Archive - Dec 2012 - Story

November sales of U.S. American Eagle gold coins are on track to be the best in 14 years as uncertainty surrounding the U.S. fiscal cliff and the election of President Obama led to safe haven buying. Buyers timing the market also increased coin sales by buying during sharp price movements that occurred in the beginning and end of November, coin dealers noted. Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion. Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998, data from the U.S. Mint's website shows. In October, the U.S. Mint sold 59,000 vs 50,000 ounces the previous year, while November marked its 2nd successive monthly rise. Coin banks have come in to buy the stock as the mint usually ends 2012 coin production in early December so it can begin minting the 2013 coins.

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Greek Government Bonds (GGBs) jumped by over 12% today to over EUR40 - by far the highest post-PSI - as fast money floods the limited size illquid market to front-run the Greek buyback. Every day that goes by means less and less benefit for the Greek people as the discounted price of buying back the debt - with all of the money that Greece doesn't have, goes up. This is a perfect example of greater-fool-theory at work as everyone knows that if this price gets too high, the Greek government (via Troika) will (should) reneg on the buyback which will cause GGB prices to plunge back towards zero. What many misunderstand is that the buyback crystalizes the losses for banks that currently carry this worthless paper on their books at Par and garner the carry (and accruals) and thus in true European fashion, the unintended consequence of this action lines the pockets of fast-money hedge funds along for the short-ride and drains any pretense of capital from the Greek banking system.

Back in June, the Danish Central Bank set a New Normal precedent by being the first bank to impose NIRP, after it lowered its deposit rates to a negative 0.20% for everyone, in other words anyone wishing to keep cash with the bank would have to pay 20 bps for the privilege. NIRP just moved south to Switzerland, only this time not with a central bank decree: after all the SNB is already engaged in capital controls via the 1.20 EURCHF peg. After all it would seem unsportmanlike if the central bank would admit it needs more currency warfare to halt the influx of CHF into its system, as it would also imply that not only is the Eurozone not fixed, but the exodus of EUR-denominated accounts is relentless, and only the BIS is the marginal buyer of the currency. Instead, Swiss megabank, Credit Suisse, whose assets are orders of magnitude greater than Swiss GDP, in what will be a precedent copied by all other Swiss banks, just imposed negative credit rates on cash clearing balances after December 10 as per the message sent to clients below. In other words, "your CHF-denominated cash is no longer welcome at Credit Suisse, please convert it into that joke of a currency EUR post haste, K thx bye."

There was a time when Swiss bank secrecy was the passion of every tax-challenged oligarch in the world. Then things changed, Obama made it s badge of honor to rat out anyone you know who has a bank account in Zurich or Geneva, lists of previously ultra-secret account holders started "leaking" and from an asset, Swiss bank accounts promptly became a liability to everyone involved. Such as the matriarch of the legendary Papandreou family, former Pasok Greek PM G-Pap's mother, Margaret, also wife of former PM Andreas, who according to The Telegraph has been revealed as having a €550 million ($700 million) Swiss bank account (she will hardly be happy to learn that Credit Suisse just instituted a negative interest on CHF deposits) in the Geneva branch of HSBC. Obviously lots of hard work by M-Pap went into building up that particular nest egg.

In a world that already makes little sense to most, Credit Suisse just pushed the envelope a little further. The bank has just announced that going forward it will be charging for firms to hold a CHF cash balance - i.e. the bank, given the already-negative Swiss government bond yields, has moved to its own NIRP for its clients. The need to do this suggests an overwhelming desire for short-term safety that flies in the face of the seeming level of complacency that exists in the European bond (and stock markets). As we have warned before, it seems that the currency wars that appear to have escalated have now started the 'capital control' wars as CS (and implicitly the SNB) adds this negative interest rate 'charge' to its already pegged currency in the vain hope that of managing the unmanageable flow of safe-haven-seeking cash.

• *CREDIT SUISSE INFORMS BANK CLIENTS OF NEGATIVE RATES ON CHF FROM DEC. 10
• *CREDIT SUISSE INFORMS CLIENTS IN SWIFT NOTICE, CONFIRMED BY BNK

• Union solidarity rubs up against slow economy in LA port strike (Reuters)
• Geithner predicts Republicans will allow higher tax rates (Reuters). And "no risk" of a US downgrade, "no risk"
• Geithner takes hard line on fiscal cliff (FT)
• Narrowing LDP lead points to Japan post-election confusion (Reuters) - not to mention, USDJPY plunges if LDP loses
• Vietnam Says China Must Avoid Trade Weapon in Maritime Spat (Bloomberg)...  and real one, one hopes
• Greece unveils bond buyback plan (FT)
• ECB Can’t Deliver Spain Spread Rajoy Wants, Wellink Says (Bloomberg)
• UK’s euro trade supremacy under attack (FT)
• Merkel Signals Debt Write-Off Possible as Buyback Begins (Bloomberg)
• ECB's Noyer Says Bond-Buying Plan 'Is Bearing Fruit' (WSJ) - as long as just plan, and not execution.

