EUR/USD traded lower during the European session as the market looked ahead to ECB Trichet’s press-conference following the rate-decision, where some analysts expect the central bank to portray a dovish tone. In other forex news, after trading lower for a vast majority of the session, GBP received a boost across the board after the BoE refrained from further monetary easing this month. The BoE kept its benchmark interest rate and asset purchase facility unchanged at 0.50% and GBP 200bln, respectively, as expected. Elsewhere, European equities traded higher during the session on anticipation of monetary easing by the ECB today. Financials traded higher, with outperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices, after the Italian Senate and the French lower house of Parliament approved measures to strengthen the EFSF. However, DAX came under pressure following a sharp decline in German exports. Moving into the North American open, apart from the ECB’s rate announcement followed by Trichet’s press-conference, markets look ahead to key economic data from the US in the form of jobless claims and trade balance. Canadian trade balance and housing data is also scheduled for release later. In fixed income, 3-, 10-, and 30-year Note refunding announcement from the US is due later, whereas markets will keep a close eye on comments from Fed’s Bernanke.
New research from Dr Constantin Gurdgiev, Head of Research with St Columbanus AG, member of the investment committee of GoldCore and the adjunct lecturer in finance in Trinity College, Dublin, questions the widely held belief that retail investors are “piling into” gold in a speculative frenzy. “The U.S. Mint data on sales of gold coins suggests that we are not in the last days of the ‘bubble’,” finds Gurdgiev. Buyers of gold bullion coins such as the US Mint’s gold eagles are store of value buyers and sometimes collectors, Gurdgiev points out. Most buyers of gold coins are motivated not by a return on capital but by a return of capital and by wealth preservation. Gurdgiev points out that “gold coins are traditionally held by retail investors as portable units to store wealth. Due to this, plus demand from collectors, gold coins are less liquid and represent more of a pure ‘store of value’ than a speculative instrument.” The data shows that there has not been a dramatic increase in demand for the US Mint’s Gold Eagles with annual demand in 2011 set to be some 1,275,000 oz which is below the levels since back in 1986-1987, in 1998-1999 and more recently in 2009 when demand was 1,435,000 oz. Gurdgiev excellent article concludes that the data and evidence from the US Mint regarding the “behaviourally anchored, longer-term demand for gold coins as wealth preservation tool for smaller retail investors” does not “appear to support the view of a dramatic over-buying of gold by the fabled speculatively crazed retail investors that some media commentators are seeing nowadays.”
As usual, egos get in the way of prudent monetary policy. EUR jumps a little on the news but promptly reverts to preannouncement levels. Waiting now for the conference in which Greenspan lite will mumble and lie about Europe's future from the perspective of a clueless Ph.D.
Aside from the ECB rate decision TBA imminently, the key economic data in this news heavy day will be Trade, jobless claims and the speech by Fed Chairman Bernanke, who received quite an earful by the GOP candidates yesterday.
While the BOE's decision came and went exactly as expected (rate unchanged at 0.50%, no new Quantitative Easing), leading to a slight jump in the GBP but nothing too notable, all eyes now turn to the ECB in 20 minutes and whether or not Jean Claude will admit defeat and announce the end of the bank's very ill-timed decision to start tightening from 6 months ago, which as much as it is overdue, will unfortunately not happen, egos and all. Here is a complete preview, but in a nutshell the consensus is for rates to remain unchanged at 1.50%, for an announcement that downside risks have intensified, and that both lower growth and lower inflation will be forecast.
It was only a matter of time. A few weeks after every money losing firm in the US and the kitchen sink disclosed it would sue Bank of America in an accelerating attempt to salvage something through litigation, the worst case scenario for Brian Moynhian just got real. As of minutes ago, Norway's Government Pension Fund, which is another name for its Sovereign Wealth Fund, has just announced it is suing Bank of America for mortgage fraud. Not only that but it is also going after Countrywide, obviously, but far more importantly, is also suing KPGM, the auditor on the Countrywide transaction, and, drumroll, ole' Agent Orange himself. If US bank analysts were busy quantifying the damages from every bank in the US suing BofA, just wait until the calculation is expanded to included every firm that bought mortgages from Bank of America... ever...in the entire world.
