Archive - Sep 2013

If you thought August had more than enough events to crush the best laid vacation plans of Wall Streeters and men, you ain't seen nothing yet. Presenting "explosive" September.

Peak gold has yet to be considered and analysed by the international financial and investment community but there is a risk that it has happened or will happen soon with a consequent impact on the gold mining industry and on gold prices in the 21st Century.

The president gave a speech on August 22 in Buffalo outlining his proposal to “reform” the student loan program. He acknowledged that the program has some problems, but assured the audience they are easily fixed. Just take the principles behind Obamacare and apply them to education. The president personally “guaranteed” that his proposals would make college more affordable. Here’s the plan..

Much has been made of the survey-based self-referential PMI improvements in the Euro-Area in recent months. However, as we discussed in detail here, top-down GDP hardly resonates with this 'confidence inspiring' expansion data and global import improvements remain sadly lacking. It seems there is little apart from hope (and Draghi's imaginary OMT that ECB's Coeure explained this morning was 'very real') holding these manufacturing prints above the 50 level (based on the business outlook sub-indices). There is, however, one indicator of economic health that has consistently represented the reality of life on the ground on Europe... and, as we discussed here, it is getting worse not better. As the following map shows, unemployment rates are rising in almost every European nation with Cyprus (+5.1 percentage points in the last year) and Greece (+3.8 percentage points) the hardest hit and not expected to get better any time soon. So be careful what cleanest dirty shirt one bets on next.

Most of the gains in global equity markets were achieved at the gap open of US futures last night but with volumes tepid, the levitation machines also got a lift from Europe's PMI data this morning. S&P futures have lifted from a +10 gap to +16 now, testing towards Tuesday's (Pre-Kerry) levels but Treasuries have been slammed as any safe-haven premium is removed sending yields on the 10Y and 30Y up around 6 to 7bps (10-day high yields). Gold, which was slammed lower with WTI at the open, has recovered most of its losses (like WTI) and trades only modestly lower but silver is up over 2.5% (its best day on 10 days). European bond spreads and stocks are rallying handsomely with Portugal and Spain -20bps from Friday's wides and stocks up 1.5 to 2% (though Greece is lagging).

“At the peak of the cycle, when profits are far above average and the economy is doing well, it is hard to imagine earnings collapsing back below the average, as it is to imagine a depressed region recovering. Mean-reversion in earnings, though sometimes delayed, is as undeniable as the economic cycle itself. Cyclically adjusted (or trend) PE calculations will always give a conservative valuation estimate. But that is exactly the point of valuation – to offer a degree of safety (a margin of error) and to smooth the dangers of the economic cycle. That peak profits typically accompany peak valuations only reinforces the point." In the long run valuations mean everything.

The conclusions I have come to are somewhat threatening in the short term, but even more disconcerting in the intermediate term, as the developing image is exposing a crystal clear picture of the ominous resource wars looming directly ahead. Equally dismaying, are the "honorable distinguished gentlemen" presiding over this Middle East mayhem, which are showing themselves to be either grossly incompetent cretins or dangerous duplicitous megalomaniacs

While the US pro-strike coalition is crumbling following last week's UK vote that dealt a humiliating blow to PM Cameron, followed by NATO, and most recently by Germany announcing it would not take part in a military action against Syria, it was time for a lonely voice of support for Obama's delayed "surgical strike" request to the global community which Syria promptly called a "historic American defeat." It came from France where a senior government Socialist and chief of the foreign affair committee, Elisabeth Guigou, announced the government should not bow to calls from opposition figures to have lawmakers vote on whether to take military action in Syria.

• Tables turn: Syria asks the United Nations to stop U.S. strike (Reuters)
• More tables: Putin sees chance to turn tables on Obama at G20 (Reuters)
• Obama’s Decision Stirs Doubts About America’s Resolve (BBG)
• Kerry says US tests prove sarin used in Syria attacks (FT) - is this based on more YouTube or Vine this time?
• Italy Coalition Reels as Berlusconi Threatens to Sink Letta (BBG)
• Steinbrueck’s Jabs Fail to Knock Out Merkel in Election Debate (BBG)
• India's crisis within a crisis; finance minister fights on two fronts (Reuters)
• Ikea signals slower expansion (FT)
• US spied on Brazil, Mexico presidents (AFP) - since it spies on its people, is this a surprise?
• What's the Difference Between U.S., Chinese Corruption? (BBG)
• First Strut Default Jolts High-Yield Market: South Africa Credit (BBG)
• Vodafone, Verizon Agree on $130 Billion Deal (BBG)

Equity futures stormed out of the gate on initial relief that a Syria attack may be avoided, which sent oil and the PM complex flash crashing lower. However, overnight, sentiment shifted that the Syrian escalation is at best delayed and as a result Brent regained all losses, with the precious metals also largely unchanged from Friday's close. Futures on the other hand, were perfectly happy to rise on the transitory Syrian risk moderation reduction, and then continue rising when Syria returned to the forefront, this time prodded higher by PMI exuberance out of China and Europe. How credible such manufacturing data remains to be seen. A surging USDJPY was also rather helpful, with the pair breaching 99.00 stops to the upside shortly after the European PMI data printed. And with the cash US market closed, and electronic equity trade halted at 10:30 Central, it is unlikely that concerns about all those "other" things that will define September, will seep in and it is likely the HFTs will push equities to session highs before reopening for the Tuesday trading.

After China's weekend PMI release, Monday saw the full data dump of final Manufacturing PMIs from Europe, which on the surface was as good as it could get: with a composite PMI print of 51.4, compared to expectations and a flash reading of 51.3, this was the highest number in 26 months. Summarizing the European final August PMI data: manufacturers feel broadly better about themselves: in fact the best in 26 months, with new orders largely fueled by export demand. Yet exports to where one wonders, considering net trade surplus data has been stronger than expected for virtually all nations in the past month: after all in a zero trade sum world someone has to be substantially increasing their imports? But more importantly, actual jobs - the real growth dynamo for the European economy - continue to deteriorate, accelerating their downward pace having declined for 19 months in a row.

What's really Important?

SEC: take note, because the tables are turning.

While it is unknown is the US is suddenly focusing more on non-Cyprus based air support in the aftermath of the Cypriot decision to prohibit the launch of air strikes from its territory (just in time following a Russian agreement to restructure Cyprus debt), what is known, according to Reuters, is that while broad popular opinion is that the war drums are beating far more quietly following Obama's Saturday punt to Congress (a decision which can certainly still go either way), the US has decided to reroute CVN-68 USS Nimitz, and other ships in its strike group including four destroyers, in direction west toward the Red Sea "to help support a limited U.S. strike on Syria, if needed, defense officials said on Sunday."