Archive - Jan 2013 - Story

As Obi-Wan Kenobi might have said "This is not the debt ceiling debacle you are looking for." That is the seeming 180-degree shift that Goldman appears to have taken with its latest missive on the pending 'discussions'. Their reasoning that this time is different is based on the fact that, in contrast to now, the S&P 500 seemed immune to 'cliff' risks and traded in the 1300 range for the first half of 2011, even as the macro backdrop began to sharply deteriorate. Their models suggest it was clear that risk sentiment was buoying the market even as macro fundamentals were deteriorating. Goldman's view is that the swift market 20% sell-off was in part a reflection of a levitating market reconnecting to still-deteriorating macro fundamentals, possibly catalyzed by the political debate. This time around, they claim, the macro backdrop is, at least for now, stable and far better then in 2011, which perhaps, will allow the market to better absorb the upcoming debt ceiling debate. Unless, this happens...

Another day, another epic European close trend reversal (or is it POMO that is driving that odd timing-based shift?). S&P 500 closes at 5-year highs. Today's ramp was brough to you by the algos that needed to enable high volume exits in AAPL and a Draghi-driven 200pip run in EUR against the USD (as the ECB head basically shut the door on rate cuts anytime soon). VIX slid lower (relatively outperforming stocks) but mid-dated VIX futures actually rose modestly today (to steepest in a year!); high yield credit ETFs tested new highs (but cash never followed) and even that collapsed again at the close; the USD dropped the most in 4 months (even as JPY weakened); and Silver surged (+2% on the week) along with gold (as oil slid in the afternoon). It appears that so far this year risk-assets in general had been less exuberant than stocks - but first Treasury yields, then VIX, and now FX markets (EURJPY today), and increasingly Gold (and Silver) are shifting to catch up to stocks. Today saw equities ramp from the end of POMO on to catch up to EUR-driven risk model perception, with AAPL trading like a penny stock (or HLF). The great recoupling of risk-assets from pre-holidays is almost complete...

"Ever heard of SB3341?" is Rick Santelli's opening salvo in today's rantless discussion of the concerns he has with Illinois' 'Precious Metal Purchasing Act'. While passed in the Illinois Senate last year, and moth-balled in the House since, Rick notes that "the long and short of it is is they want an audit trail to any precious metals, whether you're talking coins or bullion." It does not seem too much of a stretch to this Chicagoan to the 1933 Executive Order #6102 that confiscated gold and cleared the way eventually for Nixon's 1971 disconnect of the dollar from gold. As Liberty Blitzkrieg's Mike Krieger notes: "So let me get this straight.  First they want gun registration and now precious metal registration?  I’m sure the government would only use such information in our best interests, because as we all know: Your Government Loves You.  Sounds reasonable, after all, only 'terrorists' buy guns and gold anyway."

Pretty much sums up not only the present and future of US budget cuts, but everything else about the US:

• PANETTA SAYS NO IDEA `WHAT THE HELL IS GOING TO HAPPEN' ON CUTS

The $1 trillion platinum coin saga took a surprising turn as the Central Bank of Mars has expressed interest in buying 100 of the proposed coins. Interpreters are puzzling over the meaning and subtexts of the Martian communique. Opinion on the Martian offer is divided. A small cadre of analysts suspect the Martian Central Bank naively believes the fantasy that the arbitrary creation of assets, either via platinum coins or electronic entries in the Federal Reserve's balance sheet, creates actual value. Though this credulity borders on the fantastic, these analysts point to the many commentators in the U.S. who have bought into the platinum coin fantasy. If Paul Krugman et al. have swallowed the fantasy that something of real value can be created from nothing, then why not the Martian Central Bank?

Ever feel like we have been here before? Overwhelmed by the chatter that this time is different and the 'recovery' is self-sustaining? Join the crowd (and Goldman). Their MAP indicator - which tracks both absolute (up/down) and relative (beat/miss) moves in macro-economic data - is once again at a level that in the last two years has perfectly marked the tipping point in expectations and absolute macro performance. While the markets (in their infinite wisdom) appear convinced - just as they were in 2007 - perhaps 4 weeks in a row of weakening claims and a gross downward revision of Philly Fed is a glimpse that it really is no different this time.

The Constitution of the United States is an undeniably powerful document.  So powerful in fact, that it took establishment elitists with aspirations of globalized governance over a century to diminish the American people’s connection to it.  It’s been a long time coming, but in the new millennium, there is now indeed a subsection of the masses that not only have no relationship to our founding roots, they actually despise those of us who do! There are a number of reasons for this dangerous development in our culture...

With gun tzar Joe Biden expected to propose his "gun recommendations" to Obama by next Tuesday, a proposal which will certainly involve some additional measure of gun control, the last thing the nation needed was more gas being poured into the fire today. Yet that is precisely what it got following news that two people had been shot, one of which reportedly a student, at Taft Union High School in the San Joaquin Valley in California earlier. From AP: "A student was shot and wounded at a San Joaquin Valley high school Thursday and a suspect was taken into custody, officials said. The shooting occurred about 9 a.m. at Taft Union High School, an oil and agricultural community about 120 miles northwest of Los Angeles. The student who was shot was flown to a hospital in Bakersfield, said Ray Pruitt, spokesman for the Kern County Sheriff’s Department. There was no immediate word on the victim’s condition. “We have a suspect in custody,” Pruitt said, adding that the person was believed to be a student. Pruitt said it’s believed a shotgun was used in the attack. KERO-TV Bakersfield reported that the station received phone calls from people inside the school who hid in closets."

