Archive - Oct 2012 - Story

There was a time when only fringe blogs and digital dickweeds would suggest the BLS data was anything but entirely above board. That time has ended!

Unbelievable jobs numbers..these Chicago guys will do anything..can't debate so change numbers

— Jack Welch (@jack_welch) October 5, 2012

For the second time this week, NYSE Liffe has halted all London Commodities, Paris Commodities, and London Universal Stock Futures trading - due to a 'technical issue'. Simply remarkable...

Complete preelection "massaging" farce.

We've discused how to forecast it, how to trade it, and its politicial implications, so just to tie it all up in a bow, here are the 'surprise' factors for September's NFP over the last 14 years - mostly a miss!

Spot the one difference.

Today's quote of the day comes from Carole Laulhere of SocGen's Forex and rates corporate reserarch.

“I’m so glad I live in a world where there are Octobers” L.M. Montgomery, Anne of Green Gables

 

Comparisons of October 2012 with 2009, 2010 and 2011 may not prove terribly relevant for a variety of reasons but just like in L.M. Montgomery’s novel, despite the dire situation in the euro periphery, optimism and imagination have helped markets to see the best in things.

And to think it was only 3 years ago that we said to ignore corporate 10-K and Qs, and instead only focus on such central bank flow reports as the H.4.1. and H.3. We have reached the singularity point where nothing else matters but who pumps what, when and where. That and "optimism" and "imagination" of course.

• Draghi Says Next Move Not His as Spain Resists Bailout (Bloomberg)
• EU Doubts on Deficit Cutting May Hinder Spain’s Path to Bailout (Bloomberg)
• Merkel to Visit Greece for First Time Since Crisis Outbreak (Bloomberg)
• Fed's Bullard warns inflation won't ease U.S. debt burden (Reuters)
• Walmart Workers Stage a Walkout in California (NYT)
• Natural Gas Glut Pushes Exports (WSJ)
• BOJ Refrains From More Stimulus as Political Pressure Mounts (Bloomberg)
• Big funds seek to rein in pay at Wall Street banks (Reuters)
• Hong Kong Luxury Sales Fall as Chinese Curb Spending (Bloomberg)
• Dave and Busters Pulls IPO due to "Market Conditions" (Reuters) - so market at anything but all time highs now is market conditions?
• Weak U.S. labor market looms ahead of elections (Reuters)
• Glut of Solar Panels Poses a New Threat to China (NYT)

Precious metals have all run up with the recent loose money policies enacted by various governments.  Clearly the market darling of late is silver which is now gaining favour in Asia for its value appeal.  Spot silver traded in New York has risen by 27% since the end of June, while the price of spot gold has increased by a meek 12%. Analysts say future Indian demand is key for silver’s price to climb. Futures contracts for silver at India's largest commodity exchange, the Multi Commodity Exchange, rocketed 30% in September compared with July, while volumes fell by 10% for gold futures contracts over the same period. Indian rupee weakness sent gold prices in rupees to an all time high this year, while silver never exceeded the record it hit last April. Rupee-denominated silver is currently being quoted around 20% below the record. Indian investors have ceased purchasing because the 2 weeks ending Oct. 15th is regarded as inauspicious.  The buying will commence and peak during the week ahead of the Hindu festival of Diwali on November 13th. In China, on the Shanghai Futures Exchange silver futures were up 29% at the end of September verses the end of June, while gold climbed 13%, according to data from the exchange's website.

The market is so focused on this morning's BLS number it has completely ignored the latest round of Reuters "news" (after their last two market-testing, unsourced "exclusives" about European developments were roundly refuted nobody can blame it) on how the OMT will proceed once operational (assuming of course Spain ever requests an activation of the mechanism that has allowed it to consider not requesting it). So, on to the thing of importance via BBG: expectations is for a NFP print of 115,000 and an unemployment rate of 8.2%. Any major surprises to either side will likely be risk negative. The unemployment rate has held above 8% level for 43 consecutive months; U.S. labor force participation rate last month declined to 63.5%, lowest since Sept. 1981. Back to Europe, a possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. The German recession accelerates as factory orders fell 1.3% in August, more than forecast. Switzerland’s foreign-currency reserves rose to a record 429.3 billion francs at the end of September from 420.8 billion francs at the end of August.Around the world: the Bank of Japan held off from more easing after adding to stimulus last month; shoppers from China’s mainland curbed spending at Hong Kong luxury stores during the Golden Week holiday.

