Archive - Aug 2010 - Story

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/08/10

Just because stock values are determined not based on economic data, depressionary trends, or upcoming sovereign defaults, but just purely on what time of the day it is. Note the beautiful and not all that subtle explosion in the AUDJPY at precisely 3:30pm Eastern (the key gating factor for stock ramps), a time which has long been the all clear signal for the robots to go apeshit. So yes - at 3:29pm stocks have value X, and at 3:31pm it is 0.5% higher, just because RenTec's thousands of teraflop cores said so.

Our friend Alec Pestov has just completed the follow up to his original in-depth analysis of the Canadian housing market: "This second edition of the report is the first of the semi-annual sequels for the original paper to provide timely updates on the state of the housing market in Canada. This document introduces a structure of the semi-annual releases, and your comments and suggestions regarding it are always welcome." For all in the market looking to buy or sell real estate in Canada, this is a must read.

No, this is not some new age chaos theory mantra - it is a direct observation of what has recently been, and continues to be the primary source of funding for the market: the ES is now following the 2s10s30s butterfly tick for tick, as stocks no longer have faith that Central banks will do everything in their power to preserve the Ponzi regime. So any move in the butterfly's wings result in an immediate HFT mediated ramp in stocks, which in turn pushes all other risky pairs into the stratosphere. And yes, today will be one of those days where Mr. Brian Sack of the FRBNY's open market manipulation committee, who unfortunately will not be able to make the Jackson Hole meeting this year due to "market conditions" on Wednesday through Friday, will do all in his power to get stocks, bonds, gold and oil all up, now that the economy is confirmed to be in a depression. Incidentally, all those who hope the Fed will announce QE w this Friday, will be disappointed.

Following up on yesterday's comments: equities are so far unbelievably resilient in the face of atrocious economic data. Keeping our eyes on the prize, we have been calling for this slow down in economic activity since April, and the work of my friends Julian Brigden and Jonas Thulin on the economic roll over has helped solidify that belief and time this turn. Now that the data is playing ball and confirming our sentiment, we turn to the technical picture where I have had this uneasy feeling that the equity markets could bounce here before selling off properly. With higher rates for European sovereign bonds today after Ireland's downgrade, all time lows in new home sales on the heels of a knock-out drop in existing home sales that will dry up your green shoots and make you wish it's just a double dip, and a huge miss in durable goods orders, the fact we just made it in positive territory back from the abyss this morning is the kind of price action that makes me feel better about yesterday's technical observations against our bearish fundamental outlook. - Nic Lenoir

The political and economic environment is unfolding much as we discussed several months ago. Markets are being socialized and the government/central bank policies are meeting the problem of too much debt with more debt. But investors are beginning to see risk in a different light: The only "growth" is from stimulus, and how long can that last?... We're all racing to the bottom. There will be no winners, only non-losers as the government "spreads the pain." The non-losers will be those who have prepared: no or little debt and some savings for a rainy day (or decade). This was my only real advice for years.

The latest release by Wikileaks, this time focusing on tha CIA, asks what happens if its understood that the US is an exporter of terrorism: "This CIA "Red Cell" report from February 2, 2010, looks at what will happen if it is internationally understood that the United States is an exporter of terrorism; 'Contrary to common belief, the American export of terrorism or terrorists is not a recent phenomenon, nor has it been associated only with Islamic radicals or people of Middle Eastern, African or South Asian ethnic origin. This dynamic belies the American belief that our free, open and integrated multicultural society lessens the allure of radicalism and terrorism for US citizens.' The report looks at a number cases of US exported terrorism, including attacks by US based or financed Jewish, Muslim and Irish-nationalism terrorists. It concludes that foreign perceptions of the US as an "Exporter of Terrorism" together with US double standards in international law, may lead to noncooperation in renditions (including the arrest of CIA officers) and the decision to not share terrorism related intelligence with the United States."

The $36 billion 5 Year auction closed at a 1.374%, the lowest yield ever for this series. The Bid to Cover was 2.83, slightly lower than the previous 3.06 (which was a recent record), but still the second highest since 2008. Direct Bidders in this auction have declined to the lowest since January, at 8.7%, as the Indirect Bidders take down jumped to 50.8%: the first time foreign investors have been allotted more than half of the auction, again since January 2010. The obvious result is that unlike yesterday's 2 Year auction which saw Primary Dealers come to the rescue, as we have expected, foreigners continue to frontrun the Fed ever further to the right on the curve. It appears the sweet spot for foreign participation is in the 5-10 Year bound, as the Fed prepares to purchase ever more bonds of a matched duration.

