Archive - Mar 2011

That didn't take long. From Reuters: "A Saudi Arabian official denied a report on Tuesday in an Egyptian newspaper that the kingdom had sent tanks to Bahrain to try to quell protests there. Brent crude oil hit a session high of $113.15 a barrel on the report before easing to $112.96 by 1337 GMT. The official at the Saudi defence ministry said no tanks had crossed the causeway to Bahrain. The official requested anonymity." Obviously, should a picture or two appear shortly confirming the original rumor, the "anonymous" source's credibility may be jeopardized...

The world has officially gone insane. After making a mortal enemy out of Mark to Market and halting it pretty much everywhere as an indicator of true asset value, Italian banks are now aggressively urging to implement Mark to Market to take advantage of surging prices in, get this, gold! From the FT: "Italian banks, which by a quirk of law are shareholders in the country’s central bank, are lobbying to have their stakes in the Bank of Italy marked-to-market on the back of surging gold prices in an attempt to ease regulatory pressure on them to raise capital in advance of this summer’s stress tests." You can't make this up: basically the world financial mafia says Mark to Myth when prices are low, and Mark to Market (on selected assets) when prices surge to a record.

Silver has risen another 1.4% today to a high of $34.44/oz and above the 31-year interday high of $34.33/oz reached last Tuesday (February 22nd). Silver is higher in all currencies this morning, especially the Japanese yen. The news that Saudi Arabia may be sending tanks to crush anti-government protests in Bahrain saw buying of silver, gold and oil. The backwardation and news regarding delays and difficulty of securing silver bullion in volume including the Royal Canadian Mint having difficulty sourcing physical bullion from bullion banks suggest that silver could soon break out and move sharply higher. The moves in silver have been greeted with the usual silence by mainstream financial media with little or no coverage or fanfare about the record highs. Indeed, only those who peruse the specialist press and make it their business to inform themselves about silver, would even be aware of the record highs.

While US stock futures continue to be obstinately high capitalizing on the last remaining shreds of a confirmation bias out of formerly strong European economy from the time when the EUR was still low, and with the US economy failing to pick up the world slack even with the dollar at 4 month high the hangover sure to set in any minute (and the oil price certainly not helping), perhaps the only true indication of risk is being represented by the local MENA stock markets, of which the Saudi is currently the best example (after Egypt's stock market opening planned for today, was once again delayed). At last check the TADAWUL was down over 7% and the trend is certainly not your friend, while Saudi CDS was the biggest widener this morning per CMA, hitting 140 bps. The wildcards at this point are Iran and Syria, the first of which will see any push into Bahrain as a religious provocation, while the latter is a host to a brand spanking new Russian navy base. If any of these two see some media prominence in the next 48 hours, look for today's slide to continue.

• China says media must 'cooperate' after clampdown (AFP)
• Shirakawa Says Current Yen Level 'Not Working As An Additional Risk Factor' (WSJ)
• China Sees Drop in New Bank Loans (WSJ)
• EU Raises 2011 Growth Forecast, Sees Inflation Accelerating (Bloomberg)
• Europe Wary of Rethink Over Irish Bail-Out (FT)
• Charlie Sheen v Muammar Gaddafi: whose line is it anyway? (Guardian)
• BOE's King Says Raising Rate to Make a Gesture Is Self-Defeating (Bloomberg)
• Cameron Says UK Could Arm Rebels (FT)
• Bill Gross Gets `A' for Effort on Trader Greed (Bloomberg)

• Australia's central bank keeps benchmark interest rate steady, as expected.
• China Treasury Holdings rise to $1.16 trillion in December, US data show.
• China’s PMI fell to 52.2 from 52.9 in Jan - slowest pace in six months.
• European economy recovers; joblessness below 10% but inflation still above target.
• Oil trades near one-week low after Saudi Arabia offers to cover supplies.
• US approves first deepwater drilling in Gulf since BP oil spill.

