While yesterday's cliff-dive in gold was impressive by any standards, the escalating drop over the past 5 days has been just as dramatic. Based on 20 years of rolling 5-day moves, the ~15% plunge is equivalent to around 7 standard deviations (in context Yao Ming is a mere 6 standard deviations taller than the average human making gold's move the equivalent of meeting a man taller than 7'7")
While expectations for global GDP growth are now expected to be +3.3% for 2013 against +3.2% for 2012, the IMF has just slashed the previously rosy 3.6% expectation as the global economy stalls. The US and Europe had significant cuts to their 2013 GDP growth expectations (though of course, this dip recovers hockey-stick-like in 2014). It will perhaps be surprising to learn that Japan had its growth expectation raised the most of all the major advanced and emerging nations. World Trade volume growth has also been cut notably - driven by a fall in the previously supposed driver of growth - emerging markets. The IMF's less sanguine forecasts, however, are caveated with hope-driven perspective such as expectations that Debt-to-GDP will drop for all nations from 2013 to 2018 and while energy remains a major downside risk to global growth, we were stunned to read that they cite S&P 500 option prices as an indicator of upside potential. It seems, even at the IMF, that the market is all that matters (oh and the Japanese printing press).
Long experience in the markets will inform you that this kind of massive sell-off in gold is indicative of someone or perhaps a numbers of someones with serious problems. It may be ETF's, it may be some hedge fund or it may be central banks who have pledged their gold as collateral with the ECB but somebody is in trouble. The world is a fragile place these days. World-wide Quantitative Easing has buoyed all of the markets. The backdrop though is economies that cannot support current prices. Europe and Japan are both in tatters, China is slowing down and America is in what I would call a "sputter." Yesterday was a stark reminder of what can happen when the discrepancy between the results of the flood of newly minted cash comes into conflict with underlying fundamentals. The markets can turn on a dime and the move can be severe and painful.
Goldman Keeps Gold Short As It Lowers Stop Price, Even As It Is Stopped Out On Commodity Basket For 6% LossSubmitted by Tyler Durden on 04/16/2013 09:43 -0400
Yesterday, Goldman was stopped out of its inflationary Long Brent reco for a 15.5% loss (for the clients of course, not for the Goldman counterparty traders who made 15.5%). Today, it was time for Goldman to get stopped out on its Commodity Carry Basket, after the firm's 6.0% stop loss was triggered: "Spillover from gold and renewed European and EM macroeconomic concerns also created sharp sell-offs in crude oil and base metals, that were mostly front-end driven, crushing spreads (the carry), as longer-dated prices remained remarkably stable. This stopped us out of our CCB (Commodity Carry Basket) recommendation with the potential loss reaching our 6.0% stop." With gold now trading below the revised stop out target, we will watch to see if Goldman lower its target once more to buy even more paper gold that its clients are furiously selling.
On the surface, today's Housing Data was good. Yes, there was a miss in the housing permits number, which declined from a downward revised 939K to 902K, on expectations of a strong 942K print, but let's ignore that: after all bad news is good news (although as the chart below shows even this number was highly skewed due to seasonal adjustments and the NSA number hasn't really budged in the past year). But look at the housing starts: what a whopper: at 1036K, this was the highest print since June 2008 - great news, right? Not really, because the one key indicator here, single-family units, actually posted a sizable drop from 650K in February to 619K in March. The offset: construction starts of multi-family, aka rental units, which in March was a whopping 392K, a 83K seasonally adjusted surge from February, which brings the total multifamily starts to the highest since January 2006 at 423K. Of course, in January 2006, single-family units hit a record 1823K, or about three times as much as the March 2013 number. Thank you Fed and QE for making yet another capital allocation mockery as America is increasingly shifting into a nation of renters. At this pace expect multi-family starts to surpass single unit starts in 4-6 months for the first time ever.