President Obama is due to speak at 130pmET on what we pre-suppose is his introduction of Jack Lew as the new Treasury Secretary. As Geithner steps aside to take up his rumored role as Citigroup Chair (although more realistically to write a book over the next 12 months, bashing none other than Tim Geithner), he leaves behind a legacy of opacity that we are sure the incoming "political guy" will be all too happy to continue until his chairmanship is ready...

Three months ago, in anticipation of the now traditional year end ramp in "story stocks" (i.e., those companies in the Russell 2000 that have negligible or negative cash flow, yet have a "story" to them, and/or massive short interest usually for a reason) we penned an article titled "Presenting the most shorted stocks" focusing on the 50 most shorted/hated names in the Russell 2000. We suggested that for "the overly aggressive out there, and those who are tired of watching paint dry, one option is to create an equal-weighted basket of the 20 most hated names, and hope for the arrival of the one catalyst that forces a massive squeeze." That, or just await the traditional rotation into high beta garbage that comes every year like clockwork in the last months of the year. Sure enough precisely this happened in 2012 as it always does, with the Russell 2000 outperforming the S&P notably since November, with the index hitting all time highs a few days ago, yet our most-shorted basket crushing the returns of both the S&P and the broader Russell 2000 by a substantial amount. Alas, those hoping that that the Russell bubble will continue indefinitely may want to promptly reassess, as moments ago Interactive Brokers just announced it would hike both initial and maintenance margins on all low cap stocks (under $250 million in market cap) beginning January 11, 2013, to 100%!

It is hard to find a policymaker who hasn’t actively tried to talk his currency down. The few who don’t talk, act as if they were intent on driving their currency lower.  Citi's Steven Englander argues below that the ‘currency wars’ impact is collective monetary/liquidity easing. Collective easing is not neutral for currencies, the USD and JPY tend to fall when risk appetite grows while other currencies appreciate. Moreover, despite the rhetoric on intervention, we think that direct or indirect intervention is credible only in countries where domestic asset prices are undervalued and CPI/asset price inflation are not issues. In other countries, intervention can boost domestic asset prices and borrowing and create more medium-term economic and asset price risk than conventional currency overvaluation would. So the MoF/BoJ may be credible in their intervention, but countries whose economies and asset markets are performing more favorably have much more to lose from losing control of asset markets. So JPY and, eventually CHF, are likely to fall, but if the RBA or BoC were to engage in active intervention they may find themselves quickly facing unfavorable domestic asset market dynamics.

While the world and their cat believes that Mario Draghi saved the world last year - and continues to do so with his open-ended promise to do "whatever it takes" whatever that means (and the market's "positive contagion"). However, the reality, away from a sovereign-bond implied view of the world - with short-dated Spanish bonds now at 26-month low yields (whereby these bonds are sucked up wholesale by an ever more concentrated and self-satisfying group of European banks) is far different. As these two charts show, not only does Draghi's decision not to lower rates (when inflation and unemployment - both more 'real-world economy'-impacting items) indicate Taylor-Rule-esque that rates need cutting; but while banks get all they want (and more) from his over-flowing cup or collateralization and repo, credit extension in Europe continues to slide ever more negatively. Yes, Draghi saved the banks (for now) but, just as the scariest chart shows, Europe is very far from saved; and for those looking at TARGET-2 imbalances, the risk remains, it has merely shifted to the core.

Regular readers are familiar with our monthly series showing the inexorable surge in Chinese gold imports. It is time for the November update, and it's a doozy: at 90.8 tons, this was the second highest gross import number of 2012, double the 47 tons imported in October (which many saw, incorrectly, as an indication of China's waning interest in the yellow metal), and brings the Year to Date total to a massive 720 tons of gold through November. If last year is any indication, the December total will be roughly the same amount, and will bring the total 2012 import amount to over 800 tons, double the 392.6 tons imported in 2011.

In today's WTF moment, we note that the inexorable rise from the March 2009 lows to the most recent September 2012 highs has created exactly the same 807 point rise that the last bubble-blown levitation managed (from October 2002 to October 2007) . Curiouser and curiouser... and from a suspiciously devilish 666 low print, we can only hope our behavioral biases can cope with these glimpses.

As Der Spiegel reports, capital flight from Southern Europe has stopped and even slightly reversed in recent months. This is a belated reaction – so it is surmised – to the 'OMT' announcement effect. However, the move is still quite small at this stage, although we suspect that several officially unconcerned central bankers in the 'core' are letting out a sigh of relief that their TARGET claims haven't just risen even further. However, as Hans-Werner Sinn reminds us, the calming of the situation is entirely due to the risks having been shifted: "The debt crisis is eating its way ever further into the budgets of Europe's core countries," he says. "But policymakers are celebrating the obfuscation of this fact as a success."