Earlier we just got confirmation out of Best Buy that one can not, as expected, offset negative margins with near-infinite volume (as the stock tumbles). Now we get advance retail sales proving that all speculation about a record Black Friday was just that. Oh, and a lie. In short - everything missed. Advance retails sales in November (including Thanksgiving) came at 0.2%, on expectations of 0.6%, and down from a revised 0.6%. Retail sales less autos was 0.2%, half of the expected 0.4%, while ex Auto and Gas also printed at 0.2%, also missing big. So... where did all the money go, aside from generating even more negative profits for retailers, who now have to eat a huge cash hole in addition to everything? Or were speculations that Black Friday was a bust, spot on? Expect lower Q4 GDP revisions based on this data.
Gartman is a trader and is followed by hedge funds and prop desks of banks and does not appear to understand the proven diversification benefits gold brings to a portfolio. In November 2009, Gartman said that there “is a gold bubble.” Gartman said that to say otherwise was “naïve”. Gold was trading at $1,100/oz at the time. In August 2011, Gartman said that gold was the biggest bubble of our lifetime. Inconsistently, only last week, Gartman said on CNBC that he is “long gold” and has been for “six or seven months”. Gartman’s short term calls on gold and silver have been wrong more often than not in recent years. He tends to turn bearish after gold has already experienced a correction and is close to bottoming. Those wishing to diversify and add gold to their portfolio will use his call as a contrarian signal that we may be getting close to a low in this most recent sell off. Our advice is to ignore gurus, price predictions and noise – up and down – and focus on the real fundamentals driving the gold market.
EUR Pops As EFSF Issues 3-Month Payday Loans Then Promptly Tumbles On News Greek Lenders Fail To Reach Deal, Lethal Grenade Attack In BelgiumSubmitted by Tyler Durden on 12/13/2011 08:22 -0400
Following a series of modestly successful debt auctions out of Europe, primarily in Spain and Greece, the morning capped its positive tone after the EFSF managed to sell €2 billion of 3 month deals: an event to which the EURUSD popped by 40 pips as apparently investors do not expect the EFSF to go insolvent in 91 days. However, the positive mood was quickly wiped out after Reuters reported minutes ago that private bondholders have concluded talks in Athens without reaching a deal, which confirms that that very basis of the July 21 deal, not to mention its October revision, the NPV "trim" of Greek notional bonds, is and continues to be elusive, which means that Europe's banks are certainly unable to still take even a 50% haircut, despite all protestations to the opposite namely that everyone has cut their Greek exposure. In other words, Europe's banks have, once again, lied to everyone. And rounding up the sour note of the morning is the breaking out of Liege, Belgium where one or more attackers are said to have thrown Grenades at a bus stop, with at least 2 people confirmed dead and 10 wounded. Unfortunately, the deadly anger is spreading ever closer to the core of Europe.
- Moody's placed the ratings of eight Spanish banks on review for a possible downgrade
- A solid 3-month T-Bill auction by the EFSF supported appetite for risk
- OPEC and IEA trimmed their oil demand growth forecasts
- Talks between Greece and private bondholders have ended without a deal, although consultations will continue, according to a banker involved
- According to BoE’s Dale, there is certainly scope for the central bank to increase QE if needed
- Bernanke's Legacy at Fed: Still a Lagging Indicator (Hilsenrath)
- Republican Keystone, tax cut bill expect to pass on Tuesday (Reuters)
- Romney Calls on Gingrich to Return Freddie Mac Fees (Bloomberg)
- The downgrade is almost here: Sarkozy plays down value of triple A status (FT)
- Spain Yields Still High at T-Bill Sale; Belgium Drops (Reuters)
- EU veto: Coalition partners seek to lower tensions (BBC)
- FSA seeks ban on hostile bank buy-outs (FT)
For the most part, today's FOMC decision is expected to be a non-event, if indeed Jon Hilsenrath is still the proper "distribution" venue for the Fed, with Bernanke expected to focus on "communicating" clearer. There is of course the chance that the Fed has finally realized that the only successful Fed announcement, is that which surprises the market, and in the off chance it wishes to clean itself of allegations it is leaking news to the WSJ, and on the other hand indeed stun the market, there is that modest possibility the Fed may preannounce QE3 today, something which Bill Gross is actively preparing for, by loading up on MBS - the security that Citi expects will be monetized to the tune of $700 billion in 2012. Furthermore, SocGen is convinced the Fed will announce QE in a month, so will 30 days this way or that truly matter? After all, it is an election year... plus the hedge funds really need that year end rally, or else the closure of up to 25% of the underperformers will send shock waves within the rehypothecation conduit of Prime Broker shadow funding.
In continuing our exclusive analysis of the periodic variations in the by now all important shadow banking system, we next look at the change in third quarter (3 Months ended 9/30) shadow liabilities as disclosed by the just released Flow of Funds (Z.1) report by the Fed. As by now should have been made all too clear, if there is one threat above all to the monetary regime, primarily of the US but by extension, global, it is the ongoing collapse in shadow banking, which is simply an unregulated pass-thru funding conduit for all the non-traditional banks and bank holding company firms which perform one or all of the three banking functions: maturity, credit and liquidity transformations. As such these are critical because having peaked at $21 trillion, the shadow banking system was always substantially larger than the traditional banking system since Q4 of 1990 when it finally overtook in terms of total notional, and provided far more broad "credit-money" liquidity to the global financial system than regulated (and we emphasize this word with bold and underline) entities. And since the burst of the credit bubble, the liquidity is now evaporating on a quarterly basis. So cutting to the chase, in Q3, US shadow banking declined by $357 billion to $15.2 trillion in liabilities, a decline of $654 billion in 2011 YTD, and a drop of $5.7 trillion from the $20.9 trillion peak in March of 2008. Such an uncontrolled ongoing collapse, primarily brought by the disappearance of dumb incremental (marginal) money originating in Germany (Landesbanks) and Spain (Cajas), as well as various Asian sources of dumb money, is beyond a shadow of a doubt the biggest deleveraging threat to the global monetary system bar none. And here is where the central banks step in.
