Archive - Feb 22, 2011 - Story

The purpose of this article – it’s an attempt to bring some transparency to what’s really happening in the precious metals complex by underscoring the words and actions of players in the Central Banking community. Attention is drawn to the fact that these elitists lie as a matter of policy but are prone to making simple mistakes like all humans do. Specifically, light is shone on the degree to which these same elitists will go to keep their surreptitious market activities ‘secret’ and their irredeemable fiat currencies viable.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 22/02/11

Even as Crude continues its strength in light of Gaddafi's filibuster that may soon dethrone's Bernie Sanders record-setting speech, other commodities are not sharing oil's enthusiasm. In fact, the Ag board is a bloodbath, after wheat, corn and soybeans have all traded limit down, on what are rapidly becoming pervasive margin liquidations. Perhaps the fact that the market forgot that it can go down and is experiencing its biggest drop since November, is forcing many specs to unwind huge margin positions (remember that margin levels on the NYSE are the highest since Lehman), causing a rout in virtually every risk asset. One thing is certain: even with stocks down for the first time in arguably forever, the vol in FX and commodities continues to be the place to be for those who pursue rapidly repricing asset classes.

Reuters reports that Libya has just declared force majeure on its oil exports. As a reminder, Libya exports (under non-force majerue conditions) about 1.5 million barrels per day. That's a lot of barrels, especially for Italy which relies on 425,000 barrels a day from Libya to keep its economy going.

For those curious what is happening in Italy, where the stock market has been closed for most of the day, here it is straight from the Google-translated horse's mouth (and in the original).

Watch Gaddafi, without an umbrella this time, at the link below. Among the choice quotes, the leader says some Arab TV are "serving satan." Which one: the chair?

We have long claimed that in advance of the great "to be or not to be QE3" decision in June, there will likely be a major market swoon in March/April. The reason for that is that, as David Rosenberg explains in a very coherent fashion, the market will soon realize that the case for another bout of monetization is increasingly shaky: "when you go back to August 2010, when QE2 was announced, U.S. core
inflation was 1.1% and headline was 0.1%; by June of this year, we will
probably be looking at 1.5% on the core and as high as 3% on headline
inflation. That combined with the reality that the S&P 500 is 300
points higher now than it was then would certainly suggest that the case
for extension of the Fed’s QE program will not be there, at least not
by the time QE2 runs its course. So this is what we would be looking for
in terms of chronology (it may be too late to sell in May this year)." So unlike before, the context this time around will be one of much higher inflation, making the stimulation case that much more difficult. The downside? 300 points of downside due to a marginal hole that will no longer be plugged by the Fed. And with a fiscal contraction coming for more (see Koo's notes from yesterday), one can see why as Rosie says "it may be too late to sell in May this year." We agree that there will be a return to market volatility in the months ahead of June, but we believe that the Fed will have no choice but to continue monetizing sooner or later courtesy of the $4 trillion in bond issuance over the next two years. There is no way around it. What it means for the "inflationary" thesis we leave it up to readers.

Reuters reports that according to Canal authority officials, the Iranian ironclads are now in the Mediterranean. Priced in. BTFD.

In another TV interview that is supposed to air any minute, the Libyan leader, hopefully in a less surreal presentation than that from last night, will announce the devolution of power, and will provide local governments with semi-autonomy and their own budgets. Per Al Arabiya: "Gaddafi will announce on new provincial ruling to govern Libya with independent budgets." Next thing you know, some Sahara warlord will be forced to explain to his people how $10 trillion in budget deficits over the next decade is an incremental positive for regional employment trends. Needless to say, this attempt at recreating Feudalism will do absolutely nothing to pacify the population that by now is likely rather sick and tired of getting shot at by the Libyan airforce.

This has to be some sick joke...

As of December, so almost three months ago, the housing double dip was getting increasingly worse. This was confirmed by the latest Case Shiller data, according to which the 10- and 20-City Composites posted annual rates of decline of 1.2% and 2.4%, respectively. The 20 City Composite printed at 142.16, the lowest since June 2009 when it was 141.75. Luckily, NAR's now completely disgraced Larry Yun is nowhere to be found in this release, from which we quote: "Data through December 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 3.9% during the fourth quarter of 2010. The National Index is down 4.1% versus the fourth quarter of 2009, which is the lowest annual growth rate since the third quarter of 2009, when prices were falling at an 8.6% annual rate. As of December 2010, 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down compared to December 2009." Bottom line: the chart says it all.

Today's rumor mill will apparently focus on whether OPEC will or will not miraculously push the "gush" button. After earlier we reported rumors that OPEC would raise oil supplies, and quoted the Kuwait oil minister, now the Saudi oil minister was caught on tape saying there will NOT be an extraordinary meeting. Which means that the Italian guy was spreading false rumors. Which means that whatever the offer for Italian CDS is, it is cheap. WTI, naturally, rallies on the news.

Despite indications that the US would attempt to forcefully box the Iranian warships in the Red Sea, first observed here, this strategy, if that was indeed the plan, has failed, and according to Egypt's state-run MENA agency, the Suez crossing for one (very old) Iranian frigate and one (very old) supply ship has commenced. Bloomberg reports: "The ships entered the canal early today after the approval of Egypt’s Defense Ministry, the state-run Middle East News Agency cited Ahmed El Manakhly, head of traffic at the Suez Canal Authority, as saying. The crossing usually takes 10 to 12 hours, El Manakhly said." Israel is, needless to say, unhappy: "Israeli Foreign Ministry spokesman Yigal Palmor today said that Israel would consider the presence of the warships sailing through the canal to the Mediterranean Sea “a provocation” that should be “dealt with by the international community.” Palmor said he was citing previous comments by Foreign Minister Avigdor Lieberman." Yet with tensions already on edge, the possibility that this latest war of words escalates into anything more is quite remote.

Those following the move in WTI this morning may wonder what the catalyst for the ongoing retracement has been. According to Italian sources (the country most affected by developments in Libya so take it with a grain of salt), OPEC is meeting in Riyadh to evaluate hiking crude supply in light of Libyan developments. This mirrors a less definitive statement issued earlier by the Kuwait oil minister that "OPEC could call an emergency meeting if required by disruption to oil supply due to Middle East unrest." As a reminder after peaking WTI at $98.25, it since pared gains to under $95.75, and was trading at $96.11 last. So while Bernie Bernanke can always print dollars, it is up to OPEC to print oil. And the market seems to be satisfied for now with promises of such.

• Housing data may have understated extent of collapse (Reuters)
• Powerful 6.3 Earthquake Hits New Zealand, NZD slides (FT)
• Shutdown Fears Raise Hopes for US Budget (FT)
• Oil price shock: Pandora's Box is opened (Telegraph)
• Spain's rotting corpse finally floats to surface: Spain Pegs Cajas' Possible Problem Debt at €100 billion (WSJ)
• Wal-Mart Fourth-Quarter U.S. Comparable Sales Trail Forecast (Bloomberg)
• New Property Rules Driving Rent Prices (People's Daily)
• BofA Doubles Writedown for Credit-Card Unit to $20.3 Billion (Bloomberg)
• Weber Sets Germany on Collision Course with EU (FT)
• Desperate Gaddafi Clings to Power (FT)
• Bond Market Swaps Back Bernanke's Benign Inflation View (Bloomberg)
• Sale of the Century (Newsweek)