Archive - Feb 27, 2013

Stocks surged their most in 2013 today on slightly above-average volume as the Dow pushed towards its all-time closing highs and Transports went vertical (up 3.5% in Feb). While it no longer matters, it is worth noting that Treasuries and FX markets were not partaking as a broad basket of risk-assets suggests the S&P going out 20 points rich to reality. Materials are stil -1.5% on the month and Staples are leading +2.4%. In the last hour, the S&P even left behind its main driver - VIX - as the 'fear' index could not break below 14.5%. Of most notice today was the fact that equities have retraced all of their losses from the Italian election headlines and recoupled with gold on the week. The high-yield bond ETF HYG rose along with stocks but also notably the underlying HY bond market actually saw selling pressure as HYG's intrinsic value dropped markedly. Late on, trade size rose notably as S&P futures touched the under-side of the 3-month up-trend channel.

Following on the heels of Merkel's adviser Lars Feld's comments, German finance minister Schaeuble has raised concerns over the results of the Italian elections. His comment that,"I never said the euro crisis was over," stands in contrast to the claims of Monti, Draghi, Lagarde, Barroso, and Sarkozy who all have. along with the market's "doubts that a stable government can be formed," raises the risk of turmoil spreading to other euro countries. Schaeuble commented further that, "now it is up to those who were elected in Italy on Sunday to form a stable government. The faster they do this, the quicker the uncertainty will be overcome." The problem, as Reuters reports, appears to be not just Italy's public dissension over Germany's demands for austerity but his French counterpart's comments that "austerity has gone far enough," to which the German rebuked, "France must also do more here, Hollande knows this and so does Pierre Moscovici." Tension is certainly rising in the depression-addled union, even as Draghi explains - it's all ok, he promises.

Having started trading gold futures over 30 years ago, CNBC's Rick Santelli has seen a few changes over the years. From its true high in Feb 1980 at around $2300 (inflation-adjusted), the biggest shift he and his guest have seen is the evolution of ETFs and the implicit securitization of gold. This took the 'complication' out of trading gold and enabled those who did not wish to hold physical to participate. But Santelli asks the critical question, "didn't it take the whole point away [of investing in gold]?" From the 'old days' when gold and silver were physically held and passed down and considered wealth to the current incorrect belief system of paper gold, the myth-shattering-Chicagoan exclaims to the precious metal ETF holders, "for the Ayn Rand'ers, if the financial world comes to an end, you're not going to have the gold, you're going to have a piece of paper."

See if you can find when the Knight algo was turned off on August 1st 2012? Think that was a lone rogue algo? This is what our 'market' has become, as Nanex explains, a Knightmare on Wall Street...

When it comes to generating near-apocalyptic financial crises, there are few men quite as qualified as the former NY Fed and US Treasury head Tim Geithner. Which is why it is not at all unexpected that while he is drafting his tell all memoirs, which may or may not include details on why he leaked confidential market moving Fed information to Wall Street's banks, the TurboTax expert is set to take the university circuit by storm and teach young and impressionable minds about how not to do anything he did. As WSJ reports, "Former Treasury Secretary Timothy Geithner plans to hit the university circuit in the coming months, conducting a series of seminars on financial crises. Mr. Geithner, who left the Obama administration last month after four eventful years at Treasury, should have unique insights on such crises. He was president of the Federal Reserve Bank of New York and then Treasury secretary during the 2008-2009 financial meltdown. Mr. Geithner has committed to seminars at Harvard University, the Massachusetts Institute of Technology, Northwestern University, Princeton University and the University of Michigan." Surely, the future central planners of the world are already shaking with anticipation.

The U.S. health care system is a giant money making scam that is designed to drain as much money as possible out of all of us before we die.  In the United States today, the health care industry is completely dominated by government bureaucrats, health insurance companies and pharmaceutical corporations. At this point, our health care system is a complete and total disaster.  Health care costs continue to go up rapidly, the level of care that we are receiving continues to go down, and every move that our politicians make just seems to make all of our health care problems even worse. At the same time, hospital administrators, pharmaceutical corporations and health insurance company executives are absolutely swimming in huge mountains of cash.  Unfortunately, this gigantic money making scam has become so large that it threatens to collapse both the U.S. health care system and the entire U.S. economy.

