Archive - Oct 15, 2013

Unlike on the two prior occasions when the "mysterious" (coughBIScough) gold seller sold so much gold he briefly broke the gold market not once but twice, this morning's concerted gold selling episodes, which briefly took gold to a three month low, were unable to obliterate the entire bid stack (at least for now) and crush enough liquidity to force the CME to announce another "stop logic" 10-20 second trading halt. However, there were some other peculiarities surrounding today's now recurring morning gold battering (which as we noted in a market where the CME no longer supervises any and all manipulation, were and are certain to continue). Specifically, what is curious is that starting at 3:48 am Eastern Time, Nanex found "six instances (there may be more) of 1 second periods in Gold futures with a high number of trades (700 or more)." As those who have been covering our coverage of HFT manipulation will note, these are precisely the kinds of momentum ignition, and not rational price discovery, events that seek to manipulate prevailing prices lower (or higher). The good news is that as everyone knows, aside from equity, electricity, FX, libor, aluminum, and credit derivative markets (in just the case of JPM) gold is never manipulated: Blythe Masters promised. So there's that.

A Banzai7 public service translation...

When we first reported to the world the incredible SNAFU that was the Obamacare Helpline number, the reaction was one of disbelief by most until they checked the details and realized that indeed 1-800-F U-CKYO was real. The question was raised, did the US government do any due diligence on anything realted to Obamacare at all? Well, now the Japanese are at it. Meet the newest mascot for Fukushima Industries... as Japan Today reports, this cute winged egg whose name is FUKUPPY. In Japanese, pronounced "foo-koo-pii", unfortunately the english-speaking world may not see it that way... Does it not feel a little like the governments of the US and Japan are now openly mocking its people? Perhaps this should become the new mascot for Washington DC?

The market is rapidly adjusting from imminent default to pricing in the risk of a debt ceiling debacle in February. 10/17 Bills are unchanged, Oct/Nov Bills are improving, but Feb 2014 Bills are now slamming higher in yield +5bps to 9bps for now... How much longer can the powers that be keep the ever inflating balloon under water?

Gold’s price falls are very counter intuitive and suggests that Wall Street banks, either independently or in unison with the U.S. authorities possibly through the Working Group On Financial Markets or the Plunge Protection Team, are suppressing gold lower.

No one and I mean NO ONE would place an order like this. It simply doesn’t happen. Anyone who is trying to unload a position of this size would do it in chunks over a period of time in order to not push the price sharply lower.

With the only thing that matters the level of the S&P 500, we can only wonder at what effect the GOP's discussion (and hopefully Q&A) of their new new bill (with Obamacare issue) will have on the world's key metric... However, it seems the divide is only getting wider (despite the hope/hype) as Boehner comments:

*BOEHNER SAID TO CALL SENATE PROPOSAL A HAND GRENADE

Does it seem like that is the kind of talk that indicates whatever the House priceeds with will be approved by the Senate.

It is becoming clear that the House is splitting off from the Senate negotiations (especially after Rep.Paul Ryan's comments that the "Senate Plan is not enough" and as Robert Costa reports, there is a bill emerging that has a little (maybe not enough) for everyone - "CR + DL + med device + income verification + Vitter language." Obama appears to be demanding more concessions in his "unconditional surrender or default" strategy as tells McConnell that Treasury needs flexibility (i.e. as we approach the next debt ceiling deadline - assuming this one is passed - the Treasury should be allowed to tinker with things to keep the ball rolling). Equity markets are growing more nervous - especially in light of the fact that being this close to the edge, a well-meaning politician looking to make a name for him- or her-self could filibuster the US past the X-date with nothing to be done about it. The biggest issue is that with much negotiation and debate obviously left on the table, there is a hard limit in just over 36 hours, a timeframe that is becoming increasingly unfeasible and which implies a breach of the X-Date - if even briefly - is very much possible. What is worse, is that since nothing immediately bad would happen on October 17 with no deal, that the GOP can further protract negotiations in an attempt to force Obama's hand to yield some additional compromise.

