Archive - Mar 7, 2011 - Story

Earlier, we reported that Obama mentioned that NATO is currently evaluating military options against Libya. Now, White House spokesman Carney adds some additional color on what Operation "Nobel Peace Prize", aka the invasion of Libya, will look like. From Reuters: "White House says no option removed from table on Libya response but use of ground troops not at top of list."Does that mean air force intervention is at the top? Luckily Zero Hedge readers know very well that the USS Enterprise is now peacefully sailing in the Mediterranean, awaiting for its moment in the sun. And on the use of the SPR: "White House says no specific price point would trigger the use of oil reserve; the issue is oil supply disruption." But what supply disruption: wasn't the spin up to now that Libya is largely irrelevant for the US from a supply perspective?

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 07/03/11

Oaktree's Howard Marks has just released his "year in review" letter, which like any letter by Marks is a must read, as the Oaktree manager has proven his presence in the pantheon of asset managers is well-deserved. Not surprising, and as we had repeatedly highlighted, when we pointed out the near record implied correlation between all asset classes, 2010 was a year of "correlations" which we believe may be just as appropriate a word to describe last year's market as "austerity" (which has so far completely missed the US). Quote Marks: "The word for 2010 was “correlation,” meaning macro trends dominated performance within asset classes. Thus most securities performed in line with their market benchmarks and the returns to security selection were limited. It wasn’t easy to outperform benchmarks."All this and much more on the firm's performance below.

While rumors that certain banks and exchanges may or may not be experiencing a dramatic run on physical silver are propagating across the blogosphere, we won't know for sure until we see Blythe Masters resignation letter. In the meantime Alexander Gloy of Lighthouse Investment reminds us of something very much indisputable: the physical premium over paper silver has just hit 20%, or an all time record. For all those who claim (oddly enough) that silver is really ubiquitous and one kicks around discarded bars of silver just walking down the street, should most certainly bet on this spread collapsing. Everyone else (presumably those who have been long physical silver for months if not years) are advised to sit tight.

Because we all need sources sometimes...

Not sure what rumor can be spread to unspook the market into believing all is well here, but the widely expected March deterioration in Europe which nobody wants to talk about, is happening just as predicted: Greek CDS have just hit an all time wide of 1,036 bps or something like 17 pts up, while Portuguese bond yields have just passed into fresh lifetime highs of 7.65%. As per the Chairsatan, this is purely driven by inverse demand courtesy of surging global economies around the world, which are all experiencing inverse peace and prosperity.

After Nomura released a report two weeks back predicting oil could rise to $220 if the MENA situation escalates, this morning SocGen's Michael Wittner has released his own scenario analysis on the possible outcomes of the 2011 revolutions. His three cases see oil within the following escalating thresholds: $110-$125; $125-$150; and $150-$200. We are fairly confident that the worst case, which as expected involves all sorts of bad things happening in Saudi Arabia, is missing an extra zero somewhere. Some key observations from the report (attached below): "The forward curve for Brent, the better indicator of global oil market fundamentals, is currently in backwardation (nearby premium, forward discount) for the next 5 years, reflecting concerns over growing physical tightness in the crude markets. The oil markets are pricing in an extended Libyan shutdown of crude exports (see below). Even on the WTI forward curve, where prices are still under pressure from local mid-continent US market conditions, the contango has eased and now only extends through 2011; from 2012 through 2015, WTI is also in backwardation. As the Libyan crisis has escalated, the latest US CFTC data show that non-commercial net length for NYMEX WTI futures has reached an all time high. This is a key indicator that a new wave of investor flows is now moving strongly into WTI and the oil complex in general. With the widespread unrest in the Middle East and North Africa (MENA) region expected to continue, and the oil markets worried about further supply disruptions, the attractiveness of commodities and oil to investors has been underscored. With oil prices driving heightened concerns over inflation, oil itself is seen as a good hedge against inflation." In summary, SocGen sees about $15/bbl risk premium built into current prices, which could jump to as much as $110.

From the BBC: "Libyan sources have told the pan-Arab newspaper al-Sharq al-Awsat that Col Gaddafi has turned to the rebel Transitional National Council to secure his departure from the country in return for guaranteeing his and his family's safety. He sent a negotiator on his behalf to Benghazi and made handing over power before Libya's parliament, the General People's Congress, his condition, the sources said." If confirmed, look for oil to drop substantially. However, since this is almost certainly the latest totally bullshit rumor in a long string of market manipulation attempts, any drop in commodities should likely be BTFDed with a vengeance.

