Flight to Safety
Yesterday's last minute short covering rally has been all but eliminated and then some, on fresh European concerns following a Deutsche Bank report that the agreed writedown of 21% from the July 21 second Greek bailout agreement could be executed, and that instead an orderly default with an up to 50% haircut is being considered. Generally, broad concerns that Greece can and will go bankrupt any minute once again dominate and have undone any favorable market sentiment from yesterday's G20, also known as the Full Tilt Ponzi Group, announcement, which was also followed up by an ECB statement that the central bank would do everything to prevent further contagion. Judging by the risk waterfall this morning, and the liquidations in gold (driven by a vague but ever stronger rumor of a winddown at a GLD-heavy hedge fund that is now down 50% YTD), virtually nobody believes anything coming out of any European institution. Alas, this is what two years of relentless accrued lying will do to your reputation. Adding fuel to the fire is a report from Credit Suisse that the chance of a "general European break up" is about 10% and that European banks would fall by about 40% on a disorderly Euro breakup and that peripheral European banks' net foreign liabilities would rise by €800 billion. In other words, European banks would blow up, which is nothing really new. Next, we hear from Dexia which yesterday got annihilated and today is down another 2.5% despite promises from the Belgian central bank governor Luc Coene that the bank is not in trouble and has not sought dollars from the ECB in a long time: obviously an attempt to prevent an all out attack on the insolvent bank, which as is well known bypasses the ECB and goes straight to the Fed for emergency funding. Overall, there is a very distinct sense that it's the end of the world as we know it, and the market does not feel all that fine anymore.
USDCHF Plunges To Record Low Following Generali CEO Comments Eurozone Faces Risk Of Breakup, Flight To Safety ResumesSubmitted by Tyler Durden on 08/05/2011 09:43 -0500
Yep. Europe again. Following comments from Generali's CEO Giovanni Perissinotto based on a transcript from a conference call earlier that the Eurozone is at risk of breakup (something which everyone knows, but nobody dares to say, especially not anyone whose CDS is trading in lockstep with those of Italy), the USDCHF just plunged to fresh all time lows. And so all the goodwill created by the robotic buying on the NFP headlines is gone.
The unprecedented moves in the yield curve continue: even as the blow out in (ultra) short term liquidity persists, notably in GC and in Bills maturing just after the August 2 D-Day, the scramble to cover long-dated shorts has collapsed the 10 and the 30 Year by an epic amount in the last few days, with the 10 Year trading at 2011 lows of 2011. Why is this number relevant? Because the last time we saw it was in August 2010, a few weeks before Ben Bernanke announced QE2. In other words, history is repeating itself verbatim from last year. As to whether the move is due more to a flight to safety or a short covering crunch we will know only next week when the CFTC releases its latest COT spec short data. One thing can be ascertained, however: the Fed models that look at rate-implied deflation indicators are currently screaming bloody QE. And it will come... As soon as the stock market finally realizes that it has to tumble before it surges to new and Weimerian highs.
And while stocks once again float off in some imaginary universe of their own which has no correlation to reality (and all correlation to the frequency of 19 year old math quants' night life excursions), Europe is getting worse, as the FX flight to safety accelerates. Following earlier speculation that Dexia may be in trouble, or who knows why, the CHF just spiked higher as both USDCHF and EURCHF pairs snapped lower, with the second hitting a fresh all time low. Keep an eye on what is going on here, as for the time being this is the flight to safety trade. In the meantime, and as usual, our condolences to Swiss exporters.
Silver Undergoes 10% Correction As Dollar Poundage Resumes; Dollar-Backed Swiss Franc Now Flight To SafetySubmitted by Tyler Durden on 04/26/2011 03:25 -0500
And so the proverbial correction in silver may have well been completed in the span of 24 hours. As the attached chart shows from its Sunday night peaks to its Monday night bottom silver has dropped over 10%, what some call a mini bear market (which takes it to those depressionary lows seen on Thursday of last week). Is the climb now set tp resume, although not so much due to anything else (and there is plenty else) but because the USD pounding is back in full brokeback style. The EURUSD is about to break above the Sunday night heights in the mid 1.46s and while weak hands are vacating gold and silver, everyone is scrambling to load up in CHF. We wonder how long until those same people realize that Hildebrand is just as mortal as any other central banker with a balance sheet behind him, and as recently as 12 months ago underwent a failed campaign to halt the surge of the CHF in the process contaminating his assets with some seriously ugly currency assets (if one may call $220 billion of dollars on the left side of your balance sheet assets and thus implicitly "supporting" the SNB liability - the Swiss Franc) whose eventual unwind will not be too kind on the Swiss currency.
Flight to safety into US Treasuries is back: today's $13 billion 30 Year bond priced at 4.569%, the first drop in issuance yield since September 2010, but the stunner was the Bid To Cover, which at 3.02 (compared to last month's 2.51) was the highest ever. The said, Primary Dealers did come in and buy more than half the auction or 53% to be precise with the knowledge they will promptly flip it back to the Fed in the next few months (we will find out when after the new POMO schedule is posted at 2 PM today). Indirects were 40.7%, higher than the LTM average of 37.7%, and Direct Bidders filled out the take down at 6.4%. Altogether a strong auction if one can make that statement in an environment when the PDs are well aware there is no auction purchasing risk at all courtesy of Brian Sack.
