Archive - Jan 2013 - Story

HSBC has quietly moved into acquiring large amounts of silver bullion. The bank has secured another deal to buy silver bars from KGHM which brings their total purchases of silver from KGHM alone in the last 12 months to $876 million or PLN 3.65 billion. KGHM is one of the largest producers of silver in the world and is the second-largest producer of refined silver in the world. They produce silver bars registered under the brand KGHM HG that are attested to by “Good Delivery” certificates issued by the London Bullion Market Association and the Dubai Multi Commodities Centre. Listed metals producer KGHM signed an estimated PLN 1.67 billion deal on 2013 sales of silver to HSBC, KGHM said in a market filing yesterday. The deal puts the total value of deals between KGHM and HSBC in the last 12 months to PLN 3.65 billion or $876 million, the filing read.  KGHM is one of the largest companies in Poland and one of the largest mining & metallurgy companies in the world.

• Doubt Greets Bank of Japan's Easing Shift (WSJ)
• Japan hits back at currency critics (FT)
• Japan upgrades economic view for first time in eight months (Australian) - only to lower them in a few months again
• GOP critics get opportunity to grill Secretary Clinton on Benghazi (Hill)
• Global economy set for ‘slow recovery’ (FT)
• Obama to back short debt limit extension (FT)
• Unfinished Luxury Tower Is Stark Reminder of Las Vegas’s Economic Reversal (NYT)
• Draghi Says ‘Darkest Clouds’ Over Europe Have Subsided (BBG)
• High-Speed Dustup Hits a Clubby Corner (WSJ)
• U.S. Budget Discord Is Top Threat to Global Economy in Poll (BBG)
• Sir Mervyn King says abandoning inflation target would be 'irresponsible' (Telegraph)
• Spain Says It May Cover 13% of 2013 Funding in January (BBG)

With the market basking in glow of good earnings results yesterday, mostly out of IBM, and to a lesser extent GOOG, which missed on the top line but beat on EPS squeezing some recent inbound shorts, S&P500 futures have yet to post a solid move to the upside. Perhaps a big reason for this is the recent recoupling of risk based on not one but two carry signals: the first is the well-known EURUSD pair, while the second is the recent entrant, the USDJPY, and it is the latter that continues to see a cover of the massive short interest accumulated over the recent 1000 pip move higher on what upon ongoing reflection has been a disappointing announcement out of the BOJ. Needless to say, the Nikkei whose recent surge higher was all due to currency weakness has tumbled overnight despite corporate fundamentals, if not economic data, which continues to post substantially subpar prints.

On occasion, truth is stranger than fiction; and in the somewhat surreal world in which we now inhabit, The Onion's perfect parody of where we are headed could have been lifted from any mainstream media front-page with little questioning from the majority of Americans. For your reading pleasure, the 62-year-old with a gun that is the last man standing between the American people and full-scale totalitarian government takeover.

The day Lehman failed saw the launch of the most epic central bank intervention in history with the Fed guaranteeing and funding trillions worth of suddenly underwater capital. However, what Bernanke realized quickly, is that the "emergency, temporary" loans and backstops that made up the alphabet soup universe of rescue operations had one major flaw: they were "temporary" and "emergency", and as long as they remained it would be impossible to even attempt pretending that the economy was normalizing, and thus selling the illusion of recovery so needed for a "virtuous cycle" to reappear. Which is why on November 25, 2008, Bernanke announced something that he had only hinted at three months prior at that year's Jackson Hole conference: a plan to monetize $100 billion in GSE obligations and some $500 billion in Agency MBS "over several quarters." This was the beginning of what is now known as quantitative easing: a program which as we have shown bypasses the traditional fractional reserve banking monetary mechanism, and instead provides commercial banks with risk-asset buying power in the form of infinitely fungible reserves... So how does all this look on paper? We have compiled the data: of the 1519 total days since that fateful Tuesday in November 2008, the Fed has intervened in the stock market for a grand total of 1230 days, or a whopping 81% of the time!

With Gold inching back up towards the $1700 mark once again following yet another central bank's promise to flush the world with fiat currency, we thought some reflection on the history of Gold was useful. From its rareness and malleability to its multi-millenial nature as a store of wealth, Visual Capitalist's infographic takes us from the Egyptians to the Chinese and on through the US Gold Rush to the current 'vaults' of gold being questioned currently.

