Archive - Jan 2014

UPDATE: Some chatter that the earlier drop occurred around a story on the overhauling the London Gold fix (amid all the manipulation talk).

With no apparent news - who needs news - the precious metals market participants have decided that now is the time to sell, sell, sell in huge volume and all of a sudden... Gold is down 1.3% - its biggest drop in a month; and silver is down 2.8% - its biggest drop in 5 weeks. Gold has dropped back down to test its 50DMA and silver has crossed back down through it. Bonds are modestly bid, stocks ar enot moving on this collapse and the USD is hardly budging.

The Syrian peace talks - much heralded by investors and politicians worldwide as a brave step towards a better future - are on the ropes this morning. Following the UN acquiescence to the US demand that they rescind Iran's invite to the so-called Geneva II conference,and yet another suicide bombing in Lebanon, this morning's incredible SNAFU is thanks to the Greeks:

• GREECE REFUSES TO REFUEL SYRIAN GENEVA TEAM AIRCRAFT: SYRIA TV
• SYRIAN AIRCRAFT DELAY CANCELS MEETING WITH UN’S BAN: STATE TV

The peace accord set to begin tomorrow will be delayed and are in further jeopardy as CNN reports further evidence of Syrian President al-Assad systematically killing and torturng around 11,000 people.

The last time we pointed out an ECB bond sterilization failure as part of its legacy SNP program was on December 30 of last year (the third in a row), when a liquidity glut led to the biggest sterilization shortfall, one amounting to €39 billion, when only 89 banks submit bids to absorb paper in exchange for a paltry tip. Moments ago, the ECB reported that in just the third such sterilization auction of the new year there was once again a failure to absorb all the €177.5 billion in outstanding toxic peripheral bonds, when an impressive 126 bidders showed up and yet were only able to generate only €152.1 billion in bids, leaving a €25 billion shortfall.

It’s Sri Lanka that is the next on the list for investors. The darling of Southeast Asia, the gem of the Indian Ocean is the one of the few that didn’t get dragged down by the downturn in the markets.

What could possibly go wrong?

S&P filed a declaration of McGraw yesterday in federal court in Santa Ana, California, as part of a request to force the U.S. to hand over potential evidence the company says will support its claim that the government filed a fraud lawsuit against it last year in retaliation for its downgrade of the U.S. debt two years earlier. In his court statement, McGraw said Geithner called him on Aug. 8, 2011, after S&P was the only credit ratings company to downgrade the U.S. debt. Geithner, McGraw said, told him that S&P would be held accountable for the downgrade. Government officials have said the downgrade was based on an error by S&P. “S&P’s conduct would be looked at very carefully,” Geithner told McGraw according to the filing. “Such behavior would not occur, he said, without a response from the government."

• Hilsenrath: Next Cut in Fed Bond Buys Looms - Reduction to $65 Billion Could Be Announced on Jan. 29 (WSJ)
• China Workforce Slide Robs Xi of Growth Engine (BBG)
• Obama pulls the race card: Obama Says Race May Blunt Poll Standing in Interview (BBG)
• Chinese firm's IPO deal switches banks as chairman's daughter moves from JPMorgan to UBS (SCMP)
• China and Russia may hold joint naval drill in the Mediterranean (RT)
• Iran invite to Syria talks withdrawn after boycott threat (Reuters)
• Seven Chinese IPOs Halt Trading After 44 Percent Share  (BBG)
• U.S. military says readying plans for Olympic security assistance (Reuters)
• Thank you Bernanke: Investors Most Upbeat in 5 Years With Record 59% Bullish in Poll (BBG)
• From His Refuge in the Poconos, Reclusive Imam Fethullah Gulen Roils Turkey (WSJ)

One of the bigger stories overnight is Hilsenrath's latest communication from the Fed which once again simply paraphrases the status quo opinion, namely which is that the Fed will taper by another $10 billion on January 29, reducing the total monthly flow to $65 billion. "The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year, according to interviews with officials and their public comments." Of course, should the Fed not do that, as the Hilsenrath turned to Hilsen-wrath after all those Taper rumors in September ended up being one giant dud, one can once and for all completely ignore the WSJ reporter, who will have lost all his Fed sources and is now merely an echo chamber of consensus. What is notable is that the result of the latest mouthpiece effort, the USD is stronger, which means USDJPY is higher, which means US equity futures are flying.... on less QE to be announced. We eagerly await for this particular correlation pair to finally flip. The other big story, of course, is the already noted well-telegraphed in advance PBOC liquidity injection ahead of the Chinese Lunar New Year, and ahead of a potential January 31 Trust default which will certainly shake the foundations of the Chinese shadow banking system to the core. Not helping nerves was last night's announcement by Zhang Ming, a researcher and director of the international investment department at the Chinese Academy of Social Sciences, that "trusts and shadow banking will see defaults this year, and this is a good thing." Let's circle back in 6 months to see just how good it is.

