A week ago, we asked (rhetorically), whether "Bernanke Has Become A Gold Bug's Best Friend?" While we knew the answer, today's reponse by the market confirms it. Beginning just before 10 am, or the moment Ben's prepared remarks went off embargo, gold and silver have been on a relentless tear (chart 1), with Gold passing $1760/ounce and now just $150 from its all time nominal highs. And while risk is on elsewhere, stocks priced in gold are down 0.9% since their highs yesterday and at their lows in real terms (chart 2), even as they hit new nominal highs, confirming that fear of the coming monetary tsunami will benefit precious metals. So while the lemmings focus on meaningless nominal gains, their real purchasing power just lost another 1%. Thank you Chairsatan - you are a good man.
If you thought that the siren-call from the sell-side for more QE, more credit, and more monetization was merely lowest-common-denominator thinking on how to fix the Keynesian end-game, think again. As Morgan Stanley shows, it is much more about self-preservation (bonuses) as the extreme correlation of banker's relative pay to Debt/GDP clearly shows the reliance on the perpetuation of the credit super-cycle if 'lifestyles' are to be maintained. As MS notes, the rise of relative pay in the finance sector was highly correlated with the expansion in economy-wide leverage. A similar rise had occurred in the credit boom that culminated in the Great Depression. The deleveraging phase that followed that bust went hand-in-hand with declining relative compensation in finance, as the clearest beneficiaries of the credit super-cycle, credit providers (and implicitly their employees) clearly face the biggest structural problems in a deleveraging phase.
Federal Reserve Board Chairman Ben Bernanke will testify at House Budget Committee (Chairman Paul Ryan, R-WI) full committee hearing on "The State of the U.S. Economy." The highlight of today's hearing will be watching Bernanke face his nemesis runner up, Paul Ryan, who will surely grill Blackhawk Ben with questions that are far more intelligent than the press corps could come up with during the last FOMC canned remark presentation. Watch the full testimony live at C-Span after the jump.
ECB Dollar Swaps With New York Fed Jump To Highest Since 2009, Surpass Recent Liquidity Crisis HighsSubmitted by Tyler Durden on 02/02/2012 - 09:30
Following the LTRO and the recent spate of successful bond auctions (until today's tailing Spanish issues that is) European liquidity was supposed to be fixed, with 3M Libor dropping for weeks in a row, right? So perhaps someone can explain to us why the ECB's FX swaps with the New York Fed (reported by the European central bank 9 days in advance of confirmation by the Fed) just rose to a post-crisis flare up high of $89.3 billion, up from last week's $84.5 billion (the increase a function of new 7 and 84 Day swaps, each getting 10 and 17 participating banks, respectively), more than any other time in 2011, 2011, when the liquidity crisis was rampaging, and in fact the highest since July 2009. So: what is fixed again?
There are two pillars that have supported the recent cross-asset class rally: 'improving' macro news and a reduction in concerns about European and financial risks. While this pattern is not new, as the interplay between the two has been a key focus for some time, Goldman manages to differentiate the impact of both and quantifies which assets have more sensitivity to each pillar. Unsurprisingly, European assets have been driven more by Euro area risks than non-European assets, equities (even in Europe) have been driven more by growth views, and credit spreads (including in the US) have been more responsive to Euro area risks. A number of other assets are much more closely to the market's view of growth than to the Euro are risk perceptions and global FX ranges from highly cyclical to highly Euro-sensitive while many of the major EM currencies are stuck in the middle. Overall they find that the market has more confidence in global growth (with markets pricing little more than +1.75% US growth for instance so not over-confident) but that Euro-area risk has been discounted excessively given the nature of the ECB's actions relative to the underlying problems (as we discussed this morning). Goldman provides a good starting point for consideration of which risks (and how much is priced in) across global asset classes.
Israel Accuses Russia Of Supporting Iran Terror Organizations, Says Iran Has Enough Material For 4 Nuclear BombsSubmitted by Tyler Durden on 02/02/2012 - 09:17
Just because 3 US aircraft carriers in the Arabian Gulf are not enough, Israel's Lt General Benny Gantz hit the airwaves earlier today, with some additional pot stirring, and some fresh allegations which will hardly appeal to Russia, who is already using Syria as a military ship docking station (and allegedly supplying arms to the local regime). And while his statement that Iran has "enough material to create 4 nuclear bombs" may be debated, what is more concerning is his allegation that "[Iran terror organizations are] supported by Syria, Iran and even Russia." What next: the Admiral Kuznetsov aircraft carrier floating gingerly between the various US CVNs in the region just keeping everyone on their toes in international waters?
Get out Greece! Get out right now! You should have moved two years ago; you missed that chance, but now it is much better than later. Summer vacations are being planned while we speak, you must move fast to get the biggest advantage out of bolting from the euro. Don’t let the next global recession bare its teeth. Investors still have money and they are interested in buying your assets when the prices are knocked down – each day you wait their value is deteriorating and you are looking more desperate. Most important: don’t listen to the naysayers in Brussels who are warning you of disaster outside of the ‘protective euro blanket.’ It’s much better outside, even the Turks know this.