More purposeful confusion out of the Fed this morning after Fed's Fisher just hit the tape saying he may vote to end QE2 before the June deadline, even as Lockhart says QE3 is possible if the US faces another downturn. The purpose of all this constant conflicting disinformation is to keep market participants on edge as the marginal economic improvement is finally starting to reverse as Goldman's Jan Hatzius insinuated last night. In other words, should the Libyan conflict not be resolved for another few weeks, QE3 is pretty much guaranteed.

The stealth (or not so stealth any more) take over of the world by Goldman Sachs continues. Following the withdrawal of Axel Weber from ECB contention, and his almost guaranteed replacement with one Goldman alumnus Mario Draghi, now Goldman is set to take over the trifecta of Central Banks (since another Goldmanite Bill Dudley already controls the New York Fed): the BBC reports that: "the new member of the Monetary Policy Committee (MPC) will be Ben Broadbent, a senior economist at Goldman Sachs." Not at all surprisingly "he will replace the leading proponent of rate rises, Andrew Sentance, when he leaves the Bank of England's interest rate committee in May." We wonder what Goldman's "bent" on dovishness will be. Next up: Goldman just needs to plant its operative at the BOJ and the SNB and the company's global take over will be complete.

• China to stimulate imports from the United States (China Daily)
• Ten thousand apparel retail stores to stay shut on Monday in India today in excise duty protest (Economic Times)
• More grains limit ups coming: Wheat Planting Falls to Four-Year Low in Russia Amid Export Ban (Bloomberg)
• SEC Says Market Data Review to Come, But Not Yet (Reuters, h/t SR)
• Flat-Earth European Central Bank misreads oil spike again, and kicks Spain in the teeth (Telegraph)
• OPEC ministers talking informally, see no need to meet (Reuters)
• Grain prices 'will be stable' (China Daily)
• MSM only a few months behind: MERS? It May Have Swallowed Your Loan (NYT)
• Barclays Awards Chief Executive Diamond $11 Million Bonus (Bloomberg)
• Traders ‘short’ dollar as currency loses attraction (FT)

Currency debasement on a scale never seen before in modern history continues in the U.S. and other countries. This is leading to a real risk of stagflation and possible even hyperinflation if sane monetary policies are not returned to soon.
The fiat currency experiment of the last 40 years (since Nixon came off the Gold Standard in 1971) grows more precarious by the day. Ironically, Alan Greenspan, the central banker most responsible for the cheap money policies and asset bubbles of the last 20 years, has again warned about the euro and dollar being “faulty” fiat currencies. Greenspan again said how gold is the ultimate form of payment and currency (see interview and transcript of interview in News). "What the price of gold is saying is essentially that there are elements within the marketplace which feel very uncomfortable with respect to what's going on generally," the former Federal Reserve chairman said. "It's not an accident that you're finding that central banks are going in to buy gold."

Markets positive this morning, recovering from last week’s leap in oil prices and continued Middle Eastern violence. All eyes will continue to watch the escalating situation in Libya. The Fed releases January consumer credit numbers this afternoon, estimated to increase $3.4BE v $6.1B prior. Look for the release of retail sales this Friday amidst a light release calendar.

With regards to U.S. monetary policy we live in a world of opposites. Less is more and more is less. The long end of the Treasury market would like to see “Biofuel” Ben, nickname for his liquidity provisioning impacts on commodity markets worldwide, actually be a protector of price to ensure that the paltry and rudimentary semi-annual fixed income coupon payments that one receives for 30 years can purchase the same amount of cotton, sugar, gold, wheat, corn, or S&Ps without being diluted. What Ben didn’t say sent the U.S. dollar index near record lows, something inconceivable given the traditional safe haven status of the reserve currency during times of global uncertainty like oil shocks and new world order. The Euro, of all things, seemed to be the beneficiary of flows, breaching a new recent high of $1.40. They have a banker that may at least be contemplating tighter policy. And that is why the long Treasuries couldn’t maintain a bid for most of the week. Less vigilance by the Chairman is more inflation and less of that insurance policy for those fixed cash flows. In a climate such as this where the Chairman doesn’t appear to be steadfast in following his mandate of promoting stable prices, the bond vigilantes and Treasury dealers are likely to make sure they get compensated for the risk of underwriting record supply of Treasury issuance like this week’s refunding.