Archive - Nov 2011

One of the more high profile victims of MF Global’s fraud is economist and trends forecaster Gerard Celente. Celente became the latest victim of the MF Global bankruptcy when funds, in the six figures, in his gold futures account were taken (or ‘looted’ as Celente called it) by Chapter 11 trustees. Celente was hit with a margin call within days of the corporate shutdown despite his account being fully funded. Celente told Russia Today (RT), “I really got burned, I got a call last Monday, I have an account with Lind-Waldock, and I have been trading gold since 1978, and I have a very simple strategy. As you well know, I’ve been very bullish on gold for many years…  So I was building up my account to take delivery on a contract, and I got a call on Monday, and they said I needed to have a margin call.  And I said, what are you talking about, I’ve got a ton of money in my account.  They responded, oh no you don’t, that money’s with a trustee now.” He said that MF Global “have cleaned out and ruined a lot of people. So maybe the name MF, I’m thinking the first word of MF is ‘mother’ and we could put the other word in there if you use your imagination . . .  because that is what they are doing to everybody.”  Celente is astute and is on record regarding the importance of owning physical gold bullion. The incident shows the increasingly fundamental importance of owning physical bullion (see table above) – either by taking delivery or by owning in personal allocated accounts.

It is completely irrelevant since nobody cares about economic data anymore, but it deserves a mention: today we get the CPI, industrial production and homebuilder sentiment.

Looking why the EURUSD has just gone berserk? Here is the reason - another barrage of flashing red headlines out of Italy:

• MONTI ACCEPTS OFFER TO FORM ITALIAN GOVERNMENT
• MONTI ANNOUNCES CABINET MEMBERS
• MARIO MONTI TELLS PRESIDENT HE WILL LEAD NEW ITALIAN GOVERNMENT
• MARIO MONTI TO BE FINANCE MINISTER IN NEW GOVERNMENT
• INTESA CEO PASSERA NAMED ITALY DEVELOPMENT, TRANSPORT MINISTER
• MONTI NAMES GNUDI MINISTER                             
• MONTI NAMES PIERO GIARDA MINISTER                       
• MONTI NAMES NAMES PASSERA MINISTER

Yet across the Alps this is the only headline that matters:

• MERKEL ECB DOESN'T HAVE OPTION TO SOLVE EURO PROBLEMS

Following a relatively quiet overnight session which despite various bond auctions in Europe did not see any flagrant contagion, and in which ongoing ECB buying of Italian bonds led the 10 Year BTP spread back to 6.75%, things have taken a very quick turn for the worse once again, and the BTP is now back at the day wides at 7.10%, following the following Reuters headline which is rather self explanatory: RTRS-UNICREDIT CEO, IN MEETING WITH ECB, TO ASK FOR MORE ACCESS TO  ECB FUNDING FOR ITALIAN BANKS BY WIDENING TYPE OF COLLATERAL  USED-SOURCE CLOSE TO BANK. Hmmmmm, UniCredit....where is that name familiar from. Oh wait, that's right - it was, once again, the top name on yesterday's Sigma X report of most actively traded companies by Goldman's special clients. Good to see there was no leakage here at all, none. And making things worse across the Mediterranean is the rumor that LCH Clearnet will promptly follow suit, and hike Spanish margins now that the spread to German Bunds is over 450 bps. Bottom line: Same Europe, Different Day. Here is our perfectly uneducated guess - market plunge in the morning in which institutions dump, ramp in the afternoon in which retail and HFTs buy.

Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,” said the single currency will survive for now, even as he bets Greece quits within a year.

“With the exception of Greece leaving, I don’t think the whole thing is going to fall apart anytime soon,” Feldstein said in a Nov. 14 telephone interview. “The Greek situation is impossible.”

All you need to know.

The good news is that on 8 November the International Energy Agency released its 2011 “World Energy Outlook.” While it will cheer nuclear advocates, overall the report makes for grim reading. Pulling no punches, the report states at the outset, “There are few signs that the urgently needed change in direction in global energy trends is underway.” Stripped of its cautious language, the IEA report essentially noted that should present trends continue, the world’s governments through a lack of progressive initiative embracing alternative energy sources would continue to rely on ‘tried and true” fossil fuels, resulting in increased pollution, more fossil-fuel dependency and increasingly upward energy prices. For environmentalists, this is all good news, but the report contained a caveat virtually anathema to all green movements, that accordingly, governments should reconsider their reluctance to embrace nuclear power, as it does not generate greenhouse gases. Like many discussions in Western economies since 2008, when the global recession first began to draw blood, the issue of reliable energy production ultimately devolves down to dollars and cents issues. The grim reality for environmentalists is that no single renewable energy resource, from wind power to solar energy through biofuels, has remotely become competitive with kilowatt hours of electrical energy generated by coal or oil-fired power plants. The debate pits those opposed to a transition to greener technologies to those considering the bottom line, despite greenhouse gas emissions.

