Archive - Nov 16, 2011 - Story

• Market talk that the ECB is buying Eurozone government bonds, while some traders suggested that the ECB bought over EUR 2bln worth of government debt
• Bunds came under pressure following a technically uncovered Schatz auction from Germany
• UniCredit shares came under pressure after news emerged that co.'s CEO is meeting with the ECB, to ask for more access to ECB funding for Italian banks by widening type of collateral used
• GBP came under selling pressure following higher than expected ILO unemployment rate from the UK, and after the BoE slashed its growth and inflation forecasts for the UK
• German Chancellor said that she believes treaty changes are needed to win back market confidence, and Germany therefore is willing to give up some national sovereignty

One of the more high profile victims of MF Global’s fraud is economist and trends forecaster Gerard Celente. Celente became the latest victim of the MF Global bankruptcy when funds, in the six figures, in his gold futures account were taken (or ‘looted’ as Celente called it) by Chapter 11 trustees. Celente was hit with a margin call within days of the corporate shutdown despite his account being fully funded. Celente told Russia Today (RT), “I really got burned, I got a call last Monday, I have an account with Lind-Waldock, and I have been trading gold since 1978, and I have a very simple strategy. As you well know, I’ve been very bullish on gold for many years…  So I was building up my account to take delivery on a contract, and I got a call on Monday, and they said I needed to have a margin call.  And I said, what are you talking about, I’ve got a ton of money in my account.  They responded, oh no you don’t, that money’s with a trustee now.” He said that MF Global “have cleaned out and ruined a lot of people. So maybe the name MF, I’m thinking the first word of MF is ‘mother’ and we could put the other word in there if you use your imagination . . .  because that is what they are doing to everybody.”  Celente is astute and is on record regarding the importance of owning physical gold bullion. The incident shows the increasingly fundamental importance of owning physical bullion (see table above) – either by taking delivery or by owning in personal allocated accounts.

It is completely irrelevant since nobody cares about economic data anymore, but it deserves a mention: today we get the CPI, industrial production and homebuilder sentiment.

Looking why the EURUSD has just gone berserk? Here is the reason - another barrage of flashing red headlines out of Italy:

• MONTI ACCEPTS OFFER TO FORM ITALIAN GOVERNMENT
• MONTI ANNOUNCES CABINET MEMBERS
• MARIO MONTI TELLS PRESIDENT HE WILL LEAD NEW ITALIAN GOVERNMENT
• MARIO MONTI TO BE FINANCE MINISTER IN NEW GOVERNMENT
• INTESA CEO PASSERA NAMED ITALY DEVELOPMENT, TRANSPORT MINISTER
• MONTI NAMES GNUDI MINISTER                             
• MONTI NAMES PIERO GIARDA MINISTER                       
• MONTI NAMES NAMES PASSERA MINISTER

Yet across the Alps this is the only headline that matters:

• MERKEL ECB DOESN'T HAVE OPTION TO SOLVE EURO PROBLEMS

Following a relatively quiet overnight session which despite various bond auctions in Europe did not see any flagrant contagion, and in which ongoing ECB buying of Italian bonds led the 10 Year BTP spread back to 6.75%, things have taken a very quick turn for the worse once again, and the BTP is now back at the day wides at 7.10%, following the following Reuters headline which is rather self explanatory: RTRS-UNICREDIT CEO, IN MEETING WITH ECB, TO ASK FOR MORE ACCESS TO  ECB FUNDING FOR ITALIAN BANKS BY WIDENING TYPE OF COLLATERAL  USED-SOURCE CLOSE TO BANK. Hmmmmm, UniCredit....where is that name familiar from. Oh wait, that's right - it was, once again, the top name on yesterday's Sigma X report of most actively traded companies by Goldman's special clients. Good to see there was no leakage here at all, none. And making things worse across the Mediterranean is the rumor that LCH Clearnet will promptly follow suit, and hike Spanish margins now that the spread to German Bunds is over 450 bps. Bottom line: Same Europe, Different Day. Here is our perfectly uneducated guess - market plunge in the morning in which institutions dump, ramp in the afternoon in which retail and HFTs buy.

The good news is that on 8 November the International Energy Agency released its 2011 “World Energy Outlook.” While it will cheer nuclear advocates, overall the report makes for grim reading. Pulling no punches, the report states at the outset, “There are few signs that the urgently needed change in direction in global energy trends is underway.” Stripped of its cautious language, the IEA report essentially noted that should present trends continue, the world’s governments through a lack of progressive initiative embracing alternative energy sources would continue to rely on ‘tried and true” fossil fuels, resulting in increased pollution, more fossil-fuel dependency and increasingly upward energy prices. For environmentalists, this is all good news, but the report contained a caveat virtually anathema to all green movements, that accordingly, governments should reconsider their reluctance to embrace nuclear power, as it does not generate greenhouse gases. Like many discussions in Western economies since 2008, when the global recession first began to draw blood, the issue of reliable energy production ultimately devolves down to dollars and cents issues. The grim reality for environmentalists is that no single renewable energy resource, from wind power to solar energy through biofuels, has remotely become competitive with kilowatt hours of electrical energy generated by coal or oil-fired power plants. The debate pits those opposed to a transition to greener technologies to those considering the bottom line, despite greenhouse gas emissions.