Archive - Aug 21, 2012

Whether it is because the CME just did it; or it's all their clients have left; or Gold volatility is lower than EURUSD volatility (9.0% vs 9.6% in last 3 weeks); or they see the painting on the wall of Draghi's grand-plans, the LCH-Clearnet just announced that as of August 28th, unallocated gold will be accepted as collateral for margin cover purposes. This now means all the major exchanges accept worthless barbarous relics as collateral - as well as worthless fiat paper 'money'.

If this doesn't piss at least a 20% of you off, and scare the remaining 8% into reading the next installment, then I obviously haven't been doing my job. Alas, I'm pretty good at what I do!

We're doomed, doomed, I tell you. 

Walls-of-worry; Short-squeezes; money-on-the-sidelines; Everyone's Bearish, right? Well, instead of just listening to the drone of the mainstream media and talking heads, who appear once any rally appears in the hope of garnering some more AUM and taking commissions, we thought it worth a few minutes to look at actual data, positions, and sentiment across equity, debt, and FX asset classes. Sure enough - here are ten charts that show investors are anything but bearish and that the ammunition for the next leg from here can only come from central-banks (and we are concerned that disappointment is due).

Two days ago, historian Niall Fergsuon had the temerity to voice a personal opinion, one which happens to not exactly jive with the rest of the media's take on current events, on the cover page of Newsweek (Newsweek is still in print?) titled, succinctly enough, "Hit the road Barack: Why we need a new president." The response was fast, furious, and brutal, particularly emanating from what Ferguson has dubbed the "liberal blogosphere." Naturally in an election year, said blogosphere has much CPM-generating rumination to do (after all who knows what happens to all those ad revenues if the US corporate base implodes and all that cash on the sidelines stays there due to "policy uncertainty"), so Ferguson merely provided the chum in the water (once the time comes to pick up the calculators again after the presidential election, things will immediately quiet down but until then there is, sadly, at least two more months of ever rising cacophony). So did Ferguson back off having said his piece? Hell no. In fact, he has just made sure that the "liberal blogosphere" is will be burning the midnight oil for weeks to come engaged in completely meaningless point-counterpoint between itself and the historian, when, in reality nothing changes the simple fact that come August 2016, the US will have a simply idiotic 130%+ debt/GDP completely independent of who is in the White House, or in other words, there very well may not be another presidential election. For now, however, we have much needed bread and circuses. Below is Ferguson's just released interview from Bloomberg TV in which he responds to the salient accusations that have been leveled at him (a more essayistic version can be found here).

As we noted last night, the 100bps of outperformance garnered by the NASDAQ (thanks to AAPL's exuberance) in the last 3 days was remarkable. Equally remarkable - the total compression of that 100bps of relative outperformance to zero in the last three-hours...

The US is experiencing its worst drought since 1956. Altogether 63% of the lower US 48 states are experiencing a drought. As a result of this, the USDA has said that 50% of the US’s corn crop will be in poor to very poor condition.

As everyone awaits (or doubts) the next coordinated central planning bank action - whether Fed QE (Lockhart stymied?), ECB 'bottomless pockets' (Merkel's back), or China RRR (reverse repos?) - the prices of things we need (as opposed to want) continue to rise. Nowhere is this more important than in China with its extremely high levels (and volatility) of deposit flows increasingly levered to re-inflationary actions by the PBoC. The critical aspect of the following analysis is that in the US, the stock market acts as an 'inflation buffer' for the rich's excess disposable income; in China, this is not the case and given the greater than 3.4x leverage compared to the US, PBoC actions flow much more rapidly through the populace to the things they need - and right now more inflation is not what they need or want - which perhaps explains the reverse-repo 'gradual' tightening.

Since sickcare is fiscally and demographically unsustainable, it will eventually be replaced by something that is sustainable. Our only choice is to either let the current system collapse and then start pondering sustainable alternatives, or begin an honest discussion of sustainable alternatives before sickcare implodes in insolvency. In the spirit of openly discussing a variety of sustainable, systemic healthcare options, we present this essay by correspondent "Ishabaka" M.D. on how to cut our current (18% of GDP) healthcare spending by 50%.

Powerplant by powerplant

Don't worry, the 'fiscal cliff' will all be taken care of; have no fear, the market AAPL will hold up into the election to sustain Obama's hope-and-change; and, as The Heritage Foundry blog reports, in that change, there are 18 new tax hikes on their way via Obamacare.

Anyone looking at the broad headline data from the weekly commercial bank asset (H.8) release could rush to the superficial conclusion that cash assets at US-based financial institutions is approaching all time highs, which, again superficially, it is, at $1.9 trillion, the highest in 2012, and just shy of the all time highs of $1.936 trillion from July 2011. Further superficial analysis would lead one to believe that there is a notable divergence between total US bank cash (the bulk of its procured via repoing of previously purchased securities) and the weekly excess reserve balance indicated by the Fed. All these would be useful, if completely, wrong observations. The only relevant and accurate observation in this week's H.8 data is that foreign banks domiciled in the US have taken their cash balance back to all time highs, which at $918 billion is in the ballpark of the highest it has ever been, and merely confirms what everyone has known: the only reason the US market has benefited in the last several months is due to flight to safety into what, for whatever reason, is perceived as the safety of the US capital markets. At some point, this record cash balance will once again flow out, even as US bank cash holdings remain as flat as they have been for the past 3 years.

UPDATE: As we said - $660.14 VWAP was support

After a few explosive days of performance-chasing desperation in the hedge-fund hotel stock of the decade; everyone's new favorite stock AAPL just did something odd - it traded down! after almost touching $675 just after the open, we are now back below $665 after tsting VWAP and selling back down on heavy volume - small doors, large crowds. Next stop $660.14 (yesterday's VWAP)

This simple 70-second clip summarizes perfectly the folly of the central planner - who faced with a clean slate and the ability to craft an entire society with his all-knowing hands forgets that one critical aspect of humans - free-will. No matter how financially repressed, no matter how herded into AAPL, no matter how jawboned-to-death we become; there is always the option - the optimal decision in any unwinnable game - of not playing.

As the S&P 500 makes new multi-year highs, the USD dumps, commodities surge, and AAPL just does what it does best; The Fed's Dennis Lockhart has just 'subtly' announced the walking-back of expectations of QE3 happening anytime soon, via Bloomberg:

• *LOCKHART SAYS `MONETARY POLICY IS NOT A PANACEA'
• *LOCKHART SAYS ECONOMIC DATA HAVE BEEN `FIRM' IN LAST MONTH
• *LOCKHART SAYS HOUSING IS STABILIZING AND `ENCOURAGING'
• *LOCKHART: MONTHLY UNEMPLOYMENT RISE SHOULDN'T BE EXAGGERATED
• *LOCKHART SEES `MORE APPETITE FOR RISK'

and critically:

• *LOCKHART SAYS DISINFLATION, DEFLATION NOT NOW A CONCERN