Precious metals have all run up with the recent loose money policies enacted by various governments. Clearly the market darling of late is silver which is now gaining favour in Asia for its value appeal. Spot silver traded in New York has risen by 27% since the end of June, while the price of spot gold has increased by a meek 12%. Analysts say future Indian demand is key for silver’s price to climb. Futures contracts for silver at India's largest commodity exchange, the Multi Commodity Exchange, rocketed 30% in September compared with July, while volumes fell by 10% for gold futures contracts over the same period. Indian rupee weakness sent gold prices in rupees to an all time high this year, while silver never exceeded the record it hit last April. Rupee-denominated silver is currently being quoted around 20% below the record. Indian investors have ceased purchasing because the 2 weeks ending Oct. 15th is regarded as inauspicious. The buying will commence and peak during the week ahead of the Hindu festival of Diwali on November 13th. In China, on the Shanghai Futures Exchange silver futures were up 29% at the end of September verses the end of June, while gold climbed 13%, according to data from the exchange's website.
While the discussions between these two legends varied from Phat Phong nightlife to Dow 30,000, and from China bullishness to AAPL bearishness, it was the conversation about the actions of Bernanke, and more importantly our political leaders that summed up perfectly the dreadful reality in which we find ourselves. The punchline: "It is very dangerous to have ignorant people believing that they know something."
The market is so focused on this morning's BLS number it has completely ignored the latest round of Reuters "news" (after their last two market-testing, unsourced "exclusives" about European developments were roundly refuted nobody can blame it) on how the OMT will proceed once operational (assuming of course Spain ever requests an activation of the mechanism that has allowed it to consider not requesting it). So, on to the thing of importance via BBG: expectations is for a NFP print of 115,000 and an unemployment rate of 8.2%. Any major surprises to either side will likely be risk negative. The unemployment rate has held above 8% level for 43 consecutive months; U.S. labor force participation rate last month declined to 63.5%, lowest since Sept. 1981. Back to Europe, a possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. The German recession accelerates as factory orders fell 1.3% in August, more than forecast. Switzerland’s foreign-currency reserves rose to a record 429.3 billion francs at the end of September from 420.8 billion francs at the end of August.Around the world: the Bank of Japan held off from more easing after adding to stimulus last month; shoppers from China’s mainland curbed spending at Hong Kong luxury stores during the Golden Week holiday.
While we have grown accustomed to the daily gyrations on mega-volume in the US equity markets, it seems the HFT-virus has spread as far afield as India this evening. India's National Stock Exchange was halted - with no price dissemination - as State Bank of India plunged over 14% in seconds on massive relative volume (and HDFC and Infosys also fell), dragging the Nifty Index down 3%. Of course, the 'error' is being investigated and SBIN has recovered its losses...
- *STATE BANK OF INDIA SHARES FALL 14% ON NATIONAL STOCK EXCHANGE
- *INDIA'S NIFTY INDEX EXTENDS DECLINE TO 2.8%
- *NATIONAL STOCK EXCHANGE SAYS VERIFYING SOURCE OF PRICE ERROR
- *NATIONAL STOCK EXCHANGE SAYS NIFTY INDEX LEVELS NOT UPDATING
- *INDIA'S NATIONAL STOCK EXCHANGE RESUMES TRADING
- *INDIA'S SENSEX INDEX ERASES LOSS; GAINS 0.3% IN MUMBAI
- *INDIA'S NSE SAYS `LOOKING INTO' THE FREAK TRADE
The new-normal bizarro world in which we live and trade requires a new set of un-common-sensical thinking to succeed. As we noted earlier, perception is far more important than reality (at least in the short- to medium-term), and tomorrow's payroll report could well be the most egregious example of this yet. Citi's Steven Englander agrees, noting that it seems very possible that the focus will be on the unemployment rate (UR), because of its political importance, rather than the non-farm-payroll (NFP) change, despite its greater economic importance. Given the high correlation to equity (risk) price movements and the focus of market movements likely being driven by the unemployment rate - the question becomes to what degree political factors will offset the negatives typically associated with economic slowing - and what the USD reaction will be to various ranges of NFP and UR.
The Federal Reserve is probably not ready to take the aggressive plunge into Nominal GDP Targeting, but it likely will. But if you think these measures are desperate, we have only just begun to push energy and financial systems beyond their capability. The launch of QE3 (and similar measures by the European central bank (ECB) in Europe) is like the crack! of a starting-gun to human psychology that carries the following, urgent message: Hey, humans – go get those resources quickly, before someone else does! Indeed, the most powerful lever for monetary policy remains our capacity for social competition. The open-ended promise to pursue a faster rate of growth at the expense of inflation, mal-investment, bubbles, and the environment places a new and fast pressure on human economies to perform.
The news surrounding the Middle East, particularly Iran and Syria, may come and go in waves, but for the most part it is loud political grandstanding, jawboning and largely noise. Or rather, it will be noise until these two catalytic events occur: the third US Aircraft carrier (CVN-74 Stennis) and the second big deck amphibious warfare ship (LHA-5 Peleliu), both dispatched as of several weeks ago with a destination the 5th US Fleet headquartered in Bahrain, reach their target - the Arabian Sea, located by the Straits of Hormuz and right next to Iran. As the following naval update map from Stratfor shows, both are now within a week of reaching their destination: conveniently so with at least two weeks to go until the presidential election. Needless to say, once on location, the naval and airborne support for any offensive operation, especially those launched during new moon cycles, will be simply suffocating.
