- Eurozone gesteht Athen weitere Milliarden zu (Handelsblatt) always remember: German is the official language of the Weimar Republic
- Japan's Prime Minister to give up salary until nuclear crisis over (CNN), while Tim Geithner will give up nothing until debt ceiling crisis solved
- Mississippi crests in Memphis at nearly 48 feet (AP)
- New Greek Deal Possible by June (WSJ)
- Merkel Says No Aid Decisions Until Greek Assessment Reports (Bloomberg)
- Japan Unlikely to Get In Yen's Way (WSJ)
- Pressure Put on Pakistan Army (FT)
- Trouble in Syria Sets off Alarm in Tehran (FT)
- Military Draws Up Afghan Exit Plan (WSJ)
One of the most pronounced self-reinforcing features of the silver drop from the last two days, was the outright drop in silver holdings in the SLV ETF, which in the span of 5 days, from May 2 to May 6, lost 760 tonnes of silver. The sheer momentum of this move, as some claim, was the biggest factor facilitating the record rout in silver. Well, as of yesterday this trend has reversed itself, and as of close yesterday SLV has disclosed that it added 311 tonnes of silver, or nearly half the underlying amount lost in the selloff. Nonetheless, the overreaction within the SLV complex was massive, as while silver spot remained well above 2011 lows, the SLV ETF holdings actually plunged to a 2011 low level which had last been seen in November 2010. And with silver rising fast again this morning, printing at $38.50 as we type, look for the downward momentum, which so many eagerly pointed to to indicate the relentless nature of the rout, to reverse itself. Add to this the fact that non-commercial specs are at multi year lows, and very soon the only possible argument for the bubble claimants will be that all silver has merely rotated out of very weak hands into truly strong ones.
Today's Economic Data Docket - Imp/Ex Prices And Wholesale Inventories, Ceiling Busting $32 Billion AuctionSubmitted by Tyler Durden on 05/10/2011 07:55 -0400
Import prices, wholesale inventories and a few speeches from Fed officials. Ceiling busting $32 billion 3 year auction in tow, and second to last POMO in current schedule also on deck.
Total Confusion Rages Over Greece Which [May|May Not] Get A New Bailout Package, [And|Or] [Kept|Kicked Out] Of EurozoneSubmitted by Tyler Durden on 05/10/2011 07:27 -0400
This morning the news wires are filled with the now usual contradictory, and full of lies propaganda about a Greece imminent [restructuring|golden age]. Since very likely all are wrong, we will focus on what appear to be the most credible ones: we will start with the Dow Jones story which has been official refuted by Greece, thus giving its extra validity. As Reuters reports: "News agency Dow Jones, citing a senior Greek government official, reported that Athens expects to receive a new aid package totalling nearly 60 billion euros . Greece denied it was discussing a new package..."It's certainly positive for peripheral sentiment and is assisting in the unwinding of some yesterday's safe-haven flows into Bunds," said Rabobank rate strategist Richard McGuire. Senior euro zone policymakers acknowledged on Monday that Athens will need a second bailout package soon to avert a disorderly overhaul of its debt obligations but rating agencies said more drastic measures may be necessary." Of course, this news comes out strategically and just in time for Greece to auction off a fresh 26-week T-Bill for €1.625 BN at a new record yield of 4.88% (compared to 4.80%) before an an even lower bid to cover of 3.58 vs. 3.81 previously. One can only imagine what a flop the auction would have been without the latest rumor (and even China appears to have given up on Greece: "Foreign take up in Greek 6-month T-Bill sale 34.2% vs. Prev. 41%, according to debt agency chief.") Bottom line as some trader summarized it: "It's very difficult to trade as there are so many conflicting headlines about a restructuring being the only way forward or not. Something will have to give." Exactly - here is a hint: a restructuring, in the city square, with a Molotov Cocktail... and damn soon.
Gold and silver continue to rebound from their sell offs as Euro zone periphery worries intensify with real risks of defaults and possible contagion. Gold has risen from €1,010/oz to over €1,057/oz since Friday. The long period of correction and consolidation may soon see a break out above resistance at record nominal highs of €1,072/oz - less than 1.5% below the current price. The recent strength of the euro looks set to end as sovereign debt risks come to the fore again. This will likely see the euro fall versus most currencies and especially against gold. There has been the usual misinformed and non evidence based assertions that the gold and silver markets were ‘bubbles’ and that they have burst. The same simplistic assertions were made after the sharp price corrections seen in 2008 and were proven badly wrong.
