Archive - Jun 2012 - Story

After earlier none other than Obama stepped up and invoked an executive privilege, hoping the next step would be avoided, Darrell Issa just called the president and the AG's bluff:

HOUSE PANEL VOTES TO HOLD ERIC HOLDER IN CONTEMPT - BBG

But wait, there's more:

HOLDER CALLS CONTEMPT VOTE `EXTRAORDINARY' AND UNNECESSARY
HOLDER CALLS CONTEMPT VOTE `ELECTION-YEAR TACTIC'

... And now to give some illegal immigrant voters pseudo-amnesty. So aside from this soaring acrimony between Republicans and Democrats, the "Fiscal cliff" issue will be promptly resolved. Promise.

Gold and Treasuries tipped their hands a little pre-FOMC and risk assets plunged immediately on the release's lack of an explicit and immediate print-fest gratification. But between short-squeezes (and stating the obvious news) from Europe and a dangling-chad of hope for future QE as the economy was marked down to a 'must-do-better' grade by Bernanke, we ripped higher in most risk-sensitive assets to test the day's highs. We then plunged back down to the lows of the day as the press-conference went on and left most wanting more kool-aid than Ben was willing to deliver. However, with 10 minutes to go in the day, EURUSD staged an impressive squeeze higher of shorts and that dragged stocks up to VWAP and beyong for a green close. What a shit-show - excuse our French. Gold had outperformed for much of the sell-off and recovery and Treasury yields, the USD, and stocks had stayed in sync with one another - until the last few minutes when stocks and the USD went vertical and overshot gold. Commodities were generally decimated on the day (with WTI -2.7% on the week, Silver -2%, Gold -1.2%, and Copper unch) while the USD is modestly lower -0.23% on the week ending the day practically unch having given all its gains back in the last few mins. Stocks trading very technically, stalling the sell-off at Friday's closing level, pivoting on volume around VWAP and Monday's opening highs, and closing at basically yesterday's day-session close. Despite stocks lack of excitement (though intraday bipolarism), VIX managed to drop notably - down 1.2 vols to close at almost 17.00% (its lowest in 7 weeks). Treasuries ended the day mixed with the long-end lower in yield (not participating in the selloff that dragged the rest of the curve higher by 4-5bps). EURUSD squeezed back up over 1.27 by the close and HYG outperformed (ending notably rich to stocks and its own fair-value).

The real estate industry announces the housing recovery is finally underway every year. 2012 is no different from previous years: various positive data points are duly cherry-picked (multiple offers are back in West Hollywood, sales are up year-over-year in Las Vegas, inventory is down, etc.) to back up the claim the "bottom is in" and the recovery in sales and prices is rock-solid. We understand the industry's extreme self-interest in attempting to re-inflate housing, but let's begin with the obvious question: what's the housing recovery based on? The standard answer is of course "super-low mortgage rates, courtesy of the Federal Reserve."  But people need a sufficient income to qualify to own a house, regardless of rates, so let's look at income by age, and focus on the key homebuying ages of 25 to 44. The only age group whose incomes continued rising during the past five years is the over 65 cohort--the very group who is "downsizing" or selling their homes to live in assisted living. The key homebuying cohorts have seen their incomes plummet since the housing bubble popped.

Things are bad and getting worse. We have a plan but can't tell you all about it. We have guns (and ammo) - do you feel lucky? All paraphrasing today's press conference by Ben Bernanke but perhaps most notable when one analyses his comments was the overwhelming use of the word 'think'. It seems, as ever, that us mere paeons in the global game of survival chess must once again bow to the great central planners' deep thought (and actions).

This one simple chart below shows what is possibly the biggest and most fundamental flaw in Bernanke's approach to spurring the economy, which to him, of course, means rising prices of risky assets, aka the stock market.

Today's FOMC circus concludes with Ben Bernanke saying a few generic words from prepared remarks, then answering Steve Liesman's and a few other journalists' questions, which all will boil down to the following: if the stock market drops by anything more than 1%, the stock market should rise immediately because will be there to prop it up, unemployment, inflation and the general economy be damned.

In April, the Fed saw 2012 GDP between 2.4-2.9% and unemployment of 7.8%-8/0%. The just released updated forecasts table has these two critical for the election campaign data points at 1.9%-2.4%, or a major drop since April, for GDP and unemployment declining to 8.0%-8.2%. One thing is certain: whatever GDP and unemployment are at the end of 2012, they will not be whatever the perpetially inaccurate Fed forecasts.

