Exchange Traded Fund
As we draw ever closer to Europe's date with disaster and the inevitable lifting of the kimono that Draghi's supervision-driven stress tests appear to be, European banks are being forced to finally 'fess up to the real state of their balance sheets. Confused at how bad macro data can be in Spain and yet banks have been 'surviving' or 'thriving' - simply put, they lied. Spain's Banco Popular just released earnings showing a 19.6% rise in non-performing loans at EUR21.2 billion driven by a surge in "doubtful loans for subjective reasons" that almost tripled QoQ. This is the highest bad loan ratio on record at 14.27% - but have no fear, their CEO says "loan defaults are nearing their peak," because he would know...
Tomorrow we prepare for a “new” Fed. It looks a lot like the old Fed, but one can hope. In the meantime we wonder if QE is worth it? Does it do what it is “supposed” to do? No. We don’t think it has done much for jobs or inflation or housing. We look at the pre QE data and the post QE data and we are underwhelmed. But what real evidence is there that QE is helping the economy? Would we be the same without it? Better even? I am told no, but I am told a lot of things that turn out not to be true. If it was clear that QE was really helping the economy, I wouldn’t be wondering why we do it. But is there any harm to QE? That is the other side of the coin. Ask any person from an Emerging Market whether QE is harmful and you will likely get a very different answer than the one Ben has given.
Beginning by disavowing Mario Gabelli of any belief that rising stock prices help 'most' people, Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron's interview. Quoting Hussman as a caveat, "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There's no calling the top," Faber warns there are a lot of questions about the quality of earnings but "statistics show that company insiders are selling their shares like crazy." His first recommendation - short the Russell 2000, buy 10-year US Treasuries ("there will be no magnificent US recovery"), and miners and adds "own physical gold because the old system will implode. Those who own paper assets are doomed."
Judging by the reaction from SocGen and JPY crosses (and thus global equity markets), the Turkish Central Bank's decision - to tighten aka ubertaper -has solved all the tapering, tantruming, turmoiling problems in markets. TRY obviously dumped on the news (now at 2.18 -2100 from highs). JPY crosses instantly exploded higher, automatically lifting US (Dow +60) and Japanese (NKY +110) stock futures markets before they closed. Gold fell very modestly ($1). JPY continued to weaken and when markets re-opened, gold dropped a little more but no sustained pressure; Dow is now +110 from pre-Turkey, NKY +175pts; S&P futures are up 10points on the news as stops are run to 1800 but the EEM ETF rallied around 1% (only).
Overheard In A Gold Vault In Singapore: "We Need Additional Capacity", China's Appetite Is "Insatiable"Submitted by Tyler Durden on 01/28/2014 16:21 -0400
Yesterday we covered the supply side of the gold market from the perspective of global mints, which were kind enough to advise that they "can’t meet the demand, even if we work overtime." Today, courtesy of Bloomberg, we take a closer look at the demand aspect of the physical gold market, which as most know by now can be described with just one word: China.
One of the big disconnects over the past year has been the divergence between the price of paper gold and the seemingly inexhaustible demand for physical gold, from China all the way to the US mint. Today we get a hint on how this divergence has been maintained: it now appears the main culprit is the massive boost in supply by gold mints around the world working literally 24/7, desperate to provide enough supply to meet demand at depressed prices in order to avoid a surge in price as bottlenecked supply finally catches up with unprecedented physical demand.
Between 2008 and 2013, China’s credit market increased from $9 trillion to an incredible $23 trillion.
Quite a day...
