Archive - Feb 2011

The three events to watch this week are the global PMI’s, US payrolls and events in the Middle East. Goldman expects the China February PMI to be largely unchanged from January’s level. Regional factory surveys point to a strong ISM index for February. Nonfarm payrolls in February probably grew at their fastest rate since last April. Consensus is looking for a 190k NFP number, and a 9.1% unemployment rate. The dramatic events in the Middle East over the last few weeks will likely continue to impact global financial markets.

Only 11% approve of Congress, while 15-20% liked King George...

All over the world, in countries as far apart and diverse as Egypt and Vietnam, Ireland and Libya, Bahrain and the United States, people are standing up and saying “No more concessions, no more cutbacks, no more bailouts, no more austerity, no more!”

All who enjoy hearing a meaty Marc Faber fire and brimstone sermon, that cuts through the bullshit, will be happy to know that the Gloom, Boom and Doom author conducted a 40 minute interview with the McAlvany Financial Group, which covers all the usual suspects: gold, silver, precious and industrial metals, the "crack up boom", the future of the Ponzi and capital markets in general and much more. Of course, it wouldn't be a Faber interview without the requisite soundbite: "I think we are all doomed. I think what will happen is that we are in the midst of a kind of a
crack-up boom that is not sustainable, that eventually the economy will
deteriorate, that there will be more money-printing, and then you have
inflation, and a poor economy, an extreme form of stagflation, and,
eventually, in that situation, countries go to war, and, as a whole,
derivatives, the market, and everything will collapse, and like a
computer when it crashes, you will have to reboot it." Of course, on a long enough timeline...

I have often contended that there are two ways to interpret sentiment data.

Looks like speculation that the Egyptian Central Bank's gold stash may have been just modestly plundered is starting to play out. According to Reuters. "Egypt has issued a ministerial decree
immediately banning the export of gold in all its forms, including
jewellery and ornaments, until June 30, the official news agency MENA
said on Sunday. "This decision, which comes in light of the
exceptional circumstances the country is passing through ..., is to
preserve the country's wealth until the situation stabilises," MENA
said. Egypt's currency has come under pressure after some of the
country's main sources of foreign currency, including tourism and
foreign investment, collapsed after the protests that ousted President
Hosni Mubarak erupted on Jan. 25." Obviously, this "emergency" step would not be required if the E(gyptian)CB was still in full possession of its purported stash of the inedible metal. Whether the decline is due to alleged Mubarak sequestering of the shiny metal, or by other members of the former ruling regime is unclear, but one thing is certain: the WGC is long overdue in adjusting the Egyptian gold holdings from 75.6 tonnes to their real current value... far lower. As for Egyptian fiat: that is as freely exportable now as ever. If only anyone wanted it. But yes, somehow emerging markets are manipulating their currencies lower than fair value, the conventional wisdom claims.

A film is never really good unless the camera is an eye in the head of a [Samurai] poet--Orson Welles...

Lets hear it for Inside Job!!!!!!!!!!!!

A week ago we highlighted the major inversion in the non-commercial spec bets between the GBP and the JPY, after the two had been trending with very close correlation for almost a year. This week, after GBP spec bets had hit the highest in over a year, on expectations that the BOE would commence a tightening regime (which we believe are unfounded and largely premature considering the worsening stagflation the UK finds itself in), GBP bets dropped by a the second largest amount in over a year, or by 16,563 contracts (only the 18,788 decline in February of 2010 was greater), to 36,009. And as we suggested last week, when we told readers to "note the surge in GBP bullish bets, and the plunge in JPY. Those willing to bet that the spec crowd is always one step behind the curve may be well advised to take the other side of the trade" this is indeed what is starting to happen: the drop in Yen specs was roughly half the GBP decline, at 9,198 to a total of -27,746. In other words the GBP-JPY convergence is starting to play out. Nonetheless with Yen specs at the lowest they have been since May of 2010, this is a level of concern.

While John Noyce covers his usual fare of weekly FX technical developments, with an emphasis on the EURUSD, the AUDUSD, the USDSEK, the NZDUSD, and broadly the extremely low level of implied vol in FX (unlike commodities - we expect a switch from commodity implied vol to FX very soon), as well as a very curious collapse in correlation between G10 FX implied vol basket, the VIX and the EURAUD spot. But the most notable observation is what may happen to stocks now that the 55 Day Moving Average is in danger of being breached for the first time in 123 days. The two key support trendlines are the August uptrend since August, which is at 1,300 and the 55 DMA, which is at 1,284. Should both of these be taken out, there is no technical support until the Jackson Hole level of mid 1,000s.

Once again investors came out in full force to buy the fucking dip on Friday after learning that...

