Archive - Apr 29, 2011 - Story

Hopefully at this point nobody is surprised why at this rate gold will pass $1,600 within a month, silver may be $100 by the end of the year, and the dollar will be worthless, in order, to paraphrase Bernanke, reincarnate it in a fresh start version of itself, following the refinancing of all US private and public debt at 0% interest. For everyone still confused, and the naysayers, we urge you to read the following - link.

While the miss in the April Chicago PMI was just as we predicted, with the final read of 67.6 below "expert" expectations of 68.2, and down from a near record 70.6, it seems that the full pain will only be felt yet. The reason: "In response to special questions about the Japanese disaster, panelists reported minimal impact." They will. Guaranteed. Which means that upcoming weakness is simply deferred from April to May or later, pushing back the "imminent" rebound further into the future, yet guaranteeing a major miss in Q2 GDP. Our call continues to be for a Q2 GDP of at or below 2%. Yet the most insight as usual comes from the survey respondents, where we find this pearl of wisdom which probably explains everything that is wrong with the economy: "Companies that are very profitable still behaving as if bankruptcy is around the corner". And why wouldn't they: when in the history of human events has central planning every worked?

Sounds crazy but, "Forces loyal to Muammar Gaddafi crossed into neighbouring Tunisia and fought a gun battle with Tunisian troops in a frontier town as Libya's conflict spilt beyond its borders...Pro-Gaddafi forces fired shells into the town of Dehiba, damaging buildings and injuring at least one resident, and a group of them drove into the town in a truck, local people and a Reuters photographer in the town said. The Libyan government troops were pursuing anti-Gaddafi rebels from the restive Western Mountains region of Libya who fled into Tunisia in the past few days after Gaddafi forces overran the border post the rebels had earlier seized." So is this the carte blanche that Pro Oil liberation forces need in order to justify a land invasion of Libya? And what happens to oil in that case when Gaddafi's back is truly against the wall?

And while everyone has forgotten about the terabequerels of radiation released on a daily basis out of Fukushima, even as the Japanese Center for Economic Research just revised March GDP massively lower (more shortly), TEPCO, nearly two months after the explosion, has released the following very brief video of the spent fuel rod pool at Reactor 4. The good news: it is submerged in water; the bad news: it is submerged in water, meaning nobody is even one step closer to safely removing the constantly leaking radioactive material.

March Personal Income comes at 0.5% on expectations of 0.4%, while spending is also 10 bps higher than consensus of 0.5% printing at 0.6%. Sizable prior revisions see February income of 0.3% revised to 0.4%, while spending was revised from 0.7% to 0.9. As a result the February savings rate we revised lower to 5.5%, which is where the March savings rate came as well. Not surprisingly, the "rental income" which as explained before is what is known as Squatters rent, continues to come in strong, increased by $8.7 in March (over $8.1 billion in February). Following some timing offsets in the tax code, Disposable personal income (DPI) -- personal income less personal current taxes -- increased $64.4 billion, or 0.6 percent, in March, compared with an increase of $49.6 billion, or 0.4 percent in February. The GDP critical PCE increased 0.4 percent in March, the same increase as in February. The PCE price index, excluding food and energy, increased 0.1 percent in March, compared with an increase of 0.2 percent in February.

• Officials Unfazed by Dollar Slide (WSJ)
• Egypt May Open Border With Gaza Strip as Israel Expresses Concern on Hamas (Bloomberg)
• China’s Exports Perch on Uncertain Truck System (NYT)
• How Goldman Sachs Created the Food Crisis (Foreign Policy)
• House Budget Ryan Chair Backs Cutting Oil Subsidies (Reuters)
• Nasdaq Eating Machine Starving for NYSE Deal (Jonathan Weil)
• Indonesia’s Central Bank Asks 23 Lenders to Stop Adding New Wealth Clients (Bloomberg)
• Syrian Republican Guards Patrol Main Damascus Road (Reuters)
• Panetta Faces Big Budget Challenges (WSJ)
• Russia Unexpectedly Raises Benchmark Interest Rate Quarter Point to 8.25% (Bloomberg)

Data on Personal Income should indicate another reduction in the savings rate, Chicago PMI will miss consensus confirming economy is in Japan-induced freefall, UMichigan will poll a couple of Wall Street CEOs who have never seen Jeeves happier, and lastly Bernanke will speak in some televized conference and not providing any new data as usual.

