Archive - Feb 2011

Bangladesh investors just can't catch a break. After the Dhaka stock exchange dropped by 7% in December 2010, leading to widespread rioting and mostly looting, this was subsequently followed by two other market crashes in January both of which were about 10% in magnitude. Today, third time for 2011 may or may not prove to be the charm for the DHAKA, after overnight the stock exchange was in a 10.3% free fall. It is about time Sack Frost hold seminars to the less than developed nations, and teach them just how to deal with that phenomenon, which the WHO recently declared as extinct, known as selling, on those rare occasions it does flare out despite inoculations to the contrary. And while stock market induced rioting comes and goes as margin lenders realize that money is long gone, it is nothing compared to what may happen should the Rough Rice rocket continue taking out all highs. And one look at today's grains and softs futures demonstrates just what happens to commodities nominal prices when the Chairman refuses to allow even one down day in stocks.

• A Modest $500 Billion Proposal (Rand Paul, WSJ)
• AOL Agrees To Acquire The Huffington Post (HuffPo)
• When HuffPost Met AOL: "A Merger of Visions" - Ariana Huffington Explains The Logic Behind The Deal (HuffPo)
• Fed Spends 40% on Benchmark Treasuries as Newest Proves Cheapest (Bloomberg) actually no, they are very rarely cheapest as Zero Hedge has actually demonstrated instead of insinuating
• China Moves to Strengthen Grip Over Supply of Rare-Earth Metals (WSJ)
• Tunisia takes steps to halt "security breakdown" (Reuters)
• Suleiman holds talks on Egypt reforms (FT)
• More bad news for wheat: Perth Area Declared Disaster Zone as Bushfires Rage Near City (BusinessWeek)
• 'Toxic' Assets Still Lurking at Banks (WSJ)
• European corporate tax plans under fire (FT)
• Sputnikonomics (New Yorker)

Markets in positive territory in the early going as Friday’s mixed-message job data continues to be debated. We believe that it will be another month at least before the data is confirmed/denied, but the changes to the denominator do not give us a lot of faith despite the headline. The week’s light calendar will put focus on geopolitical issues including Egypt and Euro sovereigns. 10s and 30s are scheduled for issuance later in the week after long dated purchases on Tuesday. This should test the selloff observed last week. Implied Fed Funds point to an opportunity in the front end, though we are still a bit off of the hike expectations that were priced in mid December. Bernanke testimony to the House Budget Committee on Wednesday will generate sound bites ahead of the debt ceiling debate.

JP Morgan announced today that from now on they will accept physical gold bullion as collateral. This is a sign of gold’s further remonetisation in the global financial and monetary system. It may signal that JP Morgan is having difficulty in securing gold bullion in volume. JP Morgan is the custodian for many of the gold and silver exchange traded funds. They will not accept ETF trust gold as collateral. In October, the clearing house of global exchange CME Group – CME Clearing – announced it will now accept gold as collateral for trades on the exchange. Gold bullion can be used for margins for CME trades, ranging from crude oil, gold, grains, equity indexes and Treasury bonds. Given the current monetary, macroeconomic and geopolitical risk gold is an attractive alternative to debt, equities or other paper assets as collateral. JP Morgans’s move shows how gold bullion’s fungiblity and tangibility as an asset makes it attractive and shows gold’s increasing importance in the financial system. Interestingly, the CME is storing their collateral gold at JP Morgan Chase Bank in London. The exchange said it hoped to add additional depositories in the future but there has been no announcement of developments in this regard.

After the EURUSD hit on overnight high of 1.3625 on the now traditional meltup which precedes that of stocks, courtesy of a very tight EURUSD-ES linkage, the last 4 hours have seen a persistent sell off in the pair on the back of weaker German manufacturing data, which was to be expected: after all Merkel's trade off to keep the dollar weak, and thus stock markets in the US (and Europe by sympathy) strong, was bound to have an impact on Europe's strongest economy. And so it has. Market News has the details: "Industrial orders in Germany fell by a
stronger-than-expected, seasonally-adjusted 3.4% on the month in
December, the Economics Ministry reported on Monday, on expectations of -1.5%, and a +5.2% previous print.
-- Germany December orders m/m below MNI median fcast (-1.9%)
-- Germany November mfg orders unrevised m/m at +5.2%
-- Germany December orders 3-month moving avg (October-December:
September-November) +1.1%
-- Germany 4q mfg orders +2.7% q/q, 3q +1.8%, 2q +7.4%
-- Germany December domestic mfg orders -2.4% m/m, foreign -4.2% m/m
-- Germany December foreign mfg orders: EMU +3.7% m/m, non-EMU -8.9%
-- Germany December capital goods orders -6.6% m/m
-- Germany December consumer goods orders -0.1% m/m
-- Germany December basic goods orders +0.6% m/m." Time for the algos to switch to a dollar strength = stock strength regime.

