Archive - Aug 2010

Things in Europe this morning have a decidedly deja vu May feel. The EUR has plunged against all majors, touching a one month low against the dollar as John Taylor is proven correct for the nth time, having top ticked the EURUSD inflection point literally to the day. Further validating the return of European concerns fo the main stage is the fresh all time record yield on the Bund, with the future rising above 133 for the first time. There are two key reasons cited for today's weakness: the first are extremely dovish comments from ECB's Aexl Weber that the central bank should keep "unlimited lending through year end." This simply means that Bernanke's QE Lite idea is not lost on Europe, whose own little mini gold age has ended, and the continent is once again considering ways and means to kill its currency. Don't be surprised if Germany decided to throw Greece on the sacrificial altar - in that regard, the recent Spiegel article may just have been the warning shot. Additionally, there are rumors that the SNB is unwinding its hundreds of billions of EUR holding. The indirect evidence: a surging CHF, which however could merely be a return to the flught to safety of the old regime, as Europe once again realizes just how bad things truly are beneath the surface.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 20/08/10

Few people in the world know more about oil drilling disasters than Dr. Robert Bea. We would be wise to listen to what he has to say ...

Dear Pragmatic Idealist: I don't know where you get your ideas about Austrian theory, but they are completely wrong.

I will be updating this blog on about a weekly basis with market commentary, as well as articles on specific topics. I will instead also be providing daily market commentary in newsletter .pdf format. If you would like to subscribe (for free) to the Shadow Capitalism market commentary newsletter, please email me at naufalsanaullah@gmail.com so I can put you on the mail list. Thank you.

Money supply is declining, ZIRP and QE haven't worked, so what's the Fed supposed to do? More of the same? This article takes a look why banks are critical for an economic recovery and why the government has done everything they can to prevent it. Here is Part 2 of 2 and where I think we're headed.

A billion here,25 billion there.

The "M" is there. Now all the Fed needs to get is to find the velocity that goes with it. However, with GDP now realistically declining, the latter is proving to be quite problematic for the Chairman.

Hinde Capital's Ben Davies, long known for his expansive analyses of gold's undervaluation, this time focuses on silver, and the metal's relative value vis-a-vis gold and other commodities. In the report below, posted initially on King World News, Davies lays out the case for a violent move higher in the price of silver, predicated by the inability of the value suppression cartel to keep the price artificially low going forward, as well as a return to silver's fundamental value.

Providing a semi-critique of some over-eager Austrian monetary business cycle theorists. Some Austrians go too far and attribute all blame to the government's monetary policies in creating bubbles. But at least some blame must be attributed to investor/consumer irrationality and groupthink.

The Caisse de dépôt et placement du Québec, Canada's largest pension fund, announced today a return for the first half of 2010 of 2.33%, outperforming its benchmark by 307 basis points and adding $4.1 billion in value added. Given the volatility in the markets, this is impressive.

The hoopla over GM’s impending, politically timed IPO obscures fundamental weaknesses that have not going away. Its core customer base is dying off as fast as the reborn company can build new cars. A company with a demographic headache like no other. Driving to Beijing for a tune up?

New Jersey (and several banks for that matter) got the luck of the Irish as they were able to pull an Enron accounting trick without any consequences after settling a related suit with the SEC.

The fears of all those who had long believed that the administration, either in collboration with BP or otherwise, had been flagrantly lying about the true situation in the GOM, have been confirmed by The Guardian (via BNO). "A senior U.S. government scientist on Thursday admitted that
three-quarters of the oil that was released into the Gulf of Mexico
after BP’s Deepwater Horizon spill was still there, contradicting his
earlier claim that the worst of the spill had passed, the Guardian
reported. Bill Lehr, senior scientist at the National Oceanographic and
Atmospheric Administration (NOAA), presented a radically different
picture than the one the White House had presented to the public earlier
this month. He contradicted his own reports from two weeks ago that
suggested that the majority of the oil had been captured or broken down.
“I would say most of that is still in the environment,” Lehr told the
House energy and commerce committee." So just how many other thing are the President and his crony corrupt "scientist experts" lying about?

I apologize as I have not provided much added commentary on relative value trading ideas these past few days, I have been solely focused on trading bet (or risk) and digging into the data of last year's POMO days to isolate patterns and trends associated with Federal Reserve market operations. Regarding that last point I will have a comprehensive analysis out tomorrow, so far the results are interesting, maybe that will convince a few traders out there to actually come in on Friday to read it tomorrow! As far as relative value is concerned, I had recommended bear conditional flatteners right at the highs. While the curve has lost a lot of delta to the curve, it is well in the money as we have flattened dramatically the past week. Why a bear flattener? Clearly a bull flattener would have been more profitable but the trade had no negative carry, in case of further bull steepening you would therefore have broken even, and since on a sell-off a flattening was virtually guarantied, the risk reward for that trade was excellent. On the flip side bull flatteners had negative carry. Still a good trade and the odds are that now market is going to keep flattening aggressively with steepeners getting carried out on stretchers, low participation overall, and the demand for yield pushing buyers ever further out the curve. - Nic Lenoir