In previous Revolution Roundups, before we were knocked offline, we featured mass protests by the people of Ireland, Italy, Britain, Austria, Greece, France and Portugal, as the Global Insurrection contagion spread throughout Europe. And now, as we have seen over the past month, North African and Middle Eastern nations have joined the movement as the people of Egypt, Tunisia, Jordan, Morocco, Gabon, Mauritania, Yemen, Bahrain, Libya, Palestine, Iraq, Sudan and Algeria have taken to the streets en masse. The connection between this latest round of uprisings and the prior protests throughout Europe is one the mainstream media is not making. We are witnessing a decentralized global rebellion against Neo-Liberal economic imperialism. While each national uprising has its own internal characteristics, each one, at its core, is about the rising costs of living and lack of financial opportunity and security. Throughout the world the situation is the same: increasing levels of unemployment and poverty, as price inflation on food and basic necessities is soaring...The global banking cartel, centered at the IMF, World Bank and Federal Reserve, have paid off politicians and dictators the world over — from Washington to Greece to Egypt. In country after country, they have looted national economies at the expense of local populations, consolidating wealth in unprecedented fashion – the top economic one-tenth of one percent is currently holding over $40 trillion in investible wealth, not counting an equally significant amount of wealth hidden in offshore accounts. IMF imperial operations designed to extract wealth and suppress populations have been ongoing for decades. As anyone researching economic imperialism will know, a centrally planned Neo-Liberal aristocracy controls the global economy.

Looks like Gaddafi's promise that civil war will never break out while he is alive, has just been broken: "Forces loyal to Col Muammar Gaddafi made good on threats to trigger a civil war in Libya on Wednesday night, by taking up positions across the capital, Tripoli and launching a rearguard fight against rebels in major cities. Residents of parts of the capital were trapped in their homes as "thousands" of soldiers patrolled the streets accompanied by African mercenaries. Tanks took up positions around public buildings including government offices, while sandbag defences were also being built. "We will fight until death," a pro-Gaddafi soldier in his early 20s said outside a military compound close to Tripoli's Green Square, which had been cleared of demonstrators by yesterday morning. "The country needs stability at a time like this, and this is what we are providing. The people are on our side." Next Gaddafi promise to be broken: "I won't burn Libya's oil."

Angela Merkel is carefully observing what can only be classified as a peaceful revolution in Ireland, where a stunning amount, over 70% by some estimates, of voters turned out to punish the ruling Fianna Fail party for its betrayal of the Irish people and for the latest (and what some say last) broad banker bailout. The Telegraph reports that "Exit polls and early tallies from Ireland's general election heralded political annihilation for Fianna Fail (FF), the party which has ruled Ireland for more than 60 years of the Irish Republic's eight decades of independence." Bloomberg adds:  "Counting will continue today to fill the 166-seat parliament, with an exit poll giving Fine Gael and the Labour Party a combined 57 percent of the vote. Support for Fianna Fail, which has ruled for the last 14 years, dropped to 15 percent from 42 percent in the 2007 election, the poll showed." In other words, the Irish people have voted for a direct confrontation with the EU, and indirectly, for austerity: "Fine Gael leader Enda Kenny, likely to become prime minister, wants to re-negotiate the interest rate on the emergency loans and speed up planned spending cuts to narrow the budget gap. Labour is pushing for more tax increases." And the reason Merkel is not going to sleep much tonight is that Germany is next. The country, where the CDU saw a comparable annihilation in a recent Hamburg vote, faces several regional elections as early as a few weeks from now, and the political scene is expected to change drastically, as a warning to anyone who feels like putting the banking kleptocracy (again) over the interests of the taxpaying majority. But what is most troublesome for all those who think that the EURUSD at 1.38 is remotely credible, is that the European Nash Equilibrium is now completely destroyed, and the game theory defections are about to start in earnest: "Declan Ganley, the Irish businessman who led the 2008 No vote to the Lisbon Treaty, said Ireland must "have the balls" to threaten debt default and withdrawal from the single currency. "We have a hostage, it is called the euro," he said. "The euro is insolvent. The only question is whether Ireland should be sacrificed to keep the Ponzi scheme going. We have to have a Plan B to the misnamed bailout, which is to go back to the Irish Punt." Funny  nobody even pretends that modern economics is even a remotely viable concept. Also, the Fed's plan of keeping the USD artificially low against most currencies is about to crash and burn mercilessly.

Exquisite timing.

After protests recently shifted to Korea, they have now migrated to very tightly controlled Vietnam (and some were wondering what the reason for the orchestrated take down of rice in the past week was), in the first public demonstration by unhappy farmer against the controlling regime in many years. In the meantime, as the media blackout over developments in Korea, Bahrain and just as importantly Algeria continues (not to mention China), keeping in mind that as Nomura predicted, a shut down in Algerian and Libyan oil production is all that is needed for crude to hit $220, we now look forward to Venezuela to join the revolutionary ranks, with the culmination being when Afghanistan and Pakistan, and associated nukes, go in play.