Archive - Jun 2013

A record deficit in platinum supplies is set to push prices higher, as unrest sweeps the South African mining industry and demand is boosted by the auto sector and a new exchange traded fund (ETF), according to HSBC, as covered on CNBC

It appears that while investors seem loathed to sell their underlying positions, they are actively (and anxiously) hedging in equities and credit today...

In what year was the following written:

The Federal Reserve appears on track to buy the entire [amount of] government debt it has committed to purchase, barring a sharp, unexpected shift in the economy's prospects. If anything, lingering weakness and renewed concerns about global credit markets may lead top officials to lean toward doing more rather than less. A recent batch of better-than-expected economic data, including a relatively upbeat reading on the job market, has raised questions about whether the Fed acted prematurely in pulling the trigger... The Treasury market has been selling off sharply, in part as a response to the somewhat brighter landscape.

The answer...

 The “biggest risk to global financial stability”

Cyprus' President Nicos Anastasiades has realized (as we warned was inevitable), too late it seems for the thousands of domestic and foreign depositors who were sacrificed at the alter of monetary union, that the TROIKA's terms are "too onerous." Anastasiades has asked EU lenders to unwind the complex restructuring and partial merger of its two largest banks leaving EU officials "puzzled", according to a letter the FT has uncovered, as "essentially, he is asking for a complete reversal of the program." The EU officials claim that the failure to prepare for the bailout’s impact was partially the fault of Mr Anastasiades’ government, which voted down a first agreed rescue before succumbing to a similar deal nine days later. The FT goes on to note that although the letter does not request it explicitly, Mr Anastasiades is in effect asking for further eurozone loans on top of the existing EUR10bn sovereign bailout – something specifically ruled out by a German-led group of countries at the time. The return of beggars-can-be-choosers we presume - or just token gestures to recover some populist support as the enemy of my enemy is my friend.

To think it only took the world's most (in)famous whistleblower to get the NSA to disclose that it had heroically managed to prevent terrorist attacks involving the New York Stock Exchange (we supposed they refer to the Manhattan-based TV studio and not the actual exchange where the servers are now housed in Mahwah, NJ) and the NY Subway. Because whereas there was a time in the past when the various US secret services would scurry at the opportunity to disclose their expertise to the general public, now it is a false negative that is supposed to disprove a positive (pervasive spying on the US population is good for you because...). Of course it takes one non-false positive to disprove a false negative, namely the Boston Bombers, who as far as we recall, used cell phones to communicate. But so much for details: now please praise the NSA, and also comply with the Administration's push to rescind the second amendment. Or is Obama no longer pushing for "arms control"?

President Barack Obama stated yesterday that Federal Reserve Chairman Ben Bernanke has stayed in his position “longer than he [Bernanke] wanted”. Some will be probably agreeing with Bernanke (and Obama) more than he might have expected after having said that. Although he should have stopped short of adding (for fear of hurting Helicopter Ben’s feelings?) that he has done an “outstanding job”.

While many impartial observers have been lamenting the death of Abenomics now that the Nikkei - essentially the only favorable indicator resulting from the coordinated and unprecedented action by the Japanese government and its less than independent central bank - has peaked and dropped 20% from the highs, Wall Street was largely mum on its Abenomics scorecard. This changed overnight following a scathing report by Goldman which slams Abenomics, it sorry current condition, and where it is headed, warning that unless the BOJ promptly implements a set of changes to how it manipulates markets as per Goldman's recommendations, the situation will get out of control fast. To wit: "Our conclusion is that the positive market reaction initially created by the policy has been almost completely undone. At the same time, a lack of credible forward guidance for policy duration means that five-year JGB yields have risen in comparison with before the easing started, and volatility has also increased. It will not be an easy task to completely rebuild confidence in the BOJ among overseas investors after it has been undermined, and the BOJ will not be able to easily pull out of its 2% price target after committing to it."