Today's "trading", in a repeat of what has become a daily routine, can be summarized as follows: flashing red headline about Fiscal Cliff hope/optimism/constructiveness out of a member of Congress who bought SPY calls in advance of statement: market soars; flashing red headlines about the inverse of Fiscal Cliff hope/optimism/constructiveness out a member of Congress who bought SPY puts in advance of statement: market plunges. Everything else is noise, as is said hope/expectations/constructiveness too since it is increasingly likely nothing will happen until the debt ceiling hike deadline in March, but stop hunts must take place in a market which nobody even pretends is driven by fundamental newsflow. Such as the bevy of PMIs released last night, the key of which was the China HSBC PMI as reported previously, which beat expectations by the smallest of possible increments, at 50.5, but rising to expansion territory and the highest in 13 months, which sent the EURUSD spiking and has kept it in the 1.3030 range for the duration of the overnight session. Sadly, those on the ground in China hardly felt the number was a bullish as EURUSD trading algos around the world, sending the Shanghai Composite to a fresh post-2008 low, closing down over 1% at 1,960. But let's just ignore this inconvenient datapoint shall we?

It may still be unclear just where Greece will get the ~€10 billion in cash needed to buyback up to 20 various tranches of the post-restructuring GGB2 bonds (full CUSIP list below), but what the Greek Public Debt Management Agency announced today was the sound of money in the ears of the hedge funds that had bought up Greek bonds in the low teens several months ago, if not so much Greek banks many of whom may still have this debt market at up to par, as no matter which particular group of taxpayers ends up funding this "buyback" - a process that will have zero benefit to the Greek population who will see not one penny of the buyback proceeds (as described before) - it is the hedgies that benefit, who also have clearly controlled the process from the beginning as the announced tender prices were well above the levels Greek bonds eligible under the buyback closed at on Nov. 23, even though Greece's lenders last week said they did not expect the bonds to be purchased for more than the closing price on that date. In other words, the Greek government lied to its people again for the benefit of wealthy financial interests yet again.

Europe is supposedly fixed and/or well on the path to being competitive and "rebalanced." Or so they say every day. What they don't say, is that to complete the process of rebalancing, in the absence of external devaluation mechanisms under a currency union, is that wages in countries such as Spain, Italy and even France, will have to drop by another 30%-50% for internal imbalances between the Eurozone's nation states to be evened out. What they certainly don't say is how this could ever possible be achieved...

UPDATE: PMI Score: Up 19 - 9 Down; 15 nations contracting now vs. 19 Contracting last month

Good is 'good' it seems once again - though we do remember just a few short weeks ago when the world and his pet rabbit were hanging on every word from the Chinese leaders and their next epic embarkation on the stimulus highway. Not necessary now though; as HSBC's China Manufacturing PMI confirms Friday's NBS version that China is 'expanding' once again (though marginally). The highest print for the HSBC number in 14 months - makes perfect sense given the way the world is behaving with world trade collapsing and the mercantilist nation's key customer (that would be the USA) seeing spending slowing. Nevertheless, it's enough to run to late Friday highs in S&P 500 futures and flush out those nascent stops.  We just hope this 'expansionary' print is not a false hope as it was in October 2011... An evening full of PMIs has begun (see below)...

Whether you trust the squid and their thought process or believe in 'better the devil you know', Goldman's top thinkers - from Garzarelli to Himmelberg and from Stolper to Hatzius and Wilson - lay out the top ten global macro themes from their economic outlook that will dominate markets in 2013. Agree or disagree, one thing is for sure - these ten 'themes' will impact us all one way or another and for each theme, Goldman discusses the wider implications for markets, and the potential issues and options for investing around them. Aside from the ten key themes, they provide succinct macro outlooks for rates (steeper curves and seniorty shifts), FX (moderate USD weakness amid broad stability), equities (accelerating growth and risk reduction underpin a solid 2013), and credit ('search for yield' has less to find).

Remember when after the Fukushima explosion, in order to avoid panic Japan doubled the maximum dose of "safe" daily radiation allowed, and then raised it some more? This is kinda like that, but instead of Gamma rays you have Twinkies.

The world no longer makes sense to most people over forty years of age. Much of what we thought was true is now denied. What to us is obviously false (or at least always was) is now accepted as being true. Truth cannot be changed by repeating falsehoods. Nor can it be altered by more people believing untruths. But, when these fantasizers overwhelm society with their false beliefs, society will no longer function. As Ayn Rand stated:

You can avoid reality, but you cannot avoid the consequences of avoiding reality.

The avoidance of reality has overtaken our society. The consequences of doing so have been building for decades and will soon overwhelm us. On our current path, much of what we knew and cared about will be destroyed.

Thus far, the US has been the mainstay of Western recovery - the basis upon which investors' cautious optimism is espoused. As Diapason Commodities Sean Corrigan notes, a large slug of non-recourse debt default in the residential mortgage area has helped people escape the yoke while not serving to imperil the state-supported banks. A drastic, 20%-plus fall in house prices has seen the market clear, forming a base from which many feel a new advance in construction activity is slowly being built. The shale energy bonanza – if not yet filtering through to the price of the consumer’s routine fill-up – has begun to alter the landscape as far as producer competitiveness is concerned. And yet a host of interrelated indicators are flashing red; especially when one notes that these are closely correlated with either non?financial corporate profits and/or the stock market level itself - and form the basis of an informed realist's skeptical pessimism at equity market exuberance (or blind enthusiasm) - none more so than the two-sigma plunge in Durable Goods Shipments and its implications for a greater-than-15% crash in stocks.