Goldman, which as recently as Monday night was pushing what clients it has left into believing the Fed may launch something as gargantuan as a $50-75 billion Flow-based QE program, has already come out with its take of today's action. For informative purposes, here it is.

Whipsaws everywhere. Gold and Silver soared back up to unchanged on the day and S&P 500 e-mini futures roared over 15pts higher off spike lows to take out the stops at the high of the day-session. EURUSD also dipped and ripped swiping aside everyone's stops (long and short). 60 minutes after the announcement of disappointment but hope to come, it appears the over-reaction to the knee-jerk reaction is being faded now as Stocks, Gold, Treasury Yields, and EURUSD are all falling now. The realization that Merkel's comments were simply fact and nothing new and the stop-hunt is complete provides some food for thought for all those buying this dip ahead of Bernanke's press conference. Beware now. Gold remains notably above its pre-FOMC levels as stocks have retraced to unch as have Treasuries and the USD.

And just like yesterday, when LCH hiked Spanish bond margins in the whole Guardian disinformation fiasco, so LCH tries to sneak one in today again, this time hiking margins on Italian bonds with a 2-15 year maturity.

This is just getting ridiculous:

• MERKEL SAYS BOND PURCHASING BY BAILOUT FUND A POSSIBILITY

Uhm... that whole point of the bailout fund (ESM/EFSF) is to BUY BONDS. Basically Merkel just confirmed that the whole point of the ESM, which by the way still does not exist, and whose sole purpose is to buy bonds... is to buy bonds. You can't make this up. Yes they will subordinate existing bondholders in the case of ESM, and in the case of EFSF Finland and soon Germany will demand collateral via negative pledges (as in the case of Spain - or did the market forget all about that already), but apparently that is now merely an irrelevant detail. And the EURUSD ramps on this, once again proving that nobody has any idea what is going on in the market but flashing red healines = usually good.

UPDATE: ES at day's highs - alone in its exuberance relative to risk assets.

We watched, we dipped, and then we ripped. Disappointment at no new QE drove Silver down first, then Oil and then the rest of the risk basket tumbled notably. EURUSD dumped 60pips, ES dropped 7-8pts to Monday's close, Treasury Yields dropped 6-7bps, Commodities (Gold, Silver, Oil, Copper) all fell 1-2% (with Silver worst). But then we ripped as Van Rompuy and Merkel started chatting about some progress in Europe. This pulled EURUSD up to unch, Gold and Silver retraced half of their spike down, stocks recovered all of their drop and reached up to VWAP (rather conveniently) where selling volume re-appeared. Notably, only Treasuries remained near their spike levels. As we post, the recovery spike back up in risk assets is now fading. Now get your popcorn ready for Bernanke's presser. Finally, the issue with the European stick save, where Gollum mentioned Eurobond lite again, is that it is merely a regurgitation of news from Sunday, which Germany has already said Nein to: In The Case Of The World Vs Merkel, The Broke Prosecution Proposes Eurobonds Lite.

As always, Goldman Corzined anyone who listened to its call that an epic QE is coming. Fed did the worst possible outcome for risk- merely extended Twist, just as the credit market predicted it would 3 weeks ago:

• FED SAYS IT IS PREPARED TO TAKE FURTHER ACTION `AS APPROPRIATE
• FED TWIST EXTENSION TO SWAP $267 BLN OF TREASURIES BY END 2012
• FED TO SELL OR REDEEM `EQUAL AMOUNT' DEBT DUE 3 YEARS OR LESS
• FED TO BUY TREASURIES DUE IN 6 TO 30 YEARS AT `CURRENT PACE'
• FED SAYS EMPLOYMENT GROWTH `HAS SLOWED'
• FED SAYS INFLATION HAS DECLINED, REFLECTING OIL
• FED REITERATES ECONOMY `EXPANDING MODERATELY'
• LACKER DISSENTS FROM FOMC DECISION

This means that soon Primary Dealers' entire balance sheets will be filled with the entire inventory of Fed 1-3 year bonds. Market not happy. Full June statement here.

After QE-based disconnects last week (Gold rallying with stocks and USD weakness as Treasury yields drop), the last day or so has seen these relationships fading fast. Gold and Treasuries have resynced at a much less sanguine on QE level and the USD is gaining modestly leaving stocks by far the most 'hope-full' asset class for now. WTI crude is back below $82 also - hardly a NEW QE indication of conviction. The major financials continue to push higher though the sector overall just limped back to unch on the day. With ES dropping back to overnight lows, we suspect the realization is gradually reaching the smart, sexy stock traders that their exuberance has removed the punchbowl once again.