Frequent readers know about Zero Hedge's fascination with the murky world of "shadow banking" a topic we have been covering since late 2009, which can best be summarized as follows: the near-infinite fungibility of electronic credit-money equivalents within the infinitely interconnected modern financial system. The recent escalation in the discovery of massive broker capital deficiency courtesy of the MF Global bankruptcy as a result of a collapse in one of the numerous shadow banking funding pathways, namely rehypothecation, is just the very tip of the iceberg. Much more is coming, as shadow banking continues to be unwound day after day (we will post an update of the Q3 data later in the day). In the meantime, we go back to that one certain Citi report from September 5, 2008 which explained just how broken the financial system was that according to some, the realization, and not some ulterior deathwish, is what sparked the run on Lehman, and subsequently money market, ABCP, repos, synthetics, structured products, securities lenders, AIG, and everything else that the Fed had to step in with a roughly $30 trillion bail out. Why was it $30 trillion? Simple: because at its heart, the "shadow banking" system has a $30+ trillion diabolic funding mechanism, where when one cuts out all the fancy nomenclature, acronyms, abbreviations, and jargon, the bottom line is that there are increasingly less and less hard assets (i.e., cash-flow generating), funding ever more and more liabilities, and where one's assets are another's liabilities in a "fractional reserve" recursive loop, and which in that shadowy sub-center of modern banking - London (because New York is just for regulatory diversion)- the loop can go on literally in perpetuity.
Jim Reid and his team from Deutsche have produced another magnificent compendium of information and prognostication in their 2012 Credit Outlook and while their up-in-quality preference (non-financial) may not be earth-shattering strategically, their timing view is of note. Instead of viewing the looming refi-ganza among European sovereigns and financials in H1 2012 as a reason for doom and gloom, they see it as the necessary evil to drive the ECB into the markets in size only for the latter half of the year to disappoint significantly as the reality of the underlying problems rear their ugly head once more. The down-then-up-then-worse-down perspective on markets for next year hardly sounds optimistic but it is the following six scenarios away from European woes that keep them up at night. From the positivity of a US housing rebound or Election year cycle to much more extreme downside risks such as geo-political concerns and non-European sovereign risks, their views on China, QE-evolution and Inflation concerns are noteworthy.
Several days after being humiliated by Iran which either shot down a EQ-170 drone, or worse, hacked into its navigation system and landed it, Obama has decided to double down, and stick the other foot in his mouth. As ABC reports in connection with Obama's handling of this embarrassing predicament, ""We've asked for it back. We'll see how the Iranians respond," Obama said at a news conference. Obama said he wouldn't comment further "on intelligence matters that are classified." Great, the only problem is Iran will never return it, as they have already indicated, for the simple reason that it has already been reverse engineered 5 ways from Sunday somewhere deep in the bowels of one of China's unpopulated cities, which just doubles as a very populated military intelligence base. The only good news is that within 6-9 months every American will be able to buy a personal stealth drone for a new low, low price at their friendly neighborhood Wal-Mart. Our only concern is whether FoxConn will be able to handle the supply of both iPads and straight for re-export drones: it would be ironic if this massive military embarrassment ends up as being a catalyst to short Apple.
Recently, we presented and discussed one of the biggest issues for European banks: the urgent need to delever substantially (to the tune of over €2.5 trillion) by selling assets, in order to placate various regulatory entities that banks are solvent, and, far more importantly, the market, which has so far proceeded not to short banks into oblivion only due to the ongoing short selling ban, and to the explicit backstop from the ECB (and, indirectly, the Fed). However, since deleveraging into an deflationary environment will certainly require bank bailouts due to collapsing asset prices, the question is what the impact of bailouts on banks will be. And here Bloomberg's Yalman Onaran explains all too vividly how not even in ponzinomic finance is there ever a free lunch... even if bought with free money. "If the Southern governments put money in their banks, their sovereign debt will go up, exacerbating their problems,” said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels. “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.” And therein lies the rub, and the problem at the core of it all: when one is dealing with a continent and its insolvent financial system whose banks have underwater assets that amount to the size of the host nation's GDP, "It’s hard to know which one to stabilize first, the sovereign bonds or the banks." Recall that killing both birds with one silver bullet is what the failure that is the EFSF was supposed to do, by allowing sovereign debt rolls and fund bank nationalizations at the same time. Now that that hope is gone, all we have is the inevitable "death spiral."
ES (the e-mini S&P 500 futures contract) closed the day session almost perfectly at its VWAP (volume-weighted average price) as the last 45 minutes of the day saw a relatively 'cheap' equity market (compared to CONTEXT broad risk assets) rally out of its tight post-Europe's-close range. There was heavy volume as we got close to VWAP (although Composite volume was the lowest since Thanksgiving Friday) and little ability to push through it and the fact that the major financials (stocks or CDS) did not really participate in the XLF's modest pull higher at the same time also suggests it was not performance chasing as higher beta was not outperforming that much. Stocks and credit stayed much more in sync than in recent days but we note that the seemingly increasingly important HYG did not sell off as much in the middle of the day and markets pulled back to it into the close. The weakness in TSYs and steepening of the curve post Europe, as well as some recovery in commodities helped support equities as EURUSD did not lose much more ground in the afternoon (even though SEK did). After outperforming all day, Silver rallied back in line with Copper and Gold's 2.5-3% down day while Oil clung desperately to the safety of strengthening USD -1.3% vs DXY's +1.2%.