- All-time record lows in many Emerging Market Currencies (TRY, ARS, VENZ (unof.) most)
- Nikkei 225 -3.75% - biggest drop in 7 months
- Emerging Market Stocks -3% - (4 month lows)
- USD Index -0.7% - biggest drop in 3 months (2014 lows)
- USDJPY -1.3% - biggest drop in 5 months
- AUDJPY -2.35% - biggest drop in 7 months (4 month lows)
- Dow -1.3% - biggest drop in 5 months (5-week lows)
- 30Y Treasury Yield -9bps - near biggest drop since April 2013 (2-month lows)
- Gold +2.3% - biggest gain in 3 months (2 month highs)
- VIX +1.8vols - biggest jump in 3 months (1 month highs)
- IG Credit +2.5bps - biggest jump in 5 months (1 month wides)
- HY Credit -$0.5 - biggest drop in 4 months (1 month lows)
It seems that without the safety net of Fed flows, the reality that bad news might just be bad news and event risk is a real risk just started to hit home. The deer is back...
Gold Surges On Speculation India May Ease Import Restrictions; China Reports Gold Reserves UnchangedSubmitted by Tyler Durden on 01/23/2014 09:15 -0400
Over the past year India's attempt to impose price controls on gold imports has only achieved one thing: forced citizens to find ever newer and more creative means of smuggling gold. It has gotten so bad Indians are now smuggling the yellow metal through Pakistan, on airplanes, and has now even surpassed the illegal drug trade. Which perhaps is why the biggest news in the commodity space overnight was the appeal by India's Congress party chief, Sonia Gandhi - widow to Rajiv - to the government asking for a cut in the record import duty on gold and for other restrictions to be eased, television channel CNBC Awaaz said citing sources that it did not identify. Reuters adds that "the coalition government, led by Congress, is considering easing restrictions, which include a 10 percent import duty and a rule that says 20 percent of all imports must leave the country as exports, government sources told Reuters earlier this month. India used to be the world's biggest buyer of bullion until the government introduced the curbs in order to contain a record current account deficit."
What are you afraid of, exactly? ConvergEx's Nick Colas notes we all have our phobias and fears, some logical and anchored in reality and others irrational but still powerful; but for the capital markets currently it seems there is no fear. The CBOE VIX Index started the year at 14.2 and has fallen to a close of 12.9 today. That move, Colas adds, has dragged the IVs of everything from U.S. large cap energy stocks to gold to corporate bonds lower in its wake. Even expectations for Emerging Markets equity volatility are in retreat as we start 2014. But, when near term historical or implied volatility becomes this complacent, it seems appropriate to spend a little more time pondering what might go wrong. Markets, after all, have the entire “What should go right” side of the trade well understood and reflected in current prices. In that spirit, here is the "Top 10" list of what might take us off the rails of complacency in 2014.
Stocks and bonds disconnected today (again) with Treasuries pressing to lower yields - 30Y down 1bp to 3.73%, rallying 3 to 5bps off mid-Europe-session high yields to new 10-week lows. Stocks and VIX disconnected today as VIX trading higher all day - even as stocks opened energetically higher. Stocks and credit disconnected today (again) as the afternoon pump in stocks back from European-close turmoiling lows was not seen in credit at all. Equity indices were very mixed today with the Dow underperforming (after its exuberant run Friday) and the NASDAQ the big winner thanks to AAPL. Retailers continue to diverge from the market. The USD closed marginally lower from Friday's close (with AUD and GBP strength the drivers) and commodities diverged with oil and copper higher and gold and silver lower (though well off their smackdown lows by the close) - with their worst day of the year.
Nothing is what it seems in the gold market...
Frontier markets offer some of the best investment opportunities over the next decade. We like Vietnam which is recovering after a massive credit bust.
A common argument that has been made to explain the precipitous decline of the price of precious metals in 2013 (in spite of the significat demand for the physical bullion) is of investors’ disenchantment with gold and silver, which had been piling up in exchange traded products as a way for investors to gain exposure to the metals. However if redemptions are a symptom of investors' disenchantment with precious metals as an investment, shouldn't silver have suffered the same dramatic redemptions fate as gold? Indeed it should have, but we think the reason silver ETFs were not raided like gold was that Central Banks do not have a silver supply problem, they have a gold problem...
Doing some detective work.