A common theme among many of our insights is the reality that lurks behind the proposed perception of many of our economic, financial, and political leaders' projections. From Spain not needing a bailout to Juncker's lies, from Bernanke's transitory inflation to Dimon's not needing TARP, the list is endless. Artemis Capital, whose insights we have discussed here and here, use the metaphor of the impossible object (e.g. Penrose Triangle or Necker's Cube) to explore the role of perception in modern markets, monetary policy, and risk. In a world where global central banks manipulate the cost of risk, the mechanics of price discovery have disengaged from reality resulting in paradoxical expressions of value that should not exist according to efficient market theory. Fear and safety are now interchangeable in a speculative and high stakes game of perception. The market is no longer an expression of the economy... it is the economy; and common sense says do not trust your common sense.
There was a time, long ago, when economic data mattered, and when Goldman's NFP forecast was considered one of the best on the street due to the proximity of The Pound and Pence to both 85 Broad and 33 Liberty. Then Goldman went to 200 West, central planning took over, and Bizarro world was the result, where a huge NFP beat would mean a collapse in the stock market once the prospect of QEternity actually ending returns. In other words, Goldman lost its touch. Yet their insight can still be valuable. Which is why below we present the argumentation that Goldman's Sven Jari Stehn uses to expect a BLS payroll number of 100,000 tomorrow, translating into an 8.1% unemployment rate.
Hint: It's not the "sovereigns." The chart below (an update of a chart we showed some years ago: not unexpectedly, Dexia no longer made the cut) shows the ratio of the biggest European and American bank assets to domicile nation GDP. The red line is the 50% assets/GDP breakeven. It is safe to say that if a bank's "assets" whether marked to myth, unicorns, or markets (sadly nobody has done the latter in the past 3 years) represents at least half of a domicile nation's GDP, the bank is obviously Too Humongous To Fail, and when it comes to leverage it is its unelected executive committee which calls the real shots for not only the host country, but any monetary union it may be part of. This is how 20 or so corner offices hijacked Europe. The ironic observation is that for all the complaints about the TBTF phenomenon in the US (banks in red), it is Europe where the TBTF spectacle will truly unfurl once the central banks finally lose control, and the giant unwind begins.
The fact that naturally scarce currencies like gold do not hyperinflate — even in times of extreme economic stress — suggests that the underlying mechanism here is of an extreme exogenous event causing a severe drop in productivity. Governments then run the printing presses attempting to smooth over such problems — for instance in the Weimar Republic when workers in the occupied Ruhr region went on a general strike and the Weimar government continued to print money in order to pay them. While hyperinflation can in theory arise either out of either ?Q or ?M, government has no reason to inject a hyper-inflationary volume of money into an economy that still has access to global exports, that still produces sufficient levels of energy and agriculture to support its population, and that still has a functional infrastructure. This means that the indicators for imminent hyperinflation are not economic so much as they are geopolitical — wars, trade breakdowns, energy crises, socio-political collapse, collapse in production, collapse in agriculture. While all such catastrophes have preexisting economic causes, a bad economic situation will not deteriorate into full-collapse and hyperinflation without a severe intervening physical breakdown.
A gang of 16 shady individuals have been arrested by Iranian officials for allegedly smuggling currencies outside the banking network in order to increase the value of foreign currencies and to disturb the public. As CNN reports, amid the protests in the clip below, Iran says the 16 unidentified individuals "had used an atmosphere of psychological war created by the enemy" and colluded with "certain domestic and foreign groups" to exacerbate conditions. One of the accused, allegedly, had $300mm going through a bank account and "will be dealt with soon." Those arrested "were the main players in the recent fluctuations in the foreign currency market," the Tehran Judiciary said in a statement as the public panics over a 60% drop in its currency's purchasing power in the last few weeks. Of course, a 99% drop in the USD's purchasing power is acceptable to the US public since it has been achieved over a century or so...
UPDATE: ZNGA re-opened -13%, now -16%
That foundation of social media monetization has just announced a cut to its outlook and plenty more. The stock is currently halted but its proxy FB is being sold after-hours...
- *ZYNGA SEES YR BOOKING $1.085B TO $1.100B, SAW $1.15B-$1.225B
- *ZYNGA 3Q PRELIM EST. $286.4M, SAW $300M-$305M, :ZNGA US
- *ZYNGA SEES YR ADJ EBITDA $147M-$162M, SAW $180M-$250M :ZNGA US
- *ZYNGA 3Q PERLIM ADJ. BREAKEVEN-LOSS 1C; SAW BREAKEVEN
- *ZYNGA CITES REDUCED EXPECTATIONS FOR `THE VILLE,' OTHERS
- *ZYNGA SEES CHARGE ON INTANGIBLE ASSETS ACQUIRED ON OMGPOP
Who couldanode? Securitizing synthetic farms and paying huge premia for acquisitional growth wouldn't pay off? Is OMGPOP accepted as collateral at the ECB yet?
Threaky Thursday. Oil perfectly round-tripped its plunge from yesterday (ending back above $91.50) as Treasury yields caught 'up' to equity strength on the week. USD weakness was a one-way street of straight-line trend from 0500ET in EUR today - until the Fed minutes broke something. Gold and stocks continue their synchronized lift - though gold is still the clear winner post QEternity. Trannies outperformed again but the day-session in the Dow and the S&P were largely treading water - after the factory-order-driven stop run surge this morning. Meanwhile, all those front-running winners in MBS land have seemingly started to unwind - as mortgage spreads have retraced post-QEternity gains quite significantly (which is likely what helped Treasury yields higher today - though the convergence to risk also helped). The ubiquitous 3ET AAPL ramp was modestly front-run and epically failed as the stock-that-shall-not-be-named closed red with a $666 handle once again with some major volume at the close. VIX was solidly banged lower right at the close (coinciding with AAPL's high volume action) to end at 14.55 (down 0.88vols) in line with the S&P.