Brent Over $118, Crude Passes $107, EURUSD Above $1.40, Futures Up, Silver And Gold At Highs, Dollar In Flight To Safety FreefallSubmitted by Tyler Durden on 03/07/2011 07:18 -0500
It is one of those days when the flight to new reserve currency is on, with gold and silver trading near overnight highs, same for the oil complex, yet futures are also at the highs of the premarket session, purely on the ongoing monkeyhammering in the dollar, which has now completely given up the ghost as the reserve currency on yet another bout of QE3 concerns, following last night's very cautious note from Jan Hatzius. At last check the DXY was at 76.135 and plunging. As for why oil will continue whacking bits and pieces of Q1 GDP, and why Goldman will have no choice but to push for another round of dollar rape, here is Reuters with the skinny: "Brent crude rose to $118 a barrel and U.S. oil hit the highest since September 2008 on Monday as fighting in Libya disrupted its supplies and renewed concern of wider disruptions in the Middle East. While the Libyan crisis has cut supply from a country that normally provides almost 2 percent of world output, the prospect of unrest spreading to larger producers such as Saudi Arabia is a far more bullish scenario for oil markets. "The major risk remains the prospect of the political unrest spreading to the Gulf producing region," said Caroline Bain, economist at the Economist Intelligence Unit. "However, even if there is civil unrest in Saudi Arabia, it is not a given that oil production will be affected." Wrong: it is a given.
Very Weak 5 Year Auction Raises Speculation That Neither US Dollar Nor Treasurys Are Flight To Safety Any LongerSubmitted by Tyler Durden on 02/23/2011 13:19 -0500
The US Treasury completed the latest ponzi shuffling of Treasuries to Primary Dealers (who will shortly send it all back to the Fed, pocketing a few hundred million in bid/ask spreads and commissions in the process), selling $35 billion in 5 Year bonds at a 2.19% high yield, the highest since April 2010. The internals, as has lately been the case, were not pretty. The bid to cover was 2.69 compared to 2.97 previously and 2.76 LTM average. Directs took down just 7.7%, as it now becomes obvious that the "UK" is no longer gobbling up bonds, and we expect the UK-bond build up as per TIC will stop in a month or two tops. Indirects also took down less than average, as foreign banks purchased just 34.2% of the auction, compared to 41.5% on average. Which of course means that PDs had to step into save the day: at 58.2%, PDs took down the highest amount since July 2009. Lastly, the auction prices about 2 bps wide of the when issued. That we could have such a weak auction in a day when risk is surging, is a stunner. Have gold and silver (and the CHF) finally become the widely accepted new risk avoidance products, instead of the USD and the UST? If so, that is a far bigger revolution than anything happening in the Maghreb now.
Perhaps it is time for Doug Kass to reevaluate his "gold to triple digits" thesis?
Yet another confirmation that there is nothing left in this market for sensible stock pickers, courtesy of Lehman's head of quant strategy, Matt Rothman: "In summary, the lower the quality of the company the more they are helped by an easy monetary regime. In these situations, true fundamental investors who focus on such banalities as valuations, free cash flow generation, the repeatability of earnings and the return on shareholder equity find themselves struggling to generate returns." What is sad is that Fed's tinkering with the stock market has now eliminated even that old-time staple trade: the Flight to Safety. Why be worried when the Chairman will not let anything fail? "Bluntly, if you had laid out for us the headlines at the beginning of the month, given them to us in full detail, and asked us to predict how our Quantitative Factors would have performed, well, we would have been wrong. Embarrassingly wrong.... There was simply no flight to quality among investors...Aside from the Euro/Dollar trade, there wasn’t much of a quality trade really anywhere in the market." And with QE3 planning already in process, this inverse flight to safety trend, where increased risk means an even faster scramble for the shittiest assets imaginable, will only get more pronounced. Welcome to the true new normal.
As stocks continue to correlate with exactly nothing, and are once again lost in their own HFT dreamworld, which fools Atari in believing the toxic crap it is churning millions of times each second is worth something (and the exchanges gladly continue to pay liquidity rebates for said churn), the capital continues to quietly flow to safety. The EURCHF is now persistently hugging the 1.29 line, which a mere month ago would have sounded like suicide for the SNB, the 2s10s30s is unchanged on the day, as the treasury complex refuses to budge, and lastly, gold, which has surged from $1,234 to almost $1,250, as ever more money is put into safe assets. As usual, stocks (especially the high beta variety) are the last to get the memo. Once they do, the snapback will, as usual, be vicious.
And once again, all of Europe is dumping its deposits in Switzerland, running away from domestic banking centers, and making the lives of Hungarian CHF-denominated debtors a living hell. The EURCHF just hit an all time low of 1.3066. The Bank intervention sonar just went apeshit as both the BoJ and the SNB are fully expected to intervene at any moment.
Will The EU's Greek Indecisiveness Spell The End Of The Euro Resurgence And Start A USD Flight To Safety?Submitted by Tyler Durden on 01/31/2010 13:18 -0500
When the euro emerged as a consolidated currency over a decade ago, hopes were high that its advent would present a challenge to the USD as the default world reserve currency. Times were different (and much simpler, with shadow banking complexity a tiny fraction of the current $1 quadrillion+ behemoth) and as BofA says, "perception that the euro is well placed to rival the USD as a reserve currency has underpinned the increased euro allocation to a level much greater than the sum of the roles played by its constituent parts. This has been justified on the grounds that the unified European financial markets would offer similar breadth, depth and liquidity to those of the US." Alas one concept largely ignored was that unlike the US, where there has been one consolidated bond market reflecting the underlying marginal credit and liquidity risks behind the US currency, in Europe "there remain 16 separate government securities markets with very different levels of credit risk and liquidity." The ongoing Greek crisis has only reminded pundits of this phenomenon all too well.
The one month T-Bill is now trading negative (-0.01%). Year end window dressing is either woefully early or late. Flight to safety is woefully right on time. Lehman redux.
Treasuries and equities now being bought together, the only driving factor is the continued crashing of the dollar. Apparently every asset class is now a safe haven from the continued pillaging of the US currency.