Archive - Sep 9, 2011

It's that time again when the IMF has just telegraphed something very big and very bad is about to happen. But let's back up, and paraphrase our post from March: "Back in April 2010, before Waddell and Reed sold a few shares of ES, effectively destroying the market on news that Europe was insolvent, we made the following observation: "The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion." Little did we know that our conclusion "something big must be coming" would prove spot on just a month later after Greece, then Ireland, then Portgual, and soon Spain, Italy, Belgium, and pretty much all other European countries would topple like dominoes tethered together by a flawed monetary regime. Well, based on news from Dow Jones we can now safely predict the following: "something bigger must be coming." The specific reason for this prediction was the following: "the International Monetary Fund is expected to soon activate a special funding pool that will boost the fund's ability to prevent or resolve economic crises." Sure enough something bigger came, and then some: Greece received its second bailout package about 4 months later, only to see the entire Eurozone hang by a thread following the political fallout that has since ensued. Well, it is time to shift from the comparative to the superlative: "something biggest must be coming."

Incredible that a Democrat would propose that our Social Security system should be gutted starting immediately to get an up-tick in GDP, illusory as it may turn out to be, just before the election. But President Obama's proposal to cut payroll taxes in half will do just that.

... all it would take to end his regime would be a few CME margin hikes. Of course, if Hitler had somehow survived those 2008 margin calls, we would all be living under the 3rd Reich now with gold at all time highs.

It’s probably the #1 question on every gold investor’s mind right now: Why are gold stocks underperforming gold? Aren’t they supposed to bring us leverage to the gold price? Yes, they are, and their performance been both disappointing and puzzling. There are some exceptions, to be sure, but in the majority of cases the stocks are lagging the metal. And it’s been happening for most of the year. What’s going on? I think part of the answer lies in the state of our current environment. Recent headlines and developments around the globe have ratcheted up fear… from the S&P’s downgrade to European bank solvency, from fears of another recession to worse-than-expected unemployment. The nervous climate has pushed investors toward gold for safety, simultaneously reducing the demand for gold equities. The investment implications here are twofold. First, if I’m right, then the strategy should be to buy when shares are relatively cheap and hold for the duration of the bull market. You may think we’d suffer “opportunity loss” if we have to wait too long, but that could be a dangerous game; you could buy after they take off and miss out on some of the easier gains. Further, I don’t know of another sector that is both cheap and imminently poised to break out. The second implication is that corrections wouldn’t be a time to get out, but a time to consider getting in. The ultimate prognosis, in my opinion, is that gold stocks are headed much higher. Sooner or later a catalyst will ignite interest in our sector, and the rush will be on. Now is the time to build positions in the stocks you want to own.

The G-7 is in full panic mode. The organization for the prevention of harm to the Status Quo was expected to release a communique possibly over the weekend, but the speed with which one was dropped for mass circulation is stunning and confirms that its members are in full meltdown as the weekend comes. It is now certain that the G-7 will attempt some major intervention over the next 48 hours to inject a last dose of hope into capital markets, or else the Monday open will be an epic collapse.

We are surprised to find that there are still those who are naively on the fence about the functionality and efficacy of the upcoming, and if Wall Street is correct, imminent (less than two weeks now) Operation Twist. There is absolutely no reason for such confusion. After all none other than the Chairman himself, in collaboration with Vince Reinhart of Treasury put fame and Brian Sack, of Plunge Protection Team fame, described precisely what we can expect out of the second coming of Chubby Checker...

The algo-driven levitation of the last hour or so today seemed all about making it back to the magical VWAP line so more selling could occur but even though we were rising, average trade size  rose notably into the cash close which is very suggestive of pros selling into the lift (as deltas were definitely weak). This little burst was enough to drag equity into outperformance today relative to credit markets which had a very weak day.

For those struggling under the deluge of relentless newsflow out of Europe, here are the key events to look for over the next month, courtesy of CitiFX Wire. Readers can take advantage of the weekend which will be calm until late Sunday morning after which it won't be calm, to familiarize themselves with the hurricane that is headed straight to global capital markets.

Jim Rogers was on CNBC earlier, discussing the recent intervention by the SNB and the overnight plunge in Europe, in the process generating yet another amusing episode of market "non-cheerleader" Bob Pisani attempting spin the global economic collapse in a favorable light on not one, not two but on three separate occasions, and being soundly rejected by the far more, informed shall we say, Rogers. Specifically, to Pisani's repeated attempt to get Rogers to admit the uber-secret of which stocks he is long (CNBC Ponzi playbook 101), the former Quantumanite responds that not only is he not long anything, he is mostly short stocks and very much long commodities for two simpler reasons: "if the world economy gets better i'm going to make money in commodities because of shortages that are developing. Especially in agriculture and precious metals. If the world economy doesn't get better, Bob, you're not going to make any money in Toyota or IBM but you might make money in commodities because they're going to print more money. It's the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I'm short stocks but i don't expect the world economy to get better. Not much better anyway, if it does and I am long commodities as a protection." And on some other topic like the Chairsatan, "Bernanke has been lying to us again", on the SNB intervention attempt: "This is a terrible mistake" and on what should happen to Europe: " It would be good for the world, though, if they let people go bankrupt."

For those not "lucky" enough to be involved in the CDS market, liquidity is breaking down in Europe. Main was quoted as tight as 1/2 bp markets yeserday, is now being quoted on 2 to 3 bp markets, mostly by traders who seem to wish they had left an hour ago. XOVER, is at least 5 bps wide, and as much as 10 bps wide, but the dealers still brave enough to send something. This is not good, and although wider, it hasn't yet felt like anyone is reaching and paying too much just to get a hedge on, which makes me think this is not yet over.

ETF to form shortly ...

What the critics are saying: "One of the most disgusting and vile films ever made." WB7: You got that right!

We have long discussed what we suspect will be one of the first European financials to hit the proverbial fan. Given today's anarchic behavior in the US and European markets (credit and equity) and the continued insistence by TPTB (yes you Mr. Greek finance minister) that this is all due to a speculative rumor-mongering attack, we decide to layout some basic facts on one of the banks that was saved by the Fed/FDIC.

Just as to Italy it is suddenly America's fault the "crisis was sparked", so now it is "internet rumors" who are to blame that the market, at least in the form of CDS, estimates that the country's probability of going bankrupt is, oh, 100%.