Archive - Nov 10, 2010 - Story

This was at 500 a week ago. The catalyst is a statement from EU's Rehn that there has so far been no request of EU financial aid from Ireland. Otherwise nothing much to see here: the higher the spread goes, the faster the market will ramp up. After all, worst case the Fed will merely have to give the ECB a few hundred billion in excess liquidity which in turn will be funneled into bankrupt Irish banks, which, in turn will turn around and buy Amazon and E-bay.

After making some very unwelcome advances calling for a return to the gold reserve, World Bank head Robert Zoellick is again back, and refuses to shut up. The FT reports that earlier Zoellick said
the increasing use of gold as a monetary asset was an “elephant in the room”
that was being ignored by policymakers in the debate over how to correct global
trade and fiscal imbalances. It gets worse: during a conference presentation, Zoellick said the price of gold indicated that the world was heading towards a new monetary system in which the US dollar would be only one of a number of reserve currencies with flexible exchange rates. As we highlighted yesterday, a variety of factors have already conspired to make it appears that not the dollar, but the Chinese currency is increasingly starting to act as a reserve currency on its own merit.

Raising margins was not an exchange ploy to hurt you. But when was the last time margins were raised after a sell off? It has probably happened but I’m willing to bet the action is lopsided to the rally side. Raising margins was not a scheme to crush you. But why is it needed, when for every long there is a short? And when the shorts have infinitely more capital than you, and there is no short squeeze of physical (as evidenced by the contango in the spreads) Trading SLV doesn’t help, they arbitrage both sides from one account. You unfortunately do not have a letter of exemption for position limits and for carrying positions in 2 markets and cross margining agreement with your clearinghouse.

As Zero Hedge pointed out, yesterday's CME rise in the silver margin served to crush the "speculative" mania in precious metals. Now it appears the exchanges are set on through going market after market, and making sure that only prices of stocks are going up, instead of actual commodities. Today's casualty: cotton, where the ICE just hiked initial and maintenance margins across the board (to $5,600 and $4,000). Next up - every item whose price is strategically evaluated by wall street as being "too high": coffee, soybeans, wheat, pork belly, hookers, strippers (especially those in law school), cocaine, and of course, gold.

Initial jobless claims came in at 435K, a drop of 24K from the prior week's 459K, which of course was a downward revision from the past week's reported 457K. There have now been 36 downward revisions in 2010, and 6 upward ones. The weekly number, which is irrelevant until the following week's adverse reaction, is the lowest since the week of July 10. And while seasonally adjusted claims dropped by 24K, the NSA number increased by 28k to 449,905. Continuing Claims were 4,301K vs. expectations of 4,305K, while the previous number of 4,340K was naturally revised worse to 4,387K. This is the 42nd downward revision in 2010, out of 44. For a chart of 28 out of 29 upward revisions look below.

• G-20 Unity Born in Crisis Fractures as Leaders Pursue Own Ends (Bloomberg)
• IMF Calls on UK to Plan for Surprises (FT)
• Rare earth prices to rise again? (Reuters)
• Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire (Bloomberg)
• Food Price Fears As US Warns On Crop Yields (FT)
• EU threatens to block Chinese bids for public contracts (Telegraph)
• Fed-Bashing Three Ways: Beating up on the Fed used to make you an oddball. Does it still? (Slate)
• Debt Limit Impasse Could Drag On For Months (RCM)

• API reports surprise declines in US fuels inventories.
• China ordered some lenders to increase their reserve ratios by 50 bps from Nov. 15.
• China posted a larger-than-forecast $27.1B October trade surplus.
• EU fined 11 airlines a total of $1.11B for forming cartel to fix air-freight tariffs.
• FDIC Board voted to take initial steps to implement higher fee structure for its deposit-insurance fund.
• G20 draws up two-tier bank plan; Global and national regulators to split focus.

Several data points today, with data on claims (accelerated by a day) and imports supplementing a twin (trade and budget) deficit day… But since all econ news is now noise, with good news beinbg sold, and vice versa, at 2 pm we get the new POMO schedule, which is really all that matters.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 10/11/10

After recent reports that Afghan President Hamid Karzai and other government officials received bags of cash from Iran, it's no surprise that Afghanistan would be near the top of a ranking published last week of the most corrupt countries in the world. The Corruption Perceptions Index from Transparency International, a nongovernmental organization based in Berlin and operating in 70 countries, ranked the Central Asian country second only to Somalia and tied with Myanmar for its perceived level of government corruption.

China just metaphorically flipped off the US, and the G-20, by not only beating trade expectations, but trouncing them, with a net positive trade surplus of $27.1 billion, compared to estimates of $25 billion. This was the second highest number since January 2009, and lower only to July's $28.7 billion. The main reason for the surge in exports was the trade balance with the EU, which at $14.5 billion is the highest since October 2008. In other words, Europe's strong currency is already impacting the continent's economic output, as end users opt to import stuff from China, instead of having it produced domestically, and not to mention stockpiling inventory in hopes that pricing power will allow prices to go up (instead of just squeezing margins even more). Ultimately, Europe is the one that is now getting hit by a double whammy of the CNY-USD peg (as the CNY is now at very low levels to the euro), as well as the recent surge in the EURUSD, due to the Fed's policies. Therefore, Europe has to continue battling not one monetary regime, but two, as its net trade balance with both the US and China are getting worse by the month. As for the all important Chinese trade balance with the US, it came flat with September, both at $18 billion, even though both imports and exports declined proportionally. Elsewhere, and possibly in anticipation of increasing inflation dangers and overheating, but still unwilling to depeg from the USD, Bloomberg reports that China has ordered some banks to raise reserve ratios by another 50 bps. This will be the second such move in under a month - last time it was another 50 bps move to 17.5%. Of course, this is no different than putting a cork in the proverbial dam.