We have explained the linkage between an inflating Federal Reserve balance sheet; the intended consequence of that excess (fungible) reserve liquidity leaking into non-printable assets; and that energy costs (and gas prices implicitly) are the end-game 'regulator' of that excess as they crush (again and again) the hopes of multiple-expansion-based equity strategies. However, even as prices of Gas surge once again towards the critical $3.80 level that has capped rallies in the last 5 years, the WSJ notes that Montana and Wyoming are still seeing prices below $3.25. Of course this is all just transitory - as we are told time after time - but the reason it is reflexively transitory is simply because of the effect on all the red states in the chart below driving consumers to cutback. Transitory, yes; slow-down-inducing for sure; the only thing that stops the world's central bankers going into a printing frenzy, absolutely.

Owners of bank debt were sacrificed

Now here is a headline one will never find in the US: "Former mayor, local officials sentenced to life for embezzlement." This headline comes from Greece, which due to the country's insolvency, is finally back to the anachronistic practice of holding elected officials in positions of power accountable for their actions because the people are understandably angry and seek justice. Other "developed" countries have the luxury of distracting the public with such trivial sideshows as the Criss Angel school of levitating wealth effects and other illusions which have managed to delay the day of comparable reckoning for now. Hopefully Bernanke can continue his wholesale assault against savers for years and years, or else one may just get the US mainstream media reporting of such atrocities against the status quo in the US.

It's one of those days. The world looks on as Bernanke speaks and the S&P 500 levitates 20 points in a straight line wealth-effect-confirming way. However, it appears the FX and Bond markets just can't get excited about all this... Of course, all that matters is the foot on the neck of spot VIX (which is now back below 15%) and Bernanke's confirmation that housing has bottomed (again).

Nuclear Cores and Spent Fuel Pools Have Both Lost Containment

Europe's dual problems of low growth and weak profit margins combined with this week's vote in Italy are likely to usher in another period of European underperformance, but as JPMorgan's Michael Cembalest notes, that is the least of it as Italy overtook Japan with the worst real GDP growth of all advanced economies since 1991. In fact, other than wartime, the last few years in Italy have been the worst for growth since Italian unification in 1861. But, before the rest of Europe gloats that 'they are not Italy, or Greece', he reminds us that the slowness of French GDP growth in recent years is the slowest in over 80 years. As he warns, all things considered, from an investment standpoint, caution continues to be warranted as problems appear to be taking their toll on EU profitability.

And yay verily there was much rejoicing that Italy managed to sell a few billion euros worth of its sovereign debt to its banking system (albeit at the highest accepted yield since October 2012). However, the rejoicing was hardly effusive as bonds and stocks gained only marginally, buoyed by catch-up from yesterday's US equity markets. Swiss 2Y rates remain at zero and EUR-USD basis swaps came back a little but overall this bounce is nothing to celebrate with Italian 10Y spreads still 47bps wider on the week and Spain 23bps wider. Italian stocks outperformed credit, now down 2.6% on the week as Europe's VIX followed US down but remains above Monday's close at 22%. EURUSD ran up to test the 1.3130 stops and faded back to its comfort zone around 1.3100. As a reminder, European bank spreads are holding at their widest in 3 months and point to notably weaker prices in European financial stocks (were of course they allowed to trade in a free non-short-sale-banned market).

Gold is trading flat today near a one and a half week high hit yesterday as Federal Reserve Chairman Ben Bernanke defended the U.S.  ultra loose monetary policy.

The selloff in gold ETFs in February underscores the weakness in gold sentiment among retail investors that has been prominent recently. 

There was much press coverage of the December jump in European bank deposits: a veritable litany of pundits said that it was an indication of the recovery in the European financial system, how faith in the banking system is coming back, and that European consumers are so wealthy they actually have excess cash they can deposit at their bank. Perhaps it is not very surprising, then, that we have yet to hear a peep about the fact that overnight the ECB reported that deposits at all key core and peripheral European countries declined. Wait, we know: "it's seasonal."