Archive - Jan 3, 2012 - Story

The market has not even opened for regular trading for the first trading day of the year and already predictions for the final print are made. Enter Morgan Stanley, which unlike last year, when it was painfully bullish has come out with an uncharacteristic and quite bearish prediction: "We are establishing a 2012 year-end price target of 1167, representing 7% downside from today’s price. The consensus top-down view has coalesced, with limited variation, around 1350, making our forecast 13% more conservative than the “muddle  through” scenario implied by consensus." And the primary reason for this - a collapse in earnings predictions: "We are launching our 2013 EPS estimate of $103.1, 15% below the bottom-up consensus forecast of $121.1." Time to reevaluate those record corporate profit margin assumptions? That said, make no mistake - just like SocGen, Goldman, UBS and everyone else, the sole purpose of these bearish forecasts is to get the market to drop low enough to give the Fed cover for QE X. Because as Adam Parker, who made the forecast, knows all too well, if the market indeed closes red for 2012, so will Wall Street bonuses.

Don't look now but oil is spiking as the market is finally realizing that the escalation in the Persian Gulf is more than just for show (which curiously was once again set off by Obama establishing a full financial embargo of all Iranian activity on New Year's Eve, leading the Rial to plunge to a new record low, and about to set a brand new scramble for physical gold in the country on the verge of hyperinflation). At last check WTI was up over $2.50 with the market realizing that either Dalio will be right (central banks going into overdrive) or the Iranian escalation will finally pass the trigger threshold, and Brent was over $110. Today's escalation, just as requested by the US, is not another missile launch but a threat by the Iran military to retaliate if the US carrier John Stennis were to once again cross the Straits of Hormuz and return to the Gulf. As a reminder, as of December 23, as was observed by Stratfor before the hacker takedown and reported here, the Stennis was within shouting distance. From Reuters: "Iran will take action if a U.S. aircraft carrier which left the area because of Iranian naval exercises returns to the Gulf, the state news agency quoted army chief Ataollah Salehi as saying on Tuesday. "Iran will not repeat its warning ... the enemy's carrier has been moved to the Sea of Oman because of our drill. I recommend and emphasise to the American carrier not to return to the Persian Gulf," Salehi told IRNA." Which is interesting because considering that the 5th Navy is stationed in Bahrain, i.e., deep in the Gulf, there is no way that the Stennis or other carriers will not come back, meaning what is likely the terminal escalation has now been set in motion.

While nothing out of Italy or France was on the bond docket today, other countries in Europe will be issuing bonds on a virtually daily basis as the continent prepares to roll an record amount of debt in Q1, and in January as well (full calendar here). As such we saw new Bill issuance from Belgium and from Netherlands. The waffle country sold €1.280 billion in 3 Month T-Bills at a 2.13 Bid To Cover, a plunge compared to the 8.59 previously, albeit with the yield dropping from 0.78% to 0.264% as it falls flatly within the risk-free period defined by the 3 Year LTRO. Belgium also issued €1.155 6 Month T-Bills at a 2.01 Bid To Cover compared to 2.76 previously and a rate plunging from 2.438% to 0.364%. Elsewhere the Netherland also took advantage of the now mixed LTRO euphoria to sell €4.65 billion in Bills, specifically €2.99 billion in March 2012 Bills pricing at 0.00% (compared to negative -0.007% before), and €1.66 billion December 2012 Bills at a yield of 0.05% - obviously the market is still enamored with Netherlands as a safe haven on par with Germany. And speaking of the LTRO, that carry trade concept is now dead with the year end cash parking theory scrapped following the announcement thet banks parked the second highest amount in history at the ECB, or €446 billion, just shy of the €452 billion hit on December 27.