Archive - Jul 1, 2013 - Story

We appeared to go from good is good (but the underlying macro data this morning also provided some bad is good news) to good is bad by the close. The Discretionary sector almost reached back to unchanged from the FOMC statement but that appeared to be the short-term-top as it faded back by the close. Interestingly with bonds rallying notably from overnight high yields, bond-like stocks actually suffered today (great un-rotation?). Credit markets were entirely unimpressed by the early excitement in stocks and as we entered the last hour stocks began to sink and credit rally for the divergence. Gold and Silver diverged this afternoon with the yellow metal holding gains and coupling with WTI for a 1.5% gain on the day (and gold's best 2 days in over 4 years) while Silver slipped this afternoon to end -0.3%. The USD slow-leaked all day (-0.2%) amid AUD strength and modest JPY weakness (that provided some support for risk-assets early on). Volume was awful - around 30% below average. VIX fell on the day but rose notably more than stocks would imply into the close as hedgers grabbed on but stocks were sold as the Egyptian situation escalated.

Following the drubbing in commodities in Q2 it is was only a matter of time that the pendulum swung the other way. At least that is the view of JPMorgan's commodities team led by Colin Fenton who says to "go overweight commodity indices now." JPM's summary: "It’s our first OW call on commodities since September 2010… we turned underweight commodities as an asset class in November 2011, shortly after it became apparent that Europe and Australia had entered manufacturing recessions and commodities were likely to underperform equities and bonds over the following 6 to 12 months, likely yielding negative returns in 1H12. Over the past year, we have grown more positive on the asset class, as energy has improved, expected  menaces in bulks and metals have arrived, and sentiment across commodities has belatedly soured. However, our strategies have sought to be directionally neutral. Now, we move to recommend a net long, overweight exposure for institutional investors for the first time in more than two years, based on ten fundamental factors we quantify in this note." Yes, that includes gold, although as a hedge JPM adds: "Liquidity could fall quickly in summertime. Buy 25-delta puts in oil, copper, and gold to protect a core position in commodity index total return swaps."

The story of the Vatican Bank's priest, the Italian secret service spook, and their "fiduciary" banker gripped the world's attention over the weekend when the latest iteration in the Vatican Bank's money laundering series were revealed. Now, comes the resignations: the first of many. AP reports that the Vatican Bank director, and his deputy have both resigned "following the latest developments in the broadening finance scandal."

Just over a month ago we noted that the black-market (blue-dollar) currency that existed in hyper-inflation-prone Argentina had reached epic proportions of disconnect from the official rate of exchange to the USD. It seems the government did not like this and so has decided to take control of this 'shadow economy' by creating a new payment method. As the FT reports, As of today, Argentines can pay with so-called Cedins (Certificates of Deposit for Investment), which unlike the peso, can be (legally) swapped for much-coveted dollars. Originally designed for real-estate purchases, they are set to be accepted for anything as long as buyer and seller agree. Argentina has a history of resorting to 'funny money' and Cedins will "operate like a national currency... [since] the peso has stooped serving as a savings instrument." While officials dismiss the blue-dollar market, this move clearly signifies there recognition of an un-official exchange dramatically devalued from the the official rates.

For the first time, France's Front National party (described by some as 1930s Social Nationalism) is running level with the two governing parties in post-war France - the Socialists and the Gaullistes. With all around 21%, the Front is rapidly gaining support as its leader, Marine Le-Pen exclaims, "Europe is just a great bluff. One side there is the immense power of sovereign peoples, and on the other side are a few technocrats." As The Telegraph reports, following a massive victory securing 46% of the vote in a recent by-election, her anti-euro sentiment is clearly gathering attention. "The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?"

Confused by the numerous regional monthly flash and final PMI (manufacturing) data points? Having trouble visualizing the recovery, or as the case may be, the lack thereof (there was a manufacturing pickup in 2010 - it's long gone)? Then this 5 year global PMI heatmap is for you.

It appears the credit and equity markets are in disagreement over whether good is bad or good...

With threats and promises beong thrown around between the Muslim Brotherhood (everyone rejects the military statements) and the Military (who just arrested 15 Muslim Brotherhood officials), it seems the moment of truth is drawing closer. The sheer size and scale of the live feed images below is stunning...

While hardly coming as news to anyone who could have read the tea leaves as soon as Snowden boarded the plane from Hong Kong to Moscow, the flashing red headline that the NSA whistleblower has just applied to be Depardieu's neighbor, has just escalated the great US foreign policy snafu that started a month ago with the NSA spying revelations, and has since developed into a huge scandal involving Europe, Russia, China, Hong Kong, and virtually every other country (not to mention US citizens) that the US government is spying on.