Oaktree's Howard Marks once again cuts through what he perceives is the market's irrationality to explain what, to him, was the cause of the historic market collapse in early August: "Markets usually do a pretty good job of coping with problems one at a time. When one arises, analysts analyze and investors reach conclusions and calmly adjust their portfolios. But when there’s a confluence of negative events, the markets can become overwhelmed and lose their cool. Things that might be tolerable individually combine into an unfathomable mess whose extent and ramifications seem beyond analysis. Market crises are chaotic, not orderly, and the multiplicity and simultaneity of contributing causes play a big part in making them so. It’s my sense that it was the simultaneous nature of these occurrences – in addition to, or perhaps rather than, their force individually – that rendered the markets so incapable of maintaining their equanimity.Certainly that was the case in early August. For the first time in history, the Dow Industrials either rose or fell by at least 400 points four days in a row... Importantly, we saw the onset of one of those negative feedback loops where intelligence is imputed to market developments. We’re told the falling prices reflect problems lying ahead, and thus investors sell in response to the message being provided by . . . investors who’re selling. Again, I think it was the collective force of these things that convinced people the world was a scary place. What could be worse than the convergence of a number of major worries whose extent, interaction and solution seem beyond comprehension."
Earlier today we saw several republican candidates debate at the Ronald Reagan Library, to a general response that can best be described as disenchanted, and at worst: outright ridicule (don't get us wrong - this debate is the funniest thing in prime time entertainment until Obama's "This time Keynesianism will work, I promise" aka "Change you can bereave in" speech tomorrow). So speaking of Ronald Regan we decided we would present to our readers this 30 minute clip from a televised address for the 1964 Goldwater presidential campaign. What is most eerie is that the adverse conditions described by Reagan then are almost identically comparable to those in our current deplorable state, nearly half a century later. What is also just as eerie, although probably not surprising, is that while the GOP debates induced mostly a sense of loathing (either for the self, or others), speeches such as this, which actually force the listener to stop and think, are truly a rarity nowadays. Perhaps America should first ask itself what happened to real leadership and real leaders, those it can be proud of, before it rushes headlong to elect the next one.
Before tomorrow's 2012 pre-election speech in which President Obama's vocal elocution will be earnest, and results - to put it mildly - tepid, about about how he could create jobs dammit, if only the Republicans would behave, it's interesting to note who's supporting Obama keep his job. A cursory look at the early stages of his campaign fundraising reveals that the same group of people that benefitted from policies (bi-partisan) that lavished them with cheap money, secret loans, debt guarantees and other forms of perks not available to the average citizen, are backing him for President. Big Time. And whereas it's true, Obama's most recent poll numbers look as abysmal as any President (save FDR who he will never, ever be) facing a depressed economy and a near double-digit 'official' unemployment rate (worse if you get beneath its massaged surface), this isn't effecting his most important support, the financial kind. To date, Obama's Presidential bid dosh comes largely from - wait for it - the financial sector. Yes, the same sector that screwed the country over, and that, despite some unpleasant lawsuits they will likely settle, remains as powerful, unrepentant, unaccountable, selfish and Main-Street-destabilizing as before Obama took office. No wonder he's been able to keep Treasury Secretary, Tim Geithner by his side - someone has to allay Wall Street concerns that true retribution or meaningful regulatory repercussion will befall them.
