Archive - Feb 2011

The wacky new game the whole market's been talking about...

Gold, and particularly silver, lease rates (see chart) have been rising recently. The rate is found by subtracting the silver forward offered rate from the London Interbank Offered Rate (LIBOR). This likely signals increasing tightness and illiquidity in the bullion markets (as recently said by Sprott Asset Management, and UBS yesterday). The rise in silver has been very sharp, having gone from 4.29 basis points (0.0429%) to 77.65 basis points (0.7765%) since the start of the year (31 December 2010). While the rise is very sharp, it is important to put it in context, and silver lease rates remain well below the levels reached after the Lehman Brothers systemic crisis in late 2008 when silver lease rates surged to 2.5%. At the same time, the very small silver bullion market is clearly under strain as seen in the continuing backwardation. This clearly shows that demand for physical is robust, evident from retail demand in the US where there were record US Mint silver eagle sales last month. There are delays (3 to 4 weeks) to get branded LBMA silver bars (100 oz) in volume.

So what is wrong with this picture: 457,000; 419,000 (upward revised of course from 415,000); 383,000. Those are the initial claims (Seasonally adjusted, as in adjusted for snow) over the past three weeks. Stock vol (which is now non-existent), has moved to BLS economic time
series... And yes, we had a sub 400k print in December, which was also
one of those "the economy is stronger, no doubt about it moments." Most notably, the data is for the week of February 5, when all of
America was covered in a blizzard. Odd how that is not mentioned. And someone is supposed to take this number seriously? Not the market, as stocks don't respond one bit. Oh yes, the weather. One thing is certain: no snow removal workers were fired in the past month, right BLS? In the meantime, NSA claims come at 438,548, a 26k drop from the prior week number. And the cliff keeps pushing out: those on EUC and extended benefits changed by +100K and -16K respectively. Continuing claims came at 3,888K on expectations of 3,900K, with the previous number naturally pushed up from 3925k to 3935k.

RealtyTrac's January foreclosure update shows that banks are once again starting to flex their muscles. Total foreclosure events (defined by the firm as default notices, scheduled auctions and bank repossessions or REOs) came at 261,333, a decline of 17% from a year earlier, but a 1% increase from December (one in every 497 houses received a foreclosure notice). “We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Unfortunately this is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.” What is interesting is the growing distinction between judicial and non-judicial state REO activity. Readers will recall that Bank of America (partially) stopped foreclosure activity in non-judicial states in January. "Lenders foreclosed on 78,133 U.S. properties in January, up 12 percent from the previous month but still down 11 percent from January 2010. Bank repossessions (REO) in non-judicial foreclosure states increased 23 percent from December but were still down 9 percent from January 2010, while bank repossessions in judicial foreclosure states decreased 7 percent from the previous month and were down 16 percent from January 2010." In other words, look for non-judicial activity to drop off even more.

Markets down for a second day this morning. Look forward to the release of initial jobless claims this morning which may provide some additional insight into last week’s unemployment numbers. NYSE shares rallied yesterday off of Deutsche Boerse AG’s announcement of its negotiations to buy the exchange, which would make it the country’s largest market for derivatives. While speaking in front of the House Budget Committee yesterday, Fed Chairman Ben Bernanke reminded Congress that the Fed is not solely responsible for the U.S.’s overwhelming deficit. He defended QE2 but hinted that there is a limit to its effectiveness. The chairman acknowledged that fiscal adjustments "occur at some point." On a related note, today will see the release of the U.S.’s monthly budget deficit.

• Mervyn King (the UK's Chairsatan) Faces Ticking Clock on Interest-Rate Increase as U.K. Inflation Soars (Bloomberg)
• Bernanke (our own Chairsatan) Warns Against Steep Budget Cuts (Reuters)
• Bernanke Makes Sure Fed Reminds Congress Deficit Bigger Than QE2 (Bloomberg)
• China Developers Move Beyond Shanghai, Beijing, Defy Curbs (Bloomberg)
• Was Weber Sacrificed for the Euro? (WSJ)
• Wall Street Justice Means Nobody Gets Pinched: Jonathan Weil (Bloomberg)
• Weber's Withdrawal Opens Up ECB Race as Debt Crisis Persists (Bloomberg)
• Credit Suisse Cuts Profitability Goal as Net Misses Estimates (Bloomberg)
• Now that Ron Paul actually has some power over the Fed, what is he going to do with it? (Slate)
• Asia Moves Up a Gear in Fighting Inflation (Reuters)
• Egyptian Party Pulls Out of Talks After Threat of Army Role (Bloomberg)

Risk is off with a vengeance. After Asian markets (ex-Japan) experienced a total rout, which also included Hong Kong, the emerging market money is now in full withdrawal. And if it is going in the US (ex. a rotation out of munis into equities, something which Meredith Whitney should be congratulated for), you could have fooled us: futures are decidedly negative on the back of last night's horrible Cisco numbers. The cherry on top is a rumor reported by Islam Times that Saudi King Abdullah has passed away: "King Abdullah talked with Obama about the situation in Egypt over the
phone yesterday. Obama and the King got into a  heated debate about
their opinions of what Hosni Mubarak should do. After the phone call
sources stated that King Abdullah was furious and then suffered a sudden
heart attack. Doctors ran to his rescue  but were unable to
save him.  He was pronounced  dead, but his death was  not reported
due to the  sensitive conditions that  exist in  the region. The Saudi
Arabian government will reject this claim; but the ball is in their
court to prove that he is alive." Obviously this is not helping the brent bid, which hit nearly $103 overnight (although the rumor has yet to be confirmed). Lastly, all this of course means that glass house, i.e., European peripheral bonds are plunging, and the result is that the ECB has to come in and after two weeks of inactivity is forced to manipulate the bond market by buying directly. So much for that European sense of calm, which we said last night was going to be blown away very shortly (here and here).

Claims, inventories, the federal budget balance, and the Fed’s balance sheet…No POMO today, but we do get a new POMO schedule at 2 PM.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

It looks like the real thing,
tastes close to the real thing,
my fake plastic meal

With yesterday’s PBoC hike almost completely insignificant in itself, considering deposit rates are still deeply in negative real territory, inflation worries are the likely theme behind today’s risk-off and Chinese hiking has a long way to go.

Is Sack reading Zero Hedge? Is he reading me? If so, a few words back to him.

States in peril are cutting to the bone and lawmakers around the US are looking at new ways to prevent budget disasters by changing the rules for overburdened state employee pension funds...

Today, almost 1,000 years after paper money first appeared and 350 years after China banned its use, China’s is again issuing excessive amounts of paper money; and, once again, paper money’s initial prosperity is about to give way to inflation and economic chaos in the celestial kingdom. Southern Weekly, a Chinese language publication, recently noted: China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier...This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period…China's money supply, M2-to-GDP ratio over the past decade is the highest in the world. The nation with the longest history of excessive money printing and consequent inflation has clearly forgotten its past. The past, however, has not forgotten China.