• SNOWDEN ASKS FOR RUSSIAN POLITICAL ASYLUM: IMMIGRATION OFFICIAL
• SNOWDEN ASYLUM APPLICATION RECEIVED YESTERDAY: RUSSIAN OFFICIAL

And with Putin saying there is no chance he will return Snowden to the US, in response to Obama's demands, suddenly the balance of power shifts to Russia's favor (which by now it is almost certain, knows everything that Snowden does). Ball is now in Putin's court. Just where he likes it.

There are two problems with the vast, sprawling legacy systems we've inherited from the past: they're dysfunctional and cannot be fixed/reformed. America's legacy systems are like stars about to go super-nova. They have increased in size to the point where their stupendous mass guarantees that once their energy source (as measured in fossil fuels and money) falls below a certain threshold, the institution will collapse inward on itself.

Trading FX without a Tom Stolper reco to fade is complicated: there is always the risk of losing money. Luckily, that risk is now gone and for all those unsure which pair to short, the man with the 0.001 batting average has just come out with his latest piece of muppet-slaying "research", according to which it is now time to go long the EURUSD, with a 1.35 target and a 1.28 stop loss. You know what to do.

Whether lucky or good, Oppenheimer's Carter Worth was accurate in calling for a drop in gold back in January of 2013. From his note at the time: "For those without the time or inclination to read past the first page (we're told by the marketing experts that many people don't read past the first page of most research reports) here is the summary, in one word, of today's edition of "Money in Motion" focusing on Gold Bullion: SELL." Fast forward to today, when the technician pulls a U-Turn, and says that "at this time, we believe gold and gold miners represent good risk/reward. Indeed, the recent extreme weakness is judged to be the reciprocal or  correlative of the extreme strength witnessed in the summer of 2011. The "despair" relating to gold now is as palpable as "euphoria" then." Always one with a witty turn of the phrase, Worth summarizes his shift in sentiment as follows: "The bottom line, by our work, is this: at this time it is right to cover all shorts in gold and gold miners… and we would look for opportunities on the long side.... The charts of the individual equities are atrocious. And that is the circumstance that compels today's report. The stocks are judged to be "so bad, that they're good"."

While the situation for Edward Snowden remains uncertain, Russian officials report that he has handed them an appeal to 15 nations for political asylum. As the LA Times reports, an official noted, "Snowden reiterated once again that he is not a traitor and explained his actions only by a desire to open the world's eyes on the flagrant violations by US special services." This somewhat desperate act follows what Russian officials describe as "Ecuador disavowing [Snowden's] political protection credentials," though we have seen nothing confirmed by Ecuador (yet) especially in light of last week's strong anti-US rhetoric. Russia's President Putin just proclaimed that "Snowden isn't, has never been a Russian agent," and added that Russia doesn't plan to extradite anyone.

The Egyptian Military just made a publc statement on Egyptian TV and it appears the country is close to another military coup:

• *EGYPTIAN MILITARY SAYS WON'T BE PART OF POLITICS
• *EGYPT MILITARY SAYS NATIONAL SECURITY SUBJECTED TO GRAVE DANGER
• *EGYPTIAN MILITARY SAYS PROTESTS 'UNPRECEDENTED'
• *EGYPTIAN MILITARY SAYS HOMELAND FACING DIRE SITUATION
• *EGYPT'S MILITARY SAYS WILL NOT BE PARTY TO POLITICS OR POWER
• *EGYPT MILITARY SAYS CALLS FOR MEETING THE DEMANDS OF THE PEOPLE
• *EGYPT MILITARY MAY HAVE TO OFFER ROADMAP AFTER 48 HOURS

In other words, do as the people want, calm this down now, or we will step in within 48 hours.

No surprise in today's most important economic report: just as we predicted first thing this morning, "In keeping with the tradition of Baffle with BS, we expect the ISM to come in well above expectations to offset the major Chicago PMI disappointment." Just as expected, the headline June ISM just printed at 50.9, a beat of expectations of 50.5, and up from May's 49. And just to make sure everyone is completely baffled with unbelievable BS, while the New Orders number rose from 48.8 to 51.9, and Production (+4.8), Prices (+3), Inventories (+1.5), and Deliveries (+1.3), all rose, it was the time of Employment Index to drop from 50.1 to 48.7: the first sub-50 print since September 2009. In other words, just as every week/strong economic report is offset by a matchin strong/weak economic report a few days later, expect this Friday's NFP to come in blistering and to deny the ISM weak jobs number especially since Goldman is now warning of a "disappointment" to consensus (and with that put the Taper tantrum back front and center).