Archive - Sep 23, 2011 - Story

In his inimitable manner, Marc Faber describes to ThomsonReuters why it is time for Greece to leave the common currency, claim bankruptcy, and allow its citizens to live decently even if European leaders (and bankers) have to suffer. Furthermore, he reflects on how the stock market sell-off indicates real concerns about the global economy and in an unusual moment for the author of the Gloom, Boom, and Doom report, believes the Fed was right (but only in so much as they limited the scope of Operation Twist).

At the end of a dramatic week such as this, when clearly the hope of a civilized world of buy-the-dip monetary policy-to-the-rescue 'investors' was somewhat dashed, we take a look at the decimation. Friday appeared a day of rest for everyone but margin clerks as 'safety' was sold but nothing appeared to be bought. Financials managed to hold their heads above water as hope remained that someone would do something this weekend but as we scan the asset classes - we note that investment grade credit was the best performer of the day - hardly a signal of strength - as volumes in equity markets dropped significantly.

UPDATE 1: The fact that the CME hiked margins after-hours seems to be as much a driver of the weakness in gold, silver, and copper and we note that after the equity close, we are seeing both silver and gold up around 1%. They also hiked 30Y which helps explain the coordinated sell-off we discussed earlier.

UPDATE 2: Here they come - Trichet: We Stand Ready to Supply Unlimited Liquidity

And there you have it: CME just hiked gold margins by 21%, silver by 16% and copper by 18%. Mystery solved.

Update: Yep - it was a leak of a margin hike as just confirmed. Which may very well mean nobody actually had to liquidate, just the herd thundered, as it always does, in the wrong diraction. Expect gold to actually rise on this news.

Everyone knew they were coming... Just not when. Now that the gold liquidation frenzy has struck we still don't know much if anything: who was it, why, and where did the money go? Some rumors have it as a bank in Central, Eastern Europe unwinding massive PM positions, which if true is paradoxically bullish for gold and silver as reported previously, as it means the already tight liquidity situation in Europe is about to come to a head, possibly as soon as this weekend. Others speculate it was a plain vanilla satisfaction of collateral requirements by a big funds who may or may not be liquidating and who have sizable gold positions. Or, the simplest explanation, was it simply an expectation (and leak) of a gold margin hike? For all these questions and more, as well as to vent over anything and everything, use the following open thread.

For once the speculators got it right. In the week ended September 20, net USD futures and options exposure surged by the most in years, with net non-commercial contracts soaring by a whopping 22,577 contracts to the highest since April of 2010. The flip trade is a collapse in EUR sentiment, which saw net exposure plunge by 25,001 from -54,459 to -79,460, the most bearish sentiment in the European currency has been since June 2010. Net net: the euro is now massively oversold explaining why even the smallest of rumors initiates a furious short covering squeeze. And yes, the next bubble is now not in silver, not in gold, but in the dollar. The first sign of moderation of European stress, or a Hilsenrath piece on the next round of QE by the Chairsatan, and watch the DXY and the various USD pair collapse (and gold surge).

You are being lied to.   There is currently more than sufficient evidence that indicates that we are either in, or about to be in, a recession.   The last time I made that statement was in December of 2007.   In December of 2008 the National Bureau of Economic Research stated that we were correct.  I don't make statements like that lightly and, honestly, I hope I am wrong as this is a horrible time for the economy to relapse. However, the reason that I bring this up is that there have been numerous analysts and economists stating that the economy cannot be going into recession due to the spread between various sets of interest rates.  (For the purpose of this report we will focus on the spread between the 1-year Treasury bond and the 10-year Treasury note.)  Historically speaking they would be correct and I will explain why.

Rumor time, just as expected:

• EU'S REHN SAYS THERE ARE PLANS TO RECAPITALIZE EUROPEAN BANKS

When the FT fails, drag the viceroy of New Feudal Europe^TM into it. EURUSD shoots from the hip without any regard for logic or math. And here is the math: the combined European banks' (yes, all those banks that virtually all passed the stress test as in they DONT NEED NEW CAPITAL) market cap, in addition to being lower than that of Apple, is about half of what the banks needs to raise to meet Goldman's liquidity needs. In other words, banks will dilute themselves by at least 200% to become viable. And they plan on pulling this off without a mutiny by existing shareholders how again? Oh yes, the word is "nationalization." And that will surely confirm that Europe is stronger than expected. This broken market is now trading only rumor to rumor, each of which is getting more and more desperate and more ridiculous.

