Archive - Jun 6, 2013

India should monetise their huge gold stockpiles of over 20,000 metric tonnes according to the World Gold Council (WGC) as reported by Bloomberg this morning.

“In the long term gold could be monetized as a financial asset," Aram Shishmanian, the CEO of the WGC said in India overnight.

The World Gold Council has approached the Reserve Bank of India (RBI) to work with it so that bullion could be used as a financial asset, rather than just a physical asset. 

Portugal suffered the most - with its bond spreads now a huge 45bps wider on the week. It seems between the ever-increasing vol in Japan, a rapidly fading JPY carry funding mechanism, and lack of fresh meat from Draghi, Italian and Spanish bonds and stocks are losing their 'greater fool' bid. Sovereigns are seeing their worst day since February; stocks among their worst days since Feb - with several Spanish and Italian banks halted limit-down (as ECB's QE-like collateralization was not eased); and EUR is strengthening against the USD as risk-flows are repatriated. Italian and Spanish stocks are now at 6 week lows, and Spanish, Italian, and Portuguese credit spreads at six-week highs. European financial and corporate credit are now wider (worse) on the year and equities are catching down. And the ultimate 'greater fool' momentum trade - GGBs - is fading - now down 9.5% in the last week...

Our final observation on the matter of the US government, no longer accountable to anyone, and treating its citizens as indentured debt serfs who are entitled to precisely zero privacy rights, comes from Stephen Wolfson and "The NSA, AT&T And The Secrets Of Room 641A."

Zero-G free fall follows. But...But... the USDJPY is going to 105-110 they said. Don't fight the Japanese Fed they said. Elsewhere, the Watanabe retreat bugle just became the Watanabe gong show. For now, GETCO and DE Shaw's USDJPY-ES correlation algos are furiosuly pretending to ignore what is going over in FX land. We wish them luck...

Late last night, Japan's Nikkei 225 touched the 12,815 20% correction level and bounced. With the collapse stronger in JPY this morning (sending JPY-carry-traders scrambling) that level has been well-and-truly breached with the Nikkei 225 now trading 12,760 - down 20.25% from the 5/22 highs of 16,020. It appears the "buy-the-dip-mentality" is lacking among market participants that are decidedly one-way on this ship.

From 2006:

Two months after Kuroda's first speech at the BoJ unveiling the 2-2-2-2 awesome extravaganza of excess that will enable Abe to slay his deflation-monster, we thought it worth a quick update on the score... things are not going according to plan, we suspect...

If we are to believe what they said, then this is the year. 2013! It’s going to happen.. The stock-market is ready to crash yet again this year and this time it’s going to be a big one. Let’s take a look at what was said, when, why and by whom.

Blink and you have likely missed Obama's latest Watergate moment, this time following the disclosure that the White House has instructed the NSA to collect millions of daily phone records from Verizon (and likely all other carriers). What is surprising to us is that this is even news. We reported on just this in March of 2012 with “We Are This Far From A Turnkey Totalitarian State" - Big Brother Goes Live September 2013" and then again in April 2012 "NSA Whistleblower Speaks Live: "The Government Is Lying To You" using an NSA whistleblower as a source. Still, no matter the distribution platform, it is a welcome development for the majority of the population to know that the same Stazi tactics so loathed for decades in the fringes of the "evil empire" are now a daily occurrence under the "most transparent administration in history." This is especially true in the aftermath of the recent media scandals involving the soon to be former Attorney General.

While there was an initial knee-jerk bid for S&P 500 futures as Draghi set forth his unchanged policy (in fact worse, no new measures discussed amid the contraction of the ECB balance sheet), since the press-conference and Q&A began, risk markets everywhere have taken it on the chin. S&P 500 futures are at overnight lows, Nikkei futures are testing back to the 20% correction levels, Spanish and Italian bond yields are surging (back at near-two-month highs), Spaniosh bond spreads back above 300bps, and European stocks are tanking.

