Archive - Jun 2010 - Story

Even as the EURJPY suggests that the intraday market peak should have occurred about the time the ES was unable to breach the 200DMA for the first time earlier today, stocks are now semi-sentient, and realize that with OpEx coming up in a few days, at this point no correlations matter: the market must be gunned beyond max pain. Will stocks, as always has been the case, eventually follow FX back lower, or have we reached that critical day when even the FX traders give up, and go to watch sport, leaving their own algos at the mercy of Hal9000. At least based on empitical evidence, the spread will close. One thing is certain: the market continues to make no sense, with this straight up ramp on a day chock full of "good news."

When (not if) the need arises to dismantle the TBTFs, full of noncashflow producing loans, the next time around we have a Flashiest Crash, we will have no way to do so, despite the widely propagandized Obama FinReg reform. These are the words of Obama's right shoulder man Paul Volcker, who on William Isaac's program earlier noted that proposed legislation is "not going to prevent the top five banks from being saved." In that sense, the primary goal of Obama's attempt to overhaul financial regulations: the prevention of taxpayer bailouts when banks implode, is a miserable failure, yet it will not stop countless hours of self-congratulatory, teleprompterized appearances by the president, the Congressman from Fannie Mae and the Senator from Countrywide. In other news, the bankers win again, and nothing changes. Next up: how to get bank leverage to 100x all over again, without alerting the general public that next (if not this) year's bonuses will be once again fully funded by the US middle class.

Yesterday we charted the third attempt to break the 200 Day Moving Average, and expected a low-volume repeat computerzied assault on the 200DMA today. Today: low volume, check, SPY hugging 200 DMA, check.... and fizzle. On the other hand, this could be a totally unrelatedaberration , driven exclusively by the EUR, which attempted to take out 1.235 earlier and failed. It just so happens that this level translates into the technical resistance level for stocks. Nonetheless, with Brazil about to kick off and volume to hit zero imminently, we are confident the DMA will be taken out resolutely by Commodore 64, on the same toxic vapors that are filling up desalinization plants in Florida and the asset side of the Fed's balance sheet.

Some bad news for our Tampa Bay/Mons Venus-based (yes, they do have WiFi) readers: globalresearch.ca notes that Florida "faces severe fresh water shortages and power blackouts if the thick crude oil from the Deepwater Horizon disaster clogs sea water intakes at the largest seawater desalinisation plant in the United States -- the Tampa Bay Seawater Desalinisation Plant at Apollo Beach in Tampa, Florida." And some even worse news for America's purported democratic/free speech regime: "The Obama administration has taken a page from the government of Soviet leader Mikhail Gorbachev and Chernobyl in censoring the bad news from the Gulf oil mega-disaster. The Chernobyl cover-up largely resulted in the hastening of glasnost and the ultimate collapse of the Soviet Union."

First step in assuming full control? Somehow we doubt the UK tabloids and general population will pass this one by.

Jim Rickards, who recently seems to have a quota of one media appearance minimum per day, is back on King World News today, discussing his sense of a shift in sentiment within the G-20 that the dollar may be approaching its "exhaustion" limit, and that as concerns that Russia, China and Germany may be moving to a commodity backed currency (oil and gold), the G-20 will need to preempt a paradigm shift away from worthless Fed-printed paper, to another vehicle, which however, is still under the control of the "developed world." The idea would be to use the IMF's SDR as a shadow replacement to a greenback which is at current recent record high levels not due to endogenous strength, but because all its peers are far, far weaker. And in an environment in which daily FX vol is hitting daily records, and thus increasingly reducing the credibility of capital markets, a gradual transition to a currency which represents nothing but yet another "liquidity pump" as Rickards calls it, just as the dollar was in the years from just before WW1 (thank you Fed creation in 1913) all the way through the 21st century, may be the only answer in which the existing oligarchy does not lose that all important controlling factor - the currency.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/06/10

In another unpleasant development for European bankers, the European parliament has proposed to cap bonuses at half the base compensation. In a business where bonuses traditionally run many multiples of the base salary in exchange for providing "financial innovation" this will surely force yet another round of racketeering from the industry, which will now claim that absent proper incentivization, the entire world will surely end. Furthermore, the proposal aims to cap salaries at bailout recipient firms at €500,000 and at least 40 percent of any bonus would be deferred for five years. If this law does pass, and if attempts at scaring the world at the horrendous consequences of this action fail, expect to see boats full of Hugo Boss-clad 22 year old swaption traders to weigh anchor at the Battery Park City marina and flood new york with even more investment "professionals" even as the London City becomes a ghost town.