We noted earlier that German finance minister Schaeuble said bank recaps were not the ECB's problem and the 2nd Greek bailout needed revisions - little did we know this would be the signal for investors to recognize that raising cash might be the safest thing to do. Since that statement TSYs and Gold/Silver flipped their recently well hedged relationship to one of total liquidation of both - correlation is not causation obviously but we though the timing was of note.

RANsquawk Weekly Wrap - we answer questions that have come to the desk, and we highlight some of next weeks important news and data to look out for.

We have now moved from buying the rumor, to buying the rumor of the rumor. Is this another reason for stocks to bounce?  Or just admitting that EFSF is too confusing in its present form, and cannot do enough, and has so little support that we might as well move to ESM?  Maybe the EU members have decided that if anyone was going to spend more money in Europe, it should be something they control directly and not this super CDO? Maybe they finally realized that the EFSF was supposed to be replaced by ESM in 2013, but EFSF was going to issue 30 year bonds?  Maybe the German approval vote is more questionable than we are being led to believe? Who is this employee who left his briefcase open at a bar with a Bloomberg reporter? Or is someone sending out leaks, waiting to see how the market, responds, and if it's not good enough, they send out another leak?  It sounds bizarre. There is no longer any point watching this.  Those that are bullish will be cheered by each and every step, and believe it is a sign of more to come.  Those that are bearish will view each headline with derision, until something big and real happens one way or another. 

Gold down over $100, and Silver down over 15% - someone is liquidating. Rumors vary from very prominent hedge funds to Central European (as in geographically) central banks. Bottom line is, it is a self-fulfilling prophecy at this point and will continue until every last seller is out, and until the margin calls end.

UPDATE: Silver <$30 -17%

Helpful non-confrontational, non-trade-war, conciliatory comments from China's finance minister Xie speaking at the IMF meetings.

*CHINA SAYS IMF SHOULD STUDY DEFECTS OF WORLD MONETARY SYSTEM

*CHINA SAYS IMF SHOULD DIVERSIFY GLOBAL RESERVE CURRENCIES

*CHINA SEEKS `STABLE VALUE' IN RESERVE CURRENCY SYSTEM

In what is a pathetic attempt at Mutual Assured Destruction only in this case is Virtual Assured Suicide, Athens News reports that Greece, in order to demonstrate just how "serious" its fiscal condition is, will slash its defense spending in the form of support for NATO, thereby destabilizing the region even as Turkey and Syria are already on the verge of way: a development which NATO will surely be delighted by. "Greece will significantly reduce its participation in Nato and EU military missions due to the economic crisis in the country, National Defesce Minister Panos Beglitis announced on the sidelines of an informal EU defence ministers' Council held here on Friday. He said that the ministry was preparing to cut down Greece's participation in the Nato and EU missions in Afghanistan, Kosovo and Somalia, noting that local political forces in Afghanistan and Kosovo were anyway entering the phase where they would gradually take over control." So instead of going ahead and doing any of the austerity stuff Greece promise to enact back in 2010, which has been sacrificially pushed forward from 2015 to 2014, pretty much like what the US will need to do soon to avoid more downgrades when the next debt ceiling hike is due in a year, it will instead pack up and leave, most likely giving Turkey the impression it can do whatever it wants in the region, and why not: after all the third coming of the Ottoman Empire has been long in the making.

Yawn:

• EU PLANS GREEK BUYBACK PROGRAM OPEN TO ALL DEBT, ALL INVESTORS
  
• EU GREEK BUYBACK PLAN FROM DOCUMENT OBTAINED BY BLOOMBERG NEWS

Fade.

Why are the only people smart enough to trick a bank's risk system, so stupid that they lose billions of dollars? The odds that the only rogue traders that exist have phenomenal losses are very small. Some must have small losses, and some must have profits that quickly get converted from "rogue" profits into bonus eligible profits. Why are so many capitalists and "free-market" champions calling for government support? Many of the same people who rant against government regulations and interference, are happy to demand handouts, subsidies, and "helpful" intervention. Can you really be a commucapitalist? I guess if capitalist is redefined as self-serving, this wouldn't be a paradox.