Archive - Aug 25, 2011

Did AHMSI just admit that all of its foreclosures done with LPS were completed by the wrong party?

Goldman bailout part 2 is here. And so the Octogenarian of Omaha doubles down on another taxpayer bailout. At least we can put aside all the lies that Bank of America did not need capital. It needed capital: $5 billion of it. It also confirmed it was completely locked out of both debt and equity public capital markets - the bank's only recourse was a private raise with a crony capitalist who is once again doubling down on the global ponzi.

It will be interesting to see what happens with Apple over the next few days and weeks. Clearly Mr. Jobs did not do it alone, but on the other hand, he didn't just create the best products, he created new product categories. I think it will come down to Apple people trusting themselves and doing what they know how to do. The only thing I know for sure is that Apple is almost 15% of QQQQ and just over 3% of the S&P 500.

Short term support may be seen at the psychological level of $1,700/oz but momentum traders and Wall Street players with concentrated short positions may press their advantage and manipulate prices to lower levels whereby they may close some of their short positions - pocketing a tidy short term profit. Strong support can be seen between the 144 day moving average at $1,522/oz and the 100 day moving average at $1,571/oz. Interestingly $1,571/oz was previous resistance and therefore could now become support. However, given the extent of global demand for physical bullion due to massive macroeconomic, systemic and monetary risk facing us today, there is the real possibility that gold’s correction is more shallow with the 50 day moving average of $1,630/oz providing support. The gold bears have jumped on the ‘gold bubble bandwagon’ again after a long period of silence.

After taking a quick detour into pseudo-positive economic data, the BLS sends us right back into the depression, with an initial jobless claims number of 417, far higher than consensus of 405K (in fact higher than the highest number in the forecast range), and higher than last week's upwardly revised 412K. Naturally, the BLS is there to provide a justification for the spike, with 8500 jobs apparently "lost" due to the Verizon strike: "Special Factor: As a result of a labor dispute between Communications Workers of America and Verizon Communications, at least 12,500 initial claims were filed in the week ending 8/13/2011 and at least 8,500 initial claims were filed in the week ending 8/20/2011." In other news this is week 20 out of 20 with one or two exceptions of 400K+ prints. And to think that the August NFP number is due in just one week. In other news, continuing claims came below expectations of 3700K at 3641K, a number that will be revised higher as was last week's from 3702K to 3721K. The collapse in extended benefits, as the 99 week cliff claims more and more, means that 20K people fewer collected post Continuing Claims benefits, with those on EUC and extended benefits down from 5.8 million a year ago to 3.6 million: this is 1.2 million Americans that no longer can collect anything from Uncle Sam.

Add the CDS market to the list of participants that is ignoring the biggest development out of Europe in two months: the failure of the second Greek bailout.

• Analysts warn China facing pressure from US, EU debts (China Daily)
• U.S. May Back Refinance Plan for Mortgages (NYT)
• US budget watchdog cuts debt forecast (FT)
• ECB ‘Stands Ready’ to EaseDollar-Market Tensions, Dombret Says (Bloomberg)
• Merkel Rejects Seeking Collateral in European Bailouts as Splits Emerge (Bloomberg)
• Europe Banks Lean More on Emergency Funding (WSJ)
• Apple’s Steve Jobs Resigns as CEO, Will Be Succeeded by Tim Cook (Bloomberg)
• Bernanke Signaling No QE Backed by Higher Data (Bloomberg)

All you need to know

So what to do now? We maintain the forecast we made in 2002 that gold will rise to >$3,000 (and we believe it could be by a wide margin as it is expected to become (it is not yet) a bubble). For the short-medium-term, B. Bernanke speech tomorrow could (we insist on could as we would not be surprised if it is a non-event) be strongly bullish for gold but on the other hand with Paulson funds loosing almost 40% Ytd in some of his funds and the future exchanges around the world hiking margin on gold and silver, we could see further liquidation in the near-term. Liquidation risk is also restraining us from recommending to buy all the gold producers stocks you can at the present time (but we will do it probably this autumn as our gold stock models are on strong buy modes with historic >100% 6 months return).

What would we do? We would sell part of the implied volatility hedge in place (at least 50%) and then we would (using GLD as the basis) risk buy September 160 puts and sell September 150 puts. We would also sell September 180 calls and buy September 192 calls.

Calm before the storm today, with just weekly initial jobless claims (20 out of 20 400K+ weeks with one or two very small exceptions) on the economic docket, ahead of the last bond auction of the week, which should send total US debt on the verge of breaching the provision ceiling of $14.695 trillion.

If we crossed through some spacetime vortex that brought us back in time just two short months ago, to July of this year, today's confirmation that the second Greek bailout has now failed, following the Finnish finance minister's comments that the country will defy Germany and will not give in to demands to abandon its deal for Greek collateral, which in turn has sent the Greek 2 year bond bidless, its yield up 227 bps to an all time record 46.38%, would have been enough to send the futures and the EURUSD plunging. Not today. Instead, the EURUSD soared to a high of 1.4475 overnight, on two things that indicate no marginal improvement in the situation, but no deterioration either, namely: that the ECB continued to buy Italian and Spanish bonds, pushing their spreads to Bunds tighter on the day, and since tighter is the opposite of wider, the market can safely stick its head under the sand. A just as big factor was that borrowing under the ECB's overnight lending facility plunged to a one week low of €42 million after hitting a recent high of €2,822 million yesterday as noted. And with the WSJ noticing this development just a little late (as last week), the contraction, nevermind that another surge in borrowing is coming shortly, has been the big risk on sign for European markets, which in turn have pushed US futures higher, even as the market is getting increasingly nervous that Bernanke could very well disappoint significantly tomorrow. As usual, keep an eye on Libor, OIS spreads, and all other liquidity metrics, which indicate that despite the contraction in the overnight borrowing with the ECB, Europe's liquidity is far from normal.

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