It is in French but it is really a body language kinda gig. They promise to do everything they have to save the euro. In other words they are as clueless as always. The important thing is that Sarkozy just said they have agreed to abstain from making demand on the ECB. So...no more pressure to monetize?
Just a step behind the Chinese as usual, and just in time to kill a modest EURUSD rally. Also on the same day as the first mass strike in Portugal which reminds us that everyone will want a piece of the debt reduction pie.
Arguably the least biased (or perhaps least cognitively dissonant) of the major ratings agencies, China's Dagong has just moved Portugal's rating to junk (BB+) from comfortably investment grade (BBB+) - a 3 notch drop. The rating agency also left the peripheral nation on negative watch. This action follows Monday's Greek downgrade from C to CCC. Is this a ploy for better entry levels when they save the world with their EFSF-buying bazooka? Or more likely a more honest reflection of a debt-laden, slow-growing, austerity-facing nation burdened with inadequate leadership and an inability to control its own fate?
Aircraft Carrier CVN-77 Parks Next Door To Syria Just As US Urges Americans To Leave Country "Immediately"Submitted by Tyler Durden on 11/23/2011 14:36 -0400
Yesterday we reported that the Arab League (with European and US support) are preparing to institute a no fly zone over Syria. Today, we get an escalation which confirms we may be on the edge. Just out from CBS: "The U.S. Embassy in Damascus urged its citizens in Syria to depart "immediately," and Turkey's foreign ministry urged Turkish pilgrims to opt for flights to return home from Saudi Arabia to avoid traveling through Syria." But probably the most damning evidence that the "western world" is about to do the unthinkable and invade Syria, and in the process force Iran to retaliate, is the weekly naval update from Stratfor, which always has some very interesting if always controversial view on geopolitics, where we find that for the first time in many months, CVN 77 George H.W. Bush has left its traditional theater of operations just off the Straits of Hormuz, a critical choke point, where it traditionally accompanies the Stennis, and has parked... right next to Syria.
In the aftermath of today's so-called failed 10 Year Bund auction, the number of explanations seeking to goal seek some preconceived theory as to what happened has soared with justifications ranging from the amusing to the bizarre to the outright ridiculous. Here is the bottom line: "failed" Bund auctions, in which the Buba (Bundesbank or the German monetary authority) steps in to "retain" an unbid for amount and hit a maximum issuance happen all the time. In fact literally all the time as the inset chart shows. Such is the Buba charter - some European countries fail to issue the maximum amount (such as Spain and Italy in the past week), others see the central banks filling the demand. This has nothing to do with implicit or explicit monetization (because if it did then every Primary Dealer takedown in a US Treasury auction would also constitute monetization), or with some opaque negative repo prevention scheme (incidentally negative repo rate in the US bond market happen all the time - see here for instances in just the last week). It has everything to do with lack of demand at a given price. Nothing more, nothing less. And while it is intriguing to fabricate complex theories about broken secondary conduits or what have you, the explanation is far simpler. As SocGen puts it: "The fact that the Buba was forced to retain the biggest share of the sale in recent memory (see chart) is clearly a sign that some investors are no longer showing up or have started to buy considerably less, preferring other fixed income or alternative safe havens." No need to conceive an explanation where simply supply and demand will suffice. And in this case there was not enough demand at prevailing yields. And that in itself is the most ominous explanation because as SocGen concludes, "certain investors are starting to overlook the eurozone altogether". Lastly, for those who look at things only from a theoretical standpoint and forget there is an actual market, the direct implication is that Euro Country X spreads to Bunds just collapsed. And presto - with one "failed auction, European periphery, and that now includes France, Balgium and Austria, all suddenly look much better. Never waste a crisis...
As America prepares to spend its meager savings (which today were reported to have increased modestly from 4 year lows of 3.3% to 3.5%) and dip even more in debt on yet another epic shopping exodus which begins in just over 24 hours and continues through the end of the year, whereby people are somehow once again fooled into believing they "save money" by "spending money", those with a more pragmatic eye may wonder if this will be the weakest holiday shopping season in a decade, if the economy indeed mimics the stock market (the opposite, not so much), and whether it is now time to finally short consumer discretionary stocks with impunity. Goldman's Zach Pandl answers this question and more with his "Q&A on Holiday Shopping." To wit: "The US consumer looks mixed heading into the holiday season. On the one hand, growth in consumer activity slowed significantly this year. On the other hand, the most recent spending numbers have shown an incremental improvement. In addition, job growth has been holding up, which should underpin spending. Retail industry groups expect year-over-year growth in holiday sales of 2-3%, down from a 4-5% increase last year. The GS/ICSC 2011 Holiday Spending Intentions Survey also seems consistent with slightly slower growth than last year." Naturally, this being Goldman, if there is a way to take the other side of the bet (or do what GS is doing and not its clients) that is probably not such a bad idea.
