Archive - Mar 2012 - Story

Presented in all its incredulous glory, SocGen's EM desk's shock at the sheep-like ignorance of investors heading into the PSI and NFP... "I have tried my best to remain relatively bullish towards global emerging markets (GEM) over the recent period despite the global risks, but even by my bullish bias standards, today’s move is simply stupid. EM assets are rallying with a vengeance today, but the timing of that move is just wrong, in my view. Why now, ahead of a massive event risk, namely the results of the PSI released tonight? So unless EM investors know something I don’t—which would indeed make me stupid—today’s move is at best premature and quite a bit far-fetched."

Initial claims print +362K, missing consensus of 352K, and up from a upward revised, (of course) 354K. As a reminder, last week's print was expected to be 355K, instead coming at 351K spiking the market far higher. Needless to say, the response would have been far more muted had the number come at its true final print of virtually on top of expectations, but who cares anymore - everyone appears to enjoy lying and being lied to. That this miss comes ahead of a critical NFP print will likely have some scratching their heads especially since this is the first time we have seen three consecutive weeks of rises since August 2010. Also keep in mind next week, today's 362K will be upward revised to 365K. Hence the immediate if not sooner need for more, more, more QE. Continuing claims also missed at 3416K vs exp. of 3400K, and rising from an upwardly revised 3406K. Finally, EUCs and Extended benefits rose by 27K. Finally, when it comes to comparing before and after, we think it always makes sense to see the full picture, not just initial claims, and account for continuing and extended. Here is what it looks like for all those who tell us that the labor situation is as good as it was in 2008.

Update 2: This about summarizes it: "We have no Plan B. Having a Plan B means to admit defeat"

Update: Draghi says LTRO has been an "unquestionable success" but does not answer if there will be future LTROs. Bookmark this statement. Also says that ECB has to do things "together" when asked about Jens Weidmann criticism, with whom he says his relationship is excellent.

Will Goldman-alum Mario Draghi further infuriate German central bankers and announce additional easing steps by the ECB, whose balance sheet has become a "bad bank" punching bag for everyone who wishes to divert attention from their own problems, or will he, after flooding the world with €1 trillion since coming to power a few months ago, be satisfied for the time being and not preannounce another LTRO? Also, will he mention the previously noted collateral margin calls that have appeared recently like hairline fractures in the ECB's balance sheet, discussing the specifics of why, how and where these come from, or will he conveniently skip this rather problematic issue? Find out during the Draghi press conference starting at 8:30 am Eastern.

The German criticism of a mess they themselves have enabled (and benefit from via peripheral current account deficits funded via TARGET2 as shown previously here) at the ECB continues, and following public protests by Bundesbank head Jens Weidmann about recent ECB activity, it is the turn of former ECB executive board member Juergen Stark to take center stage. In an interview with the Frankfurter Allgemeine, warned that following the massive expansion in the ECB's balance sheet, in which it is clear to anyone that the ECB will accept used candy bar wrappers as collateral, that "the balance sheet of the euro system, isn't only gigantic in size but also shocking in quality."

European stock futures have trended higher today in relatively light volumes as the market awaits key interest rate decisions (BoE & ECB) and with the deadline for the Greek debt swap deal looming. The latest talk this morning has been that the participation in the PSI deal has been well received and coupled with speculation of a Chinese RRR cut overnight and stops tripped in the E-mini S&P and Eurostoxx futures earlier this morning, contributed to a large portion of the move higher. As a consequence, the USD index has weakened (-0.5%) which has lifted the EUR/USD pair back firmly though the 1.3200 level to the upside and Brent/WTI crude futures are seen higher ahead of the NYMEX pit open. Looking ahead we await the ECB press conference as well as the latest jobs data from the US due at 1330GMT.

As expected, no rate changes from the ECB. Former Goldman alum Draghi is also not expected to say anything provocative at the press conference due in 45 minutes.

• Investors help Athens over bailout hurdle (FT)
• Greece Moves Closer to Swap (WSJ)
• U.S. Warns Apple, Publishers (WSJ)
• China offers other Brics renminbi loans (FT)
• Court Challenges EU on Bank Downsizings (WSJ)
• QE blamed for surge in pensions shortfall (FT)
• Tang: Open to adjusting dollar trading band (WSJ)
• U.S. Report to Warn on Cyberattack Threat From China (WSJ)

Following a busy overnight session, which saw a surprise announcement out of the Brazilian Central Bank cutting rates more than expected, and confirmation of the deterioration in the Japanese economy where January saw a record current account deficit, today we have already seen the Bank of England proceed as expected keeping its key interest rate unchanged (at 0.50%) and QE fixed at GBP325 billion. The ECB is next with its rate announcement, expected to keep things on hold. Yet the mood of the morning is set by speculation that the Greek debt swap may see a sufficient participation rate for the PSI to go through, even if that means CAC activation, as somehow a Greek default is good, and only an "out of control" bankruptcy would be bad. That coupled with renewed expectations of more QE, sterilized or not, and hopes that tomorrow's NFP will be better than expected, as somehow the Fed will pump money even if the economy is "improving", is all that is needed to send the post-roll ES contract to session highs nearly 1% higher than yesterday's close.