According the official spokesperson for CME Group, which owns NYMEX, the performance bond increases are designed to address "increased risk". If this were so, however, such changes would apply only to short sellers and new long buyers who purchased up in the higher price ranges. Most of the older long buyers were sitting on huge profits from the upward movement of silver, when the new bond requirements were imposed in the $49 range. They posed no greater risk at all than they did back when they made their purchases at $18, $20, $25 per ounce, etc. Coupled with the sudden increased performance in bonds, there has been an all-out media effort to convince people that a “bubble is bursting” even though, as we will shortly explain, anyone who is worth his salt as an analyst knows it isn't true. There has NEVER been any bubble in silver in 2011, and therefore, it cannot possibly "burst”. There has simply been an unwinding of a grossly underpriced asset that has been subject to a multi-year price suppression effort. Be that as it may, this downturn provides, for the first time in a long time, more than mere gambling opportunities. Highly leveraged and undercapitalized speculators have been kicked out of their positions, and they had pushed the price of silver up very fast. It would have gone to the same levels, anyway, and beyond, but the process would have been slower and steadier if the market had been limited to cash buyers and well-capitalized investors.
So Much For Pimco Buying Bonds: Duration Weighted Treasury Exposure Hits Whopping -23% Short, Cash Surges To Unprecedented $89 BillionSubmitted by Tyler Durden on 05/09/2011 18:55 -0400
So much for all the conspiracy theories that Bill Gross was capitulating in his short position against US debt even as he continued to bash US fiscal and monetary policy. According to just released April data for the flagship Pimco $240 billion Total Return Fund (which saw a $4.2 billion increase in AUM in the month), Bill Gross actually added to his short position against US government debt, bringing total market value exposure to 4% of AUM or ($10) billion. More amazing is that on a Duration Weighted Exposure basis, the firm's Treasury short is 23%, read that again, 23%! So much for that change in outlook. Additionally, Gross also sold another $8.3 billion in mortgage securities, bringing the April total to a nominal $57.8 billion. Spring cleaning at casa de Bill continued across all fixed corporate income as well, dropping the firm's exposure to IG by $1.6 billion and to HY by $2.1 billion. The only two securities which saw a token increase was in Non-US developed markets and Emerging Markets, to $14.4 billion and $26.5 billion, respectively. Yet the biggest shocker of all, is that Gross has now brought his cash position to an all time unprecedented high of $89.1 billion! That's right, PIMCO is charging a substantial asset management fee when 37% of all assets are in cash. One would think the mattress would cost far less. Either Gross is expecting a huge collapse in the bond market (so contrary to prevailing though), or this could well be the bet that buries the Allianz subsidiary.
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China April Trade Surplus Jumps To $11.4 Billion, Well Above Consensus, As Yuan Parity Hits New Record High Of 6.4950Submitted by Tyler Durden on 05/10/2011 00:08 -0400
The China customs bureau just released its April trade data, which came at a surprisingly strong $11.4 billion, a $11.3 billion jump over March, well over consensus of a $3.2 billion surplus, and was the highest trade surplus posted by China in 2011. Net exports to both the EU and US, the traditionally biggest export partners for China, increased M/M from $9.5 billion to $10.3 billion, and from $13.0 billion to $15.1 billion, respectively. Overall, the key trading partners did not see a major change, and the marginal variable appears to have been the Rest of the World category which in April jumped from a trade surplus of $8.0 billion from $2.9 billion the month before. Of course, with even Europe now disclosing openly it is lying in disseminating data, it would be foolish to assume any of this data is even remotely realistic, and is likely nothing more than a politically palatable smoke screen for the ongoing Strategic and Economic Dialogue (discussed earlier), and will be used to indicate that even as Chinese exports once again pick up, Geithner can not really blame it on the USDCNY, which hit a new record high of 6.4950. No matter the data, this most recent jump in exports, will surely force the peanut gallery to renew squawks for unpegging the currency.
Lately, everyone and their grandmother speaks with 100% conviction that over the past week what happened in the silver market was nothing but a speculative bubble popping. After all, 5 consecutive margin hikes would mean that uber-levered terrorist speculators must have been scrambling with the urgency of an E-trade baby checking his voicemail and getting 99 margin call messages. So certain seems to be conventional wisdom in this allegation that nobody appears to have even checked the facts. Well, we did. For that we went to the usual place that provides a definitive breakdown of speculative indications: the CFTC's Commitment of Traders report, and specifically the non-commercial specs which after netting shorts from longs would be expected to be at some parabolically unseen level ever in the history of the CFTC. Much to our surprise we found this...
