- Egypt on the edge after Mursi rebuffs army ultimatum (Reuters)
- Inside China's Bank-Rate Missteps (WSJ)
- Obama Urges Morsi to Respond to Protesters' Concerns (WSJ)
- How Fed’s 7% Jobless Avoids Deterring Bondholders Is Mystery (BBG)
- Obama Joins With Political Foe Bush at End of Africa Trip (BBG)
- China may introduce deposit insurance by year-end (China Daily)
- China’s Slowdown Could Slam Hong Kong (BBG)
- Government 'to ask Rothschild to advise on RBS split' (Telegraph)
- Martin Feldstein: The Fed Should Start to 'Taper' Now (WSJ)
The volatility of recent weeks is but a mere small taste of the volatility in store for all markets in the coming months and years. The global debt crisis is likely to continue for the rest of the decade as politicians and central bankers have merely delayed the day of reckoning. They have ensured that when the day of reckoning comes it will be even more painful and costly then it would have been previously.
We appeared to go from good is good (but the underlying macro data this morning also provided some bad is good news) to good is bad by the close. The Discretionary sector almost reached back to unchanged from the FOMC statement but that appeared to be the short-term-top as it faded back by the close. Interestingly with bonds rallying notably from overnight high yields, bond-like stocks actually suffered today (great un-rotation?). Credit markets were entirely unimpressed by the early excitement in stocks and as we entered the last hour stocks began to sink and credit rally for the divergence. Gold and Silver diverged this afternoon with the yellow metal holding gains and coupling with WTI for a 1.5% gain on the day (and gold's best 2 days in over 4 years) while Silver slipped this afternoon to end -0.3%. The USD slow-leaked all day (-0.2%) amid AUD strength and modest JPY weakness (that provided some support for risk-assets early on). Volume was awful - around 30% below average. VIX fell on the day but rose notably more than stocks would imply into the close as hedgers grabbed on but stocks were sold as the Egyptian situation escalated.
Following the drubbing in commodities in Q2 it is was only a matter of time that the pendulum swung the other way. At least that is the view of JPMorgan's commodities team led by Colin Fenton who says to "go overweight commodity indices now." JPM's summary: "It’s our first OW call on commodities since September 2010… we turned underweight commodities as an asset class in November 2011, shortly after it became apparent that Europe and Australia had entered manufacturing recessions and commodities were likely to underperform equities and bonds over the following 6 to 12 months, likely yielding negative returns in 1H12. Over the past year, we have grown more positive on the asset class, as energy has improved, expected menaces in bulks and metals have arrived, and sentiment across commodities has belatedly soured. However, our strategies have sought to be directionally neutral. Now, we move to recommend a net long, overweight exposure for institutional investors for the first time in more than two years, based on ten fundamental factors we quantify in this note." Yes, that includes gold, although as a hedge JPM adds: "Liquidity could fall quickly in summertime. Buy 25-delta puts in oil, copper, and gold to protect a core position in commodity index total return swaps."
Think gold and silver were the worst performing financial asset in June? Think again: that dubious distinction falls to the Bovespa, the Shanghai Composite and the Greek stock market index, all of which tumbled more than the precious metal complex did in the past month. Yet what an odd month for hard assets - on one hand WTI, Corn and Brent were the best performing assets, while gold, silver, copper and wheat tumbled.
The real question is when will the Feral Hogs fix their sights on the WTI market, and take it down to $80 like they have the last two years. My guess now that they have had their fun with the Gold and Silver markets, they will start looking around for their next target.
Overnight newsflow (which nowadays has zero impact on markets which only care what Ben Bernanke had for dinner) started in Japan where factory orders were reported to have risen the most since December 2011, retail sales climbed, the unemployment rate rose modestly, consumer prices stayed flat compared to a year ago, however real spending plunged -1.6% significantly below the market consensus forecast for +1.3% yoy, marking the first yoy decline in five months. This suggests that households are cutting utility costs more so than the level of increase in prices. By contrast, real spending on clothing and footwear grew sharply by 6.9% yoy (+0.6% in April) marking positive growth for a fourth consecutive month. Simply said, the Japanese reflation continues to be limited by the lack of wage growth even as utility and energy prices are exploding and limiting the potential for core inflation across the board.
Deja Deja Deja Deja Deja Vu... Gold (and silver) are legging lower once again as China's markets open. Spot gold just hit $1180 (down 2.5% from post-US-close highs). Given the state of the short-term funding markets in China, it seems possible that banks are liquidating any- and every-thing to realize cash (copper is also suffering modestly here at the open).
It seems the quarter-end rebalancing flows are showing up in bond-land - 10Y Treasuries were well bid again today (-6bps) for the best 2 days drop in yield in over 13 months. Stocks repeated the same pattern of the last 3 days - the best 3 days of the year - by ramping into the open and generally treading water for the rest of the day. Today, Dudley's comments popped the S&P 500 up to its 50DMA and that was the limit as we faded weaker from there and clung to VWAP amid dismally low volume. Credit markets underperformed notably from the open and while VIX closed down modestly, it also rose from the opening levels. The USD roundtripped from strength into the European close to end the day unchanged (up 0.6% on the week) but WTI did not care and surge higher touching $97 and up 3.3% on the week. Copper flatlined. So bonds and stocks (and oil) moving on moar QE hopes but - and (we are running out of superlatives so we will use 'shellacked') precious metals were smashed lower once again closing below $1200 and $18.50 respectively as QE hopes fade?
Technologies for gathering information, mining it, and using it, as the Snowden debacle shows, are phenomenally effective and cheap. But they're not perfect. Not yet.
There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization. Financialization has given those with capital and access to financier expertise ways to skim great wealth from the system without creating any value whatsoever. The hidden toxin in financialization is the resulting concentration of wealth can buy concentrations of political power. Financialization is thus self-perpetuating: once the skimming operations generate billions of dollars in profit, it only takes a relatively small piece of these profits to buy/influence the political class. Once the politicos are in your pocket, the regulators and judiciary fall into line or are marginalized by new statutes or gutted budgets. Financialization is the disease eating away the heart of the economy and what's left of democracy.
What is happening today has its roots in history. The end result is shown to us already and is gauranteed at this point.
China's Mea Culpa: "It Is Not That There Is No Money, But The Money Has Been Put In The Wrong Place"Submitted by Tyler Durden on 06/23/2013 12:36 -0400
Ten days ago, we penned "Chinese Liquidity Shortage Hits All Time High", in which we predicted ridiculous moves in the Chinese interbank market as a result of short-term funding literally evaporating as a result of the PBOC's stern refusal to step in and bail out its banking sector (despite the occasional rumor of this bank bailed out or that) by injecting trillions in low-powered money. A few days later this prediction was confirmed when the overnight repo and SHIBOR market for all intents and purposes broke down as was also reported here previously. Now, for the first time, China, via the Politburo's Chinese Hilsenrath-equivalent, Xinhua, has provided its own version of events which is as follows: "It is not that there is no money, but the money has been put in the wrong place."
Meet General Keith Alexander, "a man few even in Washington would likely recognize", which is troubling because Alexander is now quite possibly the most powerful person in the world, whom nobody talks about. Which is just the way he likes it. ... And also meet Bonesaw: "Bonesaw is the ability to map, basically every device connected to the Internet and what hardware and software it is."
The technical damage from yesterday’s bloodbath was severe. I’ve been warning readers of Gains Pains & Capital that we were heading for a serious collapse. Yesterday’s action was just the beginning.