The last 5 minutes of today's somewhat tempestuous day saw a rather dramatic plunge in ES on very heavy volume which could easily be flash-crash-worthy in its description. Having tested VWAP a number of times during the day and been unable to make any progress above it (suggesting program selling was active), the final desperate straw broke the camel's back into the close as ES dropped 1% in less than 5 minutes as volume dwarfed the rest of the day with machines fighting each other to exit at a reasonable price. Furthermore, the drop in ES was very much standalone as other risk assets did not correlate instantly and only started to drop after a delay led by equities plunge. ES is holding these losses after-hours at a steady 1160. Where's Waddell & Reed when we need them?
When we commented on the October 26 European "EFSF Bailout" which has since been long forgotten, the one take home message from the embedded 50% cut in Greece debt is that "this means that Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." This was followed up by a post that half confirmed or thesis: "Bloomberg notes that Ireland has not even waited for the ink to be dry before sending out feelers on just what the possible "rewards" may be: "Greece’s failure to cut spending and boost revenue by enough to meet targets set by the European Union and International Monetary Fund prompted bondholders to accept a 50 percent loss on its debt. While Ireland won’t seek debt discounts, the government might pursue other relief given to Greece, including cheaper interest payments on aid and longer to repay it, according to a person familiar with the matter who declined to be identified as no final decision has been taken." There is one very important addition here: "While Ireland won't seek debt discounts" yet." A month later, the "yet" is "now."
The message of the market has been very clear the last week or two and we have been actively discussing it - the hope that was priced into equity markets is being discounted back to the reality that was always priced into credit markets. HYG, increasingly liquid, accessible, and actively traded has become the weapon of choice for hedgers and shorts and once again today it dramatically underperformed. IG credit also underperformed as we suspect the relatively low cost of carry made it an attractive macro-overlay into a long weekend of possibilities. Commodities in general converged back on the inverse of the USD performance of the week, down around 1.5% (with the exception of Copper which is -4% on the week as China hopes fade). Equity weakness was generally supported to the downside by CONTEXT's broad basket of risk assets - especially as TSYs rallied aggressively in the afternoon following the record 7Y auction. AUD remained the ugly duckling of the week in FX land (as carry was unwound) but EUR's slide was the biggest driver of DXY's strength as it gained around 1.3%. Evidently very few wanted to go home long into this weekend and ES dumped into the close ending the week -4.5% or so with a major volume surge at the very end.
To some, only "Lunatics and Hacks" believe in gold and a system based on real money. To others, one look at the chart below showing the relative performance of gold and the S&P YTD is enough to determine who the lunatic and hack truly is.
In case you were wracking your brain for the last time it seemed so dismal in the equity markets during such a thankful and rejoiceful week, well its at least 10 years ago! This week's displeasing equity move is the worst of the last 10 years - beating 2008 to the downside which managed a late recovery. 2002 had the best performance and just in case someone tries to sell you on the recovery this week, the average performance from 11/18 to 11/24 over the past 10 years has been a rather lackluster -0.2% - admittedly better than the -3.8% the S&P is currently looking at. Who are we to thank for this?
Perhaps - Happy Thanksgiving ECB?
Five months ago, when Italian yields were still tame in the 3% ballpark, and not 7% where they are today, we suggested that based on trading patterns and overall volume in Goldman's dark pool, Italy may be about to experience a "Greek episode." Days later we were proven right as Italian yields and spreads started their relentless move wider, with only those who had access to Sigma X being able to get an advance whiff of what was about to happen. Well today we are happy to report that the German diversion may have worked: the truth is that nobody appears to care about Germany. Instead what everyone does seem to care about, is the nation with the greatest combined debt (government, corporate and household) to GDP in the world. Yup. The UK.
Earlier this morning the anti-gold brigade was foaming in the mouth on the news that the German central bank had for the first time in a year sold gold. As it turns out they were half right: the bank indeed sold gold: a 'whopping' 150,000 toz or about $250 million worth... But not in the open market, and not even to natural buyers of physical like Sprott and everyone else not infatuated with voodoo theories of infinite repoability of debt. They sold it to the German ministry of Finance... to mint commemorative coins. Coins which we are now confident will be promptly mopped up by the general public. Following the sale Germany will be left with a modest 109,194,000 troy ounces, enough to allow the country to gladly tell Europe to do some anatomically impossible things and to fall back to a hard asset baked currency if and when it should so desire.