As an attempt to refute the previously disclosed plunge in speculative positions, some have made the claim that it is really retail holders causing the spike in silver via such synthetic CDOs as SLV. While this argument is beyond laughable (although there is some credibility to the claim that there is a feedback loop to ETF buys leading to underlying gains and vice versa, although we expect SLV's silver holdings disclosed tomorrow to once again gain thus ending the selling cycle) and we look forward to debunking it thoroughly when the latest 13F is released sometime on Friday, we did want to point out something just as amusing: the holdings of JPM compared to the price of SLV (incidentally, JPM is the third largest holder of SLV with 5.1 million shares, just behind BofA with 6.8 million shares and Morgan Stanley with 7.2 million). Which begs these questions three: retail or really institutional buying was the primary force behind the move in SLV? Was this merely a case of uber-leveraged tail wagging the dog (since CFTC indicates there was nothing at all bubbly about non-commercial spec contracts)? And, three, if so, why...
With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?Submitted by Tyler Durden on 05/09/2011 22:40 -0400
A rather controversial perspective on "reverse labor mobility" has recently seen a revival following the release of BCG's analysis: "Made in the USA, Again: Manufacturing Is Expected to Return to America as China’s Rising Labor Costs Erase Most Savings from Offshoring" which claims that "within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world." While this topic, as we will shortly see courtesy of SocGen is far from taken for granted, could be the deus ex machina that could provide the historic jobs boost to Obama's second presidential campaign (should he get that far), it could also explain the eagerness of the Fed to continue exporting US inflation to China. If the latter is indeed the case, it would mean that the Fed will do everything to continue flooding the world with excess liquidity if for no other reason than to see Chinese inflation reach an out of control state, and wages explode, in an outcome that would ultimately undo the great manufacturing job outsourcing phase that marked the 1990s and 2000s. If successful, it would indeed lead to a second US renaissance in manufacturing jobs. However, will China allow its economy to lose the competitive wage advantage it has held for decades over the US, an outcome which would culminate in riots, as unemployment in the billion + nation goes parabolic. Of course, the conspiratorially minded can imagine a scenario in which the inflationary transference plan concocted by the Chairman has one goal and one goal only: to cause labor cost parity between the US and China in the shortest amount of time. The only two question in this case are: how long until China realizes what is going on, and how will it react?
“Gold today is no longer related to the normal economic cycle of supply and demand, jewelry, Indian wedding seasons, rain in the Middle ast. All those things are passé, forget about them. Gold is driven today by one overriding and I am afraid, at least in my opinion, an irresistible and irreversible trend. A fundamental, global and growing insecurity… A fundamental, global and growing lack of confidence of the world in everything they were brought up to believe. Institutions, insurance companies, banks, issuers of mortgages, ratings agencies, equities, sovereign debt, Federal Reserve Banks. Portugal and Iceland. Greece and Spain. Currencies. What is left? What is left?” – Peter Munk, Chairman, Barrick Gold
Some brilliant Chicago-based exchange apparatchik just ask himself this simple question: "If it worked so well with silver, why not do it with crude?" The answer is here: the CME, as we predicted last week, just hiked initial and maintenance margins on Crude and Brent by 25%, as well as FX, and other petrochemicals. And, oh yes, this is prudent risk management, because while the CME kept margins flat when WTI was at $115, the massive spike from $97 to $102 is unbearably destabilizing. At this point one can only stand back and watch as the CME proceeds with hike after hike, in an absolute vacuum from the administration, which certainly had nothing to do with this decision. And really who cares: free capital markets died on March 18, 2009.
As Treasury Is Set To Issue $32 Billion In Bonds Tomorrow, Boehner Says No Debt Ceiling Raise Without Trillions In CutsSubmitted by Tyler Durden on 05/09/2011 16:56 -0400
While DC may continue playing its debt ceiling soap opera, crunch time for the Treasury is approaching as the first of three auctions is on deck: the first one for $32 billion in 3 Year Notes. The total raised will be $72 billion without any offsets from maturities. Elsewhere, the Treasury will catch a $16 billion break after it settles $100 billion in Bill maturities offset by $84 billion in new issuance, yet still the net total of $56 billion in new debt seems to be a slight problem since as of Friday, there was just $23 billion in total capacity under the debt ceiling. Granted, the Treasury has already announced it is commencing the tapering off of other debt programs such as the State and Local Government (SLGs) which however will have at most $5-10 billion in favorable impact per month. It is also cutting its debt issuance forecast in half, likely due to an expectation of maturing old Bills without rolling these, a feat which will consume all if not more of the $108.9 billion in total cash available at the Treasury. So that's the math, and now back to the theater, where Politico reports speaker John Boehner "will call on Congress to offset a debt ceiling hike with spending cuts of a greater amount, an ambitious proposal that puts House Republicans on a collision course with Democrats who want much more modest spending restrictions attached to the vote."