While we have grown accustomed to the daily gyrations on mega-volume in the US equity markets, it seems the HFT-virus has spread as far afield as India this evening. India's National Stock Exchange was halted - with no price dissemination - as State Bank of India plunged over 14% in seconds on massive relative volume (and HDFC and Infosys also fell), dragging the Nifty Index down 3%. Of course, the 'error' is being investigated and SBIN has recovered its losses...

• *STATE BANK OF INDIA SHARES FALL 14% ON NATIONAL STOCK EXCHANGE
• *INDIA'S NIFTY INDEX EXTENDS DECLINE TO 2.8%
• *NATIONAL STOCK EXCHANGE SAYS VERIFYING SOURCE OF PRICE ERROR
• *NATIONAL STOCK EXCHANGE SAYS NIFTY INDEX LEVELS NOT UPDATING
• *INDIA'S NATIONAL STOCK EXCHANGE RESUMES TRADING
• *INDIA'S SENSEX INDEX ERASES LOSS; GAINS 0.3% IN MUMBAI
• *INDIA'S NSE SAYS `LOOKING INTO' THE FREAK TRADE

The new-normal bizarro world in which we live and trade requires a new set of un-common-sensical thinking to succeed. As we noted earlier, perception is far more important than reality (at least in the short- to medium-term), and tomorrow's payroll report could well be the most egregious example of this yet. Citi's Steven Englander agrees, noting that it seems very possible that the focus will be on the unemployment rate (UR), because of its political importance, rather than the non-farm-payroll (NFP) change, despite its greater economic importance. Given the high correlation to equity (risk) price movements and the focus of market movements likely being driven by the unemployment rate - the question becomes to what degree political factors will offset the negatives typically associated with economic slowing - and what the USD reaction will be to various ranges of NFP and UR.

The Federal Reserve is probably not ready to take the aggressive plunge into Nominal GDP Targeting, but it likely will. But if you think these measures are desperate, we have only just begun to push energy and financial systems beyond their capability. The launch of QE3 (and similar measures by the European central bank (ECB) in Europe) is like the crack! of a starting-gun to human psychology that carries the following, urgent message: Hey, humans – go get those resources quickly, before someone else does! Indeed, the most powerful lever for monetary policy remains our capacity for social competition. The open-ended promise to pursue a faster rate of growth at the expense of inflation, mal-investment, bubbles, and the environment places a new and fast pressure on human economies to perform.

The news surrounding the Middle East, particularly Iran and Syria, may come and go in waves, but for the most part it is loud political grandstanding, jawboning and largely noise. Or rather, it will be noise until these two catalytic events occur: the third US Aircraft carrier (CVN-74 Stennis) and the second big deck amphibious warfare ship (LHA-5 Peleliu), both dispatched as of several weeks ago with a destination the 5th US Fleet headquartered in Bahrain, reach their target - the Arabian Sea, located by the Straits of Hormuz and right next to Iran. As the following naval update map from Stratfor shows, both are now within a week of reaching their destination: conveniently so with at least two weeks to go until the presidential election. Needless to say, once on location, the naval and airborne support for any offensive operation, especially those launched during new moon cycles, will be simply suffocating.

A common theme among many of our insights is the reality that lurks behind the proposed perception of many of our economic, financial, and political leaders' projections. From Spain not needing a bailout to Juncker's lies, from Bernanke's transitory inflation to Dimon's not needing TARP, the list is endless. Artemis Capital, whose insights we have discussed here and here, use the metaphor of the impossible object (e.g. Penrose Triangle or Necker's Cube) to explore the role of perception in modern markets, monetary policy, and risk. In a world where global central banks manipulate the cost of risk, the mechanics of price discovery have disengaged from reality resulting in paradoxical expressions of value that should not exist according to efficient market theory. Fear and safety are now interchangeable in a speculative and high stakes game of perception. The market is no longer an expression of the economy... it is the economy; and common sense says do not trust your common sense.