Archive - May 2010 - Story

Over the past month, gold has quietly become the only true flight to safety. Forget the dollar: the dollar is "safe" just as long as Bernanke does not decide to pull a Sunday night comparable to what the ECB did last night and strangle the greenback with one press release: frankly it is just not worth the imminent currency debasement risk, especially with the inversion in the EURUSD as the trading day has proceeded. But don't take our word for it: even with today's last bail out which is supposed to scare all shorts into covering, and unload all risk-free trades, Gold is still at $1,200. And for a far more material indication of what the market thinks of not just gold, but ofrepresentations of gold holdings by ETF's with "imaginary" unaudited stashes all over the world, take a look at the Sprott PHYS physical gold ETF, and specifically the premium over its NAV. Today it hit an all time record of 31%. The NAV differential has steadily crept higher since the launch of PHYS. Investors are willing to pay 30% more than the real value of holdings just for the knowledge that the gold backing their "assets" actually exists.

It is almost impossible to comment with more drama than the basic facts of this story.  Almost.  One hopes that eventually enough will become enough and (rather than rioting) subjects of hopelessly bankrupt sovereigns unable to put down the country's American Express will simply... leave.  Of course, taxation on one's worldwide income complicates the more buoyant aspects of this particular lifeboat.

After trading as high as mid 1.30s, the EURUSD is rolling over, and its slide is now picking up steam, barely holding on to 1.2858 at last check. The 1.2800 stops are looming, whose break would take the EURUSD back to a 1.27 handle.This may very well still turn out to be the shortest and must futile trillion dollar bailout in history yet. Don't forget it was the EURJPY correlation desks that freaked out on Thursday and drained all NYSE liquidity in stocks. It will be truly amazing if we get another 1000 point move in the Dow... But not up.

Just headlines for now. Of course, if your trading record is 63 out of 63 in the past quarter, you are fully exempt from paying any taxes in America in perpetuity. After all you own the country.

The bankruptcy of America is getting borderline hilarious, even as stock capitalization surges by about $1 trillion based on funny money to be printed by the ECB with the Fed's assistance. In the second coming of moral hazard, one piece of news that some may have missed is Fannie Mae's earlier announcement that the mortgage lender is now more bankrupt than ever before - the firm lost $13.1 billion in net income on $3 billion in revenue. "The first-quarter loss resulted in a net worth deficit of $8.4 billion as of March 31, 2010, taking into account a $3.3 billion reduction in our deficit related to the adoption of new accounting standards, as well as unrealized gains on available-forsale securities during the first quarter. The Acting Director of the Federal Housing Finance Agency has therefore asked Treasury to provide us $8.4 billion on or prior to June 30, 2010." Additionally, the Fed backstopped entity also announced that "there is uncertainty regarding future of
business after conservatorship terminated and expect this uncertainty
to continue." But since in America asset prices have not reflected fundamentals in over a year, nobody gives a rat's ass. And the political whores in DC feel like beating up anyone who even dares to mention this particular $7 trillion dollar question mark which is equivalent to 50% of total US debt, so expect no reform to happen here, just like nothing happened with HFT, until the markets hits 1 quadrillion or zero. For all intents and purposes, the two outcomes are equivalent.

Here we go:

A refresh on Rule 48:

"Rule 48 is intended to be invoked only in those situations where
the potential for extreme market volatility would likely impair
Floor-wide operations at the Exchange by impeding the fair and orderly
opening of securities."

If you ever wanted to see what monopoly looks like in chart form, here it is:

In the quarter ended March 31, Goldman made money on every single trading day. The firm did not record a loss of even $0.01 on even one day in the last quarter. That's 63 days profitable out of 63 trading days. The statistic probability of this event is itself statistically undefined. Goldman is now the market - or, in keeping with modern market reality, Goldman is the house, it controls the casino, and always wins. Congratulations America: you now have far, far better odds in Las Vegas that you have making money with your E-Trade account.

The United Kingdom, after staging its first contrived and scripted presidential debates as a path to anointing a Prime Minister (emulating the United States in this particular farce of electoral choreography can only have been the brainchild of the unholy spawn of Gordon Brown and Sky News) expresses the kind of public confusion not known in General Elections on the island since 1979.  In retrospect, the UKIP's Nigel Farage came out looking like a timeless and contemplative work of bronze and marble by Auguste Rodin compared to the rest of the UK's political class- and he had just walked away from a near fatal election stunt (read: plane crash).  Welcome to personality politics, gentlemen.