Don't even think about bringing any food or beverages near this post...

The massive cornerstone of support for the euro—German exporters—just cracked: "We need a common market, not one currency.”

Anyone needing a quick summary of the main tension lines in Europe as they currently stand can probably not do any better than the attached 3 minute explanation by Kyle Bass. And while he just participated in a far longer Q&A with BBC's Hardtalk program, which we will bring to you shortly, the attached video explains more in 150 seconds than a full day of watching the financial funny channel from basic cable. In a nutshell: Europe is about to see trillions in debt written down (the only mathematical explanation which makes sense, as presented for the n^th time earlier by Charles Hugh Smith), the "profligate idiot" spenders of Southern Europe are not going to be bailed out by Germany, which has decided it has had enough of the "Mexican standoff" within the Eurozone, and will not be held by the short hairs any longer. And as for the quote that captures the total and utter chaos in Europe: "they have a German pope and an Italian central banker." Nuf said.

Earlier we warned everyone that the Goldman stop loss triggers were if not hot then would be any minute. That just happened and the EURUSD tumbled a good 40 pips in seconds as soon as the several supporting bids just below 1.35 were finally eradicated, bringing the Euro to a 5 week low. And as a reminder, tomorrow we have some very interesting Spanish and French bond auctions (for full list see here). As another reminder, both closed at record spreads. Better set that alarm for 2:45 am: things are getting dramaminy once again.

The primary reason for today's (and last week's) dramatic overnight market weakness was the fact that several auctions, either Italian, or Spanish, went off about as badly as they possibly could. But luckily that's over, right: all the auctions in the near term are over and there is nothing to worry about for at least a few more days so traders don't have to get up at 3 am Eastern to see just how abysmally bad the latest Italian Bill issuance was? Uhm, no. Below we present the balance of Europe's bond auctions for November, for December... oh, and Bills as well, because apparently issuing 3 Month paper in Europe is about as difficult as selling 30 Years.

If you’re in the NYC area: join the thousands gathering in Liberty Square (Zuccotti Park) now! If you’re elsewhere: blast this call with every form of media the 99% can muster!

Two weeks ago we reported with sheer disgust that the outgoing CEO of bankrupt Freddie Mac, Ed Haldeman, was to pocket over $4 million for his brief two year stay at the nationalized GSE, which money was to reward him for lots of hard work collecting bail out cash from the Treasury. $21 billion to be precise. Apparently it is not easy to beg from Tim Geithner which explains the compensation for a task which is essentially supervising a financial black hole with an attached run off portfolio. Nonetheless the optics of this farce are rather unpleasant which is why we said that this is the (one of many) reason "why people in America are very, very pissed." Today Congress, which has yet to ban itself from trading on inside information, has decided to at least rectify this one sticking point, and moved forward with a "bill to block multimillion-dollar executive pay packages at Fannie Mae and Freddie Mac even as their regulator defended them as necessary to retain top talent and limit taxpayer losses at the bailed-out companies." And where are they going to go: MF Global? Morgan Stanley? RBS? Jefferies? As for what new pay wil be: "The committee adopted an amendment that would use the pay scale that applies to independent financial regulators, such as the Federal Deposit Insurance Corp, which allows for higher pay than at most federal agencies. Representative Al Green, who offered the amendment, said this would have the effect of limiting the highest salaries to about $260,000 per year." While still about 3 times more than what they deserve, this is a good start. And an even better one would be to if not unwind the GSEs, then to at least recognize that their $7 trillion in debt should be counted toward the US Federal debt, as Peter Orzsag suggested once. Naturally were that to happen US total debt/GDP would be over 150%, and the bond vigilantes would suddenly be confused whether their time is not better spent on this side of the Atlantic. Yet the biggest twist in this story, is that not only are the GSEs bankrupt, but as the NYT reported earlier, the FHA itself has a "close to 50% chance of requiring a bailout." Add to that that the corporate retirement guys (PBGC) and the post office (USPS) are now effectively broke as well, and very soon being the CEO of a bankrupt company will be the new killing it.