Let us reiterate a COMEX default on delivery of precious metals and specifically of silver bullion bars is far from “noise”. It is of significant importance and that is why we have covered its possibility for some months. A COMEX default would have massive ramifications for precious metals markets, for the wider commodity markets, for the dollar, for fiat currencies and for our modern financial system. Silver surged 3.4% yesterday to settle at a 31 year nominal high and rose by $1.55 on the day. Silver is up some 28% in April alone. The last time this happened is when Warren Buffett took a large stake in silver in 1987 and there were rumours of Buffett “cornering the market”. Silver remains in backwardation and the possibility of a COMEX default cannot be ruled out – especially as silver bullion inventories are very small vis-à-vis possible capital allocations to silver in the coming weeks and months. The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge to well over its inflation adjusted high of $140/oz. Indeed, a recent article in the Financial Times suggested that private or state interests with very deep pockets are attempting to corner the silver market. Bizarrely, this massive story which mooted the possibility of Russian billionaires, Chinese traders and even the People’s Bank of China and other central banks secretly buying silver, has subsequently been barely reported or commented on. There are now two “conspiracy theories”. One is the long side conspiracy theory which claims, a la the FT, that there are foreign private and state actors attempting to corner the silver market through secret buying.

Back in March of 2009 Zero Hedge, once again a little conspiratorially ahead of its time, solicited reader feedback on a key topic: CDS pricing manipulation, involving in addition to key cartel banks, such "independent" pricing services as MarkIt. We said: "Zero Hedge has received some troubling info (like there isn't enough)
regarding major pricing discrepancies between certain securities pricing
services. The services include companies such as IDC, Advantage Data,
Markit and others. While I will not disclose which one may be a culprit,
the allegation is that one (or more) are providing substantially above
market pricing levels, specifically as pertains to distressed
securities." Then back in August 2010, we followed up by explaining that it is the ongoing price manipulation scheme, in addition to other factors, that allows Goldman Sachs (and other CDS dealers to a much lesser extent) to constantly generate massive profits from trading an opaque off-exchange product like CDS. It took two years and a month for others to take notice of this inquiry, although naturally not in that slum of corruption and market manipulation, the United States of America, but in Europe. Bloomberg reports: "Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and other 14 other investment banks face a European Union antitrust probe into credit-default swaps for companies and sovereign debt, regulators said. ...The European Commission said it opened two antitrust probes. It will check whether 16 bank dealers colluded by giving market information to Markit, a financial information provider." So while some post flow charts explaining the hilarity behind conspiracy theories, others actually expose the facts that today are a conspiracy and tomorrow are a full blown criminal investigation.

For some reason this is the biggest news of the day. Feel free to follow it live via Sky News below.

And the parade of dollar negative news continues this morning. First the USDCNY an 18 year low, now the USDCHF hit an all time low, trading as low as 0.8675. This is astounding considering the pair had traded north of parity for pretty much all time until last summer when the USD succumbed to Bernanke's strong dollar policy. The reason for the record surge is attributed to comments by SNB president Philipp Hildebrand who, in observing the economy, says that the "inflation outlook still in range of price stability and Swiss economy grows more vigorously than anticipated." Translation: record CHF has killed off all our exports, and Nutella is about to picket our offices. And in other related, and very entertaining news the SNB said that posted a first-quarter profit of 1.9 billion Swiss francs ($2.18 billion), thanks to gains from currency transactions and a fund in which it parked toxic assets from banking giant UBS. In other words, SNB has now become AIG, booking MTM profits on its literally toxic subprime assets (thank you Brian Sack and Chicago permabid IWR algos), all the while ignoring the 220 billion in USD backing the "asset" side of its balance sheet, which if fairly marked would likely bankrupt the central bank overnight. And people say we can't teach the euros a thing or two about banking...

The world's most anticipated currency revaluation continues at its traditional glacial pace. And while it is not a surprise to anyone, the overnight PBOC fixing for the CNY dropped below the psychological 6.50 level (or 6.4990 to be precise) for the first time since 1993. Granted, if the US and Chuck Schumer in particular were to stop pushing China to revalue, it would have long since done so at a faster pace, however in light of the diplomatic effort to force it to do so, the ongoing snail's pace shift in FX will continue (and may well reverse now that even more legislation is introduced to the "enforce" China's currency manipulator status). Yet what is notable is that over the past 4 days the CNY has seen a dramatic 0.75% appreciation: easily one of the most aggressive weekly moves by PBoC bands. Is this move merely a political ploy to silence the critics, or is China truly starting to crack under the weight of its own inflation? We shall know soon enough.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 29/04/11