Archive - Oct 2013

10 weeks ago we warned that the persistent "banging the close" action in FX markets warranted an investigation into market rigging and manipulation. It seems the US, Swiss, UK, and EU regulators have finally woken up:

*U.S. SAID TO OPEN CRIMINAL PROBE OF CURRENCY MARKET RIGGING
*SWISS, UK REGULATORS REVIEWING ALLEGED CURRENCY MARKET RIGGING
*EU ANTITRUST REGULATORS SAID THEY ARE PROBING CURRENCY MARKET

Of course, gold and silver remain highly efficient and "clean" markets...

Filed under "you can't make this shit up," in perhaps the most ironic thing to come out of DC, the Washington Times reports that the White House Gift Shop has gone broke. Long run by a nonprofit group that helps uniformed Secret Service officers and their families the official White House Gift Shop, lists more than $600,000 in liabilities in a pending bankruptcy petition in Washington. The bankruptcy petition, filed in June in a case that remains active, doesn’t explain why the fund went bankrupt in the first place, but court records reveal a recent history of tax troubles and litigation.

Only in the realm of US bank earnings can a 4x occurance be credibly accepted as "one time"! I can feel the hate already...

Over the last several months, “hard” economic data have been telling a much different story than “soft” economic data. On the one hand, soft surveys such as the ISM manufacturing index have pointed to robust economic growth. On the flip side, hard economic data have been disappointing. We previously pointed out Goldman's view of the "soft" surveys relatively weak ability to project growth, but as BofAML warns, even before the government shutdown cut off the flow of hard economic data, they were tracking just 1.6% qoq saar for third quarter growth. Confidence is already taking a nose-dive as the shutdown continues and BofAML warns of the potential for significant and lasting shocks to growth if things do not improve quickly.

With Gallup indicating the biggest 3-week decline in economic confidence since Lehman, it is hardly a surprise that UMich consumer confidence slumped to its lowest since January having fallen 3 months in a row. This is the 2nd monthly miss in a row - and biggest 3-month drop in 25 months -  and appears to confirm the cyclical turn we have been discussing for a few months. And remember, the exuberance of multiple expansion relies on the ever-rising confidence of the people to lift it back to nebulous heights.

It was precisely a month ago when, in "Vicious Gold Slamdown Breaks Gold Market For 20 Seconds" we observed how a furious gold sale managed to not only send the price of fold plunging but in the process it halted all gold trading on the CME for a whopping 20 seconds! Moments ago it just happened again. As part of the already noted massive gold slamdown just before 9 am Eastern, when "someone" sold an epic 2 million ounces of gold in one trade, the CME just went dark for 10 seconds, blaming it on an appropriately named "stop logic" event.

While the October T-Bills have seen yield drop in the last 24 hours, they remain notably elevated relative to both longer-dated yields and the equity-market's exuberance. What is much more worrisome for the markets - most explicitly the repo markets - is the blow-outs now being seen in the Nov/Dec T-Bill yields as the can-kicking deadline gets priced in for another round of chaos in 6-8 weeks. 

The Dec T-Bills are now higher in yield than the Oct T-Bills were on Tuesday!!!

In what world is it rational to decide that dumping 800,000 ounces of notional gold into the London Fix (or COMEX open) makes sense? In the space of 4 minutes, almost 2 million ounces notional were flushed into the gold futures markets dumping the price of gold to 3-month lows. This is the 4th down-day in a row and yet another "spike" around the open/close that regulators remains ignorant of.

Take all the talk about how "soaring" (to below 3%) rates will not impact housing, or that rising rates are great for banks because they help boost Net Interest Margins, and dump it in the trash. Why? Exhibit A - Wells Fargo, the bank which is most reliant on the housing market (unlike such prop trading powerhouses as JPM and Goldman) to generate revenues (which missed expectations) which just announced its Q3 earnings. The numbers of note were not among the fudged top or bottom-line headline grabbers. They were far uglier, and were as follows.

Equity markets are holding their gains despite the bond-market's bid this morning (and weakness in Nov bills).. it seems the optimism is a little premature...

Source close to last night's talks tell me CR deal is not as close as many press reports; House Rs far from ready to move on a clean CR

— Robert Costa (@robertcostaNRO) October 11, 2013

Everyone is pointing to national polls blaming the Repblicans and this there is pressure to act... do not forget "All politics is local"

A plausible debt ceiling agreement is finally on the table, but BofAML doesn't expect a deal until next week or later.

With 81% "Dissatisfied" and somehow 18% "Satisfied" there has never been more disappointment at the way the nation is being governed... Still, X-Factor is on later so that doesn't really matter...

So much for the JPM "fortress balance sheet." Moments ago the bank which 18 months ago stunned the world with the biggest prop trading loss in history, just reported its first quarterly loss under Jamie Dimon, missing expected revenue of $24 billion with a print of $23.88 billion, but it was net income where the stunner was in the form of a $0.4 billion net income. The reason: the fact that from the government's best friend, Jamie Dimon has become the punching bag du jour, and having to pay $9.15 billion in pretax legal expenses, the biggest in company history. Considering that the other key component of Q3 net income was a whopping $1.6 billion in loan loss reserve releases, one wonders just how truly strong Q3 earnings really were. But of course, this being Wall Street, all negative news is "one-time" and to be added back. Which is why JPM promptly took benefit for all charges, which means adding back the $7.2 billion legal expense and $992 MM reserve release after tax benefit. In short: of the firm's $1.42 in pro forma EPS, a whopping $1.59 was purely from the addback of these two items.

• Dot Com part deux: Investors are showing increasing hunger for initial public offerings of unprofitable technology companies  (WSJ)
• Poll Finds GOP Blamed More for Shutdown (WSJ)
• House, Senate Republicans Offer Competing Plans on Debt-Limit, Government Shutdown (WAPO)
• Obama, Republicans aim to end crisis after meeting, hurdles remain (Reuters)
• US Rethinks How to Release Sensitive Economic Data (WSJ)
• Chinese East Oil Fuels Fresh China-US Tensions (WSJ)
• ECB Agrees on Swap Line With PBOC as Trade Increases (BBG)
• China September Auto Sales Surge 21% on Japanese Rebound (BBG)
• JPMorgan Taps Taxpayer-Backed Banks for Basel Rules (BBG)

Despite stock (not bond) euphoria yesterday that a DC debt ceiling deal was sealed leading to the second largest risk ramp of 2013, last night was spent diffusing the excitement as one after another politician talked back the success of a "non-deal" that Obama rejected, at least according to the NYT. As a result, with both retail sales data and the PPI not being released (and the only data of note the always leaked UMichigan consumer confidence) markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday.