Archive - Dec 3, 2012

Depending on what market or macro indication you choose to believe in, China is doing terribly badly or is on a sustainable path to a more domestic consumption-based economy. This weekend's PMIs show the economy is barely limping higher but Industrial Output is dismally low; HSI is ripping higher while SHCOMP is at multi-year lows. What is more critical, as Bloomberg's Michael McDonough points out today, is China’s growing role as a transmission mechanism between the economies of the developing and developed world. China’s economic rise has been accompanied by a surge in its appetite for imports - especially raw materials - even as global demand has been slow to recover. This introduces new stresses for many export-oriented countries by reducing the diversity of their trade relationships as they become more and more dependent on China in particular, creating substantial risk for those economies, which account for an increasing share of global GDP. Russian, Brazilian and Indian trade volumes have become heavily dependent on China at 10.6 percent, 17.5 percent and 9 percent, respectively. An economic crisis in Brazil would have a minimal impact on the Chinese economy, while a slowdown in China would likely crush Brazil’s external sector and domestic economy.

November sales of U.S. American Eagle gold coins are on track to be the best in 14 years as uncertainty surrounding the U.S. fiscal cliff and the election of President Obama led to safe haven buying. Buyers timing the market also increased coin sales by buying during sharp price movements that occurred in the beginning and end of November, coin dealers noted. Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion. Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998, data from the U.S. Mint's website shows. In October, the U.S. Mint sold 59,000 vs 50,000 ounces the previous year, while November marked its 2nd successive monthly rise. Coin banks have come in to buy the stock as the mint usually ends 2012 coin production in early December so it can begin minting the 2013 coins.

Tweets about "#my2k"

The University of Texas Football Program is not getting a positive return on their investment in the head coach. 

Greek Government Bonds (GGBs) jumped by over 12% today to over EUR40 - by far the highest post-PSI - as fast money floods the limited size illquid market to front-run the Greek buyback. Every day that goes by means less and less benefit for the Greek people as the discounted price of buying back the debt - with all of the money that Greece doesn't have, goes up. This is a perfect example of greater-fool-theory at work as everyone knows that if this price gets too high, the Greek government (via Troika) will (should) reneg on the buyback which will cause GGB prices to plunge back towards zero. What many misunderstand is that the buyback crystalizes the losses for banks that currently carry this worthless paper on their books at Par and garner the carry (and accruals) and thus in true European fashion, the unintended consequence of this action lines the pockets of fast-money hedge funds along for the short-ride and drains any pretense of capital from the Greek banking system.

Back in June, the Danish Central Bank set a New Normal precedent by being the first bank to impose NIRP, after it lowered its deposit rates to a negative 0.20% for everyone, in other words anyone wishing to keep cash with the bank would have to pay 20 bps for the privilege. NIRP just moved south to Switzerland, only this time not with a central bank decree: after all the SNB is already engaged in capital controls via the 1.20 EURCHF peg. After all it would seem unsportmanlike if the central bank would admit it needs more currency warfare to halt the influx of CHF into its system, as it would also imply that not only is the Eurozone not fixed, but the exodus of EUR-denominated accounts is relentless, and only the BIS is the marginal buyer of the currency. Instead, Swiss megabank, Credit Suisse, whose assets are orders of magnitude greater than Swiss GDP, in what will be a precedent copied by all other Swiss banks, just imposed negative credit rates on cash clearing balances after December 10 as per the message sent to clients below. In other words, "your CHF-denominated cash is no longer welcome at Credit Suisse, please convert it into that joke of a currency EUR post haste, K thx bye."

There was a time when Swiss bank secrecy was the passion of every tax-challenged oligarch in the world. Then things changed, Obama made it s badge of honor to rat out anyone you know who has a bank account in Zurich or Geneva, lists of previously ultra-secret account holders started "leaking" and from an asset, Swiss bank accounts promptly became a liability to everyone involved. Such as the matriarch of the legendary Papandreou family, former Pasok Greek PM G-Pap's mother, Margaret, also wife of former PM Andreas, who according to The Telegraph has been revealed as having a €550 million ($700 million) Swiss bank account (she will hardly be happy to learn that Credit Suisse just instituted a negative interest on CHF deposits) in the Geneva branch of HSBC. Obviously lots of hard work by M-Pap went into building up that particular nest egg.