It is all too easy to dismiss endless charts showing long-run correlations that have become useless in the current liquidity-fueled boom in stocks and real estate in the US with the "well, correlation is not causation" meme, but in Spain, we suspect, few will argue that the relationship between the surging unemployment rate of the OMT-bound nation and its delinquent loan growth is hard to argue with. With both at record highs (and the latter picking up once again after a temporary haitus of seeming banking delays offered some hope), it appears the southern European nation is going from worse to worst.

A mixed picture is starting to emerge from the Middle East in terms of oil production. Several members of the 12-member OPEC oil cartel are embroiled in turmoil or struggling to ensure post-war political gains. Oil production from the Middle East declined by 1.5 million barrels per day in 2009. Production from most Middle East countries has slowed down or leveled off, though gains from Iraq have offset some of those declines. With economic recovery seemingly on the horizon, a new OPEC may be developing from the ashes of the recession.

Starting momentarily, the Director of the National Security Agency, General Keith Alexander, will again testify on the Hill, this time before the House Permanent Select Committee on Intelligence about the value of the NSA surveillance program and the extent of the damage caused by leaks of top secret data. More importantly, as CNN reports, he is expected to reveal two previously classified cases in which secret surveillance programs thwarted terrorist plots. Supposedly this is to demonstrate that "inconveniencing" the general public by quietly taking over its privacy in order to preserve its "security", has positive results as well. Alas, preventing the Boston Bombing is not among such examples.

The FX and precious metals markets are swinging wildly around this morning (amid no news) as US equities remain anchored to hope (and VWAP) ahead of the FOMC tomorrow. Copper is also sliding quickly but WTI is back above $98 as the USD gets back to unchanged on the week. Treasury yields spiked early but have reverted to unchanged now. Credit markets have done nothing but widen (worsen) from the open this morning - also ignoring equity's stability - but hedgers are active as VIX remains higher on the day.

Late last week, Detroit's emergency manager Kevyn Orr, outlined his plan to stop a disaster becoming a catastrophe in the slumping city. The initial suspension of payment on pension obligation bonds is just the start as Orr warns unsecured creditors may only receive up to 10 cents on the dollar as about $2.5 billion in general unsecured debt won't be recovered. Rather incredibly, the city's General and Police and Fire retirement systems have a combined underfunding of $3.5 billion made worse by "aggressive actuarial assumptions," and "investing in risky development projects around the city and loans that will never be repaid." Under more realistic assumptions the funding status of the two pensions drops from 83% and 100% to 65% and 78% and he notes that "if these pension funds' assets had just been invested in a conservative way," as opposed to the political and reach-for-yield driven extravagance, "they probably would be fully funded now." The bottom line is not just creditor haircuts but,"significant cuts in accrued, vested pension amounts for both active and currently retired persons."

Anyone holding substantial deposits (read over $/€100,000) in G-8 banks: consider this your formal warning All data about such deposits will soon be shared among all "developed" countries, and any (every) country which needs to "resolve" its failing banking sector will use the Cyprus bail-in model and use "tax evaded" deposits to provide a liquidity buffer to its crumbling, and NPL-impaired assets. Oh, and what insolvent socialist manifesto can be released to the public without at least one mention of the phrase "fair taxes." Welcome to the second ComIntern, this time with extra global oomph.

It started off a simple protest in Sao Paulo as a demonstration by students against an increase in bus fares from R$3 to R$3.20, and then quickly morphed into general demonstration of discontent with the nation’s political classes on both sides of the spectrum involving over 200,000 across the country, with those marching on Monday holding placards decrying everything from the enormous sums spent on the World Cup to the treatment by police of protesters last week. It got to the point where protesters invaded and occupied, peacefully, the roof of the national Congress complex in Brasilia. Then things turned less peaceful when a breakaway group from the main rally in Rio de Janeiro attacked the state legislative assembly building and attempted to set it on fire.