Archive - Jul 23, 2013

The S&P 500 - after failing once again to take out the 1,700 magic line - closed the day just 'off the lows' with its worst day in a week (down a modest 0.1%). Stocks saw their best levels in the overnight session (echoing yesterday's move) and faded from the European open bouncing modestly at the European close. But unlike yesterday, we were unable to hold the bounce and dropped back to the lows of the day. Materials popped (shorts cover) at the open and dumped all day (a pattern seen in every sector). The USD rose in the early morning as the EUR faded but once the US opened the USD slid lower all day as JPY was well bid (back to its highs of the week). Gold (and less-so silver initially) lurched back up to pre-Taper talk FOMC levels (as did the USD) - its best 4-day run in 20 months. WTI held steady around $107 (and the Brent spread ebbed and flowed). Treasuries saw modest weakness on the day (+1 to 2bps) but ended well off the day's worst levels. VIX rose 0.3 vols on the day (more than expected given the equity move). Volume (once again) was entirely abysmal.

Days after Cyprus banks were bailed out (or, rather, in) in March, even if it meant the complete collapse of the local economy just to keep the country in the Eurozone and potentially the sale of the country's gold to provide its own funding toward the "common cause", the Eurogroup came out with a "Debt Sustainability Analysis" which predicted some hard times for the country but its eventual recovery. About a week later it emerged that the funding needs of the tiny island nation would be far greater than previously imagined, but for the time being, since the liquidity (if not solvency) situation had stabilized, all was well and that was one bridge that would be crossed when Europe came to it. That time may be coming fast. As Reuters reports, the Cypriot banking collapse has finally spilled over into the economy and resulted in a record collapse in local real estate values, which ranged from a 12.6% price drop in the valuation of an apartment to a 23.3% fall for office space in just the second quarter, which were the "sharpest recorded since RICS started collecting data in 2009, Loizou told Reuters."

It would appear, judging by the following discussion that the mainstream is so far down the rabbit-hole of central-planning bias that, as CNBC's Rick Santelli exclaims, "you can't imagine it any other way." In a brief 60 second screamfest, Santelli and Liesman battle over just who (or what) should be in charge. Santelli's free-market perspective that markets will set the equilibrium prices is entirely lost on a bleating Liesman who, when addressing the question of what would happen without a 'Fed', utters the following serf-like phrase, "but, who would pull the levers?"

Before the new Royal prince showed his face (and waved to his people), gold was limping higher at around $1335. Soon after, it appears the world demand for gold surged as baby-baubles were bid and gold has spiked to Pre-FOMC levels around $1350. Not only is gold back to pre-Taper levels but it has broken one of its more odd correlations in the last few days - that of the AAPL-coupling.

A BP official who led the company before the 2010 incident in the Gulf of Mexico marked his return to the region in a $3.75 billion deal with Houston-based Apache. Apache seemingly said goodbye to the Gulf of Mexico in the deal, opting instead to focus its efforts onshore. Former BP Chief Executive John Browne helped nab 1.9 million net acres in the agreement with Apache last week. Apache's "good run" in the Gulf of Mexico may suggest assets onshore may hold more long-term value for explorers as new drilling technologies have contributed to exponential production gains for onshore oil and natural gas in the United States.

Yes we aluminium can...

It appears reality is hitting home in the property bubble capital of the world. The so-called "Skyscraper Index" continues to show an unhealthy correlation between construction of the world's tallest building and an impending financial crisis - for example, New York 1930; Chicago 1974; Kuala Lumpar 1997, and Dubai 2010. As The Dubai Chronicle reports, the record-breaking Sky Tower in Changsha, China, has seen its budget surge from $625 million to $855 million and completion dates pushed back to April 2014, after originally being scheduled for completion at the start of 2013. As Barclays notes, often the world's tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and in impending economic correction.

