Archive - Apr 2011 - Story

Both Italy and Spain came to market this morning, pricing T-bills for E8.5 billion and nearly E2 billion, respectively. And while there was a divergence in bid to cover trends, yields surged across the board confirming that below the European surface not all is as well as the EURUSD would make most believe. Spain priced EUR 1.163 billion in 3-month T-Bills with a slightly improved bid/cover 4.43 vs. Prev. 4.33 although at a cost of a nearly 50% jump in yield or 1.37% versus 0.899% previously. This is the highest yield since December 2010. Spain also sold EUR 806MM in 6-month Bills at a bid/cover 7.11 vs. Prev. 7.65 with the yield surging as well, this time hitting 1.867% vs. Prev. 1.361%. Italy followed suit issuing EUR 8.5 billion in 6 month Bills, however at a lower bid/cover (reduced interest) of 1.432 vs. Prev. 1.61 despite the yield also jumping to 1.659% from 1.396%. Elsewhere the 3 and 6 month Euribor rate fixings continue to skyrocket, hitting 1.361% and 1.657% respectively. Thank you ECB for hiking rates. All this myopic action has done is to make the cost of short-term debt rolls prohibitively more expensive. Luckily, it will last about 3 months tops before Trichet, just like back in 2008, is forced to loosen once again (and yes, AU priced in EUR will be waiting).

And so the proverbial correction in silver may have well been completed in the span of 24 hours. As the attached chart shows from its Sunday night peaks to its Monday night bottom silver has dropped over 10%, what some call a mini bear market (which takes it to those depressionary lows seen on Thursday of last week). Is the climb now set tp resume, although not so much due to anything else (and there is plenty else) but because the USD pounding is back in full brokeback style. The EURUSD is about to break above the Sunday night heights in the mid 1.46s and while weak hands are vacating gold and silver, everyone is scrambling to load up in CHF. We wonder how long until those same people realize that Hildebrand is just as mortal as any other central banker with a balance sheet behind him, and as recently as 12 months ago underwent a failed campaign to halt the surge of the CHF in the process contaminating his assets with some seriously ugly currency assets (if one may call $220 billion of dollars on the left side of your balance sheet assets and thus implicitly "supporting" the SNB liability - the Swiss Franc) whose eventual unwind will not be too kind on the Swiss currency.

Over the past hour Zero Hedge has been inundated with reader comments notifying us that Ampex has, validating the earlier post speculating about a possible silver shortage at the metals distributor, launched a "reverse ïnquiry" in which it will pay "you $3.00 over the current spot price of Silver for your Silver American Eagles. ANY year, ANY quantity!" and "We will pay you $38.00 over the current spot price of Gold for your Gold American Eagles. ANY year, ANY quantity!" So aside from this first public confirmation that one of the biggest wholesale retailers of precious metals is now inventoryless [sic], we can certainly see why Asia has decided to take silver down in the afterhours electronic session.

Well, it's official: Ron Paul has launched his 2012 presidential campaign. Per the National Journal: "Rep. Ron Paul, R-Texas, whose outspoken libertarian views and folksy style made him a cult hero during two previous presidential campaigns, will announce on Tuesday that he's going to try a third time. Sources close to Paul, who is in his 12th term in the House, said he will unveil an exploratory presidential committee, a key step in gearing up for a White House race. He will also unveil the campaign’s leadership team in Iowa, where the first votes of the presidential election will be cast in caucuses next year."

Grant Williams chimes in with another (first one is here) off the beaten path observation on the ongoing parabolic rise in silver (and for those confused no, silver is not tracking the CPI). "We have discussed at length in the various iterations of this publication going all"the way back to my BTIG days, the various ‘conspiracy theories’ surrounding alleged shorts in the silver futures market which are allegedly held by, amongst others, JP Morgan and HSBC. Initially, these theories were dismissed as the ramblings of the insane and, speaking as one who was called insane many times, even I have to admit that the stories were somewhat far-fetched. Far-fetched? Certainly. Impossible? Hardly. Implausible? Less so now. There have been all sorts of assertions about the fact that the short positions purported to be in place on the COMEX couldn’t, in fact, exist. These assertions, like the accusations which they attempt to answer, are all offered without proof - the general defence being along the lines of “it’s too preposterous to be true” which, to me at least, is an extremely weak offering. As silver has exploded higher, various estimates have been made at the potential losses being accumulated by those parties short of silver futures. The sums are astronomical. If we take JP Morgans alleged short position as an example, and we assume there is some truth to the assertions about the size of that position, a move to $50 could potentially cost JP Morgan upwards of $4 billion - or, as it’s still known, ‘real money’.