What a difference 24 hours makes, or 48 for that matter. After an almost 2% decline on Tuesday on virtually no news, the market looks set to get all that back and more - all since about 10:30 yesterday - also on no real news. PSI results continue to come in. It looks like it will beat 75%. It seems that all banks and most regulated entities are voting in favor of PSI - as expected. It looks like Greece and the EU will discuss the results tomorrow. I expect CAC's to get done on Monday. It would be surprising, and controversial, if the don't use the CAC's and pay some holdouts at par. After Greece walks away from over $140 billion of debt, it will be hard for other countries to resist that temptation. Now that politicians realize they can make the banks do whatever they want, they will be tested to use that power.

The rally for what could be World War III is in full swing. The truth amounts to very little on the eve of war.  Iraq and the lies surrounding weapons of mass destruction proved this lesson almost a decade ago.  Unfortunately for the people of America, Israel, and Iran, the political class and power wielders of their respective governments refuse to learn.  Their desire is for more authority and prestige; no matter how many bodies it costs. With the administration now seeking to provide assistance to the opposition forces in Syria, intervention and war with Iran is only an eventuality at this point.

It would appear, given the actions and rhetoric of the last week or so, that global central bank printing presses have been switched to 'pause' mode and allowed to cool as implicit inflation 'energy' rears its economic-growth-dragging head around the world (as the bears told us earlier). Whether this leads to a slow grind higher or a tactical correction is the question Morgan Stanley considers in a recent note and their answer is that bullish sentiment, 'under-appreciated' risks, and 'tranquil' markets justify a cautious asset allocation. The focus has switched much more to growth, likely why we have not seen a greater deterioration post-printing yet, but this leaves the market much more sensitive to data surprises (as the backstop of QE has been removed for now). Simply put, we tend to agree with MS' view (given our previous discussions of the volatility surface) that as event and growth risks linger, and with valuations no longer cheap in most cases, expectations of a continued grind higher without a tactical correction are overly confident.

Perhaps not so shockingly, AP is reporting tonight that satellite images of Iranian military facilities show trucks and other earth moving vehicles. Diplomats, accredited to the IAEA, suggest this indicates attempted cleanup of radioactive traces possibly left by tests of a nuclear-weapon trigger. As sanctions grow more burdensome and Israel's pre-emptive rhetoric rises, the discovery of this sanitization effort only raises the stakes as the images are said to be very recent and updated constantly and suggest evidence of tests of a small experimental neutron device. This wouldn't be the first time a site has been 'sanitized' prior to IAEA inspector visits but as The Boston Globe reports IAEA expert teams have tried twice - and failed - in recent weeks to get Iranian permission to visit this area and now (following the apparent clean-up) they have finally been granted access. As the US, Britain, France, Germany, Russia, and China postpone their meeting, in an effort to find more moderate language to criticize Iran, it seems to us that actions may just start having more impact than words very soon.

As the global warming debate increases in its intensity we find both sides deeply entrenched, hurling accusations and lies at one another in an attempt to gain the upper hand. This divide within the scientific community has left the public wondering who can be trusted to provide them with accurate information and answers. The IPCC, the onetime unquestioned champion of climate change, has had its credibility questioned over the years, firstly with the climategate scandal, then with a number of high profile resignations, and now with the new “Gleickgate” scandal (1) (2) – One has to wonder where climate science goes from here?

Earlier today, we reported that Germans are increasingly concerned that their gold, at over 3,400 tons a majority of which is likely stored in the vault 80 feet below street level of 33 Liberty (recently purchased by the Fed with freshly printed money at far higher than prevailing commercial real estate rates for the Downtown NY area), may be in jeopardy,and will likely soon formally inquire just how much of said gold is really held by the Fed. As it turns out, Germany is not alone: as part of the "Rettet Unser Schweizer Gold", or the “Gold Initiative”: A Swiss Initiative to Secure the Swiss National Bank’s Gold Reserves initiative, launched recently by four members of the Swiss parliament, the Swiss people should have a right to vote on 3 simple things: i) keeping the Swiss gold physically in Switzerland; ii) forbidding the SNB from selling any more of its gold reserves, and iii) the SNB has to hold at least 20% of its assets in gold. Needless the say the implications of this vote actually succeeding are comparable to the Greeks holding a referendum on whether or not to be in the Eurozone. And everyone saw how quickly G-Pap was "eliminated" within hours of making that particular threat. Yet it begs the question: how many more international grassroots outcries for if not repatriation, then at least an audit of foreign gold held by the New York Fed have to take place, before Goldman's (and New York Fed's) Bill Dudley relents? And why are the international central banks not disclosing what their people demand, if only to confirm that the gold is present and accounted for, even if it is at the Federal Reserve?