Archive - Feb 2011

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

Welcome to the Year of the Wall Street Fuk Rabbit...

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.

Fuck yeah was it on today as the cry of "1400 or Bust!" rang through the trading pits...

Inflation is already exploding worldwide, which means paper money in general is going to be worth less and less on its way to worthless. If you think the US is immune to this situation, you're in for a very RUDE surprise in the coming months. Indeed, the Fed’s Hoenic just announced there might even be QE 3… and he’s supposed to be one of the Fed HAWKS!

Canadians have voiced their opinion. They're worried about their retirement and rightfully so. They're expected to manage their own investments in schizoid wolf markets that are battering professional money managers. The time for reforming the Canada Pension Plan (CPP) has come...

There are left-wing blogs that maintain that the price of oil and its occasional spikes are created by elaborate speculative plays on the futures markets in New York and London. The left is traditionally paranoid about oil and oil companies, but who is to say they are not right this time? The memory of Enron is still fresh. The chances are that the summer driving season will put pressure on gasoline prices this year, after an extremely cold winter all over the Northern Hemisphere. The conservative (10-percent chance of happening) scenario by the Energy Information Administration says $4-a-gallon gas would come at the end of the summer. The second reality is that the world thirst for oil has not been slaked; as the world prospers, the greater that thirst. In 1974, the heads of 23 democracies lost their jobs because of surging energy prices. Obama, beware.

Skew firmed up today with calls being bought in December and August. Puts were sold in April, June, August and October. Volatility was roughly unchanged on the day but there is a definite change in tenor in risk reversal trading. This was in large part a reaction to a fund buying December 1800 Cs live, approx. 2000 times. Moving forward, nothing about today’s action gives a directional hint except that December calls are being bought once again.

Oil prices dropped on Tuesday in a volatile session that saw the market pass through all its different personalities. At first, it was a safe haven, and traders were kicking out long positions in oil, gold and in the dollar. After as while, though, oil prices rallied – on a weaker dollar and on a strengthening stock market. Then, finally, oil prices returned to negative territory as it was sold as yesterday’s safe haven. Traders were also selling WTI and buying Brent, as the safe haven function seemingly ended and as traders looked forward to US refinery maintenance. - Cameron Hanover

Hosni Mubarak ... Teacher extraordinaire.

There is a simple reason why monetary inflation becomes an exponential phenomenon. As currency is debased, an increasing quantity of money is required to achieve the same real-money effect. For example, if the quantity of money is increased 25%, the initial benefit to the issuer is a tax of that amount on the holders of previously-existing money stock. To achieve the same tax in real terms for a second time requires a further expansion of 31.25% of the original monetary units, and continuing with subsequent 25% expansions on increasing totals we obtain our exponential series of monetary inflation...The only way the exponential loss of purchasing power that results from monetary inflation ends is through the complete collapse of fiat currencies. Whether this is brought on by a financial crisis or through hyperinflation is irrelevant: the result is the same. Furthermore, quantitative easing programmes have merely accelerated the trend. Particularly worrying is the dramatic expansion of the monetary base in the US, which has greatly exceeded our theoretical example of 25% by increasing 168% over the last two years. While this is routinely explained as a policy response to the banking crisis, it has the likely effect of accelerating future government demand for printed money even more, speeding up its inevitable demise.

A guess at the NFP and what it might mean if I'm right.

As the topic of US Mint silver sales is not new to our readers, after we first brought attention to the record January sales by the Mint, we will not dwell much on it, suffice to say that the final January tally is in. And at 6,472,000 ounces, this is nearly 50% higher than any prior month in the Mint's 26 years of published sales history. This has occurred, despite supposed profit taking in the paper silver market in January. And just today, another 50k, were sold. It seems that physical buyers continue to enjoy the dip in paper silver that is providing them with an attractive entry point.

Another confirmation of just how insane everything is comes from West Africa. The London Club announces that the Ivory Coast is now in default after the January 31, 30 day grace period expires, and bonds jump. And with former president Gbagbo now out of negotiating options, and likely to resort to violence, resulting in further destruction of cocoa supplies, cocoa futures... drop.

There simply cannot be a con without two opposing but cooperative parties involved. And both sides need to expect to get something out of the deal, regardless of whether it happens or not and despite all the facts not being known by one or more of the parties.