Fresh from the presses by JPM's Michael Feroli: "The July durable goods report was a major disappointment and raises the risk that third quarter GDP growth prints below 1%...The downshift in the pace of capital spending is particularly worrying as this was the strongest, most reliable sector of the economy over the past year...Inventories at manufacturers of durable goods increased $1.8 billion in July, well below the $3.3 billion average increase in stocks over the prior three months--another factor which lends downside risk to Q3 GDP growth." Oops.

Could the tide finally be turning on the high frequency churners-cum-manipulators? In an exclusive report, Reuters informs that "a big high-frequency
trading firm faces possible civil charges by regulators after its
computer ran amok and sparked a frenzied $1 surge in oil prices in
February, according to documents obtained by Reuters and sources
familiar with the continuing investigation." The firm in question is Infinium Capital Management, which confirmed that
it is the company at the center of a six-month probe by CME Group Inc
into why its brand new trading program malfunctioned and racked up a
million-dollar loss in about a second, just before markets closed on
February 3. And yes, once all is said and done, it will be precisely this kind of algos gone wild that are found to have caused the much more devastating move on May 6, as we have been claiming all alone, and which the HFT lobby has been fighting tooth and nail to bury under the rug.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/08/10

Rumors of Gold's imminent death in a liquidation-driven collapse continue to be greatly exaggerated, and in fact the shiny metal continues to perform inversely to stocks, which take on ever more water, and is a confirmation that the market expects continued dollar destruction courtesy of the Marriner Eccles residents. And courtesy of the World Gold Council's just released Gold Demand Trends update, there is an explosion in demand for the precious metal which will likely not cease any time soon: in a nutshell, in Q2 demand for gold surged by 36% from 770 tonnes to 1,050 tonnes: a huge move, and one which solidifies the thesis for a fundamental rise in gold, aside from all the talk that gold is now just a backstop to Central Bank idiocy. Lastly, the WGC sees a huge demand coming out of Chinese consumers for gold in the future which will provide a constant bid floor: "Recent developments in China are likely to have positive longer-term implications for this increasingly important market. The PBoC, together with five other ministries/regulators published a proposal to improve the development of the domestic gold market, (“The Proposals for Promoting the Development of the Gold Market”). This further reinforces the WGC’s view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply, as discussed in our China Gold Report – Year of the Tiger, March 2010." And the firm's conclusion on demand trends: "As demonstrated earlier, gold’s relevance as a preserver of wealth is
enduring, even in conditions of relative economic optimism, since
historically gold has a capacity to provide investors with both
confidence and a sure and steady means of enhancing the consistency of
their returns." So what was the bear case on gold again?

Not only is consolidated stock activity plunging, with Rosenblatt Securities confirming a 50% drop in August action YoY, but ever more are shifting their trading patterns to dark venues. This is yet another checkmark confirming that "stock markets" are nothing more than a venue for institutions to play hot potato with each other, as retail wants nothing to do with this joke of a manipulated market. From Rosenblatt securities:"The bad news is that non-displayed venues are taking a bigger slice of a shrinking pie. August consolidated activity is on pace to fall even more dramatically (~35% sequentially and ~50% YOY), suggesting something beyond just the typical summer doldrums." In other news, the final draft of the obituary for capital markets is now running through the spell-check.

First existing, now new home sales: 276K (yes a record low) on expectations of 330K, and a revised prior of 315K - a drop of 12.4% MoM. And, even worse, prices are dropping as deflation rages: the Home Price Index down 0.3% on expectations of a 0.1% increase (and previously at 0.5%). Months of supply: 9.1. Stick a fork in it.

So you're saying there is a chance for a crash? "There are deep correlations across the asset classes and what U.S. equity investors should probably pay attention to is the fact that the Nikkei is down to levels prevailing on April 30 of last year when the S&P 500 was trading at 870; and the 10-year T-note yield is back to where it was on January 20, 2009, when the S&P 500 was sitting at 805." All this, and much more truthiness from Rosenberg inside...