Archive - Nov 2011

Steve Miller is the chairman of AIG. Between 2008 and 2009 AIG received $97.8 billion in loans from the Fed plus four bailouts totaling $69.8 billion in taxpayer money. This is what Steve had to say yesterday when asked by Bloomberg TV’s Betty Liu for his views on Occupy Wall Street.

And you thought we were kidding: the Anti-Tilson ETF continues to be the best performing asset in the known universe for the past 4 days, up 34% since Friday. Buy GMCR, short NFLX, sit back and retire.

Last time when Jefferies' (which is not MF Global although it is just as a big question market in the TBTF category, and as a reminder is not a Bank Holding Company, being the last pure play investment bank left out there) stock had a $9 handle, it triggered a -20% circuit breaker and forced a short covering squeeze. This time it is far more methodical. At this time Leucadia is underwater on both of its recent purchases, all past and future Jefferies press releases have been priced in and will be irrelevant in the future, and Handler only has half of his original gross sovereign book left to sell (into a bidless market and thus generating more major P&L losses).

Like two children bickering over spilled ink... Listen fellas, there's only one way out of this, and that way is not through the ACME Print-O-Matic 2000 (Euro edition). It didn't work for Japan, it didn't work for the US, and it ain't gonna work for the EU!

The political pressure on the ECB (and implicitly the Bundesbank's oh-so-stubbornly sensible and correct bankers) to just-print-baby-print is growing by the hour (or down-tick in BTPs and OATs). The cacophony of long-only strategists, Keynesian central bankers, and desperate (under speculative attack) politicians has perhaps reached a crescendo as it appears (from a Reuters article) that the ECB has found a workaround. By lending to the IMF, who are able to do pretty much whatever they want with regard to on-lending and primary issuance support, the ECB denizens can maintain their tough no nonsense anti-monetization stance while providing a leveragable IMF with more support for whatever leveraged buying they deem necessary (cough France Italy Spain cough). And all this as the IMF scrambles to replace its European Director - what could possibly go wrong?

Well that was quick: Italy is about to be acquainted with the old Asian saying that a "known devil is better then unknown angel", especially when the angel is a Prime and Finance minister (two for the austere price of one) working purely on the behalf of offshore banker interests. As Reuters and Corriere report, thousands of Italians took to the streets in several cities on Thursday to protest against what they called a "bankers' government" led by economist Mario Monti, and there were clashes with police. Students in Italy's financial capital Milan threw firecrackers at police trying to prevent them approaching the Bocconi university, which is chaired by Monti and has become a symbol for the new executive of technocrats he has formed to tackle Italy's debt crisis. Police responded by charging the students with batons. One journalist was injured by a firecracker, police sources said. The students also threw eggs and fake dollar banknotes at the building of the Italian banking association. "We don't want the banks to rule" and "Monti's government is not the solution," the students chanted." Well as long as it is only the students who feel this way, all is well. If, however, the anti-Monti sentiment is shared by more, which it is, then the technocratic government will be lucky to survive three weeks... forget 2013. And the greater the revulsion, the bigger the Stockholm Syndrome nostalgia for Berlusconi will be. If we were betting people, we would speculate that Silvio's chances for reelection are soaring with each passing minute.

And now back down:

• FITCH SAYS ITALY RATING MAY BE CUT IF IT LOSES MARKET ACCESS
• FITCH SAYS ITALY RATING COULD BE CUT TO LOW INVESTMENT GRADE
• FITCH SAYS ITALY IS PROBABLY ALREADY IN RECESSION
• FITCH SAYS MONTI GOVERNMENT MAY REMAIN IN POWER TO APRIL 2013

The decoupling desperation hits just keep on coming. After revising last week's 390k number as usual higher to 393K, today's soon to be revised higher jobless claims number hit 388k - the lowest since April, on expectation of 395k. Naturally the robots took one look at the number and completely ignored the fact that Europe's slow motion implosion continues because a few thousand people fired less apparently is good news. Naturally, that corporations, which have already cut all the fat and now have fewer and fewer people left to fire is of secondary importance. After all the decoupling thesis must survive at all costs because if not for America, which together with everyone else, has exported $338 billion more than they have imported - a mathematical idiocy which was noted yesterday - then the world is apparently doomed. And confirming just how "strong" the US economy is, or at least reports thereof, was both the continuing claims number which came in at 3,608K on expectations of 3,635K (previous revised of course higher from 3,615K to 3,665K), while housing starts and permits both beating expectations and coming at 628K and 653K, on expectations of 610K and 603K; even as both previous prints were revised lower. That multi-family units once again came at an abnormally high 183K is also irrelevant - 1 unit came virtually unchanged at 430k. But none of this matters: if the blistering economic data of this week, Ministry of Truthed as it may be, is not sufficient to convince the market that the US can decouple from the European catastrophe, nothing can. Naturally, if Europe is not fixed within one month, comparable "beats" in December will be simply ridiculous and completely non credible, and the BLS will be forced to actually report the truth on what the global slow down looks like.

