Archive - Jan 2013

• White House delays 2014 budget after "fiscal cliff" standoff (Reuters) - And Senate will pass this... never?
• Amari Signals Limits to Abe’s Campaign to Weaken Yen (BBG)
• Draghi’s Bond Rally Masks Debt Doom Loop Trapping Spain (BBG)
• Obama backs gun limits, concedes tough fight ahead (AP)
• Bernanke to Weigh QE Costs as Fed Assets Approach Record (BBG)
• Japan to Sell Debt Worth 7.8 Trillion Yen to Pay for Stimulus (BBG)
• France more than doubles forces in Mali (FT) and yet...
• Malian Rebels Take Town and Vow to Avenge French Attack (NYT)
• China’s Li Calls for Patience as Government Works to Reduce Smog (BBG)
• EU berates China over steel subsidies (BBG)
• Number of working poor families grows as wealth gap widens (Reuters)

And so the consequences for Europe of accommodating the US, and the rest of the world, in having the EUR soar following ECB intervention while everyone else's currency is diluted to death, comes to the fore, following today's announcement of German 2012 GDP which came below expectations of 0.8%, printing at 0.7%, with government adding a substantial 1.0% to this number, while plant and machinery investment tumbled by a whopping -4.4%. And while the specific Q4 data was not actually broken out, a subsequent report by the German stat office indicated that Q4 GDP likely shrank by 0.5% in Q4. All that is needed is one more quarter of sub zero GDP, which will almost certainly happen in Q1 absent a massive surge in government spending which however will not happen in tapped out Germany, whose resources are focused on keeping the periphery afloat, and thus the EURUSD high, and Germany's exports weak. Confirming this was a Bild report which stated that the government now sees 2013 GDP growth of a paltry 0.4%, which assumes growth in H2. One wonders just how much longer Germany will opt for a currency regime that punishes its primary GDP-driver: net exports, at the expense of nothing beneficial but making tourist trips to Greece far more expensive than under the Drachma.

Most of the major currencies are consolidating within yesterday's trading ranges. The main feature has been comments from Japan's Minister of Economic Revival that appeared to declare victory in the government's attempt to weaken the yen. News wires quoted him saying that the yen had corrected its excessive rise and was currently in line with fundamentals. This triggered a wave of short covering yen positions, driving the down form around JPY89.60 to near JPY88.60 in initial reaction that lasted about an hour. It has been consolidating since, mostly below JPY88.90. The sharp recovery of the yen was also felt on the crosses, though a more consolidative tone that was seen in the European morning was fading and the currencies moved back toward the lows as North American traders prepared to return to their screens.

History Repeats ...

We are on the same path as Greece, and Mr. President, you need to recognize that being a true leader is not doing the popular thing but the right thing with regard to fiscal responsibility.

And just like that the Abe Yen "open-ended" devaluation is gone as soon as it came. About an hour ago the USDJPY proceed to plunge, first slowly and then very fast, following remarks from Japanese Economics Minister Akira Amari who said that excessive yen weakness could have a negative impact on people's livelihoods through rises in prices of imports, and that it has corrected to a level in line with fundamentals. Almost immediately the USDJPY slid 100 pips to a low of 88.62 yen in the wake of Amari's comments, and last stood at 88.96 yen, down 0.7 percent from late U.S. trade on Monday. As for giant "splatting" noise heard around that world, that was every Goldman senior banker slapping themselves on the forehead as effectively one comments ended the carefully built up tension leading to over 1000 pips in Yen devaluation on fears of unlimited easing without any actual intervention, and just promises, combined the best of what both the Fed and the ECB have done. Of course, each day that passes bring draws closer to some actual action out of the BOJ, and a day when the Yen slide with impunity based solely on fears of intervention, finally ends.

With impeccable timing.

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed - because if the central banks don't have faith in one another, why should anyone else? - trust in central banks by other central banks is ending.

A little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.

How effective have the sanctions been in moderating Iran’s behavior up to now? Current indications are not much, despite the damage inflicted on the country’s economy. On 9 January Iranian President Mahmoud Ahmadinejad said that Iran should establish more processing industries in the oil and gas sectors to reduce dependency on exports of crude oil and that the budget plan for the next Iranian year of 1392 (to start on 21 March) envisaged less dependence on crude oil revenues as the government intends to replace crude oil exports with oil derivatives to allow the nation’s economy to participate in the oil sector’s lucrative downstream industry.... A regime that has weathered more than three decades of tumult in its efforts to construct an Islamic society seems unlikely in an energy-starved world to ameliorate its behavior solely to please the dictates of Washington, Brussels, the UN and Canberra. And oh, on 14 September 2012 the United States exempted Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and Japan from complying with the sanctions for another 180 days, a list that was expanded on 8 December to include China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan.

