Goldman's Head Gold Trader On The Recoupling Between Gold (Which Is Up 14% YTD) And Money, And Why This Is 2008 All Over AgainSubmitted by Tyler Durden on 09/26/2011 - 11:16
From Goldman head gold trader, not the always wrong sellside analysts or researchs, Zak Dhabalia. Note none of this shoule be a surprise to those who invest in gold, instead of trading it based on 1 minute momentum, which unfortunately is ever more of the bipolar investing public:"There is no doubt that long risk in gold has been drastically cut back. The latest comex data show another 1.5m oz fall to 25m oz and I suspect the data for the week ending tomorrow could show a decline of over 3m oz. The ETF positions appear to have been more resilient. The concern will be if tech funds decide to cut entirely and even go short. In this liquidity that can still have a significant impact on prices. However in the context of the macro markets I am not convinced at all the game is over for gold. In fact far from it. The rally in the dollar is not from a position of strength but more a reflection of panic about the risk of disorderly outcomes to fiscal and monetary policies in the face of poor political coordination. The search is for liquidity and the prices of industrial metals suggest real fears about the future growth of demand."
The Dallas Fed Manufacturing Index joined a long and distinguished list of recently disappointing macro prints by missing expectations - coming in at -14.4 versus an expectation of -11.4 (the fifth negative print in a row). While the Production sub-index was up and will provide fodder for bulls (it is still half what it was in July 2011), it is the drop in the outlook for future business activity to a -1.5 (the first such negative print since April 2009) that should have central planners the most concerned as borrowing demand is surely bound to drop further on these weak expectations. This combined with the Philly and Empire prints implies a sub-50 ISM print is forthcoming.
The last two days have seen a very dramatic rally in senior financials credit risk in Europe. While the rest of the credit and equity complex has stayed largely in sync, Senior Financials (SENFIN) have significantly outperformed (around 50bps tighter from midday Friday) and now trade a long way from where the underlying financials in the index would suggest. While SENFIN is naturally a higher beta play on any action in Europe, it seems like it is well over its skis here and with ES pulling back to its fair-value relative to a broad basket of risk-assets, and a general lack of news from Europe, we suspect that the last two days have been a short squeeze led by investors rotating out of their macro hedges and unwinding longs into strength or protecting their longs with more single-name protection.
Look at what they are talking about doing. Look at how unsuccessful any of the previous, poorly thought out plans have worked. Contagion has spread. European bank shares are down 50% from a year ago. European stock indices are down 20% from a year ago. Portugal and Ireland are in deep trouble, and Italy and Spain are on the cusp of trouble. Will more bogus plans that don’t really ever get implemented, that fix nothing, but make the system more convoluted really do anything? Wouldn’t we be better off letting some defaults occur and picking up the pieces. Maybe more time and energy should be spent on how to pick up the pieces while some are still independent, rather than further linking everyone to the anchor? Maybe more time should be spent determining if Lehman was “solely” responsible for the problems in late 2008 and early 2009? Maybe the problem wasn’t Lehman defaulting and it was just another piece of a bigger uglier puzzle and we are so busy trying to avoid another “Lehman Moment” that we have lost sight of whether it is that important to avoid a default?
Waiting For The "Cashin Crash"? Here Is The "Fermentation Committee Chairman" Himself With An UpdateSubmitted by Tyler Durden on 09/26/2011 - 09:36
Last week Zero Hedge as well as many others, noted the observation by UBS' Art Cashin that the market was setting up for a "Thursday/Monday" Crash, which was lining up perfectly going into the European open, until someone, somewhere decided to start buying up everything. Does that change the expecation for a wipe out today? Here is Art himself with his updated take on what (and what not) to expect today.
