Archive - Aug 2012

August 30th

Tyler Durden's picture

Guest Post: On Switzerland And The Mafia





A few weeks ago, western governments' war on productive people took an interesting twist when US immigration authorities detained two teenage children of an asset manager based here in Switzerland. The kids were traveling through the United States by themselves to visit extended family, and they were interrogated for six hours about their father's business and whereabouts. During the six-hour ordeal, the children were not allowed to contact family members who were waiting for them, nor any sort of attorney or advisor. This 'guilty until proven innocent' approach is the same sort of special treatment reserved for suspected terrorists. The only difference is that you don't end up in Guantanamo. Free societies do not treat people this way. Hell, most criminal networks don't even treat people this way. And while it may raise a few bucks in the short run, in the long run it's counterproductive. People adapt. They create underground, cash-based economies. They leave. Foreign investors stay away.

 

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Luxury Yacht Down: What Happens When Central-Craning Goes Horribly Wrong





As Bernanke and Draghi carefully try to centrally-plan navigate us mere mortals through this dismal period of market and economic reality, we thought this clip was a perfect analogy for the 'heavy-lifting' job they are doing... and the likely outcome.

 

Tyler Durden's picture

Guest Post: The End Of ECB Rate Cuts Or Draghi Against Weidmann To Be Continued...





Even in the unlikely case of a fiscal union, the conflict “Draghi against Weidmann”, between the ECB and the Bundesbank will continue for years. The ECB mandate and many european inflation figures do not allow for excessive ECB rate cuts or for state financing via the printing press, but Draghi wants to help his struggling home country.

 

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Is Cashin Cashin' In On Obama?





The Chairman of the fermentation committee, Art Cashin, usually keeps a very apolitical, sober (metaphorically speaking at least) and cool head on, as all veteran traders should. Which is why we were quite stunned to notice that even the NYSE floor veteran may have finally crossed the Rubicon in his political observations. And if Art feels this way, one wonders just how the other Wall Street players, whose voices have far less need to be moderate, really feel...

 

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Spanish Bonds Slump Most In A Month As Europe Turns Red





The fulcrum security is bleeding; 10Y Spanish government bond spreads jumped 19bps today, the largest gain in almost a month, and are trading back above 525bps over Bunds (the worst in over three weeks). Even the front-end of the Spanish and Italian bond curves lost ground today - as the game of chicken between Rajoy and Draghi continues - with the ridiculous brinksmanship highlighting the entirely dysfunctional dis-union that really exists behind the scenes. European equity markets drifted lower all day, slammed lower after the US opened (with Germany's DAX underperforming - thanks to weak Autos - no surprise there for us), but bounced a little into the European close. EURUSD slumped 70 pips from its post-US-open intraday highs today - ending at 1.2500. Europe's VIX jumped back above 28% (from 21% just 10 days ago) - its highest in a month. Credit widened on the day, financials underperformed, and notably credit did not jump into the close like stocks did.

 

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Guest Post: The U.S. Drought Is Hitting Harder Than Most Realize





This is an important update on the U.S. drought of 2012, the combined record-setting July land temperatures, and their impact on food prices, water availability, energy, and even U.S. GDP. Even though the mainstream media seems to have lost some interest in the drought, we should keep it front and center in our minds, as it has already led to sharply higher grain prices, increased gasoline costs (via the pass-through of higher ethanol costs), impeded oil and gas drilling activity in some areas (due to a lack of water), caused the shutdown of a few operating electricity plants, temporarily reduced red meat prices (but will also make them climb sharply later) as cattle are dumped in response to feed- and pasture-management concerns, and blocked and/or reduced shipping on the Mississippi River.  All this and there's also a strong chance that today's drought will negatively impact next year's Winter wheat harvest, unless a lot of rain starts falling soon.

 

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More Bad News Imminent: August US Auto Production Set To Plunge By Most In 16 Months





Over the past several months, many pundits were scratching their heads at the peculiar patterns in summer hiring and layoff trends, which threw all NFP, claims, and JOLTs forecasts in a loop making a mockery of even the best forecasters. The reality is that there was a very specific reason for this abnormal seasonal pattern: numerous car plants worked throughout the summer, avoiding traditional temporary shutdowns and furloughs, in an attempt to provide an optical boost to the Union-endorsed administration. And as always happens (see Cash for Clunkers), every attempt to pull demand or supply from the future to the present results in an eventual collapse in either of these two. Sure enough, with June and July reaping the benefits of advance demand, August is set be an absolutely abysmal month for US auto assemblies and for Industrial Production. Because as Stone McCarthy calculates, based on projections provided by Wards Autos, the U.S. motor vehicle assembly rate for August is projected to decline by 8% to a 10.1 million annualized rate after rising by 4.4% in July. This would be the biggest monthly percentage decline in the assembly rate in about a year and a half, since April 2011's 9.5% drop.

