Archive - Nov 2012

Today’s AM fix was USD 1,715.00, EUR 1,347.42, and 1,075.84 GBP per ounce. 
Yesterday’s AM fix was USD 1,730.50, EUR 1,345.86, and GBP 1,080.75 per ounce.

Silver is trading at $31.85/oz, €25.10/oz and £20.00/oz. Platinum is trading at $1,546.75/oz, palladium at $607.30/oz and rhodium at $1,100/oz.

Gold rose $2.10 or 0.12% in New York yesterday and closed at $1,718.30. Silver hit a low of $31.209 then recovered in late trade but still finished with a loss of 0.56%.

Earlier today, fast food juggernaut McDonalds reported same store sales for the month October. At -1.8%, this number was well below expectations of -1.1%, and a drop from September's 1.9%. It was driven by a 2%+ drop in comp store sales across all locations: US, Europea and APMEA, with the US performing just as bad as Europe. Most importantly, this was the first monthly drop in MCD comp sales since March 2003! So our question is: at what point does the perpetually self-deluded US population finally admit to itself that when even 99 cent meals are no longer affordable, that this country has a problem?

Starving a skinny man doesn't make him healthy, but then again neither does shoving 30lbs of food down his throat. When will TPTB start using their heads? As long as policy mistakes are made, contrarian profits can be made as well.

Hmmm… Initial rebound after yesterday’s bashing was rather modest, settling on a bit better and awaiting US input. Spain overdid its auction, which looked just good in the sense of being able to say it sold a new bond for size – to its dealers. ECB, happy to have provided the idea of OMT to save the world from simple panic, now going pessimistic (in non-panicky way). It’s just soft out there… It’s the economy, Stupid! And it is weak.
"Bop 'Til You Drop " (Bunds 1,36% -2; Spain 5,84% +16; Stoxx 2479% +0,1%; EUR 1,275)

Spanish bond spreads reach back above 450bps today for the first time in six weeks. The last 3 weeks have seen peripheral bonds bleeding slowly but surely as hopes of OMT fade and Draghi's dream is dashed (as the auction this morning showed just how gamed out the conditional OMT has become - no money without a crash). This 3-week shift is the largest since Super-Mario first hinted at his omnipotence and shifts spread back above their 200DMA. GGBs also fell out of bed rather nastily as their much-needed money weas delayed and the no-brainer trade has lost over 7.5% in the last 2 days. So ELA is not monetary financing; OMT is a fully effective backstop; and unicorns are real...

Look up the phrase "inflection point" - it will be the most hated phrase by all those who day after day repeat that there is now way AAPL can ever drop because its "forward multiple is low" (hint: forward multiples are simply functions of forward earnings, and once the fadness and coolness of a memo, no matter how infectious in the past, is gone, so are "forward earnings', especially once the sellside behavioral finance lemmings crew takes the machete to their Price Targets and has to justify why it has been massively wrong... and also for those who have a calculator, calculate how many years of dividends $100 billion in cash funds before the cash hoard also runs out).

The people have spoken and President Obama will serve another four years presiding over the United States.  Furthermore, there is very little change to the makeup of the House and the Senate, which leaves the Administration in the same battle for control as it was prior to the election. The question now is what will the next four years look like economically? The amount of debt required today to create a single dollars' worth of GDP today is clearly unsustainable.  However, the current Administration has been increasing Federal debt at a run rate of more than $1.2 Trillion annually to date.  The understanding of the impact of increasing debt on economic growth is crucially important to understand.  Overall, the set up going forward looks like it has in the past couple of years.  It is unlikely that Obama will move to the center and be more of a politician with the best interest of the economy at heart.   It is also just as unlikely that the Republicans will back down and begin to cooperate with the Senate. However, the weight of evidence is stacked in favor of "more of the same" which means less for you and me.

Because AAPL was not enough, Grexit is now back and fully frontal:

• EU MINISTERS TO DELAY GREEK AID CALL FOR WEEKS, OFFICIAL SAYS

And dump. Funny how all the horrible news are hitting after the election.

AAPL had crawled it way into the green in the pre-open, bumping around yesterday's closing VWAP. In the early minutes of the US day session open, we saw very heavy selling volume in AAPL (and surprisingly S&P 500 futures ramped vertically). This smells a lot like someone getting a tap on the shoulder on their 'hedged' Long AAPL, Short ES position. AAPL bounced off yesterday's lows to get back to VWAP and then the real selling began... At $542 now, AAPL is over $160 off the highs and reverting back to the market cap of the entire European banking system. With 230 hedge funds holding this angel of death... small doors and large crowds do not mix... paging Topeka? Widows, orphans, and value investors first...

For those who want to imitate what is once again the world's largest hedge fund (reclaiming the spot from Apple's own prop trading vehicle, Braeburn, first exposed here), Ray Dalio's Bridgewater, which at last check had $138 billion in AUM ($76 billion Pure Alpha, $63 billion All Weather), the path is simple: just recreate the performance shown on the chart below over a period of two decades. (Oh and stop "trading" on Twitter and do some real trading).

Today is the 2nd of the long-end UST auctions for the month of November.  16bln 30yrs will be sold to the market at 1pm...largest single DV01 event of the monthly cycle.  Can we game the US Govt??

Much like the Beige Book attempts to summarize the 'economic conditions' of all the 12 regional Federal Reserve branches, so Goldman's David Kostin screens the companies in the S&P 500 for common themese from their earnings calls. This anecdotal evidence provides critical insight into the current fundamental and thematic trends. The three key findings are (1) Managements delayed capital investment and hiring and gave conservative guidance given uncertainty about the real economy and near-term policy risk from the ‘Fiscal Cliff’; (2) Companies grappled with slow global growth: stagnation in the US, recession in Europe, and an unclear path in China; and (3) Many firms took strong action to protect high margins against tepid revenue growth, rising input costs, and frugal customers. Meanwhile, a near-record percent of small businesses rank government requirements as their biggest challenge!

For all the monotony of today's ECB press release in which Mario "talking in Keynesian circles" Dragi did his best impression of Diane Sawyer, not even the former Goldmanite could deny that the ECB did a mistake on its Spanish collateral haircut as reported previously:

• DRAGHI SAYS COLLATERAL MISTAKE DIDN'T AFFECT ECB LENDING
• DRAGHI: EUROSYSTEM AUDIT COMMITTEE TO ASSESS COLLATERAL USE

Luckily, the ECB has so much credibility that admitting it did not haircut billions in "money good" Spanish bonds will not impact how ze Germans view its monetary flouting prowess one bit. Also, if anyone can explain how ECB lending "was not affected" as a result of flawed collateral calculations we are all ears, because either we really have no idea how crediting works, or Mario Draghi seriously believes everyone out there is a consummate idiot.

Rated E.C.B.

Things are rather unsurprisingly going from worse to worserer in Europe. Perhaps it is the anecdotal evidence we see in the now weekly riot-cams from Spain and Greece but just as we warned over a year ago, the truly scariest chart in Europe remains that of youth unemployment. The correlation (and causation) that runs from extreme levels of youth unemployment to general social unrest and anarchy is stunning throughout time (as we noted here and here). With Greek 'youth' unemployment jumping to a disheartening 58% (for August) - by far its highest ever - and Spain rising inexorably at 54.2%, the under-25 populations in these nations is truly set to burst (with overall unemployment rates of 25.4% and 25.5% respectively). Euro-zone youth unemployment overall has risen to 23.3% and while Greece jumped the most, Italy was close behind with a 1.2ppt rise to 35.1%. We are sure the austerity voted for last night by the politicians will 'help' - someone...