Thanks, it seems, to the global economic slowdown driving energy prices lower, the Consumer Price Index just printed at -0.2% MoM, notably below expectations (its biggest miss in 7 months) and well down from last month's +0.7%. The main driver of this deflationary spike is the drop in gasoline prices -4.4% MoM. Year-over-year CPI (ex Food and Energy) lagged expectations also (1.9% vs 2.0% exp.) meeting the Fed's oh-so-well engineered mandates. However, the 1.9% rise is the slowest pace of inflation in 20 months. On the bright side, the price of used cars is rising at its fastest pace in months thanks to the 97-month term loans and government credit creation.
Average Comp Rises To $403,281 As Goldman Offsets Decline In FICC, Equity Trading With Prop Revenue At 2 Year HighSubmitted by Tyler Durden on 04/16/2013 07:58 -0400
Moments ago Goldman reported its Q1 earnings which were strong enough to beat the highest Wall Street estimate, printing at $4.29 on an estimate range of $3.33 to $4.27/share. Revenue was $10.09 billion on estimates of $9.65 billion. What is notable is that while the bank is eating the lunch of its competitors, as it tends to do, in virtually all revenue categories (IB at $1.41 billion, FICC $3.22 bn, Equities: $1.92 bn, Investment Management $1.32 bn, and Prop trading $2.07 bn), it still was unable to match its prior year revenue in the key "client flow" categories of FICC and equities, which dropped from $3.46 billion to $3.22 bn, and $2.25 bn to $1.92 bn, respectively. How did Goldman offset the secular decline in market participation by everyone else? By doing what it does best: prop trading - in Q1 the firm's "Investing and lending" group, aka its Prop group, reported revenue of $2.068 billion (highlighted in the chart below) well higher than the $1.973 billion in Q4 and $1.911 a year earlier. This was the highest prop trading revenue reported by Goldman since Q1 2011 when, as we reported in February, the world was on the verge of being fixed. It wasn't, and the result was a collapse in Goldman prop trading in Q2 2011. Will this year repeat? This remains to be seen. However, for now, Goldman's employees are happy: in Q1 compensation benefits were $4.34 billion, or 43% of revenue. And with Goldman reporting "only" 32,000 total staff at period end, or the lowest since the great financial crisis, the average compensation per employee is once again above the "psychological" $400K barrier, or $403,281 on a trailing 12 month basis to be exact. Bollinger time, boys.
It was only a week ago that Iran was shaken by a major 6.1 earthquake, striking just 100 km away from the Busher nuclear power plant: a location so "opportune" some, so inclined, saw in this phenomenon anoter demonstration of the HAARP's capabilities. Those same people will then hardly be surprised to learn that moments ago the entire middle east, from Dubai to Delhi, shook in the aftermath of yet another massive earthquake, this time measuring 7.8 on the Richter scale, which once again was located as the USGS reports, some 86 km East South East of Khash, Iran. According to preliminary reports, the USGS says there is possibility of heavy damage in area of epicenter, and an estimated 359,000 people felt very strong to severe shaking. USGS also estimates that 16K may have felt 'severe' shaking, 343K 'very strong' shaking, 1.7M 'strong' shaking; 1.1M 'moderate' shaking. An Iranian official was promptly on the tape saying hundreds of dead expected from quake in southeast of country, even as the Russian company that built the Busher NPP saying there was no damage from the quake. How much more shaking can either the existing Iranian nuclear power plant, or the much maligned nuclear facility in Fordow, sustain before they go off in a big glowing mushroom cloud: that is the
- Investigators hunt for clues in marathon bombing (Reuters)
- Investigators scour video, photos for Boston Marathon bomb clues (Reuters)
- 'Act of Terror' Kills at Least Three, Injures About 140 as Bombs Wreak Carnage on Marathon Crowd (WSJ)
- Brent Crude Below $100 (WSJ)
- Slower China Growth Signals Days of Miracles Are Waning (WSJ)
- Central Banks at Ease Limit Risk Political Backlash (BBG)
- Merkel plans to quit midterm, says author (FT)