The hits just keep on coming for ObamaCare. It was less than two weeks ago that we highlighted the potential premium rate death spiral that Obamacare faces due to the fact that only old and sick people are signing up for the program. Now it seems there are further security related concerns plaguing the site, as cyber-security expert David Kennedy recently claimed that “gaining access to 70,000 personal records of Obamacare enrollees via HealthCare.gov took about 4 minutes.” Simply put, he added, "Healthcare.gov was '100 percent insecure'."

EURUSD has topped out, BofAML's Macneil Curry notes, as the break of 1.3548 confirmed a bearish turn in the medium-term trend, targeting 18-month trendline support at 1.3144. Furthermore, Curry warns, longer-term charts suggest this could be the start of something significantly more bearish - targeting the 200-month average at 1.2187. Despite this USD strength, Curry adds, gold remains curiously bid and could squeeze to $1,399.

Despite all the reform policy imperatives to constrict credit and normalize and liberalize policy and rates, the PBOC just provided the largest liquidity injection to its banking system in a year - 255bn CNY. While this is not entirely unusual for a year-end, when Chinese banks have to confess their illiquidity sins and cover mismatches (and are always helped by the PBOC); this year, short-term money-market rates are triple that of last year and there is a very real chance of a very real default within the shadow banking system. Of course, the sell-side are desperately writing cover that this is all priced in and even if the PBOC "lets some Trusts go" then they will come to the rescue and any crisis will be "contained." However, no one knows who will be saved and therein lies the safety-first rub - now where have we heard "contained" before?

With California experiencing emergency drought conditions and sun-glass-clad bronzed beauties driving their convertibles around in Lake Tahoe amid not an inch of real snow, the East Coast - just emerging from the cocoon following Polar Vortex 1.0 - is, as we warned, about to be confronted with another chilly blast of "Arctic Cold" weather with temperatures up to 25 degress below average and 8 inches of snow due for New York City tomorrow, and wind chills up to 40 below for the Upper Midwest On the bright side, it will be a BTFD opportunity for all those missed earnings expectations for Q1 retailers.

Two of the largest retailers in America are steamrolling toward bankruptcy.  Sears and J.C. Penney are both losing hundreds of millions of dollars each quarter, and both of them appear to be caught in the grip of a death spiral from which it will be impossible to escape.  Once upon a time, Sears was actually the largest retailer in the United States, and even today Sears and J.C. Penney are "anchor stores" in malls all over the country. They are both shutting down unprofitable stores and laying off employees in a desperate attempt to avoid bankruptcy, but everyone knows that they are just delaying the inevitable.  These two great retail giants are dying, and they certainly won't be the last to fall.  This is just the beginning.

With the 1% of the 1% due to engorge Davos with their high-thinking centrally-planned solutions to the world's oh-so-foreseeable problems, the FT takes a look back at a "world above it all" from 1914. Then too, Margaret McMillan notes, they would have been puzzling over how to cope with their fast-changing, troubled world. They would have worried – as they do today – about the future; concerned that the pattern of economic boom and bust was dangerously unstable; and warning that society might splinter as inequality grew and the middle classes were squeezed. One thing that would not have troubled Davos that January 100 years ago was the possibility of a major war. Europe had just come through two dangerous wars in the Balkans, which surely showed that the international order could cope with crises. And so they would have gone their separate ways confident that they would all meet again in 1915.

Of the various flavors of government interventionism in our lives, the minimum wage is perhaps the most welcomed. It appeals not only to our innate sense of “fairness” but also to our self-interest. Its allure may erroneously lead us to the conclusion that because “it is popular,” ergo “it is right.” The more astute proponents of the minimum wage, however, immediately point to the obvious; namely, that an extreme minimum wage ($1,000 per hour) would be unequivocally detrimental. However, the proponents quickly turn to dismissing this fear by asserting that, empirically, no such job loss occurs when the minimum wage is slowly raised. This is akin to arguing that although fire can boil water, a small fire won’t heat it up.