It would appear that the sell-side is in a full-court-press to convince the world that the levitation of nominal equity prices is indeed the start of something new and secular - as opposed to the inevitable consequence of global monetary experimentation. To wit, Goldman has done an excellent job of divining the seven previous regimes within the volatility (or VIX) cycle and believes (with 89% probability) that we have entered a new 'great moderation'-like eighth regime. They are happy to admit that the ECB 'promise' to remove the left-tail, and the Fed and BoJ's work to open-endedly compress realized volatility is to blame - but the current VIX levels would imply a notably lower (than 2012) realized volatility on average throughout 2013. However, the back-end of the curve remains steep (and unyieldingly less ebullient), the skew is extremely complacent, and as every premium-selling call-writing 'this-is-easy' trader knows picking up nickels in front of the steam roller works well - until it doesn't.

Many of us spent much of 2012 confused about how the U.S. real estate market was improving within the context of a broke and unemployed citizenry.  Well as time has passed the answers to our questions have been revealed.  The criminals are piling in.  I first explained a couple of weeks ago how the financial oligarchs in the United States are currently in a bidding war to become America’s slumlords in my post:  America Meet Your New Slumlord: Wall Street.  Now we also discover that part of the bid to U.S. real estate has come from another criminal class. In this case, we are talking about corrupt Chinese officials who are pulling their ill gotten gains from their homeland and desperately placing it in real estate all over the globe. 

Who are we, the people? The following 15 simple charts from the WSJ offer insight into Race, Demography, Attitudes, Sex (not a yes/no question), Politics, and Religion across the unified society called the USA.

In a move that may cause some consternation in Europe due to its adverse implications for trade paterns in the continent, tomorrow British PM David Cameron will announce that he will propose a referendum on whether or not to stay in the European Union, a move that as the WSJ qualifies it "threatens to inhibit trade and cast a new shadow over the troubled bloc." That may be a slight exageration: the referendum would take place, if at all, before the end of the first half of the next Parliament, roughly by late 2017, after an election. Which means that if Cameron loses the election, it is a non-issue, just as it would be a non-issue of course if the UK public voted to stay: according to a survey of the British public late last week by pollsters YouGov showed 34% indicated they would vote to leave in a referendum, while 40% said they would vote to stay. A week earlier, 42% said they would opt out, compared with 36% preferring to remain. Obviously a volatile topic for the population.

The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way.  Today, these repeated intrusions are having a diminished rate of return and the risk now is that interest rates rise shutting potential homebuyers out of the market.  It is likely that in 2013 housing will begin to stabilize at historically low levels and the economic contribution will remain fairly weak.  The downside risk to that view is the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts, elevated defaults of underwater homeowners and a slowdown of speculative investment due to reduced profit margins.  While many hopes have been pinned on the 2012 stimulus fueled, China investing, and supply-deprived housing recovery as "the" driver of economic growth in 2013 - the data suggest that may be quite a bit of wishful thinking.

UPDATE: He's now over an hour late.

Will the Speaker offer up a watered-down debt-ceiling can-kick extension breaking the spending-ceiling link or will he surprise investors and show some back-bone with a budget-contingent salary-withholding plan? Back-down or battle-on - that is the question. Due to speak at 5ET, let's get ready to grumble...

UPDATE: With GOOG and IBM earnings (details below), futures are pushing higher still after-hours

Lowish volume and low average trade size was all that was required to march stocks up to recent highs on the back of more VIX compression and vol term structure steepening. Today was one of the most-disconnected day in a while between equities (and vol) and the rest of the market with the USD practically unchanged, Treasury rates lower, and high-yield credit flat. Commodities pushed higher on the week with Silver outperforming (+1.2%) as Oil broke back above $96 and the Energy sector led stocks along with Utilities (safety?) and Materials. Tech was weak as AAPL plunged early on - only to recover back above VWAP into the close. The Dow Transports have been the corner-piece of this rally as it would appear AAPL's loss is rail-cars and airlines gains. Up 12 of the last 15 days and +19% in the last six weeks, we note the last time this index surged on this scale was in April 2010 (when we saw realized vol for the index also plunge to record lows such as we have now) - and this happened...

The algos have gone nuts after hours, but here are the numbers:

• GOOGLE 4Q REV. EX TAC $11.34B, Exp. $12.36
• GOOGLE 4Q AVERAGE COST-PER-CLICK FELL 6% VS YEAR AGO
• GOOGLE 4Q EPS EX ITEMS $10.65, EST. $10.50