Archive - Nov 2012

It all makes so much sense... risk markets everywhere have gone vertical. As we noted earlier, "with the US trading session today at half mast, expect another  record low volume half-trading day, which means a risk levitation is practically guaranteed." QED. And yet something appears broken - just look at these cross-asset class charts... oh and of course EURUSD surges to 1.2952 as the Eurogroup Summit has been confirmed as 'called off'. Is repatriation risk-off flow driving the correlated ignorance of algo-based risk-on? 300 pips in 10 days. S&P 500 back above 1400. Gold pushing $1750. This move seems to be entirely driven by technical stop-runs everywhere as EURUSD blows through its 50DMA, S&P 500 Futures cross above the 100DMA, and Gold blows through the 50DMA. Efficient markets forever...

And how to defeat Black Friday...

Shoe-throwing has escalated to building burning as demonstrators clash in Egpyt over Muslim Brotherhood-backed Mursi's 'coup-like' decision to make his decisions above judicial review. The self-annointed omnipotence comes after the judiciary were about to undo the Islamist-dominated panel drawing up the country's new constitution. This so-called "coup against legitimacy" has brought back painful memories as opposition leaders (ElBaradei) calls the 'temporary dictator' a "new pharaoh" - the same term of derision used against Mubarak when he was in power. The Muslim Brotherhood offices have been set ablaze as a consequence of this 'decree' and the US (a generous benefactor to Egypt's military) is "very concerned about the possible huge ramifications of this declaration on human rights and the rule of law in Egypt." But protest leaders perhaps summarize the situation best: "The decree is basically a coup on state institutions and the rule of law that is likely to undermine the revolution and the transition to democracy, I worry Mursi will be another dictator like the one before him."

"All good things come to an end, sadly. So it is with my time here alongside Albert, Andy and the rest of the gang at SG. I’m signing off, checking out, moving on to pastures new. It’s been a wonderful time. But after three years of trying to sound clever it’s time for me to do something altogether more difficult, and actually be clever. So early next year, I will join a small but outstanding investment practice. Naturally, I hope it will be a great success."

When Darwin conceived his theory of Natural Selection, he hardly had this in mind, but if it succeeds in eliminating the "less than viable", well... so be it.

Because only in America are people ready to kill each other for things they don't need and can't afford, after spending the day before being "grateful" for things they already have.

So we have the Greek debt crisis, the European Union budget problem and the European bank oversight issue and twenty-seven countries all wanting “this, that and the other” except “the other” is not that much fun unless Ms. Merkel surprises everyone by saying she is a little tired and pulling a Mae West and telling all twenty-seven nations that one will have to leave. The scenario is unlikely of course but then everyone involved is now playing the grand old game of “Work Around” where someone must pay and it is going to be anybody but them. “Not this little piggy,” says the IMF and “not this little piggy” says the ECB and “not this little piggy” says the European Union. This is all because no one wants the political winds to “blow their house down.”

Aside from fading any headlines and articles about a "recorder-er" Thankgsiving and holiday sales season...

Brazil’s aggressive efforts to weaken its currency by buying dollars – about $132 billion since the beginning of 2008 – have left the country with the sixth biggest international reserves in the world, about 80% of which is denominated in the US currency. However, recent turmoil in currency markets and concerns over the global financial crisis and fiat currencies in general has given Brazil’s authorities even more reason to diversify their holdings.  It has frequently stated its intention to diversify assets and reduce its exposure to currency risk. Recent sharp weakness in Brazil’s real (see table) and systemic risks are leading central banks, including the BCB to diversify into gold. Brazil raised its gold holdings by 17.2 tonnes in October to 52.5 tonnes, the highest level since January 2001. The move comes on the back of Brazil’s 1.7 tonne increase in September, the country’s first significant gold purchase in a decade. However, there are concerns that the increase in the Brazilian central bank gold holdings' and tonnage are not all that they seem.  It appears that the central bank in Brazil has not actually bought London Good Delivery bullion bars but rather fixed term gold deposits with bullion banks. Recently, the Brazilian central bank was asked about their gold reserves and about a section on gold on their website under 'Official Reserve Assets' lists gold as "gold (including gold deposit and, if appropriate, gold swapped)" with a footnote of "Includes available stock of financial gold plus time deposits."

• Boehner comments show tough road ahead for "fiscal cliff" talks (Reuters)
• Argentina angry at hedge fund court win (FT)
• EU Spars Over Budget as Chiefs See Possible Deadlock (Bloomberg)
• Merkel doubts budget deal possible this week, more talks needed (Reuters)
• Greek deal hopes lift market mood (FT)
• Greek Rescue Deal Faltering Cut in Rescue-Loan Rate (Bloomberg)
• Japan's Abe Pushes Stimulus (WSJ) - Unpossible: a Keynesian in Japan demanding stimulus? Say it isn't so. 
• Authorities Tried to Flip Trader in Insider Case (WSJ)

First it was Greece, which Europe couldn't "resolve" on Monday night despite Juncker's vocal promises to the contrary, and was embarrassed into postponing until next Monday when everything will surely be fixed. Now, the time has come to delay the "resolution" of the EU budget, which was supposed to be implement last night, then a decision was delayed until today, and now every European government leader is saying a new meeting will likely be needed to resolve the budget impasse. As BBG summarizes, "Divisions between rich and poor countries flared over the European Union’s next seven-year budget, leading German Chancellor Angela Merkel to rule out an accord until the new year. France defended farm subsidies, Britain clung to a rebate and Denmark demanded its own refund, while countries in eastern and southern Europe said reduced financing for public-works projects would condemn their economies to lag behind the wealthier north. “Positions remain too far apart,” Merkel told reporters early today after the first session of a summit in Brussels. “Probably there will be no result at the end of this summit. There may be some progress but it is probable that we will need to meet again at a second stage."  In other words the same old absolute and total chaos from the European Disunion we have all grown to love, in which the only solution each and every time is to delay reaching a solution, at least until after Merkel is reelected and in the meantime kicking the ever greater ball inventory in Draghi's court, where he too will promise to make everything better as long as he actually dosn't have to do anything.

The question whether China will suffer a "hard" or "soft" landing is, in the long-term, largely irrelevant and misleading. A far more critical question is whether the period of 10%, or even 7% annual growth, for the world's biggest marginal growth dynamo of the past decade, is now over. Read on for the answer.

Not the wider public.