%), and YoY basis (4.2% vs exp 4.2%), from a previous reading of -0.5%, and thus serving as no market moving indicator in either direction, housing starts of 546k came in well below expectations of 560k. And in keeping with tradition, the US government once again revised the prior period data, to make today's print seem like an improvement: the previous reading of 549k was revised to 537k. As the Census Bureau reported, "Privately-owned housing starts in July were at a seasonally adjusted annual rate of 546,000. This is 1.7 percent (±9.7%)* above the revised June estimate of 537,000, but is 7.0 percent (±7.5%)* below the July 2009 rate of 587,000." Completing the trifecta of economic data, Housing Permits also missed expectations of 580k, coming in at 565k. Far less relevantly, we also find that "privately-owned housing completions in July were at a seasonally adjusted annual rate of 587,000. This is 32.8 percent (±6.8%) below the revised June estimate of 874,000 and is 25.4 percent (±7.3%) below the July 2009 rate of 787,000." In other words, houses really are not being built.

• Bulls on parade: Latest JPM Treasury client shows longs rose to 27% from 24%, shorts unchanged at 14% and neutral holdings fell to 59% from 62%
• Debt Virus Spreads During Make-Believe Recovery (Bloomberg)
• Ben should make banks lift savings interest rates (Post)
• Merkel to Stick With Cuts Despite Growth (FT)
• China tries to downplay signficance of July trade number: China's July trade surplus a rare case: expert (China Post)
• Japan govt to discuss stimulus steps Aug 20 (Reuters)
• Our thesis of a European slowdown coming to fruition: German Data Point to Slowdown (WSJ)
• Stellar German Recovery Masks Euro Zone Strains (Reuters)
• Australia, Korea Central Banks Harbor Doubts on Global Outlook (Bloomberg)
• Uncle Sam, Venture Capitalist: Meet the battery company that Obama visited yesterday (WSJ)

• Australia, Korea central banks harbor doubts on global outlook.
• Big banks ease standards on small-business lending - Fed survey.
• BOJ doesn't see threat in recent Yen rise.
• China cuts long-term US Treasuries by most ever as yields drop.
• German investor optimism may drop to 16-month low on weaker growth outlook.
• U.K. July annual consumer price inflation up 3.1%.
• Yen falls versus Euro on rebound in Asian stocks, intervention speculation.

Economic Calendar: Data on Housing Starts, Building Permits, PPI, July Industrial Production, Capacity Utilization to be released today.

Irish CDS, which recently was trading wide of 300, tightened materially after the country, most likely with a very direct ECB intervention, managed to place two €0.75 billion auctions, the first a 4% due 1/15/2014, and the second: 5% due 10/18/2020. The Bid To Cover on the first was 5.4, compared to a BTC of 3.1 at the last auction held in May, explained simply by the surge in the rate from 3.11% to 3.627%. The 2020, however, saw the BTC drop from 3.0 to 2.4 as the yield dropped from 5.537% to 5.386%. In other words, the ECB overbid for the near maturity, and likely just put in for a token amount. And for some odd reason, CDS traders see this latest central bank intervention to extend and pretend as a favorable development, and have decided to run away from Irish risk for the time being. The question of how long the ECB can continue this charade is relevant: after all the Fed has just one country to deal with. And continuing with Ireland, the country's central bank stated that the net cost of Anglo-Irish to the government may be €22-25 billion, even as it cleared up hypocritically that capital raising via taxing banks' excessive reliance on short-term borrowings would be preferable. Of course, the central bank should keep its mouth shut, and be happy that the ECB will continue to support any part of the curve, as in its absence the country would be long insolvent.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 17/08/10

Until I began to examine the Dodd-Frank financial overhaul bill I had no idea that it would so significantly change the direction of the United States. It's scope is so vast and pervasive that it is difficult to grasp its totality. I wrote this article to try to explain this and why I believe it is so important for us to understand it. This is the final part of this four part series. I examine the consequences of Dodd-Frank.