First the momo stocks go into all out implosion, and right on their heels are permabulls. A few months ago it was that joke of an analyst David Bianco who started colleting jobless benefits, and today we learn that the bigget permabull of all, Legg Mason's Bill Miller is out. From Bloomberg: Legg Mason’s Miller to Exit Main Fund After Falling Behind Peers. But, but, who will CNBC invite to make the bullish case?

The demand that the ECB becomes the lender of last (and only) resort has reached a crescendo.  Virtually everyone in the world is pleading with Germany to allow the ECB to print money and buy massive amounts of Spanish, Italian, Portuguese, Irish, Belgium, and possibly Austrian debt.  But as far as I can tell, the analysis doesn’t go beyond buy and the problem will be solved.Before taking the step to print, all that we can hope for is that someone will actually do some serious analysis of the potential consequences, beyond the immediate relief rally.It may be the best solution, but until I see some real analysis convincing me the consequences of printing have been thought out, we will remain in the camp that letting some defaults, break-ups, write-downs, is the best longer term solution in spite of short term pain.

In yet another attempt which will backfire miserably, starting about 30 minutes ago the ECB has gone absolutely apeshit in the market and has been buying every single piece of paper it could get its hands on, focusing on BTPs with Spanish bonds in second place. As the chart below shows, following what has been a non stop buying spree, the Italian benchmark 4.75% of 2021 has soared from 84.75 to 86 in one non-stop run. The implicit motive is to get the Spanish Bund spread down from 500 bps which virtually guarantees a margin hike and a collapse into the toxic debt hole. Will they be successful? Of course not: we give this intervention another 10-15 minutes tops before Draghi's bond buyers are exhausted and the selling resumes. In the meantime, the ECB's SMP cumulative total is now well over €200 billion.

• Focus remains on the debt and political turmoil surrounding Spain and Italy, with particular widening observed in the Spanish/German 10-year government bond yield spread. There was market talk of the ECB buying the Spanish and Italian government debt
• Spain had a lackluster bond auction, with the auction yield printing an Euro-era high
• Fitch said that the Euro-zone contagion poses a threat to the US bank rating outlook. Eurodollar and Euribor futures have remained under pressure throughout the European session
• Italian PM Monti said will fully implement the previous government's letter of intent to the EU, and will consider necessity of additional measures
• GBP/USD gained around 30 pips following higher than expected retail sales data from the UK

Now that they have been kicked out of their tents in Zucotti Park, the OWS protesters have congregated at the intersection of Nassau and Pine with speculation that they intend to go to the NYSE after. Naturally that would mean breaching the NYPD barricades which would likely lead to a spike in violence. Watch it live below.

Gold Demand Trends (Q3 2011) released today by the World Gold Council (see commentary) shows that investment and central bank demand for gold were key drivers of total gold demand last quarter. Third quarter gold demand increased 6% year on year to 1,053.9 tonnes with investment demand rising a significant 33% y/y to 468.1T. Virtually all markets saw strong double-digit growth in demand for gold bars and coins. Investment demand in Europe surged 135% due to the deepening sovereign debt crisis.  Significantly, 390.5 tonnes of the 468.1 tonnes of investment demand went into physical bullion in the form of bars and coins. ETF demand was 77 tonnes and nearly 50% of that was from European investors and institutions. The increase in overall investment demand was quiet impressive considering the higher average price in the quarter and the price correction in September but not surprising given the scale of the global economic crisis. A huge and paradigm shifting change in the gold market is central bank buying which rose 556% to 148.4T from 22.6T in Q3 last year. For the past 15 years there has been net selling of around 400 tonnes per annum from central banks. Importantly, the World Gold Council can only identify about 40 to 50 tonnes of the 148.4 tonnes bought by central banks.