Federal Reserve Chairman Bernanke's term expires January 31, 2014. While his continuation as Fed chair cannot be ruled out, he has given no public indications that he plans to seek another term and most market participants - as well as many members of Congress in last week's Humphrey-Hawkins hearings - seem to believe he will retire from public service early next year. As Goldman notes, the announcement of the next Chair of the Federal Reserve seems most likely to come in October, though nominations for Fed Chair have been announced as early as five months before the current term expires and as late as less than a month before expiration. There does not appear to be much risk to the Senate's ultimate confirmation of whomever the President chooses, though the Fed nominations have become more politically controversial over the last few years, which is likely to lengthen the confirmation process. Following previous confirmations, financial market volatility has typically increased slightly, though whether this occurs following the upcoming transition will of course depend on who is nominated.

If last month's 2 Year auction was all sparks and fireworks, when the yield priced at a two year high coupled with a plunging Bid To Cover, then today's issuance of $35 billion in 2 Year paper was all yawns and snoozes. Moments ago the Treasury issued another $35 billion in 2 Year near-cash equivalent bonds, at a 0.336% high yield, stopping through the When Issued 0.338% and slumping from the 0.43% in June, when the market was terrified that tapering means tightening (it does for the long-end, and for stocks but we will get there eventually), even if the Bid To Cover was barely unchanged, and at 3.08, it was only higher compared to the past two months' disastrous demand. Going further back would mean looking all the way back at 2 Year auctions from the summer of 2011, after which the BTC soared. In fact, the LTM average bid to cover is a far higher 3.61 although don't expect this to return at least no until the US has another "debt ceiling fiasco" type of event.

Last week Federal Reserve Chairman Ben Bernanke delivered what may well be his last Congressional testimony before leaving the Federal Reserve in 2014. Unfortunately, his farewell performance was full of contradictory comments about the state of the economy and the effects of Fed policies on the market. One thing Bernanke inadvertently made clear was that the needs of Wall Street trump Main street, the economy, and sound money.

The SEC alleges that Trendon T. Shavers, who is the founder and operator of Bitcoin Savings and Trust (BTCST), offered and sold Bitcoin-denominated investments through the Internet using the monikers “Pirate” and “pirateat40.”  The SEC alleges that Shavers, who lives in McKinney, Texas, paid 507,148 Bitcoin in investor withdrawals and purported interest payments.  He transferred at least 150,649 Bitcoin to his personal account at an online Bitcoin currency exchange.  Shavers suffered a net loss from his day trading, but realized net proceeds of $164,758 from his sales of 86,202 Bitcoin.  Shavers transferred $147,102 from his personal account at the online Bitcoin currency exchange to accounts he controlled at an online payment processor as well as his personal checking account.  He used this money to pay his rent, utilities, and car-related expenses as well as for food and retail purchases and gambling.

As second (and third, and fourth, and so on) liens come back, one more piece of the last credit bubble puzzle falls into place.

Amid a collapsng economy and as illegal party financing allegations close in around Spanish Prime Minister Mariano Rajoy, his 42-year-old deputy has kept her name clean. Now, Der Spiegel reports, Soraya Sáenz de Santamaría, the most powerful woman in Spanish politics, is well poised to be his successor. As Rajoy becomes increasingly mired in the massive scandal over illegal party donations, corruption and financial contributions, Sáenz de Santamaría, a former state lawyer who represented the country's highest court, is one of the few in the party to remain untouched by the allegations. And that alone - sadly - may be enough to qualify her for the government's top job.

Think Goldman would take accusations that it is, gasp, manipulating the RMBS, HFT, crude commodities market sitting down? Think again. Like every mollusc in self-preservation mode, here is Goldman's just released ink, pardon, press release saying all accusations about it are nothing but sheer rampant confusion. After all - Goldman simply makes markets. Move along.

Gross: Nominal GDP growing at 3.5% last 12 months. #Fed wants/needs 5%. So they #taper/tighten? Low odds. Buy 5’s.

— PIMCO (@PIMCO) July 23, 2013