Anecdotal evidence that Goldman's prop group enjoys doing the opposite of what its sellside recommends and clients do is one thing. Having become the laughing stock of the investing world, in which everyone does precisely the opposite of what Goldman advises its clients to do (but according to Andy Sorkin, the clients just love the firm), is something totally different. The latest example is Goldman's call from June 9 for a 1.15 target in the EURUSD. "Oddly" enough, the pair has gone diagonal since then... in the opposite direction. With every stop in the trade now triggered, is it time for the firm's Long Term strategists to reevaluate their call, not even a full 168 hours since the first abysmal recommendation? We hope the lesson here has now been learned: as we suggested a week ago: "Thomas Stolper is officially advising clients to sell their euros to
Goldman. There is no clearer signal to buy the beaten down currency." Looking at the chart below, never doubt the dodecatuple reverse psychology of the squid.

Just headlines for now, but rather self-explanatory, or should we say self-contradictory.

As algos now focus exclusively on gaming the EURJPY and other funding currency pairs, the stock market is now fully dead and trades purely as a correlation and hedging pair. With under two hours into the trading day, we are already at 40% below average volume: don't be surprised to see a 5% up move if we drop to 50% of cumulative. In other news, the LA Times reports that Americans, for the most part, have now officially said goodbye to stocks. With a broken market such as what is evident every single day, who can blame them. Bernanke has officially failed to lead the lemmings into a risky asset reflation, as primary dealers, HFT algos and mutual funds will need to take profits occasionally, and every time this happens we will see another, ever flashier crash.

A must read presentation from UBS' global commodity research analyst Julien Garran and PM trading srategist Edel Tully. Their summary view: "How should we think about gold? This has to be one of the favorite questions of nearly every investor we encounter, and despite our lack of specialized knowledge and our relative focus on the emerging universe we very often get dragged off into speculative discussions on the nature of gold demand and what gold prices are “telling us”. If we had to summarize the conclusions on gold in a single phrase – keeping in mind that this is a bit of an exaggeration, and one to which Julien and Edel might well take exception – we would say “forget about the fundamentals”. When we talk about investment demand, there are two main drivers: inflation and risk. I.e., gold does well when buyers are worried about inflation prospects, debt monetization and the debasement of national currencies, and also does well in an environment of heightened volatility and fear about the global economy."

Last weeks weak retail sales already suggested that next months NFP may underwhelm with a headline of sub 300k including the census jobs next month. That would naturally suggest poor private sector employment and with the Empire data out this morning that indeed appears to be increasingly the risk. Indeed, that relationship supports the roll we have already seen in the Chicago and Philly data…..Strike 3?

The NAHB Home Builder Survey reported a massive 5 point drop, reaching 17, on expectations of 21. The reason for the plunge - concerns about the end of the tax credit. Not even Goldman could spin this news favorably: "Housing market index 17 in June vs. median forecast 21. The National Association of Home Builders reported a 5-point drop in its housing market index for June, pushing it back below the 20 level that had been the low prior to the latest housing market recession. The main driver of the decline was the assessments of current home sales, which dropped 6 points; assessments of future sales and of buyer traffic were down less substantially (-4 and -2, respectively). All four regions suffered declines, but the biggest by far was in the Northeast, where the index had surged to 35 in May only to come back down to 18."Metric by metric, the double dip become increasingly more appreciated.

Watch the Gulf Oil spill hearing live and without permabull voiceovers at the following C-Span link.