With the IMF cutting its global growth forecasts and signs of slowing evident in the dramatic contraction in World Trade Volume in the last few months, it is perhaps no surprise that the central banks of the world have embarked upon what Goldman Sachs calls an 'Unprecedented Alignment of Monetary Policy Across Countries'. Our earlier discussion of the European event risk vs global growth expectations dilemma along with last night's comments on the impact of tightening lending standards around the world also confirms that this policy globalization is still going strong and is likely to continue as gaming out the situation (as Goldman has done) left optimal CB strategy as one-in-all-in with no benefit to any from migrating away from the equilibrium of 'we all print together'. Perhaps gold (and silver's) move today (and for the last few months) reflects this sad reality that all your fiat money are belong to us, as nominal prices rise (but underperform PMs) in equities (and risky sovereigns and financials).
Courtesy of Bloomberg, we have our first impression of what advertisers' "efficiency" is for Facebook ads, and whether or not they will decide to use Facebook as an ad medium as opposed to a legacy wholesale advertising channel's like Google AdSense. Frankly, it does not look too hot: as the attached chart shows, the CTR on an ad campaign is a paltry 0.014%, or said otherwise 182,901 page views leading to... 26 clicks. Now of course, the amount paid for this exposure will be modest (although at $2.80 CPC this is astronomical compared to the likes of adsense), however the real question is what advertiser, for whom reader engagement, i.e., click thrus are important, will wish to subject themselves to this abysmal level of "interaction." it is probably no secret that for Google adsense, CTR is at least one order of magnitude higher. This also explains why anyone betting on the advertising model as being the primary driver of revenue growth will likely be disappointed. Naturally, there is the possible offset that the ad campaign was merely not engaging, or not that exciting, or not proper user targeted, but that is what Face Book is doing after all - it is trying to replicate adsense interest matching. So if Facebook is about ten times worse than adsense, just who will use it? We agree with Mark Gimein's conclusion, "Whether you’re a giant advertiser or a tiny one, you know exactly how much value you get from a Google placement. For us, it was just really hard to know what we were getting from our Facebook ads."
One of the salient questions asked of Bernanke by Congress relates to a Kevin Warsh oped in the WSJ, in which he said the following: "Private investors are crowded out of the market when the Fed shows up as a large and powerful bidder. As a result, the administration and Congress make tax and spending decisions—with huge implications for our standard of living—with heightened risks around future funding costs." This is arguably the question that dominates Fed policy making under the Operation Twist doctrine, in which the Fed buys up long-dated paper and sells Short dated (under 3 years), the second leg of which however is completely irrelevant, as the Fed has already guaranteed ZIRP until 2014, in essence confirming that Twist was nothing but a stealth QE3 as we have claimed all along, as the Fed's ZIRP4EVA policy effectively offsets any and all short-dated sales. Needless to say Bernanke's response was irrelevant. However, here is the most jarring statistic. As Barclays showed a few days back, under Twist, the Fed has monetized virtually all, and specifically 91% of all gross issuance in the 20-30 year maturity bucket. In other words, Warsh is absolutely spot on, and once again we are left with an artificial market in which it is only the Fed that defines the UST curve shape by molding the long end. What happens when Twist ends? Will the 30 Year collapse? What happens when there is no explicit back stop to the long end? Is this the reason why Bill Gross yesterday said that he fully expects much more check writing by the Fed for the next '12, 24, 36 months." And how can it not: we don't have a market of rational players any more - the entire market is merely one irrational player, whose biggest counterparty incidentally, the ECB, is beyond broke. Finally, what happens to the Fed's balance sheet when interest rates start rising? Holding a portfolio with a duration greater than it has ever been, the DV01 is currently well over $2 billion (i.e. a $2 billion loss on every basis point increase in rates). And rising.
Let's compare three financial criminals. The first is an old-fashioned counterfeiter who doctors up paper and runs a printing press to produce fake currency. The second criminal borrows money based on a fraudulent asset and phantom future income. For example, the criminal might obtain a credit card based on false assets and income, or borrow money against a property that is worth far less than he claims and base his credit on an inflated fantasy income he does not actually receive. The third criminal borrows money from the Federal Reserve at zero interest and extends a loan to a fraudulent borrower because a government agency has guaranteed the loan. Whatever income the lender receives is pure gravy, and whatever losses are incurred when the fraud is uncovered are made good by the taxpayer. Since our banking system is based on money being borrowed into existence (i.e. fractional reserve), then how is creating money unsecured by either assets or income any different from actually counterfeiting bills? The outcome is identical: money created out of thin air.
While we first presented Bill Dudley's financial disclosure two days ago, we did so to present the New York Fed's president, and former Goldman managing director's, implicit need to perpetuate the status quo from even purely personal wealth reasons (AIG and GE waiver issues aside). Yet that a Fed member, especially a Goldman alum, is deeply enmeshed within the fabric of the existing, and failing, monetary system is not all that surprising. What is far more surprising, is that the Fed's FOMC may well have a gold bug within its midst, because we were rather surprised to find that none other than the Dallas Fed's Dick Fisher, who however is no longer a voting Fed president in the 2012 year, is a proud owner of at least $1 million worth of Gold in the form of the GLD ETF....and another up to $250K in physical (not paper) platinum. Which begs the question: is Fisher the only Fed president to have seen the light and to put a substantial portion of his wealth in the only asset class that benefits in real terms, from the perpetuation of the Fed's dollar, and fiat broadly, debasement strategy?
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.