Warren came, he saw BRK/A trading at $99,000, he took a bath, and decided that this aggression against BRK/A will not stand, man. As a result, after taking a metaphorical bath on BAC, the Octogenarian has just decided to launch a share repurchase program in the company with the massive short S&P put, because "In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise." In other words, Buffett is slowing starting to realize that he has to put up or shut up, and very soon he will also realize that just because the president allegedly has his back (it is not called the "Buffett Plan" for nothing), he won't have a "perpetual get out of risk card" for life, and America's taxpayers may soon let the world's most crony capitalist just fail.
Anyone trading gold and silver most likely had a heartattack this morning. Of that subset, anyone who survived and traded with conviction made a killing, following an impressive surge in both metals, which saw silver soar from $26 all the way back to $30, after it was made clear that there was no behind the scenes liquidation of the metal but merely more piggybacked margin hikes this time out of China as was first reported by Zero Hedge. Another factor that helped was Marc Faber's appearance on CNBC earlier, who said that gold is now "quite oversold" and that he would be adding to the yellow metal in the "next two days." In retrospect, he should have been adding today to his existing holdings. However, since he already has 25% in gold, he is forgiven. Mutual funds which, however, have about 1% in gold, are not.
- Yuan ‘Fully Convertible’ in 5 Years: Adviser (Bloomberg)
- ‘Barrier’ Around Greece Needed: Merkel (Bloomberg)
- US banks face losses on loan commitments (FT)
- Pentagon may cap executive pay reimbursement at $694,000 (WaPo)
- Debt talks fail to agree solution (FT)
- Europe Split Threatens Rescue Plan (WSJ)
- US tax authorities target bank deals (FT)
- Under fire, Europe works to bolster debt crisis fund (Reuters)
- Asia wooing Japanese companies (WaPo)
- Credible India’ drive to woo investors (FT)
- ECB said to debate new 12-month loans at the October 6th policy meeting where they may discuss a rate cut
- EU may speed up ESM enactment to stem the crisis with Euro aides discussing setting up the fund in 2012 a year early.
- German IFO data higher than expected on all three readings
- CME raises margin requirements for longest dated T-Bond futures by 20%
While this morning's bout of ridiculous volatility, especially in precious metals, may be briefly over (but certainly not for long) after gold has surged by nearly $100 from overnight lows, the economic weakness persists despite what the futures are saying. As usual European liquidity is at the forefront, with 3M USD Libor rising per usual and every single day for the third straight month in a row, this time from 0.360% to 0.363%, leading to new all time wides in German, French and Belgian CDS to 111 (+3), 201 (+4) and 301 (+6) respectively, which no matter how hard the /ES frontrunning and momentum machines can try, there is little that can be done to dissuade the market that French banks will soon be in need of a full blown bailout.
Goldman Recaps Germany's Eurozone Stance On The Eve Of Thursday's Critical, And Much Despised, EFSF Expansion VoteSubmitted by Tyler Durden on 09/26/2011 - 04:45
While we shared our brief summary of last night's lengthy ARD 1 interview with Angela Merkel, the Chancellor's views bear repeating since we are now just 4 days away from the critical EFSF expansion ratification vote to be held this Thursday in Germany. While expectations are for a prompt passage the downside, as improbable as it appears, bears some attention. Here is Goldman's Dirk Schumacher with a summary of what to expect this week out of Germany.
Wondering what caused the dramatic plunge in gold and silver earlier? Wonder no more: the CME's counterpart in China, the Shanghai Gold Exchange, decided to follow through with an identical, if more substantial, action to that undertaken by the CME on Friday, and announced an increase in the Silver T+D contract margin from 15% to 18%, a 20% bump; the SGE also noted an increase in the price range limit from 12% to 15%, which will be promptly fulfilled, as margin hikes traditionally tend to lead to a sudden spike in vol, contrary to well-meaning expectations. There was a second announcement, slightly more cryptic one, noting that if volatility were to persist, the SGE would outright halt silver trading (although the Google Translation of this previously unseen form announcement is a little sketchy). Expect to see more exchange intervention in precious metals today. Regardless, those who bought silver 15% lower a whopping, oh, two hours ago, courtesy of the out and out sheer panic, are quite grateful to the Chinese.