In the aftermath of the Chairman's painful waste of time "interactive" session, which addressed precisely zero of the relevant questions, we would like to ground readers with a real, hard, monetary equivalent, which unlike paper money, has retained its worth over the past 2000 years, and one which no central planning committee can create out of thin air at will. Gold. The chart below should put it all into perspective.

Following up on today's relentless debt ceiling propaganda, which started with the Politico report that more than half of republicans are willing to push the US into a "temporary" default, going through Obama's "We are not a deadbeat nation", but one whose president apparently will not debate the debt ceiling (the same president who as a Senator was against rising the debt ceiling) and closing with Boehner's rebuttal to Obama, saying the GOP would raise the debt ceiling but in exchange for spending cuts, sure enough it was time to unleash the Treasury Secretary in his last days on the job, toting the party line ("extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved") making it "abundantly clear" that "Even a temporary default with a brief interruption in payments that Congress subsequently restores would be terribly damaging, calling into question the willingness of Congress to uphold America’s longstanding commitment to meet the obligations of the nation in full and on time.  It should also be noted that default would increase our borrowing costs and damage economic growth and therefore add to future budget deficits, not decrease them." The unleashed Geithner then proceeds to threaten: "Threatening to undermine our creditworthiness is no less irresponsible than threatening to undermine the rule of law, and no more legitimate than any other common demand for ransom." Finally, Geithner also made it clear that the CNBC "RISE ABOVE THE DEBT CEILING" campaign is now at T-30 to T-45: "Treasury currently expects to exhaust these extraordinary measures between mid-February and early March of this year" which however should not be news to anyone.

Just like Friday, there was virtually nothing notable to speak of in today's trading. The one catalyst that pushed stocks higher: all stocks, not just the one that may or may not be in play, was the DELL LBO rumor, that prevented the DJIA from going red on the day and pushed the 30 stock average well above the red, even if the S&P500 was not quite so lucky. As for what really mattered today, it is summarized in two words: "AAPL" and "$500." After breaching $500 briefly in the early trading session, the end of trading saw a concerted selling effort in the one stock most heavily owned by the hedge fund community, yet no matter how close it got to breaching $500, and sending the company into who knows what stop loss tailspin, someone kept buying just above $500  thereby preventing the uber levered hedge funds from having to start liquidating holdings to meet margin calls.

Today at 4pm Eastern, Ben Bernanke, at the University of Michigan’s Ford School of Public Policy, will take live questions from Twitter for the first time as part of the Fed's new policy of openness. Of course, the policy won't be so open for him to answer if banks are actually using reserves as prop trading funding (as was the case with JP Morgan, and any other bank which realizes that when it comes to fungible cash, money is just 1s and 0s in a server somewhere). However, the filter may slip and at least one or two good questions may slip through. So please take this opportunity to submit any pressing questions you may have on the Fed's policy to pump the market to new stratospheric highs courtesy of $85 billion (for now) in monthly reserve injections into the Primary Dealers, by using the #fordschoolbernanke tag to your questions. For convenience, we have appended a twitter module below that captures all tweets with that querry.

At precisely 14:04:08 a flashing red Bloomberg headline hit that "DELL IS SAID TO BE IN TALKS TO GO PRIVATE." Moments later the stock slammed higher by 10% triggering a circuit breaker. Whether or not there is an actual deal behind this is unknown: considering the "two sources" used by Bloomberg gave virtually no details on who the buyers are, or what the vision for the pro forma private company will be, we are inclined to assume this is nothing but a big, and successful, fishing expedition by a party that sought to make a quick buck. What we do know, is something completely unrelated. Courtesy of Nanex, who have broken down the trades from the pre-headline prices of $10.90 to the halt price of just under $12.00, it appears that today's robotic algo brains take no more and no less than 4 seconds to fully process flashing red headlines. This is how long it took to send the stock in a straight line from the bottom of the range to the top, because all along the ride there were offers, until finally the offer stack was exhausted at the circuit breaker price. To anyone who blinked and missed the move: condolences - just get a collocated algo and any future LBO announcements - real or fake - will be far more lucrative courtesy of an electronic trigger finger located right on the exchange.