- Monte Paschi Prosecutors Seize $2.3 Billion of Nomura Assets (Businessweek)
- Treasuries back on investors’ buy lists (FT)
- J.C. Penney Said to Seek Ways to Separate Real Estate for Cash (BBG)
- Climate scientists struggle to explain warming slowdown (Reuters)
- Putin Calls for Stimulus Plan After Recession Alarm (BBG)
- TIPS in Longest Selloff Since ’08 as U.S. Bancorp Cuts (BBG)
Yes, there was economic news overnight, such as a Eurozone and UK CPI, both of which came in line with expectations (1.7% and 0.4% respectively), and a German ZEW which confirmed Europe's accelerating deterioration, tumbling from 48.5 to 36.3, far below expectations of a 41.0 print (somehow the huge miss has managed to push the EURUSD up by 60 pips to an overnight high of 1.31 but this is merely the pre-US open manipulation to ramp US equities higher), just as there was news that Angela Merkel's support for a Cyprus bailout is growing (was there an alternative?), and that as part of their ongoing investigation into Italy's repeatedly insolvent Monte Paschi, investigators had seized €1.8 billion worth of assets from Nomura Holdings, and that Spain as usual sold more Bills than expected, driven by oversize Japanese and Pension Fund purchases, but what everyone has been looking for is whether the relentless and record rout in gold is over. For now, it appears that is the case, with gold printing an overnight low of just over $1320 and ramping higher ever since, up 3% so far and rising.
UPDATE: *AT LEAST 3 PEOPLE HAVE DIED IN MARATHON BLASTS: BOSTON POLICE
In the aftermath of the Boston Marathon explosions, the WSJ is reporting that counterterrorism officials have found what they believe to be five additional, undetonated explosive devices around the Boston area. The devices - which are in addition to the two that exploded near the finish line of the marathon - were discovered over the course of a frantic inspection of suspicious packages. Each had been rendered inoperative or was in the process of being rendered inoperative. A White House official said: "Any event with multiple explosive devices - as this appears to be - is clearly an act of terror."
Official projections put Portugal's debt to GDP at more than 124% by the end of this year. Utilizing Europe's continuing fantasy accounting; this is the number that Portugal and the EU posts for general consumption. However by counting liabilities and using American addition, subtraction and division I come up with a number of about 236%. In May 2011 Portugal did bite the dust and received $101 billion in bailout funds. Since then it has bobbed up, devastated its citizens with trying to meet the demands of the European Union and been hailed by both Brussels and Berlin for its imposition of the mandated austerity measures. Today we can assure you; Portugal is going down again. Former Portuguese PM Alberto Soares warns, "In its eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal." A careful reading of what the EU is now demanding reveals an actual shortfall of about $6 billion and where Portugal is going to come up with that is a good question (gold anyone?)
JPY was its strongest at the start of October - and then the new Abenomics plan began. Very quickly the "long of gold in JPY terms" trade became extremely popular. After an impressive 16.4% rise into mid-February, gold-in-JPY corrected modestly; but the BoJ-inspired action smashed gold-in-JPY back up to its recent highs (helped by the seeming capitulation is JPY longs on the bigger-than-expected QQE). This appears to be the last straw on this trade. With JPY shorts so extremely positioned, the small rally on Thursday/Friday in JPY sent many scrambling to cover and, along with the need to unwind any and every asset to cover cash needs for JGB volatility, the avalanche began in gold-in-JPY. In 2 days, the entire Abe-inspired 'rally' in gold-in-JPY has been undone and all post-Abe buyers are now underwater. Whether this marks a short-term capitulation of these positions is unclear but CTFC CoT this week will be intriguing - and further JGB vol will not help. The rally in JPY of the last two days is the largest in 35 months - so someone clearly broke something...