Archive - Feb 13, 2014

The story of how JPMorgan, Goldman and the rest of the Too Big To Fails and Prosecutes, cornered, monopolized and became a full-blown cartel - with the Fed's explicit blessing - in the physical commodity market is nothing new to regular readers: to those new to this story, we suggest reading of our story from June 2011 (over two and a half years ago),  "Goldman, JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers' Diamond Monopoly." That, or Matt Taibbi's latest article written in his usual florid and accessible style, in which he explains how the "Vampire Squid strikes again" courtesy of the "loophole that destroyed the world" to wit: "it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally." Complementary to a financial activity. What the hell did that mean?... Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination."

It seems Janet has some work to do on her "communications". Judging by today's follow-through on dismal retail sales data (and a miss for claims), stocks, bonds, and gold screamed higher (and the USD lower) suggesting an increasing crowd does not believe the QEeen's "stay the taper course" meme. The S&P 500 rallied 25pts off early lows - practically in a straight-line, dislocated from JPY-carry, dislocated from bonds, and coupled almost perfectly with gold after Europe close. Nasdaq is up 6 days in a row and back near multi-year highs (+1.5% in 2014) as "most shorted" stocks were ripped 2.5% higher intraday. Gold closed back above $1,300 (outperforming on the week and since Taper); Treasury yields tumbled 6-7bps; and the USD Index dropped 0.5% led by EUR and GDP strength. VIX traded under 14% briefly. Bad news is great news once again. This is the Nasdaq's best 6-day run in 27 months.

The ongoing exodus from Mt.Gox - a major Bitcoin exchange - amid withdrawal halts, has seen a massive $150 spread open up between it and other exchanges. Having tumbled by over 50% in the last 2 weeks, Mt. Gox pricing is back at levels first seen 3 months ago. This chaos (and the ongoing 'finger-pointing' over who is to blame) had led Mt.Gox CEO Mark Karpeles to come out swinging in the following interview...

From budget projections released by the Congressional Budget Office (CBO) last week:

CBO now expects that output will fall slightly short of its potential, on average, even after the economy has largely recovered from the recent economic downturn.

Translation:

We’ve thrown in the towel on our long-time assumption that the economy never again falls into recession.

Shocker: the business cycle lives!

Following the 20% devaluation of Kazakhstan's currency on Tuesday, the nation has quietly drifted into a very un-safe scenario. As the following clip shows, tanks and Humvees are lining the streets around Almaty as stores are closed and food is running desperately short. Local accounts note that the people are growing increasingly indignant. At a mere 192bps, the cost of protecting Kazakhstan sovereign debt from default (or further devaluation) seems cheap in light of this.

First it was bail-ins and now it's the “personal pensions savings” of the European Union's citizens that could be used to help plug the gap left by banks since the financial crisis.

Yields on United States 10-year bonds rose above 3% at the beginning of January.  The yield on the 10-year had reached its lowest point in history in July 2012 at 1.43% as a result of the Fed’s policy of Quantitative Easing.  Since then yields have doubled as markets have incorporated the impact of the Fed tapering their purchase of U.S. Government securities. This raises the question, how high could interest rates go from here?  Could interest rates move up to 3% per quarter? U.S. interest rates were that high back in 1981 when the yield on US 10-year Treasuries hit 15.84% and 30-year mortgage rates hit 18.63%. What about 3% per month?

Not Bonds (which are rallying to their low yields of the day - and have almost removed the entire post-Yellen move)... Not USDJPY (which entirely disconnected from stocks when Europe closed)... but Gold... ding ding ding... is your new correlation pair du jour...

President Maduro and his ministers have stated (fully supported by Argentina):

*PEOPLE BEHIND YESTERDAY'S VIOLENCE WILL BE PUNISHED: ORTEGA
*VENEZUELA ISSUED ARREST ORDER FOR LEOPOLDO LOPEZ: VOLUNTAD
*VENEZUELA IN ABSOLUTE CALM, ORTEGA SAYS
*ARGENTINA SAYS IT FIRMLY SUPPORTS VENEZUELA'S GOVERNMENT

However, between armed groups reportedly firing shots (see clip below) into the Students Assembly and the disappearance of the protest leader, the protests appear to be anything but "calm."

TARP Recipient BNP Paribas got $4.9bn of bailouts from the U.S. Taxpayer - Today, as the WSJ reports we learn BNP Paribas has been funding transactions in Iran, Syria and other countries subject to U.S. Sanctions since 2002. The bank set aside $1.1 billion to settle investigations by the Department of Justice and the Federal Reserve but as the NY Times reports, investigations are playing out on multiple fronts - centering on whether the firm did "a significant amount" of business in "blacklisted" countires (and routed the deals through the US financial system).

In a deja vu of yesterday's 10 Year auction, which saw a slide in the Bid To Cover even as the closing yield was well through the When Issued, so today's 30 Year saw a slide in the Bid to Cover (from 2.57 to 2.27, and well below the 2.46 TTM average) even as the closing yield of 3.69% priced through the When Issued by a whopping 1 bp. However, here the comparisons ends, because while in both the 3 and 10 year auctions from earlier this week, there was a surge in the Indirects, this time around the Indirects were more or less in line, rising to 46.0% from 45.3%, if above the 39.4% TTM average, while Dealers took down 40.8%, above the 38.1% in January. Directs ended up holding 13.9%. So a mixed auction overall, as if the market expect the Fed to continue buying the long end on one hand, even as tapering means the 30 Years will be the most convex instrument should tapering indeed mean the monetization of duration ends some time in the summer.

Chronically maladjusted Keynesian...draws dicks on cars...

We all knew that cultures were different and that we all had a unique way of doing things that run our daily lives. In Europe they tell the banks that they will die if they are weak (apparently, after the statement issued by Danièle Nouy, overseer of the Singe Supervisory Mechanism).

Sickcare/ObamaCare is fundamentally broken at every level. The incremental nature of change makes it difficult for us to notice how systems that once worked well with modest costs have transmogrified into broken systems that cost a fortune. Only those with no exposure to the real costs of ObamaCare approve of the current sickcare system. Government employees who have no idea how much their coverage costs, well-paid shills and toadies like Paul Krugman, academics with tenure and lifetime healthcare coverage--all these people swallow the fraud whole and declare it delicious. Only those of us who are paying the real, unsubsidized cost know how unsustainable the system is, and only those inside the machine know how broken it is at every level. Greed + cartels = Sickcare/ObamaCare. Love your servitude, baby--it's affordable, really, really, really it is.

Matteo Renzi's Democratic Party has voted to back his proposal fore a new government... and Prime Minister Letta has resigned.

*DEMOCRATIC PARTY VOTES IN FAVOR OF RENZI PROPOSAL FOR NEW GOVT
*ITALY PREMIER LETTA SAYS HE WILL RESIGN

This will bring the 65th government in Italy since World War II and the 3rd consecutive government that would not have been elected (the last elected Prime Minister was Berlusconi in 2008).