Long before the magnificent NFP headline data mesmerized USD buyers and flushed commodities down the pan, Copper at the LME saw a 'Flash Crash' and was forced to cancel all trades for the 646amET timestamp. Considering the post-'flash' action, it seems yet again a flash crash gives us a glimpse of reality.
Key Charts From The NFP Report: Records In Jobless Duration And People Who Want A Job As Civilian Labor Force PlungesSubmitted by Tyler Durden on 12/02/2011 - 10:08
Here are the four most important data points and charts from today's job report: the civilian labor force declined from 154,198 to 153,883, a 315K decline despite the civilian non-institutional population increased (as expected) from 240,269 to 240,441: always the easiest way to push down the unemployment rate. Percentage wise this was a drop from 64.2% to 64.0%: the lowest since back in 1983. Naturally, this would mean that the people not part of the labor force rose, and indeed they did by 487,000 to a record 86,558 from 86,071. This also means that more people are looking for a job: and indeed, the number of "Persons who want a job now" rose by 192K to a record 6.595 million. And lastly, confirming the behind the scenes disaster of the US jobless picture, the average duration of unemployment rose to a new record 40.9 weeks from 39.4 weeks previously. And that is your "improving" jobless picture in a nutshell.
NFP Prints At 120K, Below Expectations Of 125K, Unemployment Rate Drops To 8.6% on Expectations of 9.0%. And for those wondering how it is possible to have such a major drop in the unemployment rate, here it is: Labor Force Participation down from 64.2% to 64.0% as ever more people leave the work force once again.
The Bank of Korea’s continued diversification of its foreign exchange reserves is a bullish factor which may have led to the price gains today. The central bank of South Korea announced that it had purchased 15 metric tonnes of gold in November to raise its reserve of bullion in an effort to diversify its portfolio of its foreign reserve investment and reduce risks caused by market volatilities. According to the Bank of Korea (BOK), it made a purchase of 15 tons of gold last month to increase the nation’s gold reserves to 54.4 tons worth $2.17 billion as of the end of November. It boosted the size of its gold reserves by US$850mn in November, up a massive 39% from the previous month. Its total gold reserves are now worth US$2.17bn.
As Macbeth said, It is a tale told by an idiot, full of sound and fury signifying nothing. Fading the "Grand Plan" rally worked very well. There was a couple days of pain and then generally the market followed a nice path lower. Last week the market had felt oversold and was looking for a reason to rally. I thought that Monday was overdone, and that Wednesday was extremely overdone, but I started cutting shorts yesterday, and am now getting long. Everyone seems to understand that the "globally coordinated rate cut" plan was not a big deal in of itself, yet the market didn't give up any of the gains. Even some of the perma bulls downplayed the move. I think the move was meant to be more pre-emptive than a strong show of future support, but Ben is not dumb, and he has seen the outsized impact such a simple move had. Cracks will appear in this rally, and we will ultimately figure out the problem with the current attempts to fix Europe, but right now it is too vague to fight, positioning has been too extreme, and Bernanke and Draghi have to see the opportunity to push things forward while the market is behaving positively.