"I think they might be pressured into launching a version of QE3 in June, but I think it will look very different from QE2. I expect that it would target longer dated treasuries and possibly even mortgages, in an effort to create the most political support. I also believe it will be more open ended. Rather than saying we will spend $X billion in 6 months and here is our purchase schedule and target portfolio, he will create a ‘war chest’. QE3 will be positioned as we have $X billion that we are prepared to use to purchase longer dated treasuries and mortgages if and when we see the need to add support. This would be a true compromise. It does not force the Fed to create a schedule of auctions like QE2, in fact if the data remains stable they don’t have to do anything. That should appease the hawks. By targeting maturities that directly impact mortgage rates, its more palatable to the average American, and by keeping the activity less obvious they can deflect any links to inflation more easily. It also keeps the purchases open at a time when there must be some real concern that this alternative tool could be restricted in the future." TF Market Advisors

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/04/11

"Looking forward, our prior period comps for net adds are going to get tougher, and while we expect our net adds the rest of this year to continue to exceed those of the prior year, it won’t be at a pace of nearly 2X like in Q1. With net adds forecast to grow every quarter on a Y/Y basis, we remain in the first half of the S curve of adoption. As always, we will remain focused on improving our service, keeping Netflix in the first half of the curve, and thereby increasing Y/Y net adds, as long as possible."

The world's most telegraphed call comes and goes, however since it has been priced in about 7 times already, has absolutely no impact on the price of silver. And yes, we were off by about 8 hours. Also, for those who observed this is the third margin hike in as  many months (previously here and here) with neither doing anything at all to halt the price surge, you are absolutely correct.

And so another one joins the commodities craze: "The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly." No, not Malthus. Grantham.|

In accordance with the BATS Clearly Erroneous Trade Policy, BATS, on its own motion, has determined to cancel all trades executed between 09:28:00 and 10:03:00 that were executed at or above or at or below 30% from the consolidated closing price for the stocks in the attached list. This decision cannot be appealed. BATS has coordinated this decision with other UTP Exchanges. BATS will be canceling trades on the Member’s behalf. Please see the attached list.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/04/11

Recently there has been lots of goalseeked speculation by sellside research about what the impact of QE2 will be. Considering that the biggest force in bond buying (PIMCO) disagreed with virtually everyone else, it is safe to say that nobody has any idea what will happen on July 1 (of course unless the Fed also actually stop its off-balance sheet curve vol selling, in which case the imminent collapse in the bond market is guaranteed). Naturally, after the private sector has come out defending its respective books, here come the Admirals of the Obvious from the San Fran Fed to voice in on just how good and wise QE2 was especially when compared to such a "monster" as 1961's $8.8 billion Operation Twist. According to the Fed, Operation Twist, which was truly a curve "twisting" operation instead of an outright debt monetization and deficit funding operation, succeeded in reducing rates by 0.15%. It is this delusion that fostered QE2, which is merely a continuation of QE1 and a contributor to the Fed's soon to be $2.9 trillion balance sheet, as the Fed was obviously trying to recreate history. Little did it realize that Twist was not about the implosion of a shadow banking bubble but all about removing rate arbitrage opportunities. Curiously enough, it was the rush of gold from the US To Europe, to express this arbitrage, that forced the US to engage in Operation Twist. Only later was the gold backing of the dollar completely removed thereby eliminating this arb opportunity. Of course, it is now deja vu all over again: the Fed has to do all it can to prevent the transfer of fiat into gold, albeit at non-fixed rates, or as some have called it, a non-central bank instituted gold standard. Yet oddly enough, despite all time record nominal prices, the demand for gold is only increasing, a result that the Fed had not anticipated at all and is forced to scramble to reverse. And now that QE2 has been a complete failure, the only option is to back track on everything and admit the Fed has failed, or pursue more QE, sending gold offerless. Your call Ben.