Archive - Feb 2013

The gasoline market is well supplied, but if it weren`t for gasoline exports to countries like Venezuela, the United States would have much cheaper gasoline.

Nearly a month ago, the first expose on a previously secret money-losing derivative at Italy's Banca dei Monte Paschi emerged and nobody took notice. A few days later a second derivative emerged, and the market finally paid attention sending the stock plunging and political spirits in Italy stirring due to the repeatedly bailed out bank's close ties to the leading Italian Democratic Party. Then a third and a fourth derivative emerged. This, of course was just after Italy's Finance Minister Grilli assured everyone that Monte Paschi is "solid", that oversight of the bank was "continuous and thorough", that "aid was not to help an insolvent bank" and most hilariously, that "the Italian banking system is unique for no bailouts" (except for all the bailouts as Rajoy might add). It was also after various assurances that the first two derivatives were all there was, that Mario Draghi did not know about any of this, until it was revealed he knew years ago, and that no other banks would be impaired. Well, while we still don't know how deep the derivative rot has spread in Italy, but it is guaranteed it does not stop at BMPS, we have now learned of yet another derivative, this time with JPM, that the bank had lied even more, and also that the previously loss estimates for Monte Paschi were, naturally, optimistic and that the final loss may be up to (or over) €1 billion.

There will be some talk, but there will be no action.

In yet another day marked by simply unbearable propaganda, about an hour ago an EU official pulled a Lanny Breuer and was quoted as saying that "things are going well" in Greece. Oh are they? Then perhaps the same official can explain why a clip of a scuffle breaking out at a free food handout in Greece, where one man was "trampled and injured", and where a "Reuters photographer was hit on the head with cauliflower heads" has been the most watched item on Greek TV in the past day?

It seems the repayment of LTRO funds had quite a significant 'deleveraging' effect on the world's easy policy central bank balance sheet expansion. In USD terms, global central bank balance sheets have just experienced their biggest 4-week plunge since July 2009. Gold, like credit markets and European stocks, which have all underperformed US stocks, it appears merely discounted expectations of a drop in liquidity. We humbly suggest the momentum fueled, rotation-meme-driven, retail-is-in-now, US equity markets are due to meet their liquidity-maker sooner rather than later - if history is any guide. While, of course, the central banks' balance sheets are expected to expand (infinitely if they are to be believed), it would appear markets are stuck in the short-term for now (as opposed to discounting the future). Certainly the dramatic drop in central bank liquidity has had an effect in Europe as (led by credit) equity markets are well off their highs.

Down over a point in the long bond. Up almost a point in the long bond. Equities down more than 100 points. Equities up almost 100 points. All of this in the span of two days. Nothing was particularly new; no event popped up on the radar screen, no black swan swopped in from the horizon to startle the markets and anyone observing the markets may well ask, reasonably ask, just what the heck is going on. First, in my mind, we are getting a pretty good signal that the markets are running out of steam and that the collective vision of the way forward is murky. We are in a fragile state; near a tipping point. Please remember, however, that there are two components to additional debt and the markets have only focused on one side of the equation which is the interest rate variable.

We had to reread this DOJ statement on today's RBS wristslap twice, as the hypocrisy was literally mind-blowing: “As we have done with Barclays and UBS, we are today holding RBS accountable for a stunning abuse of trust,” said Assistant Attorney General Breuer.  “The bank has admitted to manipulating one of the cornerstone benchmark interest rates in our global financial system, and its Japanese subsidiary has agreed to plead guilty to felony wire fraud.  The department’s ongoing investigation has now yielded two guilty pleas by significant financial institutions.  These are extraordinary results, and our investigation is far from finished.  Our message is clear:  no financial institution is above the law.”

Conjuring Kyle Bass' recent explanation of the massive surge in the nominal price of the Zimbabwean stock market enabling the purchase of only 3 eggs, much is being made of the surge in Japan's Nikkei index (overnight up ~3.8% and the last few months). It would appear that, as we noted recently, the world forgets (quite readily) that 'real' and 'nominal' returns are quite different. With JPY collapsing at its fastest rate in a decade (relative to fiat and hard currency) to 33-month lows, is it any wonder that the nominal price of the stocks that represent the nation are surging to keep their 'value'. In nominal terms, NKY is at its highest since 2008; in real (gold) terms, it is laboring at its lowest since 1984 - which do you trust to judge your wealth?

When it comes to estimates of China's growth rate, we could go with the local politburo propaganda which even China itself has admitted is goalseeked worthless drivel fit "only for reference", or we could listen to a megacap CEO, who actually is on the ground and whose business model depends on accurately predicting the underlying economic reality of the world's biggest nation. We chose the latter, in which case we now know that China's 2012 GDP growth was only 3-4%, half the reported 7.8%.

Buy Apple till $1,000! Hurry & get this Facebook IPO while its hot! Short Google to go long Apple! I short the sell side & storm CNBC! Guess how it turned out.... 

Well that didn't take long. It appears spending time with the family is over-rated (or perhaps they couldn't stand him either) as Turbo Timmy has landed his first post-Treasury gig (Citi next?). The Council of Foreign Relations has graciously brought this "tireless and creative" thinker on board as a Distinguished Fellow. His role... "to strengthen their capacity to produce thoughtful analysis of issues at the intersection of economic, political, and strategic developments." We assume this is his gracious 'giving back' phase before six-months down the line slithering over to the big bucks at a bank when he suspects no one will be looking... The mutual adoration society continues...

Six months after the Barclays epic wristslap in which there were none - zero - criminal charges against Libor manipulators, it is time to trot out the same old theatrical song and dance again, this time focusing on bailed out RBS, which the CFTC just fined a whopping sum of $325 million, modestly less than the $16 billion profit the bank made in 2007, followed by the epic subsequent collapse which saw $104 billion in bailouts to keep the bank afloat courtesy of Biritsh taxpayers. In other words: manipulate the world's most sensitive credit-related metric, and you will see either 5% of your peak profits deducted, or we will force you to get even more bailouts.

Platinum prices have already risen by more than 12% so far in 2013, following the same advance for all of 2012. Platinum supplies have fallen to a 13-year low as mines in South Africa, the world’s biggest producer, close and the platinum industry is in crisis due to industrial unrest, geological constraints and sharply rising costs. Global production will drop 2.7% to 5.68 million ounces, the least since 2000, according to Barclays Plc, which raised its 2013 shortage estimate sixfold last month after Johannesburg-based Anglo American Platinum Ltd. (AMS) said it plans to idle shafts.  Anglo American Plc’s platinum unit, the largest producer, last month proposed the halt of four mine shafts that would cut about 7% of global production. At the same time, demand from carmakers, the biggest consumer of the metal, will increase 0.5 percent in 2013, Barclays says.  Perhaps, most importantly investors are buying platinum at the fastest pace in three years and yet holdings of platinum remain very, very small. Global production of the metal will fall as South African output drops 3.4% to a 12-year low of 4.11 million ounces, Barclays estimates.

The completely bankrupt US Postal Service, employer of some 500,000 government workers, which for the past two quarters has been surviving on liquidity fumes even as it posted it biggest ever loss in Fiscal 2012, and which recently announced its latest stamp price hike (which bought it two extra weeks of time), has just disclosed what was long anticipated: the end of Saturday mail delivery - a crushing blow to shippers of junk mail everywhere. Look for many more weekdays of mail delivery to be cut before the USPS itself has to be bailed out. In the meantime, the USPS can spend what little money it does not have on TV ads on channels such as CNBC whose viewers are certainly unaware of the services provided by this most bloated of legacy government entities.