- Liquidity remains thin as market participants await release of the Nonfarm Payrolls data from the US. Early market talk has been for a number as high as +200k
- The Eurozone 10-year government bond yield spreads remained generally tighter across the board, with the exception of the French/German spread
- Eurodollar and Euribor futures traded under pressure during the European session on continued bank funding fears
- According to reports, EU finance chiefs gave go-ahead for work on central bank loans, and ECB lending via IMF is seen in the EUR 100-200bln range
So Much For The Bailout - European Funding Situation Worst Since March, As ECB Deposits And Emergency Loans SoarSubmitted by Tyler Durden on 12/02/2011 - 08:39
When we observed yesterday that the ECB's deposit facility usage has passed €300 billion for the first time in over a year, we took it with a grain of salt: after all the data may have been compiled before the announcement of a global liquidity intervention by the Fed and central banks. Specifically, we said "Needless to say tomorrow's deposit facility update will be critical because unless there is a major drop in usage, it will confirm that in addition to a USD-funding shortage which should have been ameliorated even if very briefly, other EUR-based risks are being observed by Europe's banks, who better than anyone know what the interbank system risks are, and the Fed's USD liquidity injection will have failed to achieve anything except to ramp risk higher for a day or two." Today we got the update for the two key ECB liquidity lines for the day after the bailout. And things are actually much worse than even we expected. While the cash flight continued, indicating that absolutely nothing was fixed from the banks' perspective, and the ECB deposit facility rising to a multi-year high €314 billion or €10 billion higher overnight, another key factor was the ECB's Marginal Lending Facility - the last ditch "discount window" equivalent - which saw its usage explode from €4.6 billion to €8.6 billion overnight, or the highest since March. It appears that in addition to a dollar funding crisis, there is a broad EUR liquidity crisis as well, with the bulk of the banks continuing to pull cash from the domestic interbank market (even if USD funding issues are resolved briefly), forcing the weakest links to resolve ever more to the ECB to recycle the very same cash that other banking peers dump with it. Naturally, this means that the funding situation as seen from the lens of the key market participants - Europe's banks - just deteriorated materially after the so-called bailout. It also explains why this morning we are getting a repeat rumor (soon to be denied) that the ECB has proposed to loan €270 billion to the IMF, as nothing has been fixed and the authorities are well aware.
The only thing that matters is the November Employment Report and a few comments from Fed officials.
- Merkel Says Joint Euro Bonds Unthinkable as EU Faces Marathon (Bloomberg)
- Draghi hints at eurozone aid plan (FT)
- Europe prepares oil imports embargo on Iran (FT)
- RIMM cuits guidance.... again (Marketwire)
- Sarkozy Says Euro Zone Risks a Breakup Without Further Fiscal Convergence (Bloomberg)
- King warns of ‘spiral’ into systemic crisis (FT)
- JPMorgan Follows UBS Cutting Carbon Jobs (Bloomberg)
- Merkel fights for euro she says is stronger than D-mark (Reuters)
- Hilsenrath: Fed Officials Don’t See Central Bank Cutting Discount Rate (WSJ)
There are those today who would claim that the lifeblood of a nation is dependent upon the graces of its government. That government is the focal point of cultural growth, and that we as citizens should respect it as such. I would be more inclined to agree if the public did not so easily confuse the ideals of leadership with the actions of criminals. That is to say, regardless of what we wish our government to be, bureaucracies rarely, if ever, embody the spirit of the common man (a necessity for any system that purports to defend the citizenry). Instead, bureaucracies almost inevitably deteriorate into vehicles for the perpetuation of tyranny driven by the very worst of all stewards; elitist minorities with delusions of godhood.
Unfortunately, despite this fact, the masses often treat these industrious vermin and the plagues of society that they build with the same reverence as they would a sincere and honorable body politic.
Despite the very short term bounce in markets on yet another soon to be failed experiment in global liquidity pump priming, UBS' Andrew Cates refuses to take his eyes of the ball which is namely preventing a European collapse by explaining precisely what the world would look like if a European collapse were allowed to occur. Which is why to people like Cates this week's indeterminate intervention is the worst thing that could happen as it only provides a few days worth of symptomatic breathing room, even as the underlying causes get worse and worse. So, paradoxically, we have reached a point where the better things get (yesterday we showed just how "better" they get as soon as the market realized that the intervention half life has passed), the more the European banks will push to make things appear and be as bad as possible, as the last thing any bank in Europe can afford now is for the ECB to lose sight of the target which is that it has to print. Which explains today's release of "How bad might it get", posted a day after the Fed's latest bail out: because instead of attempting to beguile the general public into a false sense of complacency, UBS found it key to take the threat warnings to the next level. Which in itself speaks volumes. What also speaks volumes is his conclusion: "Finally it is worth underscoring again that a Euro break-up scenario would generate much more macroeconomic pain for Europe and the world. It is a scenario that cannot be readily modelled. But it is now a tail risk that should be afforded a non-negligible probability. Steps toward fiscal union and a more proactive ECB, after all, will still not address the fundamental imbalances and competitiveness issues that bedevil the Euro zone. Nor will they tackle the inadequacy of structural growth drivers and the deep-seated demographic challenges that the region faces in the period ahead. Monetary initiatives designed to shore up confidence can give politicians more time to enact the necessary policies. But absent those policies and sooner or later intense instability will resume." So what exactly does UBS predict will happen in a scenario where the European contagion finally spills out from the continent and touches on US shores?