Hilarity ensues!

Not one bit embarrassed by their last witch hunt against speculators that led European politicians to discover that the biggest CDS "speculator" against Greece was in fact the Greek post bank (a fact that received very little publicity surprisingly), they are back at it again. It seems there might be a slight confusion though on their part between investors and speculators. By taking on the supposed speculators with an unprecedented galore of currency debasement, European countries are very unlikely to attract any foreign capital going forward. This is nothing else than capital markets fascism and a poorly disguised ponzi scheme. Fact is that fiscal finances are in poor order and not expected to get much better in the future. Rather than tighten the belt and address the gap as they should, governments around the world are lending themselves the money they need to spend. Throughout the financial crisis the only category of workers that has seen a pay rise are those working for the government. Yes there have been layoffs, but very little pay cuts. Talk about a collective effort! While capital markets seem happy to celebrate the madness this morning, also a by-product of a lot of shorts of risk being chased through the gates of hell, I expect that the markets will see through this mascarade in due time. The only trade that makes complete utter sense is being long Gold, and once the short covering is over short EURUSD. It is worth noting that the precious metal now trades with a positive correlation to the USD, and the weakness this morning should not be expected to last as the weekend's news is exactly what gold investors have been counting on: complete global monetization of debt. It won't be long before central banks run out of gold to sell to put a lid on the market at this pace. Maybe the financial bill will also include a speculation limit on the purchase of physical commodities. - Nic Lenoir, ICAP

• Asian stocks, US Futures, Euro climb on global plan to stem debt crisis.
• China posted a $1.68B trade surplus in April, Xinhua News Agency reports.
• ECB says will intervene in bond market in unprecedented bid to buoy Euro.
• EU crafts $962B show of force to support Euro, halt global crisis.
• Fed restarts currency-swap tool with ECB in effort to contain debt crisis.
• US, Australian, Japanese bonds tumble as Europe arranges rescue package.
• Accounting regulators find deficiencies in 15 audits conducted by Deloitte & Touche.

The scramble to fill the Supreme Court with Fed and Wall Street puppets in advance of Bernanke's last ditch appeal to preserve his secret bailout optionality of his closest Wall Street friends is on. Now that Elena Kagan is a officially the latest supreme court "justice", here is all you need to know about her independent "allegiance", courtesy of the WSJ: "From 2005 to 2008, Ms. Kagan was a paid member of the Research Advisory Council of Goldman Sachs Global Markets Institute, according to financial-disclosure reports she filed after being appointed to her current job. The form shows she was paid $10,000 in 2008, when she was dean of Harvard Law School. Asked if there was a concern that this issue could be used against Ms. Kagan, should she be nominated, Mr. Gibbs said, "No."

Update: Germany now officially joins the fray: Euro zone central banks have
started buying government bonds, Germany's Bundesbank said on
Monday. "We confirm this," a Bundesbank spokesman said. From Reuters.

From Market News: "The Bank of France has begun buying eurozone government bonds, a spokeswoman confirmed Monday, without giving further details." Can't have those French banks face reality now can we. 65 years after France was saved from fascist rule, America has saved its financial system again from insolvency, and instituted something else. What that "something else" is, we are not quite sure yet, but gradually we are getting a sense.

An expanded, if conflicted (it comes from one of the pillars of modern-day Keynesianism: Bank of America) overview of the full European bailout by "Europe", which will now rely on the Fed to purchase EU debt and fund hundreds of billions in FX swaps. Can we now drop the charade that the EU is a viable structure, and stop pretending that Europe is anything but America's most recent geographic and monetary acquisition, or is it still too early?

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 10/05/10

The latest (and certainly not last) IMF portion of the European bail out is E220 billion, or $287 billion at today's exchange rate. As the US and its taxpayers represent roughly 20% of total IMF funding, today's 3% loss in dollar purchasing power to the middle class will cost the middle class $57 billion. Paying for the privilege of being able to purchase less sure sounds like a squid-pro-quo type of deal for us here. Politicians everywhere applaud this most recent rape of America's working class, even as communism is now the global ideology. Who needs TheOnion.com when reality is now 10 times more surreal. And the direct recipients of taxpayer generosity: SocGen, AXA, Dexia, CA and all other French and German banks, which right now are all up ~20%.