Back on May 14, when the S&P was at 1651 or 50 points lower, and when David Tepper made his first book-talking, semi-annual CNBC appearance in which he "blessed the market and awaited the manufacturing renaissance", he made two points about the taper: it's bullish no matter what, namely its removal would mean the economy is improving (we now know it isn't thanks to the Fed and Q4 GDP estimates which are rapidly sliding to 2% or lower), while a taper staying put would mean the Fed would continue pumping stocks higher artificially indefinitely. Today, he did a repeat appearance, in which in addition to the usual market pumping rhetoric, everyone was most interested in how he would spin the recent stunner by the Fed which effectively made the taper a 2014 event. His take: "The Fed won't taper for a long time... So that's definitely sort of going to be a push-up to markets." Couldn't have said it better: but to paraphrase - Taper is bullish no matter what; No Taper is bullish-er.

For the 3rd time in 3 days, Silver (and gold) have been slammed lower in an almost instantaneous hammer blow, only to be lifted shortly thereafter to fill the apparent foreced sale void. Prices of precious metals have become increasingly volatile intraday in the last week or so as the debt ceiling debacle plays out but this mornings dump-and-pump seemed to sum up the new normal perfectly. Once again, it would seem, the Chinese will be sending thank you letters to the Fed and their henchmen... (as Goldman suggests there will be no Taper until March)

In what feels like the first actionable macro data release in a while, the Empire Fed Manufacturing survey (yes "soft" data but it's all we have to play with for now) missed expectations by the most in 5 months. Against consensus of 7.00, the 1.52 print is the lowest in 5 months and the 3rd miss in a row. Once again, the employment sub-index slumped - now at its lowest since July (dismissing that August spike that we now know was driven by the exuberant last-minute spending of government budgets). Of course while the curent business conditions slid, expectations for six months from now held steady (even though shipments and new orders expectations slid a little). With business conditions now anchored around zero for 3 years, this "soft" data indicator is not exactly the driver of growth hopes that equities seem to believe in.

Despite the ongoing antics in Washington the market remains less than 5 points (at the time of this writing) from its all-time closing high.  If the markets were concerned about economics, fundamentals or potential default; stock prices would be significantly lower.  The reality is that as long as the Federal Reserve remains convicted to its accommodative policies the argument for rationality is trumped by the delusions of Mo' Money. We have seen these "Teflon" markets before - do we really need to remind you what happens to a Teflon pan when you finally scratch the surface? In the meantime here are 5 things to ponder as the week progresses...

First we had JPM confirming what we all knew about the third quarter: it was a disaster for anyone who originates mortgages, whose balance sheet relies on Net Interest Margin, and whose income statement is dependent on trading volumes. Now, it is Citi's turn. Moments ago the bank reported uberadjusted EPS of $1.02 missing expectations of $1.04, unchanged from a year ago, and revenues, ex CVA/DVA, of $18.2 billion, down 5% from Q3 2012, and missing expectations $18.71 billion, by over $500 million. Citi EPS also included the now traditional fudge factor of $675MM in loan loss reserve releases, although well below the $1.502BN from a year ago, offset by $204MM in benefit and claims provisions and some $635MM in incremental mortgage charge offs.

• Spot the pattern: Senate Leaders Nearing a Deal (Politico), Senators say debt, shutdown deal is near (USA Today), Senate Leaders in Striking Distance of a Deal (WSJ), U.S. senators hint at possible fiscal deal on Tuesday (Reuters), Senate Debt-Limit Deal Emerging (BBG)
• U.S. debt ceiling crisis would start quiet, go downhill fast (Reuters)
• Uneasy Investors Sell Billions in Treasurys (WSJ)
• BOE’s Cunliffe Says U.K. Is Not in Grip of Housing-Market Bubble (BBG)
• Letta Mixes Tax Cut With Rigor in Post-Berlusconi Italian Budget (BBG)
• Japan Seeks to Export More High-End Food  (WSJ)
• Burberry names Bailey CEO as Ahrendts quits for Apple (Reuters)
• China’s Biggest Reserves Jump Since 2011 Shows Inflow (BBG)

If mere hope of an "imminent" deal starting on Thursday and continuing through Monday, with no actual deal but who cares about details, was enough to push the DJIA up by 600 points, then all it would take to set a new record market high today, is for another day to pass - one day before the October 17 X-Date when one Senator can filibuster the US through the deadline on their own, and when the House still has to have a voice on what the Senate has been doing - without an actual debt deal. After all, the market is so "centrally-planned" all that is needed is knowledge that Bernanke will get to work, and is getting to work to the tune of $85 billion a month, mixed in with some hope. And with today's "market for idiots" facilitating POMO of over $5 billion which guarantees a green close, all that is needed is a complete failure in talks for the SPX to go limit up on even more hopes things will be fine any second now... if not right now.