Archive - Nov 2010 - Story

EUR fell against the USD on Tuesday amid ongoing concerns over the unsustainable debt levels in Ireland and Portugal, which are both due to tap the primary markets on Wednesday. The move lower saw the pair breach the key 76.4% Fibonacci retracement level and also consolidate below 1.3900. Position squaring ahead of the upcoming Quarterly Inflation Report by the BoE on Wednesday, as well as vague market chatter that the central bank may increase its mandated inflation target which currently stands at 2% meant that GBPUSD finished lower on Tuesday. USDJPY finished the session higher on Tuesday amid renewed strength in the USD as investors continued to fret over the implication the latest widening of the peripheral spreads will have on the PIIGS states ability to raise money in the primary markets.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/11/10

Here is how the CME just changed the rules just as the Fed was losing the game. Full new margin schedule attached.

And if that doesn't work, there is always confiscation.

Is the house of cards about to topple? Major moves like these are indicative of something very ugly behind the scenes. Or is QE2 finally priced in? Hey Hilsenrath, it's time for some leaks about QE3.

Are the bond vigilantes stirring?

By now, everyone has heard about the Kauffman report on ETFs, whose sole purposes is to bash exchange traded funds, which if nothing else, are aggressively stealing market share from mutual funds. The report also tangentially makes a claim that HFTs are in fact innocent, and had no role in the flash crash. While ETFs are certainly not without fault, to say the High Frequency Trading is irrelevant for market crash purposes is naive beyond measure. Yet a more salient question is where did the anti-ETF bias arise at Kauffman, and what is the point of this hit piece out of left field. We decided to dig a little deeper, and found the following conflicts of interest.

As Mark Fisher summarized market psychology so well earlier: "parabolic up - parabolic down." The problem for the Fed now is that to kill gold, it will also have to kill stocks, which are trading lower as gold and silver get flushed. As we presented over a month ago, gold and silver are both higher beta short hedges to stocks. As stocks go up, PMs go up more, and vice versa. Alas, silver and gold here are unsustainable for the Fed, which means Bernanke has once again managed to box himself in a corner, as any gold selloff will also presuppose a stock dump. It worked last time around... for about 5 days. Then more than caught up. This time the half life, like every repeated CB intervention, will be that much shorter.

Today's must watch clip comes from Mark Fisher. Key highlights: "QE2 can't end right. Worthless paper after endless paper.... What's good for the equity markets is not necessarily good for the economy. The equity markets are not going to create jobs. If you have a paper bag full of money are you going to go out and hire workers and take risk with healthcare and all these other regulatory restrictions? No, you are going to go ahead and buy high yield, you will buy equities, you will buy risk assets. The fallacy in the whole thing is that you are not going to go ahead and create jobs just by pushing up the market by 20%, 15%. In fact, to some degree by pushing up commodity price to levels that are going to be obscene, which is what is going to happen, you are hurting everybody in mainstream America... If you have all this money coming into the system, and this money stays in the equity and commodity markets, when at some point you take this money out of the system, where is this money going to come out of? Parabolic moves have Parabolic corrections. This is going to end bad. It is not a matter of if, just a matter of when. This is going to be the ultimate bubble, this is going to make 2000 look like a cakewalk. This is going to be the bubble of all bubbles."

Today's $24 Billion 10 Year auction priced at 2.636%, a yield that just like all other auctions recently has moved higher than recent record pricings. Yet not all was well: the Bid To Cover dropped from October's 2.99 to a 9 month low of 2.80, the lowest since February's 2.67. Yet what is arguably the most interesting aspect of the auction was that Indirect participation surged to what appears to be a record high of 56.6%, pushing out the Primary Dealers (34%) and Direct bidders (9.4%). If last night's rocket launch was indeed there to send a message to Asia, it certainly succeeded. And now all the eyes turn to the 30 Year tomorrow, whose yield continues to go higher with every day, as the New York Fed will soon be forced to announce that it will be bidding up the long-end as well or risk losing all control over LT inflation expectations.

Many questions are swirling over last night's launch of a rogue rocket, which it appears was a submarine launched ICBM from the Pacific, 35 miles west of Los Angeles. So far pretty much everyone has denied any involvement, and as per the NYPost, "according to Fox News, NORAD and NORTHCOM would only say they were aware of the launch" even as "a navy spokesperson previously told KCBS that no navy activity was reported in the region." Yet the closest approximation for what the reason for the launch may have been comes from Robert Ellsworth, former defense secretary: "On viewing the footage, former deputy defense secretary Robert Ellsworth speculated on KCBS that the launch could be a show of military muscle. "It could be a test-firing of an intercontinental ballistic missile from a submarine ... to demonstrate, mainly to Asia, that we can do that," Ellsworth said." And China has not even sold and US bonds yet. So did China Dagong in turn retaliate earlier by downgrading the US? At this point we can only hope that the Chairman can confine his FX war to Forex terminals, without actually involving a few strategically placed mushroom clouds.

It seems just yesterday that we wrote about silver going not parabolic, but asymptotic, and hitting $28. A few hours later it is at $29. Blythe Masters' already terminally precarious tenure at JPM just got shortened by a few months.

Silver's sky-shot to a new 30-year high of $27.73 per ounce has led to a new phenomenon in Germany. For the first time in history it is theoretically possible to buy two last series of silver coins with a denomination of €10 and a silver content of 0.535 ounces for less than the silver equivalent. According to a report in German Daily "Welt" the soaring silver price has forced the German government to bring forward the starting time of sales of the 2 commemorative coins into October to save face. The coins now have a value of €10.66 but have to be sold at the denominated Euro value.

A cartoon that pretty much explains it all. "I provide liquidity if you must know. That's what I am, a liquidity provider." "I will tell you what you are. You are a f#*$&% gambler." "Size. I trade size."

A very troubling anecdote by Art Cashin today on the possible future developments in fraudclosure: "The guest said that, sensing that suspending foreclosures could lead to a tsunami of new defaults among “current” mortgagors, they simply announced resumption as a warning. He claimed that foreclosures were not resuming because the records remain murky and would promote challenges and, perhaps, legal penalties." Cashin also looks at how the next USD-strength precipitated flash crash could look like: "If there were to be one or more sovereign defaults, the resultant flight to safety into the dollar could pull the rug out from under stocks. Even more worrisome would be some geo-political surprise. An Israel/Iran dust up could send the dollar soaring in a nano-second. That could send stocks into a trapdoor selloff that could look a lot like the “flash crash”."