Initial Claims Print Near Expectations, To Be Revised Adversely Next Week; Productivity Misses, Labor Costs IncreaseSubmitted by Tyler Durden on 02/02/2012 - 08:39
American Airlines laying off tens of thousands? It's all good for the BLS, which just announced that 367K initial unemployment claims were filed in the past week, a number which following next week's upward revision will be just in line with expectations of 371K. As expected, the bullish bias continues with last week's 377K claims number getting revised higher to 379K. Continuing claims will also be revised higher from 3437K to something 20-80K higher next week, even as expectations of 3535K appear high. The weekly move was substantial dropping by 130K from 3567K. Which means that a huge swath of people moved from Continuing Claims to EUC 2008s, a number which sure enough swelled by 100K in the past week. Those on Extended Benefits declined by 57K as the tail end of the 99-week cliff relentlessly spits out all those who can't find a job after 2 years. And in other labor news, Q1 GDP will likely see more cuts after nonfarm productivity came at 0.7% on expectations of 0.8%, and the previous number was revised lower from 2.3% to 1.9%. Finally labor costs rose from an upward revised -2.1% to 1.2%, higher than expectations of 0.8%. Overall nothing material today, as all focus on tomorrow's NFP, which as noted here previously, has a big chance of surprising to the downside.
European Indices are sliding following comments from EU’s Juncker that Greek PSI talks remain “ultra-difficult”, despite earlier gains following comments from the Chinese Premier considering further contributions to the EFSF and the ESM. The Basic Materials sector is outperforming others amid news of a possible merger between Glencore and Xstrata, causing shares in both companies to trade in strong positive territory ahead of the North American open Oil & Gas are one of the worst performing sectors in Europe today, with Royal Dutch Shell shares showing the biggest losses following disappointing corporate earnings. Elsewhere, S&P released a report suggesting Eurozone recession could end in late 2012, forecasting 1% GDP growth for the Eurozone in 2013, however these comments were not followed by significant European index movements. In terms of fixed income securities, Spain held a well received bond auction earlier in the session, with all three lines showing falling yields and strong bid/cover ratios.
Gold has risen to 8 week highs despite positive manufacturing data, higher factory activity in Germany, China and the US and the hope that a Greek debt restructuring solution is imminent. Demand for physical in Europe, Asia and internationally remains robust which is supporting gold. Investors will today watch the US weekly jobless claims data for the week ending January 28th. Adding to the very gold supportive interest rate backdrop, Japan's finance and economic ministers are putting pressure on the Bank of Japan to consider easing monetary policy even further. Negative yields on some bonds (such as TIPS) are very gold positive as is moves to let investors buy short term bills with negative yields. Gold is also being supported by central bank buying. Russia's gold and foreign exchange reserves rose to $504 billion in the week to Jan. 27 from $499.7 billion a week earlier.
Punxsutawney Ben, who just saw the printer's shadow, and predicts six more trillion of free money, will address the House Budget Committee later this morning. We will also get the latest BS from the BLS how thousands of mass layoffs every day result in a drop in initial claims.
- Merkel Seeks to Reassure China (FT)
- German-IMF Rift Stalls Greece Deal (WSJ)
- Survey of Banks Shows a Sharp Cut in Lending in Europe (NYT)
- Bernanke to testify on economy and deficit (AP)
- House votes to freeze congressional, federal pay (WaPo)
Did the first (of many) European LTRO buy just one month of marginal improvement? According to a compilation of analyst views by Bloomberg, who looked at today's mixed Spanish auction results when the country sold €4.56 billion of three-, four- and five-year government bonds, the easy money may have been made. Because while average yields fell for all three lines at the auctions, maintaining the trend at Spanish debt sales so far this year, it was the internals that showed weakness and could indicate that the marginal benefit from the first LTRO is now ending, even as the real task - the longer-dated bonds 10 years and great - still have to see much if any carry trade benefit at auction. Lastly, anyone hoping for a full carry flush from the European banks has to give up all hope: ECB announced its deposit facility usage rose to €486.4 billion, up €14 billion overnight. And with that we now know what the LTRO half-life is.
After a relentless upward session in yesterday's trade exasperated the EURUSD bears, it is time for the bulls to be punked, not once but twice, the first time coming overnight when some errant headlines out of China, suggesting it could be involved in the ESM, sent the pair soaring only to slide right back down on clarification this was not really happening. The second time it originated ironically enough, with Eurogroup muppet and Luxembourg Prime Minister Jean Claude Juncker, whose comments to in an interview with Deutchslandfunk were shockingly open and realistic. Among these were that the measures from the January 30 summit were "largely insufficient" and that Greek PSI talks were "ultra difficult." So apparently what Dow Jones said about the deal being done in hours may have been a modest fabrication. And something else that will certainly inflame German tensions once again, is his comment that the issue of a Greek budget commissioner is "off the table" and that there is no need for a "special Greek commissar." Thanks Jean-Claude, but we will wait for the real boss, Ms. Merkel, to voice on that one. Finally, apparently in a text message, Juncker's spokesman said no decision has been reached on possible talks next week. Great - so the Greek hard deadline of March 20 is now less than 50 days away, with the full exchange offer needing at least two months to be concluded, and there is still absolutely nothing on the table. Yup, sounds like Europe. In the meantime, the EURUSD has remember just what it represents: the total chaos, insolvency and disunion of everything European.