Markets in positive territory this morning. NY Fed President William Dudley said yesterday that unless inflation expectations are significantly surpassed, short-term interest rates will remain low, while also adding that no change in current monetary policy is likely. In contrast, St. Louis Fed President James Bullard said yesterday in an interview that the Fed will finish QE2 without full dispensation. The statements reflect the heating debate over the future of the current stimulus program. Economic events today include ISM, which by all preliminary indicators should print ahead of the 61.0E. Such a high print might well set the stage for a front end selloff, which we would use as an entry point as we do not believe the historical relationship between ISM and overall GDP growth will hold owing to the fact that ISM will be more bolstered by large sized exporters that are neither the trough of the economy, nor the path it will take back. Additionally today features Fed Chairman Bernanke’s Humphrey Hawkins testimony. Today’s Senate Banking Committee portion is usually calmer than tomorrow’s House Financial Services Committee schedule, but we expect the usual grandstanding from legislators and for Bernanke to be cautiously optimistic regarding the economy, but defensive about monetary policy. The market has in the past interpreted commentary regarding potential exit strategies as being indicative that those strategies are about to be employed, therefore we think Bernanke will avoid that discussion as best he can. If he does not, however, we believe that as with the ISM above, the front end should be bought up on a selloff.

As oil (read Brent) looks set to take out interim highs following news of a rapid escalation in Bahrain and Saudi Arabia, it will be interesting if Ben Bernanke, in his first of two semi-annual Humphrey Hawkins reports before Congress and the Senate, will actually discuss what is relevant: namely the inflationary surge in every single commodity, and plunge in the dollars, and the Fed's continuing preposterous policy of only caring about the Russell 2000 instead of actually doing anything to improve the economy. Reuters' advance look of today's presentation before the Senate Banking Committee at 10:00 am which will be webcast on Zero Hedge is quite amusing: "Federal Reserve Chairman Ben Bernanke will likely remain skeptical about the strength of the economic recovery in testimony on Tuesday, despite recent data pointing to improvement, signaling the central bank is unlikely to cut short its $600 billion stimulus plan." Why skeptical? Has he not been listening to the endless stream of permabulls on TeeVee every day, not to mention the teleprompter, all of whom have invested their entire reserve of credibility in lying to the public that we are in a V-shaped recovery and what not. Or is the economic recovery only and always merely a function of the Fed's ongoing injection of $100+ billion directly into the banking system (and the Russell 2000)? Because oddly the "pundits" always continue to ignore that one minor point.

If RIA Novosti's update on the Middle East escalation is correct, the Middle East's worst kept secret, that Saudi Arabia would interfere militarily in Bahrain before the country fell, has just been confirmed. From RIA: "Saudi Arabia has sent dozens of tanks to Bahrain, where anti-government protests continue for about two weeks, Egypt's Al-Masry Al-Youm newspaper said on Tuesday. Eyewitnesses reported seeing "15 tank carriers carrying two tanks each heading towards Bahrain" along the 25-km King Fahd causeway, which links the small island nation of Bahrain to Saudi Arabia." And while nobody expects the DXY to do much if anything on this news, now that the dollar is irrelevant in the FX realm, the same can not be said about silver. Silver just hit $34.43 minutes ago, the highest print in the last 31 years.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/03/11

This morning ahead of the London session we're seeing some strong shifts in retail positioning, USDCAD, USDCHF and USDJPY have been in the strong short zone for a long while, with an unbelievable 80%+ or traders long while these pairs have been consistently selling off! On the flip side of this coin AUDUSD has entered the long zone with 61% of traders short as it nears multi year highs! GBPUSD has been consistently making higher highs and is now kissing a major resistance area at the same time 71% of traders are short this pair!

The Ontario Municipal Employees Retirement System (OMERS) has posted a 12% rate of return for 2010, up from 10.6% in 2009. But its funding deficit has tripled to $4.5-billion as its pension benefit obligations have increased.