Regular readers know that ever since 2009, well before the confidence destroying flash crash of May 2010, Zero Hedge had been advocating that regular retail investors shun the equity market in its entirety as it is anything but "fair and efficient" in which frontrunning for a select few is legal, in which insider trading is permitted for politicians and is masked as "expert networks" for others, in which the government itself leaks information to a hand-picked elite of the wealthiest investors, in which investment banks send out their "huddle" top picks to "whale" accounts before everyone else gets access, in which hedge funds form "clubs" and collude in moving the market, in which millisecond algorithms make instantaneous decisions which regular investors can never hope to beat, in which daily record volatility triggers sell limits virtually assuring daytrading losses, and where the bid/ask spreads for all but the choicest few make the prospect of breaking even, let alone winning, quite daunting. In short: a rigged casino. What is gratifying is to see that this warning is permeating an ever broader cross-section of the retail population with hundreds of billions in equity fund outflows in the past two years. And yet, some pathological gamblers still return day after day, in hope of striking it rich, despite odds which make a slot machine seem like the proverbial pot of gold at the end of the rainbow. In that regard, we are happy to present another perspective: this time from a hedge fund insider who while advocating his support for the OWS movement, explains, in no uncertain terms, and in a somewhat more detailed and lucid fashion, both how and why the market is not only broken, but rigged, and why it is nothing but a wealth extraction mechanism in which the richest slowly but surely steal the money from everyone else who still trades any public stock equity.
A Snapshot Of Ludicrous Volatility: Since May 1 The S&P Has Travelled 1234 Points Yet Is Unchanged For The YearSubmitted by Tyler Durden on 12/01/2011 - 21:47
To suggest financial markets have been volatile as of late is simply a wild understatement. Although we've certainly seen this type of volatility in terms of percentage moves over short spaces of time in the past, we can't remember when we've last seen this degree of volatility within the context of whipsaw back and forth movement. Although it may sound hard to believe, if one looked only at closing S&P prices and added up the interim high to low and low to high movements of the SPX since literally May 1 of this year, the S&P has traveled 1,233.83 points!!!! More than the entire value of the SPX as of the close the day after Thanksgiving. Now how's that for volatility over a seven month period? Has this played havoc with fragile human emotions? C'mon. You may remember that we saw many a headline Street soothsayer turn outright bearish at the end of September, lowering equity allocations as well as equity index targets. Speaking of defensive portfolio postures and the chance for the S&P to breach 1000 to the downside. Four short weeks and 186 S&P points to the upside later, giddy strategists and other assorted Street fortune tellers rushed to upgrade equity outlooks literally right on top of the highly anticipated late October Euro bailout plan (which in hindsight has turned out to be neither a bailout nor a plan). We watched in strange amusement as increasing beta exposure recommendations flooded the Street, of course coming after a blistering four week 17% run to the upside in the SPX. The immediate result of these recommendations of the pros? A very quick four week 10% loss in the S&P, as a proxy for equities broadly. It’s never easy, is it?
In one of his best rants of recent times, Charles Biderman, of TrimTabs, exclaims his consternation at the globally co-ordinated central bank intervention and the mainstream media's interpretation of said act. Viewing the interventions as a sign of desperation, the avuncular Biderman fears the instability that lurks just under the carefully veneered surface of the markets. Describing the goal of the Fed as having clearly changed from one of inflation and/or employment to asset-value-elevation, he raises a critical question (that perhaps only Noda knows the answer to): "What happens when central bank interventions are no longer effective?". Faith in the widely held view that money can be created out of nothing and used to solve all financial problems is likely to be tested sooner rather than later.