Archive - Oct 2012

AAPL is now down over 10% from its all-time high of $705.07 on 9/21... Will iCorrection become iBear market? Or will Gene Munster come out with some more magical, mystical "channel checks?"

At least he did not say Tungsten...

Gross: Stock and bond managers today must be alchemists: turn lead into gold. NOT likely. Too much lead (bubbled assets).

— PIMCO (@PIMCO) October 9, 2012

With US Federal tax (mostly) and spending (far less) policy having become two of the key issues of the ongoing presidential debate, we wish to present to our readers 111 years of US revenue and spending data, both in absolute terms, and as a percentage of GDP.

The pain in Spain is reaching the upper-class. Foreclosures has previously disproportionately affected lower-income immigrants but is now spreading to formerly well-to-do families, as Bloomberg Businessweek notes that they are running out of ways to pay mortgages in a deepening recession. Home price drops are re-accelerating as "repossessions are encroaching further into the city centers, like an overflowing river." The path to this end sounds very familiar as "Bank managers, who had aggressive targets to meet, did all they could to lend to those who wanted to carry on buying into the bubble" and the saddest case of all as parental guarantors were used to spread the risk as "The kids lose their homes, go live with mom and dad and then mom and dad lose the home that they worked all their lives to pay for because it backed their children’s debts."

Confirming a move that will surprise exactly no one, the firm which is best known in the world for two things: i) arbitraging the gullibility of its clients, and ii) flipflopping faster than anyone when the narrative demands it, the WSJ reports that Goldman Sachs has mutated from Obama's biggest financial backer 4 years ago on Wall Street, to one of the most stingiest firms. "Employees at Goldman donated more than $1 million to Mr. Obama when he first ran for president. This election, they have given the president's campaign $136,000—less than Mr. Obama has collected from employees of the State Department. The employees have contributed nothing to the leading Democratic super PAC supporting his re-election. By contrast, Goldman employees have given Mr. Romney's campaign $900,000, plus another $900,000 to the super PAC founded to help him." In other words Goldman has just voted with their wallets, and the bottom line is "Strong Sell" with price target One Term.

Turkey has confirmed that it is deploying at least 25 additional F-16 fighter jets at its Diyarbakir air base close to the border with Syria. Al Jazeera reports that Erdogan, Turkey's PM, noted that he does not want war but needs to prepare for anything and at the same time NATO's secretary general has "all necessary plans in place to protect and defend Turkey if necessary."

Just over a week ago we we were the first to shed light on the reality of hyperinflation on the ground in Iran - and subtley suggested the whole thing could be watched in real-time. Soon after, a mysterious cabal of 16 currency manipulators was arrested and the Rial jumped dramatically higher (according to official sources) - as if by magic there was no problem at all. This all sounded a little too good to be true (just like unemployment rates in slightly more controlled economies). Sure enough, by the power of social media, we now know it was too good to be true.

Just after 3:00 am Eastern, the EURUSD experienced a sharp large move lower, sliding by nearly 100 pips in under an hour, without what appeared to be a news catalyst (hardly that surprising in the New Illiquid Normal when one VWAP order can move risk by +/- 1%). For those curious what may have caused the sudden drop, here is one explanation from Citigroup.

• Rajoy’s Deepening Budget Black Hole Outpaces Spain’s Cuts (Bloomberg)
• ECB May Need to Cut Rates Given Deflation Risk, IMF Says (Bloomberg)
• Global Recession Risk Rises (WSJ)
• Romney Leads Obama in Pew Likely Voter Poll After Debate (Bloomberg)
• IMF Sees Global Risk in China-Japan Spat (WSJ)
• Republicans shift tone on taxing the rich (FT)
• Romney casts Obama's foreign policy as weak, dangerous (Reuters)
• Europe Salutes Greek Budget-Cutting Will, Raising Aid Prospects (Bloomberg)
• U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved (Bloomberg)
• IMF Says Most Advanced Nations Making Progress Reducing Deficits (Bloomberg)
• Eurozone launches €500bn rescue fund (FT)

Overnight sentiment is decidedly negative, following the across the board cut of growth forecasts by the IMF late yesterday. The only bright light was the PBOC dumping 265 billion yuan ($42.1 billion) in reverse repos in an open-market operation (a liquidity adding operation) whose only purpose was to roll the massive reverse repo from before the Golden Week. The resulting 2% jump in the Shanghai Composite came as traders expect an imminent rate cut by the PBOC. The irony of course is that as long as Reverse Repos are the liquification instrument of choice, the local central bank will do nothing else in an economy which is once again overheating in several industries, the most important of which continues to be housing. Furthermore, as long as the spectre of a 15% surge in pork prices is over the horizon, the PBOC will do nothing. Period. Elsewhere, as BBG summarizes, FX is mostly modestly lower with the AUD outperforming on rising iron ore price. Metals mostly modestly lower despite the crippling South African strike which has now migrated to catch iron ore mines as well. Treasury yields moderately lower, partly in catch-up after yesterday’s holiday. Bund yields modestly higher sovereign-to German yield spreads mixed with mostly modest changes. Few if any macro economic news today.

Just in case it is not clear, the main event for the next 6 hours will be Merkel's arrival and prompt departure from what many consider the province of Southeast Bavaria, formerly known as Greece.

At least the locals seem to be enjoying themselves. Via Athens News:

With much fanfare, and as Athens News pointed out, 10 minutes early, the German delegation landed in Athens at 1:20 pm local time, and has brought with it 7,000 part-time Greek police jobs: look for a massive drop in the Greek unemployment rate next month. For the next 6 hours everyone will be praying that the ghost of Gavrilo Princip has not found a new host. In the meantime, the most inexplicable of official visits will take place as Angela Merkel paints the town red (hopefully not literally).

For those of you wondering why we are writing articles less frequently, as of about a month ago, we have decided to provide the majority of our commentary via Daily Videos about Gold & Silver and How to Survive Financial Armageddon on our media page at http://www.smartknowledgeu.com/media.php