While the easily amused were obsessing with choosing the best one line punchlines to describe the status quo posturing on TV in the form of another highly irrelevant political spectacle, Japan's economy imploded, only this time for real. Unlike back in Q2 when every downtick in the economy was blamed on the Tsunami and on the Fukushima explosion, we just got, 6 months later, the report for Japanese machinery orders which collapsed 8.2% in the month of July, for the biggest drop in 10 months, over and above anything seen during the Fukushima days. This is exactly 100% worse than the 4.1% drop predicted. The reasons according to Reuters: "companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake." Of these the Yen is by far the most relevant. And thanks to the SNB, the Bank of Japan, whose currency has suddenly become the only safe risk haven, will have no choice but to add balance sheet insult to economic injury and resume JPY interventions, only this time the duration will be even shorter than the last such episode which lasted all of 3 days (see below). This in turn will force all other central banks to do more of the same until relative devaluation, and the biggest currency lower, is the name of the only game in a few weeks. As for the winner: the only real currency which can not be printed, well, that story is very well known by now.
Anyone who may have been harboring doubts that the Fed will pull yet another economically destructive policy out of its bag of genocidal tricks on September 21 can now relax. Jon Hilsenrath has spoken, and while we don't know just what form QE3 will take place (as a reminder any form of duration extension, and hence, artificial risk shit can be reduced to the broad definition of Quantitative, or otherwise, easing), he does give us a menu of three options: i) Operation Twist, as first discussed by Zero Hedge back in May, ii) a reduction in the Interest on Overnight Excess Reserves (IOER) from 0.25% to something... lower, a move that would wreak havoc and completely destabilize money markets, and iii) more jawboning - a step the would merely make existing promises, such as the ZIRP through mid-2013 even less effective. Bottom line: like it or not, in two weeks we all do the twist.
Wimpy was a glutton, and would consume burgers at a ferocious rate but could rarely pay for his habit. The phrase implies the underlying feeling that the person will unlikely actually pay for the hamburger (or whatever) on Tuesday (or ever, for that matter). Does that describe the United States of America in general and specifically our Keynesian President Barack Obama? Obama’s speech tomorrow night is no longer a secret. For whatever reason, the White House purposely leaks the major themes of the speech. Based on the Bloomberg article below I’d say my article from two weeks ago anticipating Obama’s plan is about 99% on the mark. How stupid and gullible can the American people be? One month ago Obama signed a supposed $2.1 Trillion deficit cutting bill over ten years with 60% of the identified cuts between 2018 and 2021 (TUESDAY). A full 1% of the total cuts ($21 billion) were slated for 2012. The left wing libtards screamed like a stuck pig about these horrific cuts that would destroy the American economy and starve orphans and old people. Paul Krugman’s head started to spin and green vomit was projected all over the NYT press office. Well our cost cutting, spending focused, deficit hawk president (WIMPY) held the line on spending for exactly 30 days. He is asking for $300 billion of burgers for 2012 and he promises to pay for them at some time in the future (after his hoped for 2nd term is up in 2016). The balls on this guy are immense. Not only that, but its the same bullshit he’s been peddling for two and a half years.
JP Morgan, whose Banker In Chief has not spared harsh words in the past to describe the POTUS, has released its just as uncompromising assessment of tomorrow's Obama speech which if predictions are correct, will be such a load of hot air, that the mere non-news factor alone should send the market into a volumetric coma on Friday, hence pushing ES limit up easy by close of Friday. Michael Feroli's take: "Cynically, one could say this is merely pushing back the fiscal drag past the time of the next election. More constructively, one could argue that this is pushing back the fiscal drag to a point in time when household sector balance sheet repair has hopefully progressed enough that the private sector can generate self-sustaining growth momentum. Either way, the Republicans in the House are unlikely to be easily impressed by the President's arguments. None of the major programs proposed has received much support from Republicans, and if any were eventually passed it would probably only be after bruising negotiations later in the year. All in all, we anticipate that little will come out of tomorrow's speech to make us re-think the near-term outlook." The outlook, in question and presented previously, being one that jives with the S&P at 900, and certainly not at 1200.