Archive - 2013

The unraveling of the Ponzi Burrito begins...

Whether the repatriation of only some 20% of Germany's gold reserves from the Federal Reserve Bank of New York and the Banque of Paris back to Frankfurt manages to allay German concerns remains in question.  Especially given that the transfer from the Federal Reserve is set to take place slowly over a seven year period and will only be completed in 2020. The German Precious Metals Association and Germany's ‘Repatriate Our Gold’ campaign said that the move by the Bundesbank did not negate the need for a full audit of Germany's gold. They want this to take place in order to protect against impairment of the gold reserves through leases and swaps. Indeed, they have called for independent, full, neutral and physical audits of the gold reserves of the world's central banks and the repatriation of all central bank gold - the physical transport of gold reserves back into the respective sovereign ownership countries. It seems likely that we may only have seen another important milestone in the debate about German and global gold reserves.

The last few months have seen US equity markets swinging from confidence to grave concerns (briefly) and back to exuberance even as the looming 'debt ceiling' and sequester remains dead ahead. The pattern is eerily similar in price (and volatility) terms to the movements ahead of the Summer 2011 'debt ceiling' debacle. What is just as concerning is, as Bloomberg's Chart of the Day shows, is the mass psychology aspect, as mentions of the words 'debt ceiling' are once again gathering pace, just as they did in 2011. Markets may not repeat, but they do echo; and as UBS' Art Cashin noted, this month marks the 40-year anniversary of a significant top in the market as stocks broke to all-time highs and "all appeared right with the world." Perhaps, it is our inexorably optimistic belief that the politicians will fix it all (or kick the can) at the last minute - so there is nothing to fear but fear itself; or perhaps this time, there is a line in the sand that both sides need to defend.

For the Gov't to maintain its power and control over a growing population that has pockets of civilians who are using the advances we have in technology to share and collect information in an effort to fight the on-going information battle, it will need to restrict its citizens in another manner.  So far the intelligence of the average American has been wittled down.

No commentary necessary.

Initial jobless claims saw their biggest beat in almost 4 years to the lowest absolute (seasonally adjusted level) in almost 5 years. The market's initial reaction was a shrug (is good bad now that the Fed is pinned to jobs or is the market getting wise in the ways of seasonal-adjustment shenanigans?) but now it appears to be buying the new 'old' normal (+6 points). In the unadjusted data, things look very different - with a lag, New York (37,189), Georgia (15,354), and North Carolina (13,606) saw major rises in initial claims with only Michigan (-12,536) seeing a decent drop in claims - as we note that non-seasonally-adjusted claims rose notably less than in the prior 4 years, and assuming seasonal-adjustments are triggered from those, this will reflect very rosily on today's seasonal adjustment. With Claims back to 'normal', what will the Fed do?

The Algeria hostage situation reported yesterday, where alleged Al Qaeda operatives took numerous hostages at a local BP, Statoil and Sonatrach JV gas plant in retaliation for the French incursion into Mali, has rapidly gone from bad to worse as some 34 hostages (out of the 41 originally reported) have been killed.

While Citi's stock is getting hammered in the pre-market for missing both top- and bottom-lines, three things stand out to us at first glance. First, legal costs were well above expectations; second, they reduced their exposure to GIIPS  during Q4 - just when the rip-roaring rally in Europe really took off; and third, and more importantly, Citi did not take a huge loan loss reserve drawdown like every other bank.

• *CITIGROUP 4Q REV. $18.66B, EST. $18.92B                  :C US
• *CITIGROUP 4Q ADJ. EPS 69C WITH/WITHOUT ITEMS MISSES EST. 96C
• *CITI 4Q GIIPS NET CURRENT FUNDED EXPOSURE $8.9B VS 3Q $9.5B
• *CITIGROUP 4Q LOAN LOSS RESERVE RELEASE $86M VS $1.5B PRIOR YR

The question is, why would Citi not take advantage of the investing public's ignorance like every other bank and release more from loan-loss-reserves - have they maxed out their previous releases? or are they less exuberant at the housing un-recovery? (we note that 90-179-Day Delinquencies rose)

In this piece, I re-examine what many economists call "financial repression" and I find it to be sorely lacking as a description of what is happening. I also look at a related concern about the loss of central bank independence. Color me skeptical.

• Obama's Gun Curbs Face a Slog in Congress (BBG)
• Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
• China Begins to Lose Edge as World's Factory Floor (WSJ)
• EU Car Sales Slump (WSJ)
• Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
• Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
• Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
• Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
• Fed Reports Point to Subdued Economic Growth (WSJ)
• China Set to Exit Slowdown by Boosting Infrastructure (BBG)
• Greece not out of woods, must stick to reforms: finance minister (Reuters)
• Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)

Bank of America just reported yet another quarter marked by a bevy of "one-time" charges, which have now become normal course of business, even as NIM declined Y/Y, and sales and trading revenues declined sequentially. Loan loss reserve releases of $900 million more than offset the declining Noninterest income, and contributed to a positive pre-tax net income number. The biggest threat continue to be private Rep and Warrant outstanding claims which increased by almost 42 billion in the quarter to a total of $12.3 billion.

Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."

The real problem is that nobody ever planned for the US to be producing 7 million barrels of oil every day and rising, there is just not enough demand in the world for this extra oil.

Worth it's weight in tungsten gold...