Archive - Feb 2010 - Story

For all those who expect to see a strong dollar result in lower gold prices: our condolences. Gold is now as much a flight-to-safety target, as the the ra(p/b)idly devaluable dollar (and all other fiat currencies), as has been repeatedly observed on Zero Hedge. The chart below demonstrates that over the past three weeks, not only has dollar strength resulted in gold strength, it has resulted in gold strength at a 6X multiple.

As always, we start with the Dax, a smaller market bt geometrically and technically a much better indicator or the market than the S&P. On the weekly chart we are still in a bearish scenario where we retraced 61.8% of the sell-off of 2008/2009, and we would now be entering anoher major bear move. Breaking it down since the recent tops, after we reached the 5,389 target on the downside we had recommended trimming or cutting short in a rebound that we thought would take us to the 100-dma at 5,740/5,725. There we advised both tactically and medium term short positions again (See daily chart). - Nic Lenoir

Yields 3.078% vs. Exp. 3.103%

Bid To Cover 2.98 vs. Avg. 2.75 (Prev. 2.85) - this is a record Bid To Cover

Indirects 40.30% vs. Avg. 55.87% (Prev. 50.94%) - this is very weak

Indirect bid cover at 72.7%

Allotted at high 9.60%

Direct taken down whopping 17.2% - this is also a record.

We have long observed the recent tendency for the EURJPY to track the SPY almost identically on an intraday basis. Today, this relationship is no exception. To be sure, some correlation traders have over the past several months picked up on this trend and use it with a higher R2 than any other corr. The keyword here, however, is recently. What has caught our attention is a long-term chart of the EURJPY, which today tumbled to levels last seen in February 2009. A long-term correlation convergence implies that either the EURJPY will bounce to 145 or the SPY will tumble 40% lower to 75. Most likely outcome: the two meet somewhere in between, which is why we believe a EURJPY/SPY convergence trade is very attractive here.

Influence Of Dollar/Euro Mutates Somewhat. Is It Real Or Temporary? – Stocks rose in light volume regaining nearly all of Tuesday’s losses. Crude oil also regained its losses from the prior day. Gold, however, opted out of the traditional troika. Some of the stock gain was attributed to assurances in the Bernanke testimony that rates would remain low for a very long time. Certainly, the timing of the morning rally lent credibility to the Bernanke influence. Stock rose almost vertically around 10:20 as his testimony began. The dollar’s movements showed some muted influence on both stocks and oil. Shortly after stock trading had begun, the dollar weakened from pre-dawn levels. There was an Alice in Wonderland type thesis around the mid-morning softening of the dollar. It occurred as TV screens showed the demonstrations in Greece turning rather ugly. The thinking was that European partners might be more motivated to help, lest the violence worsen and spread to other challenged sovereigns. As the images left the screens, the dollar began to tick back up. - Art Cashin

Ah, curve pancaking - better known in bond parlance as the death rattle. The Greek 4 Year GGB just traded wider of the 15 Year at a spread of -4bps (yup, negative). This, to continue the parlance lesson, means the bond vigilantes are now pretty sure how the Greek situation will play out. Oh, and Greece, all the best with that €5 billion10 year bond issuance. The 1 Year spot his exploded from just over 200 bps on January 1, to just under 5%, a rout for all short-term GGB holders. We are anxiously awaiting RBS' rebuttal.

Greeks just can't catch a break. Market News reports that a "joint report drafted by the European Commission, the International Monetary Fund and the European Central Bank finds that the calculations contained in Greece's budget plan falls €4.8 billion short of what is needed to meet its deficit cutting objective this year" according to senior Greek government officials. Well, our RBS spin-unadjusted take on this data is bearish to quite bearish for the country's Moody's downgrade prospects, which is the gating factor to utter and total chaos once the GGB are no longer accepted as collateral by the ECB. Not to mention Greece's bond issuance propensity (but anonymous government sources have said about 50 times this week the.bond.is.getting.done), and its Bund spread, which at last check was set to probe recent record wides. In the meantime there is no bank run, repeat NO BANK RUN in Greece.

Many have speculated, but so far there have been no real facts. Until now - Pravda quotes Russia FinMarkets news agency, which has said that Chinese officials have confirmed an interest in purchasing the 191 tons of IMF gold currently on the block. The IMF, which will likely see a significant funding need shortly as it commences to bail out PIIGS by peripheral PIIGS, is likely running out of time with gold sale posturing and will need to find a purchaser who can take the entire amount asap. Even as the agency has already started to expand its domestic funding capacity via bank lines, the total amount could easily be greater than capital that the IMF has access to which could force the IMF's hand to transact swiftly. And China fits just the profile for a distressed buyer of such a sizable amount. Should the FinMarkets information be credible, look for the price of gold to spike following confirmation of Chinese purchasing interests.

Today's ugly initial claims number has already found its scapegoat: excess February snowfall. As the NCDC charts below demonstrate, February 7-13 drought/snow debt levels were certainly material. This has caused reputable firms such as Stone & McCarthy to speculate that weather sensitive jobs, such as construction, have "probably suffered." Yet with ongoing inclement weather, with today's Nor'Easter being no exception, this "non-recurring" component will be a prevalent one for at least 2 more weeks, allowing pundits to provide whatever explanation they wish to recent not so good Insurance Claims patterns.

Bernanke's prepared testimony is the same as yesterday. Full commercial free webcast accessible here.

RANsquawk 25th February US Morning Briefing - Stocks, Bonds, FX etc.

"Yes, Senator, I just want to say first of all we are looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece and this issue as well. As you know credit default swaps are properly used as hedging instruments. The SEC, of course, has been interested in this issue. Obviously using these instruments in a way that potentially destabilizes a company or a country is counterproductive. The SEC will be looking into that. We'll certainly be evaluating what we learn from the activities of the holding companies that we supervise here in the U.S." - Ben Bernanke

• Yet another example of the ongoing FASB crookery via Jonathan Weil (Bloomberg)
• Markopolos on Schapiro and the SEC: "she has the wrong staff. They're a bunch of idiots there." (HuffPo)
• Semi-nationalized RBS loss shrinks to just $1.2 billion, has approval for $1.3 billion in bonuses: one wonders just how the FASB is involved in this one (MarketWatch)
• British Pound could fall as low as $1.05 (Telegraph)
• +22K in Jobless Claims to 496K, 460K expected,: 6 our of 8 weeks in 2010 have seen growing jobless claims (Bloomberg, DOL) snow blamed for firings, and worst initial claims number since November 14
• Palm slashes guidance (Palm), keeps retarded white font on blue background website color scheme
• The 21st century economic breakdown (Minyanville)

• Asian stocks were mostly higher Thursday, lifted by Bernanke's reassurance that interest rates will stay low for some time.
• Euro plunges to lowest level in year against Yen on risks to Greece rating.
• German unemployment rate edges up to 8.7 percent in February.
• India forecasts 8.2% growth next year, giving room for exit from stimulus.
• Japan stocks fall for 3rd day on strong yen; Toyota down despite president's US testimony.
• New home sales plummet 11 percent in January, the 3rd monthly decline in a row.

RANsquawk 25th February Morning Briefing - Stocks, Bonds, FX etc.