 

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Negative Euro Headlines Are Back Sending EURUSD And Its Derivative, S&P500 To Day's Lows





As the Dow crosses 13000 and S&P crosses 1400 - the wrong way - the noise from Europe is picking up:

*IMF SAYS IMPLEMENTING MEASURES A `MAJOR CHALLENGE' FOR GREECE
*IMF: No Request From Spain For IMF Financial Help
*SLOVAK PREMIER FICO SEES 5O% CHANCE OF EURO AREA BREAKUP

Bah, what does the Slovak premier know: it is not like he is a member of the Eurozone. Oh wait...

EURUSD has fallen 50pips from its intraday highs; Spain 10Y (+19bps to 525bps) is at 3-week wides.

 

Tyler Durden's picture

Record EUR 'Longs' Suggest Caution Into Next Week





Last week we discussed in detail the shifts in regimes and positioning in the FX markets - most notably relative to the EUR. CitiFX is out with a note today that extends our concern as their proprietary CitiFX Positioning Indicator shows a rise from a record short in EUR in mid-July to a record long by last week. The EUR buying has been broad based and not just concentrated against the USD, with investors covering short exposure on pairs such as EURAUD and EURCAD. The shift in positioning came as peripheral spreads tightened and US yields fell, implying that it was kick-started by the surge in expectations for Fed and ECB easing. With equity markets roughly steady in recent days and data flow still relatively weak, this leaves the impression that the continued shift in FX positioning has been more about momentum than improvement in sentiment. This suggests that FX markets may be pricing in a higher degree of confidence on easing (or signs thereof) at the Jackson Hole conference and later ECB meeting. Given that absolute positioning for EUR is now long, this sets a high bar for policymakers to exceed and suggests risks are skewed in favor of a reversal on disappointment with Chairman Bernanke and President Draghi.

 

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Gold Option Traders Most Bullish Since Bottom In October 2008





A new and important bullish indicator for the gold market is that gold calls are at highs not seen since the October 2008 low as option traders go long gold in the belief that it will go higher. It suggests that option traders believe that U.S. Federal Reserve Chairman Ben Bernanke will hint at or announce additional money printing and monetary easing at the Jackson Hole, Wyoming, symposium. Alternatively, it suggests that they are bullish on gold due to the risks posed to the dollar and the risk of inflation taking off. The ratio of outstanding calls to buy the SPDR Gold Trust versus puts to sell jumped to 2.69 to 1 on August 24th and reached 2.76 earlier this month, the highest level since October 2008, according to data compiled by Bloomberg. Ownership of calls is up 26% since the July 20th options expiry. Ten of the most owned actively owned ETF option contracts are bullish. Option traders are regarded as savvier and tend to be more sophisticated then the more speculative futures traders.

 

 

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Even 'The Rich' Aren't Buying This Rally





Despite the near multi-year record highs in stock indices, which have typically correlated tick-for-tick with the-wealthy-people's view of the world, today's Bloomberg Consumer Comfort index sub-data has a rather nasty surprise in its tail. Those earning over $100k, the highest bracket interviewed in their survey, saw their 'comfort' plunge to its lowest of the year - massively diverging from the incessant rise in equity markets (and its supposed 'wealth effect' transmission channel). This is the largest 4-week plunge in almost two-years.

 

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More European Dis-Union: Finland Rejects Pooled Funds Required For 'Banking Union'





While ever so politically correct in their response and positive about the need to protect an ailing banking system, the Finns have said 'ei' - which means 'no' - to the pooling of funds.

Finland considers that the proposed directive is called for but does not support any national funding arrangements would be required to borrow funds for national funding arrangements in other member countries.

Posturing? maybe. Negotiating? perhaps. An unequivocal show of support for the kind of progress we all hoped was being made in Europe - not a single bit.

 

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The Unintended 'Chronic' Consequence Of ECB Bond Buying





We destroyed the myth that the LTRO would not in fact stigmatize bank balance sheets when it was first introduced as the encumbrance was evident from the start - though took the market a while to comprehend and reprice (exuberant on the new-found liquidity optics). The expectations that the ECB will embark on a new scheme of sovereign debt purchases, implicitly funding governments - no matter how many times they tell us that it is to ensure transmission mechanisms flow, have three objectives or rationales, according to Goldman's Huw Pill: Easing private financing conditions through monetary expansion, Financing governments, and/or Reactivating private markets. However, there is one glaring unintended consequence of this 'aid' - the risk exists that well-intentioned sovereign debt purchases result in perverse incentives and a perpetuation of chronic fiscal and structural problems (much as Bernanke's band-aids have eased the fiscal pressure on our own government and led us further down the rabbit hole). The lack of political legitimacy and blunting of incentives for more fundamental consolidation and reform to take place can only turn the acute pain of the moment in Spain into a truly chronic problem for Europe as a whole - be careful what you wish for.

 
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