Archive - Dec 2011 - Story

While one of the bigger commodity funds out there, in this case Fortress Commodities Fund, has not done too hot recently (down 7.4% in October), which it humbly admits to and says, "the month of October was a wakeup call for us and we are adjusting accordingly" here are some must read perspectives that lead the Fortress Commodity group to conclude that "We're Long Gold, Short Base Metals, Patient Crude Strength Seller & Buyer Of Corn On Any Real Flush In Prices." Oh, and that it's "macroeconomic outlook remains pessimistic."

It is one thing for conspiracy websites to indicate that the Fed or the global central bank cartel are doing everything in their power to manipulate the price of gold lower. It is something different when the 'reputable', Deutsche Boerse owned Market News does just that.

• MARKET SOURCES REPORT BIS, BOE & FEDERAL RESERVE WERE SELLING GOLD AFTER IT POPPED TO SESSION HIGH AT GMT 1335 -MNI NEWS via BLOOMBERG

So much for all those sworn testimony claims that the central bankers do not manipulate the price of gold.

Due to our less than admirable Farsi skills, we present the following Iranian video showing the captured downed US drone without commentary. As they reverse engineer our planes, we reverse engineer their state media released video.

Deeply philosophical headlines, via Bloomberg, from our European allies:

*GERMAN BDB BANKING ASSOCIATION SAYS EBA `HAS LOST CREDIBILITY'

*GERMAN BDB BANK ASSOC. CRITICIZES EUROPEAN STRESS TESTS

*BDB SAYS STRESS TESTS HAVE NOT HELPED STABILIZE THE MARKET

*BDB SAYS GERMAN BANKS ARE NOT UNDERCAPITALIZED

In all the noise, Europe decided to rerun its stress test and come up with the following completely meaningless "latest and greatest" capital shortfalls:

• Greece: €30 billion
• Italy: €15.4 billion
• Germany:  €13.1 billion
• Spain: €26.2 billion
• Portugal: €7 billion
• France: €7.3 billion
• Austria: €3.9 billion
• Belgium: €6.3 billion

Etc. Why meaningless? Simple - one chart says it all...

Well, it seems like the ECB is telling the countries they need to change the treaty if they want the ECB to act more like the Fed (giving up the pretense of sterilization).  Maybe the move is designed to push the issue and make the summit come up with an even bigger plan (regardless of how unlikely it would be to get implemented). For sure, sovereign spreads are indicating disappointment as we suspect the chance of a smiling hand-holding photo op has greatly diminished.

Just when you hoped the worst was over with Draghi's market-disappointing news this morning, things just got a lot more real in the Middle-East. State media is reporting that armed terrorists blew up an oil pipeline west of the flashpoint Syrian city of Homs. In an interesting twist, an anti-regime group said the government was behind the blast. Nonetheless Fox Houston is noting that the explosion is the third reported attack on energy infrastructure since the outbreak of the pro-reform protest movement in mid-March. Interestingly oil prices (along with all other commodities) continue to plunge on USD strength and liquidations (from European upsets) but we suspect that all it would take now is for a splinter Turkish group to take responsibility for the blast and this drop will promptly reverse.

As part of the MF Global hearing, we just heard a very dignified and shall we say it disgruntled introduction by House Agriculture Commttee Chairman Frank D. Lucas (Rep-OK) where he said it is "critical" to shed light on the MF Global matter, and which in no uncertain terms made it clear just how disgusted he would be with MF Global if it was found that Jon Corzine is guilty of stealing client funds. Well, we decided to take a step back and look at the Republican's top campaign donors. To our complete lack of surprise, we found that the top lifetime donor to the Honorable Mr. Lucas is... the American Bankers Association.

And scene.

Session has resumed

And now the one we've all been waiting for...

What Mario Draghi did today is the worst of all possible worlds: on one hand he is allowing more financial risk-taking on the ECB's dime courtesy of increased liquidity and relaxed collateral requirements as well as longer LTROs, on the other he essentially killed any provisional bailout rumors, saying that the ECB will not monetize, nor lend to the IMF. The result: sovereign risk is soaring, as seen by this CDS update.

Update 2: Draghi just killed IMF lending proposal - "lending money to IMF to buy Euro bonds is not compatible with the treaty" - EURUSD now in free fall.

Update: two additional comments, i) that the ECB is not the IMF, and that lending to the IMF would be very complex legally, and ii) that the liquidity situation is comparable to post Lehman have sent everything plunging to overnight lows. Lastly, Draghi just kicked the ball in Europe's court. This is about to get very ugly fast.

It was all going so well until Draghi dropped the coded 'less' bond purchases 'no bazooka' bomb-shell at which EURUSD, BTPs, European bank stocks, and ES all stalled instantly and started to revert to pre-Dragozel levels. BTPs are holding up the best for now, though almost entirely retraced, but a 1% up and down roundtrip in ES was enough for many to see the schizophrenic market at its best.

LTRO changes, collateral expansion, other? What will the ECB undertake to extend and pretend today? Find out at the ECB's conference today.

Key headlines:
Will conduct two LTROs, with 36 month maturity with option of early repayment. First will be allotted on December 21, 2011, and will replace October 6, 2011 LTRO. This is more than the expected 2 years.
ECB will ease collateral criteria for loans to banks. Will reduce rating threshold on ABS collateral
National Central banks can accept credit claims such as bank loans
Will reduce the reserve ratio from 2% to 1%, which will free up collateral in money markets

• DRAGHI SAYS HE DIDN'T SIGNAL MORE BOND PURCHASES LAST WEEK

As of this morning, we know that in addition to the now inseparable Merkel and Sarkozy, later today in Brussels, just after he is finished with his press conference, they will be joined by Goldman's, pardon ECB's, Mario Draghi, who sooner or later will pull a Colonel Korzine  and tell some faux hearing "he has no idea where the European money is." But all in due course. In the meantime, we present an artist's rendering (in this case the artist being the inimitable William Banzai) of what the fire and brimstone that will emanate from the Draghi-Sarkozy-Merkel hybrid, henceforth known as Drakozel, will look like. Because after all, the "Honk" Paulson doctrine of terrifying everyone into debt slavery and out of sovereignty, or else face certain annihilation is now the only strategy left for the mortally wounded global ponzi scheme.

The leaders pretty much have to cobble together some form of agreement. If they don’t reach an “agreement” the market will likely sell off 5% or more pretty quickly. We were at 1150 2 weeks ago when Europe was back to no plan, so that would be a pretty obvious target if they can’t reach an agreement this week. If they reach an agreement, the market is likely to move up a bit (1-2%), the bulls will be dancing in the street shouting out that Europe is fixed and gets it. The bears will point out that the agreement is a long way from being implemented and is unlikely to ever actually be followed. In either case, it doesn’t make a difference. The moment a treaty agreement is announced (assuming it is) the market will turn its attention to the ECB, IMF, and Fed. The market will be desperately hoping that the ECB immediately follows up the “successful” treaty summit with a new and fresh commitment to become lender of last resort for sovereigns. Expect disappointment. Draghi may be a dove, but he seems focused on banks (which is his primary mandate) and is unlikely to implement a new, and in Europe, revolutionary policy. The markets will test their resolve. Italian and Spanish bonds aren’t trading so well because anything has been fixed or because the market cares about treaties. The bonds rallied hard because the ECB was in the market and no one wanted to take a chance that a treaty agreement would be the excuse the ECB needed to ramp up its purchases. Without aggressive ECB action, Italian and Spanish bonds will decline in price, and renewed fears will hit all risk assets.