Archive - 2010 - Story

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

Doug Kass appeared on CNBC today and attempted to present a bearish case on gold (along with his 3rd, or is that 33rd, case for a market top...) based on a verbatim recitation of half of Howard Marks' letter that we posted as a must read over the weekend. Naturally, had he recited the other half, he would have had to defend a diametrically opposing view, as that is the difference between great minds, who present both sides to the argument, and, well, everyone else. Nonetheless, we thank the bottom and top-ticker for offsetting some of the fervor his far more amusing boss at theStreet has imparted on gold, and which we find extremely worrying, as any time Cramer stands behind an asset, it is time to sell, no matter how much we like it. That said, and since we enjoy providing Doug and others with reading material for their "original" content for the next time they appear on CNBC, here is an excerpt from Bert Dohlmen's latest letter which explains not only why gold is an "investment for the ages" but also ties it in with the much discussed here topic of commodity manipulation: a far more important concept that we are surprised receives far less attention on such momentum chasing shows as Fast Money.

Going through recent bullion bank shorting information, Adrian Douglas has stumbled across a nugget that may explain the sudden willingness of JPM to admit to the FT, via proxies as obviously the bank would never expose itself to even remote market manipulation claims, that it has collapsed its silver short. The reason: even as US bank silver (and gold) shorts by US banks have been gradually declining, those positions established by non-US bank, and thus entities not under the CFTC's control, have seen their silver shorts surge, increasing by orders of magnitude over the past several months. Is there a stealthy transfer of precious metals market manipulation taking place, one that exonerates the domestic, and therefore regulatable, suspects, while making foreign banks carry the burden of suppressing silver and gold prices? The reason: hand over the silver shorts to entities that would not be subject to the CFTC's upcoming size limit rules. Per Douglas: "The sudden and massive increase in their short positions in both
metals is conspicuous when compared with historical trading patterns.
The fact that it occurs at a time when the US banks that are mega-short
appear to be covering makes it doubly intriguing. It looks like a
strategy to shift suppression and manipulation of the market to banks
that are not under the direct supervision of the CFTC. Will these non-US
banks be expecting to receive an exemption to position limits where US
banks might not be successful?" We hope to get an answer to all these questions soon - Douglas has sent out the following letter to the only honest man at the CFTC, Bart Chilton, which explains Douglas' findings, and demands an inquiry into just who these foreign banks are that are suddenly shorting silver and gold on the margin at alarming rates.

A recap of today's activity, as little as it may have been, in stocks, vol, FX, rates and commodities.

According to an advance preview of an interview with Julian Assange by the Times of London's Alexi Mostrous, the Wikileaks founder has announced that he has "enough material to make bosses of a major US bank resign." While this can be merely the latest step in the chess game between Wikileaks and Bank of America, with the former assumed to hold destructive material on the other, with the latter escalating last Friday and blocking all of Wikileaks payments, as we reported over the weekend, it may potentially hold some insight into just what material Assange has on either Brian Moynihan, or some other bank executive. On the other hand, keep in mind that the Times of London is the only newspaper which has recently instituted a paywall with unpleasant result: as previously reported the Times, has scared off its advertisers and readers in droves, so there is always the possibility that this is merely a publicity stunt along the lines of how the Guardian got its traffic to explode and kill its site several times during the original cablegate releases.

EURCHF has been making all time lows, and so it did get one meager headline on Bloomberg but it wasn't exactly the talk of the town. However, the attached chart shows that EURCHF selling off implies that something bad is brewing for sovereign bonds in Europe. The chart represents the EURCHF against the spread between the 2Y average sovereign yield (weighted by notional outstanding) and the 2Y EONIA which is 2Y compounded overnight rate. One can see fairly quickly that over the past couple 18 months one rarely goes without the other. Practically it just means that whenever money is flying out of Euro into Swiss Franc it's highly likely that people (the same people) are getting rid of their Eurozone sovereign bonds. This is not the widest divergence we have seen but the EURCHF is breaking out lower, and with reports that last week's purchases of Eurozone bonds by the ECB was the lowest since the beginning of November it is not crazy to expect renewed selling pressure to manifest shortly. - Nic Lenoir

Even as the S&P closed modestly positive, there is yet another indicator added to all the other "massively overbought" technical signs we have discussed recently: namely the cumulative TICK. As can be seen on the charts below, both the S&P and the Nasdaq's cumulative TICK readings closed at the lows of the past several days, despite the fact that stocks once again rose to 2010 highs, while the Nasdaq hit 3 year high levels. For those who need a quick refresher course on what the TICK indicator shows, here is a great rehash by Brett Steenbarger. So how does explain this very apparent divergence between underlying buying, or as the case may be, selling pressure, and actual price dynamics? We wish we could tell you. At this point, with no volume, little volatility, stock markets are increasingly the plaything of those who continue to dabble in vol and other Greek letters. It is merely another indication that contrary to actual bid/offer interest, the market continues to do what the marginal market maker decides. In a normal world, we would claim there is some risk for a substantial reversion to the mean. However, for that to happen it would require at least some participation by trading interests which are not aligned with that of the Fed. And at last check, and following an endless equity fund stream of outflows, such did not exist.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 20/12/10

Data this week is relatively light given and it's a holiday week. 3rd Quarter GDP at this point has no informative value regarding current and future economic activity. The slew of housing data is also inconsequential. Everyone knows housing is in a double dip so any slight improvement will be used by pundits to talk up the economy but fundamentals remain in the dumpster. Continuing claims is probably the most important piece of data this week given that durable goods is such a volatile series. As a result I feel the markets this week will be mainly driven by sentiment and price action rather than news flow, especially given thin late December markets. Here are some of the key elements I am watching. - Nic Lenoir

Heading into 2011, assuming there are no major liquidity/insolvency events (and that is a big assumption, considering Europe is out there, somewhere) which will force more countries to come begging to various central banks, and international monetary authorities, and ultimately, the Federal Reserve, the key question is how should one look at rates, particularly on the long-end, opportunities in a world in which suddenly everyone (expect the US of course), is seeing their economies contract courtesy of austerity (which was just voted Webster's word of the year 2010). Demonstrating the continuum when it comes to making credit differentiation conclusions based on fiscal inequality, is Nomura's chart of the week, which provides a convenient tearsheet for the progression from Hong Kong on one end of the fiscal balance shortfall forecast spectrum, and ending with Greece, Ireland and Spain on the other. As Nomura notes: "Heading into 2011, significant fiscal divergence looks like a key theme for markets." This merely goes back to our broader theme from earlier this year, that any real asset upside will have to be made in the FX market, where relative performances are likely underappreciated, as opposed to equities, which are largely shunned by most, and where the only possible trade remains a levered beta play which, as always, takes the escalator up and the elevator down.

The NIA continues with its series of bite-sized video documentaries exposing the stupidity and lies out of the US government. While the previous clip looked at a fictitious world in which the dollar had just died, today's is one which analyzes the plethora of unintended consequences that emerge as a result of the government's centrally planned tinkering. As always, it is a must watch, even if one does not agree with the NIA's overarching theme that government policies will ultimately result in uncontrollable price moves following the destruction of the reserve currency.