Archive - Dec 21, 2010 - Story

Not everything continues to be happily melting up courtesy of today's first, of two, POMOs in progress. Across in Europe, the EURCHF continues to flash a red alert, demonstrating that despite the overeager attempts by the various central banks to paint a rosy picture into year end, just like in 2009, not all is good, as the EURCHF freefall refuses to abate, and the pair dropping as much as 100 pips on the day in a day of otherwise quite trading. The relevance of this pair was previously discussed extensively by Nic Lenoir and Bruce Krasting. At this point one has to wonder just how XXX-rated are the pics of Hildebrand that are in Ben Bernanke's possession for him to have so much leverage over the Swiss National Bank, which has pretty much given up on monetary intervention/stimulus. Oh well, who cares: it's only the current account side of the GDP. The country can simply stock up on a few hundred billion in inventories just like the US and call it growth. Mission accomplished.

Traveling to Europe? Not so fast. Most airports in western and central Europe are at best open on an intermittent basis, and at worst completely shut down, with the UK taking the brunt of the storm. Disruptions in traffic continue for a fourth day as travellers across the continent are paralyzed and scrambling to find way to get home, with just 4 days until Christmas. For all those reading Zero Hedge from some airport terminal, our condolences. As always, nothing conveys the story as well as a few simple pictures: we have compiled a representative sample of snapshots from across Europe to show just why all those hoping for a strong holiday retail season in Europe will be very disappointed.

Jim O'Neill, who after migrating to his latest and greatest position within Goldman as Chairman of GSAM, was expected to keep a low profile, has realized he has yet to meet his match at Goldman in the permacheer department. Which is why he now has a weekly column sent out as pep talk to all Goldman clients. His latest, "2010 was exciting with risks. 2011 will be even more so!" is basically a call to arms, in which he gives everyone to all clear to buy double inverse VIX ETFs on margin. And yes, in pursuing the last margina consumer, O'Neill has once again abandoned the BRICs and continues to pound on his latest N-11 concept, which contains such pent up purchasing powerhouses as Nigeria, the Philippines and, yes, Iran. Although with the prevalent thought for 2011 now being an inverse decoupling, in which the US is supposed to lead the world to new heights (so contrary to just 4 months ago... and all it took was a payroll tax cut), we fail to see how any of this is relevant. Then again, we often have the same question about Jim's writing in general. Full commentary presented below.

Last night Doug Kass appeared on CNBC's Fast Money and caught the attention of the few who were watching the show with his gloomy prediction that gold would drop by 25% in the next year. As we noted last night, Kass' "thesis" was nothing more than a recap of the bearish half of the "All that glitters" letter released by Oaktree's Chairman Howard Marks, and not even a mention of the bullish section of the letter. That's fine. In fact, we welcomed this development as it at least partially offset the bullish sentiment on gold espoused by Kass' partner at The Street Jim Cramer, whose glowing recommendation of gold has had us very concerned about the price action in the precious metal into year end: after all there is no surer kiss of death that Cramer liking something. That said, as for Mr. Kass' predictive abilities, we would like to present his prior set of forecasts, specifically his prediction for 2010 issued a year ago almost to the day. With a predictive "hit rate" of about 25%, it is rather safe to assume that gold's path to $2,000 and higher is probably quite safe...

As gold is currently breaking out courtesy of another concerted take down of the dollar, which has sent futures surging, and the EURCHF to a fresh all time, and very ominous, low, FMX Connect provides some insight on how to trade the current gold bounce.

• Snow Extends European Air Travel Delays as Holiday Nears (Bloomberg)
• Bank of Japan Pledges to Steadily Buy Assets, Provide Liquidity (Bloomberg)
• China's Wang Says `Concrete Action' Taken on EU Debt (Bloomberg)
• Spain Says its Regions Are Financially Sound (WSJ)
• Senators in Bipartisan Push to Cut Deficit (FT)
• The great bank heist of 2010: Commentary: Wall Street wins, Main Street pays — again (MarketWatch)
• Bond Market Rejects Fed's Unconditional Love (Bloomberg)
• ECB Reins in Government Bond Buying (FT), as reported first on Zero Hedge

One look at the overnight EURUSD chart shows a straight vertical line up earlier in the session (at least before an almost comparable and equal line straight down following the Portugal action by Moody's), which was driven by news that Chinese vice premier Wang Qishan expressed his support for EU efforts to ensure financial stability. Yet the biggest indicator of just how bad sentiment in Europe continues to be, China support or not, are the results from the Spanish T-Bill auction. And after auctioning €3.88 billion in 3 and 6 Month T-Bills off earlier today, the yields rose once again to record highs. The 3-month T-Bill auction for €3Bln came at a bid to cover 2.14 vs. Prev. 2.34, at a yield 1.804% vs. 1.743% previously. Just as disappointing the 6-month T-Bill for €0.88bln, came at a bid to cover of 5.15 vs. 2.65 previously, importantly at a yield of 2.597% vs. Prev. 2.111%. In other words, despite billions of ECB sovereign bond purchasing, and despite the recent shift in sentiment that Europe is not in free fall, arrested after Reuters spread false rumors that the IMF would bail out Europe, things are once again turning ugly for the continent, as there is no way that a country can sustain its funding needs when the 3 Month cost of credit is at such a huge differential over 3M Euribor, which today clocked at 1.022%. If not even the arbs, who are the only ones left active in this market, want to put the compression trade between unsecured and sovereign debt, then there is little reason to be optimistic.

After S&P put Portugal on "watch negative" on November 30, citing "little progress on any growth-enhancing reforms to offset the fiscal drag from these scheduled 2011 budgetary cuts" by the government, today Mark Zandi's rating agency, with a 3 week delay, has decided to prove once and for all, that in the ascent to the rarefied intellectual air of the now obsolete business model of the rating agencies, S&P always takes the not too long bus. In what can be classified as a virtually plagiarized report, Moody's says: "Moody's says that an important driver of its decision to review Portugal's ratings is its concerns over the economy's sluggish growth, driven mainly by weak domestic demand. In addition, deflationary pressures as a result of fiscal consolidation and bank deleveraging may put additional downward pressure on nominal GDP growth." There was a time when the EUR would plunge on news like this. Now that nobody really cares about any newsflow (and certainly not about the rating agency's opinion), this is barely sufficient to push the EURUSD down 40 pips.

One stop summary for all the events that are making the markets in this snowy, volumeless day.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 21/12/10

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 21/12/10