Just consumer credit today…A $7 – $9 billion POMO will monetize just issued 3 Year bonds.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 07/02/11

Though fundamentals may drive behavior in the long-term, fundamentals have had, at times, zero effect on the price discovery of assets in the short-term. At a time when everyone but the most naïve of the naïve understand how grossly distorted capital prices are both to the upside (in global stock markets) and to the downside (in gold and silver markets) due to massive manipulation schemes executed through collusive bullion-bank and government efforts, it makes zero sense to continue to put faith in technical analysis in a vacuum as well.

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 offers 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.

I would not view a rally in the US Dollar as negating my forecast for massive inflation, if not hyperinflation within the next two years. Indeed, we’ve already seen asset prices explode higher WITHOUT the Dollar falling. These gains occurred at a time when the US Dollar didn’t fall a CENT. So the idea that you need the US Dollar to collapse in order for inflation to hit is a lie.

We get to see the budget this week. It will not be pretty.

Since September 2010 silver has broken its golden shackles. The algorithmic trading that kept the price of silver subdued for seven years has been completely annihilated. On Friday silver closed in complete backwardation on the Comex. Spot silver closed at $29.075/oz while FEB 2011 closed at $29.064/oz and DEC 2015 closed at $29.026/oz. I believe this is the first time in history that this has happened. Silver traded in backwardation between the spot price and futures contract up to one year out during the blatantly manipulative precious metals bashing of January, but now the entire futures structure is in backwardation. This is a sure sign there are shortages of silver because it means that buyers will pay a premium for silver delivered sooner rather than later.

Here's this week's newsletter from Phil's Stock World.

Cotton, wheat, rice, and now corn. If revised Chinese import estimates by the US Grain Council are even remotely correct, look for corn prices of $6.80 a bushel at last check to jump by at least 15% in a very short amount of time. As the FT reports, "Corn prices – and with them, the price of meat – are set to explode if the latest import estimates from China are correct. The US Grain Council, the industry body, said late on Thursday that it has received information pointing to Chinese imports as high as 9m tonnes in 2011-12, up from 1.3m in 2010-11." Why is this a concern? Because "the US Department of Agriculture, which compiles benchmark estimates of supply, demand and stocks, forecast Chinese imports at just 1m tonnes in 2011-12." In other words, the whole forecast supply-demand equilibrium is about to be torn to shreds. And all this excludes the impact of neverending liquidity by the one and only, which will only make the speculative approach to surging corn relentless.

Among some of the discoveries of the financial crisis is that the entire financial system is now, following the Lehman bankruptcy, built entirely on fraud. And while Ken Lewis may spend the remainder of his days on some private island with stolen taxpayer money providing for his every last wish, it was he, in following the Fed's and the Treasury's orders to make a mockery of fiduciary responsibility, that was among the first people to confirm that there is no rule of low in America, or rather whatever law there is, it only applies to the less than immortal (i.e. the sub-banker class). Below, in an indication that Zero Hedge will never forget, we present the salient highlights from the Ken Lewis deposition on the MAC clause surrounding the Merrill transition, emphasizing the threats from Hank Paulson and Ben Bernanke. For as long as neither of these three is in jail for what is documented shareholder (and taxpayer) fraud, we fail to see why the remaining 300+ million Americans continue to diligently pay their share of taxes into a government that is now beyond (and in full documentation) corrupt. Also, how BofA's lawyer Wachtell was not at all present during the discussion of the MAC clause, makes a complete mockery of the US legal process in its entirety. We wonder just when the official scribe of the kleptocracy, Andrew R. Sorkin, will write a book disclosing the truth of what happened, including a listing of all the laws broken with full premeditation by every single player, and not the watered down, PG13 (and rather expensive)version that makes everyone come out like a law-abiding superman.