Archive - Apr 25, 2013 - Story

In all the excitement over gold, silver has been largely ignored or forgotten. Today, it was the "poor man's gold"'s turn to stae a dramatic comeback posting its biggest single-day jump in 15 months. Having now retraced the Fibonacci 38.2% level of the record plunge, it appears $25 is th enext target - which is around 50% retracement levels.

Yesterday’s quarterly bank lending survey capped off a series of indicators with a bleak message for the Eurozone economy. Almost all signs suggest that Europe continues to spiral downwards. The lending survey, compiled by the European Central Bank (ECB), is one of the best leading indicators of all because it tells us about the critical credit link in the economy. In the Eurozone today, tight credit is part of a vicious circle that includes business retrenchment, weakening demand, job cuts and falling incomes. And the scariest thing about the circle is that it feeds on itself – each part reinforces the other parts. It won’t go on forever, but we need to see some improvement in the leading edge of the economy before we can expect it to end. As far as the most telling leading indicators, those that can be directly manipulated through monetary policy are the only ones pointing to a possible end to the vicious circle.  In other words: interest rates and equity markets. Until we signs of strength in at least one or two of the leading indicators discussed below, bet on the recession to continue.

It seems like such a simple question... but the reaction of Argentina's Economy minister to this straightforward inquiry has to been to be believed in this brief clip. And do not raise the question of the IMF's doubts about the Argentinian 'official' statistics... just remember, it's for your own good.

The tension to "liberate" Syria is palpable. It took just 24 hours for the US to do an about face on its position on Syria, where yesterday, as Bloomberg reported, "U.S. officials said they haven’t seen conclusive evidence supporting an assertion by Israel’s top military intelligence analyst that Syrian government forces have used chemical weapons against rebels. Secretary of State John Kerry and spokesmen from the White House and the Pentagon said investigations haven’t produced hard proof that Bashar al-Assad’s regime has used toxic chemicals -- a step that President Barack Obama has said would cross a “red line." Fast forward to today, and we get pretty much the opposite opposite: "The United States believes with varying degrees of confidence that Syria's regime has used chemical weapons on a small scale, the White House said on Thursday."

When tin-foil-hat wearing digital dickweed blogs first suggested that Central Banks were actively buying stocks, the mainstream media scoffed at the idiocy and un-independence of such an idea. However, it is clear the central banks themselves are now not only actively buying stocks but are activley encouraging it and propagandizing their efforts to lever this last policy tool left in the toolbox. As Bloomberg reports, 23% of central bankers surveyed said the bank owns shares and plans to buy more. From the Bank of Japan to the Bank of Israel and with the SNB and the Czech National Bank now at over 10% allocation of reserves to stocks, is it any wonder there is an inexorable bid under the 'free' markets. Rick Santelli is rightly concerned that, "there is a danger that everyone is loaded in the same direction," asking what happens if all the Central Bank pump-priming does not work, given these equity valuations, "who gets caught holding the bag? What chairs are left when the music stops?"

The EuroStoxx 600 - one of Europe's broadest equity index - is up almost 5% in the last 5 days, the best such run since July of last year and is trading close to levels not seen since June 2008. Of course it is we hear you scream, Spanish unemployment is worst and getting worster, the core economy (Germany) is fading rapidly, Italian growth forecasts are being slashed, Europe's growth forecasts are being significantly lowered; have no fear Draghi is here (with what? we implore?). While stocks in Europe were off to the races once again, for the second day in a row, Spanish and Italian bond spreads leaked wider (after their record-breaking run recently). EURUSD also took a big stumble today, from around 1.31 to below 1.30 on Goldman's note on ECB's albeit 'cosmetic' rate cut.

The uncomfortable effects of government actions are being felt everywhere. Obamacare concerns are, anecdotally, delaying hiring, causing firms to change benefits for the people, and increasing taxes on the great majority. On the other hand, in the context of the "sequester", which is merely a slowdown in the breakneck rate of government spending, anyone who has traveled by plane in the last month knows the full court press efforts under way to ensure the American public knows just how 'devastating' the sequester cuts are - with delays rising exponentially with every dollar removed from the FAA budget. But there is a group on 'Americans' who are not feeling the pain of Obamacare or Airport delays. This group of people remains comfortably unaware of the reality that is being passed on the rest of the US citizenry. As Politico reports, Congressional leaders in both parties are engaged in high-level, confidential talks about exempting lawmakers and Capitol Hill aides from the insurance exchanges they are mandated to join as part of Obamacare; and as the Washington Times reports, the chief of the FAA told Congress today that Washington-area airports will largely escape the effects of the air traffic controller furloughs.

Because AUDJPY is soaring, of course...

The amateur detective sleuths on 4Chan, Reddit and other social sites were so eager to demonstrate their investigative prowess in the information vacuum days following the Boston Bombing, they managed to identify virtually everyone who appeared even slightly tanned and/or had a backpack as a potential suspect. Sadly, the game, as well-meaning as it may have been, just turned lethal for one of the people who were falsely identified, as NBC just confirmed that Sunil Tripathi, 22, a former student at Brown University has been found dead in the Providence River.

In a mere 3 seconds, Qualys, a $350mm market cap company providing IT security solutions, was rendered worthless by a rogue algorithm with an apparent sense of humor. The stock opened around $11 but at 0935ET, Johnny 5 decided it was time for the take-down and almost instantaneously the stock, QLYS, crashed to $0. Seven seconds later, all was well in the world of IT security solutions once again as $11 was recovered. Of course, in the meantime, every stop was triggered and any belief in the stability of the market was destroyed - but hey, the exchanges got their data fees.

With an increasing number of market participants expecting a rate cut from the ECB at next week's May meeting, Goldman Sachs is piling on in a considerably less exuberant manner than the crash lower in peripheral bond yields would suggest. EURUSD reversed its gains very rapidly as Goldman slashed its growth forecast from -0.5% to -0.7%, expects a 25bps cut next week, but notes that this is "largely cosmetic" with few real implications for the economy. Critically, they also remind us that Draghi and his fellow ECB'ers have been increasingly stressing the limits of what the ECB can do - making it clear that it is local governments that must create conditions for the recapitalization of their banks. The point is, Goldman, like us, recognizes this is an insolvency (capital) issue not a liquidity issue, and it seems the ECB also knows that now. European stocks faded modestly on this as EUR sold off and peripheral bond spreads have ben leaking wider since yesterday as perhaps the reality is far less risk-supportive (via bond purchases?) than many had hoped.

In the financial world at present the markets are fueled by the liquidity of the central banks. Not only is nothing else of importance but good news becomes the joyful noise of some divinity, bad news is elevated to good news and horrible news brings ecstasy as it will enlarge the contributions of Mr. Bernanke and Mr. Draghi. We live in a world where everything is ignored but the time will come when this ignorance will be shattered. We will pay the price for our stupidity because there is always a price to be paid. Mr. Bernanke and Mr. Draghi have been the Saviors but the church has been built on thin air and the weight of the building is increasing and increasing at an alarming rate. This kind of normal is unsustainable. The lessons of the past are being ignored once again but I caution you to not forget what you have learned.

After recovering 50% of its record plunge last night, gold continues to rise this morning, topping $1450. Silver is even more exuberant this morning testing up to post-crash-low highs around $23.90. What is more interesting is that for three days in a row, instead of the seemingly ubiquitous morning smackdown of precious metals, we have seen a sudden desperate demand for silver and gold in the US morning.