Archive - Jun 2013

It's been a long time since Hilsenrath actually reported news instead of serve as a leak dissemination service for the New York Fed. Today was one of those time with news from the WSJ that the Obama administration, and specifically Jack Lew, has begun assembling a short list of candidates for the Federal Reserve chairmanship, in the expectation that Ben Bernanke won't seek reappointment when his second term ends in January. According to Hilsenrath, since the decision on whether the Chairsatan stays or goes is all his, Bernanke may decide to stay for a few more years of QEasing, however he won't: "many of Mr. Bernanke's friends and associates believe he wants to step down when his term expires, after nearly eight years overseeing the central bank's response to the most serious economic downturn since the Great Depression."

A month ago DoubleLine's Jeff Gundlach laid out his most recent chartapalooza view of the world and a lot has clearly changed in that brief period. In light of his comments this morning on CNBC that "the liquidation cycle appears to have run its course with Emerging Market bonds, US junk bonds, Munis, and MBS - all of which substantially underperformed Treasuries during the rate rise... July will not be a repeat of May/June in the rate market." We expect to hear more color for this market call during his discussion starting at 1615ET.

Yesterday, the mainstream "media" was very useful in explaining why both bad economic news and good economic news lead to stock market rallies. Today, the same mainstream media is even more useful in explaining why stocks are up as the Taper seems less likely, while gold is down because the Taper is... more likely. And #Ref!

"O’BRIEN: It is a total clusterfuck . . . . They have to move half a billion dollars out of BONY to pay me back . . . . Tell me how much money is coming in and I will make sure it gets posted. But if you don’t tell me, then tomorrow morning I am going to have a seg problem . . . . I need the money back from the broker-dealer I already gave them. I can’t afford a seg problem."

... the Complaint charges that MF Global (i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts; (ii) filed false reports with the CFTC that failed to show the deficits in the customer accounts; and (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation; and that Holdings controlled the operations of MF Global and is therefore liable as a principal for MF Global’s violations of the Commodity Exchange Act and CFTC regulations.

From the moment Bernanke spoke, Gold and Silver began to accelerate to the downside. Gold legged lower into the NYMEX pit close and faded further in search of the $1200 round number (trading at $1199.90). Down around 12% from the FOMC (gold is now -38% from its highs in 2011). Silver is following (down over 14% from FOMC) as the Gold-to-Silver ratio test 65x (double its lows in April 2011 around 32x) and back to the ratio that existed as Lehman failed.

It seems things are not going to according to plan for the US...

• *ECUADOR PRESIDENT CORREA COMMENTS ON SNOWDEN CASE IN LOS RIOS
• *ECUADOR'S CORREA SAYS WORLD ORDER 'UNJUST' AND 'IMMORAL'
• *CORREA SAYS U.S. GROUPS CAN'T 'TERRORIZE' ECUADOR WITH THREATS
• *ECUADOR WON'T ACCEPT 'PRESSURE OR THREATS FROM ANYONE'
• *ECUADOR SAYS U.S. THREATS 'CLEAR ATTACK' AGAINST SOVEREINGTY.

We suspect it will be a while until the US gets its case read...

It only took virtually all the Fed's hawks and doves to undo Bernanke's damage from last week, and jawbone the markets into submission, and halt the stock and bond selloff. Although, judging by yesterday's dismal 5 Year bond auction, few were convinced that the bond market was stabilized. Which is why today's belly buster, 7 Year auction was going to show just how much more daily sermons from the Marriner Eccles priests we would get ahead of next week's 10 and 30 Year auctions. Not surprisingly, it performed admirably, and was far stronger than this week's previous 2 and 5 years weak placements.

Having miraculously avoided the triple-dip recession and amid a bubbling housing (and stock) market, the average household in the UK is not doing so great. While this may not come as a surprise to many that these two things can be so disconnected, it is simply stunning that UK Disposable Income collapsed in Q1 by its fastest rate in 25 years to its lowest level in almost 8 years. With BoE's Mervyn King on his way out proclaiming that the worst is behind them and "recovery is in sight," perhaps it is Sainsbury's CEO's comments that are most prophetic "It’s unrealistic [for politicians] to paint a picture which is not the reality that consumers are currently experiencing," he said "Nobody should be planning their business today if they're customer-facing on an expectation that consumers have extra money to spend."

“We’re just building a bigger and bigger time bomb.”

The Accident Is NOT Contained

Norwegian energy company Statoil said last week it was forming a special operations division to handle emergency operations in response to a terrorist attack on a natural gas facility in Algeria. The company said it would double the amount of employees it had designated for existing security operations after reviewing the measures in place at the In Amenas gas facility. A January attack there left employees with Statoil and BP dead in what al-Qaida said was a response to French intervention in Mali. With the economy just as much a viable target as any, counter-terrorism may becoming more than just the military's game. With the international economy depending on a reliable source of energy to keep churning, Statoil's actions suggest the energy sector may start to take on some of that burden itself.

Having appeared to confirm no 'actual' American emails were intercepted in previous statements, it seems President Obama has some more questions to answer after the Guardian reveals that in fact, the Obama administration permitted the National Security Agency to continue collecting vast amounts of records detailing the email and Internet usage of Americans for more than two years. “The internet metadata of the sort NSA collected for at least a decade details the accounts to which Americans sent emails and from which they received emails,” the Guardian's Greenwald wrote. “It also details the Internet protocol addresses (IP) used by people inside the United States when sending emails – information which can reflect their physical location. It did not include the content of emails." Is it any wonder that Obama said he was "concerned" about firther leaks today.

Presented with little comment aside to note that clearly the Bernank's comments remain key to the market's perception of the new 'Tapering' reality... so when does Ben come out from behind the curtain and say, "Just Kidding..."

The bounce off the 100DMA has been quite remarkable as a plethora of Fed heads have jawboned the S&P 500 up by as much in the last 3 days as the market rose in the first few days of the year. An almost 4% gain (amid collapsing volumes) has pushed the S&P 500 up to its 50DMA and for now (despite Dudley's best efforts) it is stalling at this technical support level (whuch just happens to coincide with a 61.8% retracement of the plunge from the FOMC). In other news, credit markets (having compressed/normalized the technical skews we have discussed) are selling off rather notably. Treasury yields are lower on the day though leaking higher into the European close and the USD is continuing to rise (led by JPY weakness for now).