In a world that already makes little sense to most, Credit Suisse just pushed the envelope a little further. The bank has just announced that going forward it will be charging for firms to hold a CHF cash balance - i.e. the bank, given the already-negative Swiss government bond yields, has moved to its own NIRP for its clients. The need to do this suggests an overwhelming desire for short-term safety that flies in the face of the seeming level of complacency that exists in the European bond (and stock markets). As we have warned before, it seems that the currency wars that appear to have escalated have now started the 'capital control' wars as CS (and implicitly the SNB) adds this negative interest rate 'charge' to its already pegged currency in the vain hope that of managing the unmanageable flow of safe-haven-seeking cash.

• *CREDIT SUISSE INFORMS BANK CLIENTS OF NEGATIVE RATES ON CHF FROM DEC. 10
• *CREDIT SUISSE INFORMS CLIENTS IN SWIFT NOTICE, CONFIRMED BY BNK

In about five years the wheels will fall off the cart.

• Union solidarity rubs up against slow economy in LA port strike (Reuters)
• Geithner predicts Republicans will allow higher tax rates (Reuters). And "no risk" of a US downgrade, "no risk"
• Geithner takes hard line on fiscal cliff (FT)
• Narrowing LDP lead points to Japan post-election confusion (Reuters) - not to mention, USDJPY plunges if LDP loses
• Vietnam Says China Must Avoid Trade Weapon in Maritime Spat (Bloomberg)...  and real one, one hopes
• Greece unveils bond buyback plan (FT)
• ECB Can’t Deliver Spain Spread Rajoy Wants, Wellink Says (Bloomberg)
• UK’s euro trade supremacy under attack (FT)
• Merkel Signals Debt Write-Off Possible as Buyback Begins (Bloomberg)
• ECB's Noyer Says Bond-Buying Plan 'Is Bearing Fruit' (WSJ) - as long as just plan, and not execution.

Today's "trading", in a repeat of what has become a daily routine, can be summarized as follows: flashing red headline about Fiscal Cliff hope/optimism/constructiveness out of a member of Congress who bought SPY calls in advance of statement: market soars; flashing red headlines about the inverse of Fiscal Cliff hope/optimism/constructiveness out a member of Congress who bought SPY puts in advance of statement: market plunges. Everything else is noise, as is said hope/expectations/constructiveness too since it is increasingly likely nothing will happen until the debt ceiling hike deadline in March, but stop hunts must take place in a market which nobody even pretends is driven by fundamental newsflow. Such as the bevy of PMIs released last night, the key of which was the China HSBC PMI as reported previously, which beat expectations by the smallest of possible increments, at 50.5, but rising to expansion territory and the highest in 13 months, which sent the EURUSD spiking and has kept it in the 1.3030 range for the duration of the overnight session. Sadly, those on the ground in China hardly felt the number was a bullish as EURUSD trading algos around the world, sending the Shanghai Composite to a fresh post-2008 low, closing down over 1% at 1,960. But let's just ignore this inconvenient datapoint shall we?

It may still be unclear just where Greece will get the ~€10 billion in cash needed to buyback up to 20 various tranches of the post-restructuring GGB2 bonds (full CUSIP list below), but what the Greek Public Debt Management Agency announced today was the sound of money in the ears of the hedge funds that had bought up Greek bonds in the low teens several months ago, if not so much Greek banks many of whom may still have this debt market at up to par, as no matter which particular group of taxpayers ends up funding this "buyback" - a process that will have zero benefit to the Greek population who will see not one penny of the buyback proceeds (as described before) - it is the hedgies that benefit, who also have clearly controlled the process from the beginning as the announced tender prices were well above the levels Greek bonds eligible under the buyback closed at on Nov. 23, even though Greece's lenders last week said they did not expect the bonds to be purchased for more than the closing price on that date. In other words, the Greek government lied to its people again for the benefit of wealthy financial interests yet again.

The US dollar's recent losses are being extended at the start of the new week.  The announcement of the details of the Greek bond buy-back scheme has triggered a sharp rally in peripheral bond yields, while the euro area Nov manufacturing PMI is reported at 8-month highs, even if still below the 50 boom./bust level at 46.2.  The euro has completely recouped the knee-jerk losses scored in thin activity just before the weekend when Moody's announced a cut in the ratings for the EFSF, which follows its recent downgrade of France.