Archive - Aug 18, 2011 - Story

Just one data point to note: Germany: +10

The president, after a whirlwind media tour, has begun his much deserved vacation at Martha's Vineyard. We wonder what is the market bloodbath threshold for Obama to announce he is cancelling it, and is rolling up his sleeves to get stocks higher -3%? -5%? Here is the president's complete daily schedule:

• 10:30 am - Meets with senior economic advisers
  
• 11:50 am - Meets with national security team
  
• 3:30 pm - Departs White House
  
• 5:15 pm - Arrives Martha’s Vineyard

By then the market should be, thankfully, closed.

All trading on Russia's MICEX stock exchange has been halted until 17:15 GMT. Next up: our very own Rule 48.

Following yesterday's upside surprise in the PPI, it was only logical that CPI would come higher than expected. However, printing at a 0.7% swing M/M, or the highest in years, was not expected. Broad CPI came at 0.5% in July after dropping -0.2% in June, or 3.6% Y/Y. This was far more than consensus which expected 0.2%. Core CPI however was in line with expectations at 0.2%. The reason for the surge? Gas, food and clothes. "The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose...The apparel index continued to rise sharply, increasing 1.2 percent in July; it has increased 3.9 percent over the past three months....The index for nonalcoholic beverages increased 0.9 percent in July as the coffee index continued to rise sharply." Elsewhere confirming that as expected the unemployment situation is deterorating, with 408K initial claims printing, on expectations of 400K, and making sure we dont have a revised 19 out of19 week of consecutive 400K+ prints was last week's revised 395K claims to, hold on to your seats, 399K.  That's right: a 1K in jobs breaks the trend, huzzah! Just as importantly, those on EUCs and Extended benefits continued to plunge, dropping by 43K in the last week. And most frightening, the one year change in Americans receiving Emergency Compensation (EUC) has plunged from 4.7 Million to 3.1 Million. That's 1.6 million Americans who no longer even collect any benefits from the government.

• Fed Dissenters Say Pledge Gives Appearance of Targeting Stocks (Bloomberg)
• U.S. Inquiry Eyes S.&P. Ratings of Mortgages (NYT)
• 6 dead in string of attacks in southern Israel (CNN)
• ECB’s Nowotny Says Italy Not Greece, Too Early for Euro Bonds (Bloomberg)
• France, Germany Push for Sanctions (WSJ)
• Breaking Europe’s cycle of enfeeblement (FT)
• Biden tells China's Xi that cooperation key for global stability (Reuters)
• Hong Kong Exchange in Venture Talks With Shanghai, Shenzhen (Bloomberg)

Bull markets almost always end in a mania phase where there is a near universal belief that an asset class or security is going to rise and there is no risk involved. This has been seen throughout history and was seen with the Nikkei, the Nasdaq and more recently with property markets in Ireland, the UK and the U.S.  It was also seen with gold in the 1970’s when gold increased 128% in 1979 alone. On January 2nd 1979 gold’s London AM Fix was $227/oz. By the 31st of December, gold’s London AM fix was $524/oz. 21 days later gold had increased another 60.9% to $843/oz. This is parabolic. Today’s 27% rise year to date in dollar terms is very tame in comparison.

A busy data schedule, with the CPI, existing home sales, jobless claims and the Philly Fed index, all of which will be ignored as the market focuses entirely on European headlines once again.

And the vile, despicable short selling speculators are nowhere to be blamed. EOM. Move along.

Rule 48! Rule 48! Rule 48!

I prefer to quote Shakespeare rather than Monty Python, but the Black Knight scene just keeps popping into my head lately.  We have been in a period of intense volatility, have hit levels on the SPX (1100) that very few people thought we could.  Yet, the perma bulls have been back in force over the past few days. Armed with 5 days of decent performance and year-end forecasts of 1,400 or more, those perma-bulls were out in full force with their usual arguments. "Transitory", "temporary", "just a soft patch", "decoupling" (I have lost track of who is decoupling from whom, and when that decoupling is good), "contained", and "oversold".  For the past few months, if not longer, the perma bulls cling to every EU plan as an excuse to rally.  Virtually no attention is paid to whether the plan is feasible or if it would even work, it is just assumed to be good and that Europe will finally be fixed.  Any scrap of positive economic data is instantly glommed on to and is repeated ad nauseum.  Bad data is pushed aside or blamed on something - weather being a favourite scapegoat.  Anyways, as I see and read this daily denial of the real problems that still exist, I just keep thinking about that knight insistings "It's only a flesh wound".   

Not even the core is safe anymore, with Germany and the UK both joining the periphery in today's CDS rout:

• PORT +5
• ITALY  +10
• IRELAND   +8
• GREECE    +2
• SPAIN +10
• BELG  +3
• FRANCE +1

And so the last true blue, and much ridiculed economics team, that of Morgan Stanley's David Greenlaw's and his merry Buryini-ruler clad automatons, has waved the white flag. Specifically, in an email sent out yestrday by the firms' overabundant and soon redundant salespeople, both institutional and retail, we read: "WE HAVE BEEN ARGUING FOR A STRONGER 2H US ECONOMY..AND WE ARE CAPITULATING..." The all caps comes from them lest someone accuses us of being overly dramatic.

Update: it begins - Fiat (FI.IM) and Exor (EXO.IM) are halted. Look for Intesa and Unicredit to follow any second.

It was fun while it lasted, or all about 6 days. Following the imposition of the continental short selling ban, Europe managed to prevent the now daily occurrence of halting trading in key financials... for almost a week. But not quite. We fully expect that UniCredit (down 5.3%), Intesa (down 4%) or Fiat (down 8%) wlil be halted any second, despite the fact that nobody is shorting them. All that was necessary for a return to the status quo, or for Europe to be open. Following news from the WSJ overnight that the Fed is "concerned" about European bank funding (a story which is such a glaring plant: why on earth would the Fed of all entities invite contagion by indicating that the funding pyramid, at whose base it itself is located courtesy of the unlimited FX swap lines), which in turn used data first broken by Zero Hedge yesterday namely that "In one sign of how European banks may be having trouble getting dollar funding, an unidentified European bank on Wednesday borrowed $500 million in one-week debt from the European Central Bank, according to ECB data. The bank paid a higher cost than what other banks would pay to borrow dollars from fellow lenders. It was the first time for that type of borrowing since Feb 23", has led to every index in Europe is plunging, and at last check US futures were down over 20 points. Why would use its traditional mouthpiece the WSJ to spread fear? Why QE3 of course. As we will never tire of repeating, the market has to fall another 20% for another easing episode to be feasible. And what better way for this to happen if you are Ben Bernanke? Why hit them where it really hurts - European bank stability of course. Oh yes, all of this has sent gold to just under all time record highs at $1810, pretty much as also expected.

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