“Volatility is rising and asset prices are highly vulnerable to all incoming news... The amount of attention paid to rumors about QE highlights how vulnerable the U.S. economy is to the prospect of a tapering in asset purchases or a rise in interest rates. This is largely because the current economic expansion is dependent on further gains in housing, which would be adversely affected by a material rise in mortgage rates... This dynamic underpins the Federal Reserve’s current dilemma over how to normalize monetary policy. I do not anticipate an easy ride for policymakers or investors over the coming months.”

Anyone anticipating some earth-shattering release from the DOL in its weekly initial claims report as a guide what to expect tomorrow was disappointed following the release of a 346K print today, which was about as close to the 345K expected without the DOL losing all credibility. This followed last week's naturally upward revised 354K to 357K print, although the problem is that it appears this was it for the 'downward trend' in initial claims which goes back to the thesis that 7.5% unemployment is the new 4.4% unemployment. Continuing claims came better than expected at 2952K on 2974K expected. Also, damn it doesn't feel good to be a government worker - "there were 17,862 former Federal civilian employees claiming UI benefits for the week ending May 18, an increase of 551 from the previous week." Blame the sequester. There was no good news for veterans either: "Newly discharged veterans claiming benefits totaled 35,944, an increase of 614 from the prior week." Bottom line: a nebulous report which provides zero additional insight into what to expect in tomorrow's NFP and thus zero color into what the Fed may do with... "THE TAPER" dun dun dun.

While equity markets are giving up the kneejerk gains after the ECB's decision to make no decision and keep rates unchanged, we await the much more interesting twists and turns of Draghi press conference and Q&A. From EU-wide bank audits to fragmentation and from OMT's promise to easing collateral standards for ABS buying, there is bound to some fireworks (leaving aside his likely admiration for Abe) especially if he hints at negative rates. We look forward to his explanation of the dichotomy of a conditional OMT and the easing of fiscal targets across almost every nation. Popcorn, ready... His prepared remarks are doing little to help though he quotes sentiment indicators as a positive and cuts real data expectations for 2013 (while raising 2014)...

• *ECB SEES 2013 GDP -0.6%
• *DRAGHI SEES DOWNSIDE RISKS TO ECONOMIC OUTLOOK
• *DRAGHI SAYS MONETARY, LOAN DYNAMICS REMAIN SUBDUED
• *DRAGHI SAYS ECB TO KEEP POLICY ACCOMMODATIVE AS LONG AS NEEDED
• *DRAGHI SAYS SENTIMENT INDICATORS SHOWED SOME IMPROVEMENT

Lately Bloomberg's reporting group (now without access to client tracking) has been hitting it out of the park when it comes to cognitive schizophrenia-inducing news article headlines. Last Friday it was the market somehow going up and down at the same time. Now, Bloomberg has shifted its deductive skills over to analyzing the gold market with the following article headline: "China’s Gold Imports From Hong Kong Slump on Quota Backlog" in which Bloomberg says: "Mainland buyers purchased 126,135 kilograms, including scrap, compared with 223,519 kilograms in March, according to Hong Kong government data yesterday. Net imports, after deducting flows from China into Hong Kong, were 75,891 kilograms, from 130,038 kilograms a month earlier, according to Bloomberg calculations." Now perhaps what would have made this "slump" more amusing is if BBG had also shown it in context. Which we are happy to do. Because the 126.1 tons of gold imports in April, or the month of the "great gold crash", was only the second highest ever, and just shy of the all time record high of 223.5 tons imported in March.

Despite some concerns that the ECB would lower rates (and maybe go negative on deposits) at today's meeting, it was certainly not the consensus. And for once, the consensus was right. Form the ECB:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.50%, 1.00% and 0.00% respectively. The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

Look for Mario to not touch on this issue at today's press conference in 45 minutes if indeed there is much disagreement among the governing council, and instead to focus on what plans the central bank has to spur European private lending which as we showed last week, just hit record lows. If any of course. We, on the other hand, are still hoping to finally get the OMT term sheet that supposedly saved Europe last summer. Because it looks kinda stupid if market participants continue to get duped by an "instrument" that officially and unofficially doesn't exist.