goldman sachs

goldman sachs

Turkish Lira Soars Over 1000 Pips In Hours On Central Bank Intervention Suspense

As we noted earlier, the "surprise" factor of the Turkish Central Bank's (CBT) emergency meeting is seeming to have the desired effect as the Lira has rallied over 1000 pips since the announcement. Officially there has been no intervention and, despite Erdogan's political pressure on the CBT not to raise rates (because of the "interest rates lobby"), Barclays (as we noted here) and most other banks are expecting more conventional dramatic interest rate hikes (since everyone knows the FX reserves are running dry):

*TURKEY NEEDS TO RAISE O/N RATE 300BPS FOR MKT EFFECT: JPMORGAN

However, JPMorgan adds that it "strongly doubts this will regain investors confidence" and Finansbank warns it has "significant doubts" that the CBT will deliver. And this is what the rest of the market thinks...

Argentine Prices Soar Following Peso Devaluation Which Only Benefits 20% Of Population

The big story last week was the rapid devaluation of the official Argentine Peso (abbreviated, perfectly enough, ARS) exchange rate, which tumbled by 17% overnight from USDARS 6.8 to over 8.0, when the government decided to liberalize the exchange regime and "ease" capital controls, allowing citizens to purchase dollars in hopes of stabilizing the currency and halting the ongoing outflow of reserves. Other downstream effects aside - and there will be many -  the most immediate outcome for the economy will be a surge in inflation, which is already overheating at 25% in 2013 based on analyst estimates even if the "official number" is half of this, and set to get even higher.  What worse, however, is that only some 20% of the population will be able to take advantage of the "relaxed" capital controls, because only Argentines who earn at least 7,200 pesos ($901) per month will be allowed to buy dollars, Cabinet Chief Jorge Capitanich told reporters today. And since only 20% of Argentines earned 7,000 pesos or more as of 3Q 2013, according to the National Statistics and Census Institute, it means that 80% of the population will get all the "benefits" of inflation with zero benefits from dollar purchase price protection.

Japanese Bond Yields Tumble To 9-Month Lows As Asian CDS Surge

As a prelude to the following dismal market update, Japan just posted the largest annual trade deficit ever (ever ever ever) at JPY 11.47 trillion... so much for Abenomics and the magic J-Curve as the year just got worse (not better). With the Nikkei 225 (cash) down over 400 points (as we would have expected given futures action) and back under 15,000; Japanese stocks are at 7-week lows but Japanese credit risk is rapidly accelerating lower at its riskiest in 10-weeks. Japanese government bonds are well bid with yields on the 20Y having dropped to 1.443% - the lowest since April 2013. Away from Japan, the iTraxx Asia index (which tracks credit risk of investment grade corporates) has soared in the last few days to almost 5-month highs. Emerging Market Sovereign CDS are all notably wider with Vietnam and Indonesia topping the relative moves so far (and most at multi-month wides). Chinese repo is stable for now (CDS are wider by 2bps at 7-month wides) but so far, no good, for those believing the contagion in EM FX will remain contained.

Bank Of America Caught Frontrunning Clients

So far in 2013, Bank of America lost money on 9 trading days out of a total 188. Statistically, this result is absolutely ridiculous when one considers that the bulk of bank trading revenues are still in the form of prop positions disguised as "flow" trading to evade Volcker which means the only way a bank could make money with near uniform perfection is if it either i) consistently has inside information that it trades on or ii) it consistently front-runs its clients (the latter incidentally was a topic we covered back in 2009 relating to Goldman Sachs, and which the bank sternly rejected). We now know that when it comes to Bank of America at least one of the two happened.

Frontrunning: January 24

  • Emerging market sell-off raises specter of contagion (Reuters)
  • China Bank Regulator Said to Issue Alert on Coal Mine Loans (BBG)
  • Argentina to Ease FX Controls After Peso Devaluation (BBG)
  • Pimco's Gross problem: who can succeed the 'Bond King'? (Reuters)
  • Ukraine protesters seize building, put up more barricades (Reuters)
  • Mideast Turmoil Dominates Gathering of Business Elite (WSJ)
  • Central Banks Withdraw Dollar Funding (WSJ) - oh really?
  • Samsung warns of weak earnings growth this quarter (FT)
  • Three explosions rock Cairo, killing 5 (USA Today)

China's First Default Is Coming: Here's What To Expect

As we first reported one week ago, the first shadow default in Chinese history, the "Credit Equals Gold #1 Collective Trust Product" issued by China Credit Trust Co. Ltd. (CCT) due to mature Jan 31st with $492 million outstanding, appears ready to go down in the record books. In turn, virtually every sellside desk has issued notes and papers advising what this event would mean ("don't panic, here's a towel", and "all shall be well"), and is holding conference calls with clients to put their mind at ease in the increasingly likely scenario that there is indeed a historic "first" default for a country in which such events have previously been prohibited. So with under 10 days to go, for anyone who is still confused about the role of trusts in China's financial system, a default's significance, the underlying causes, the implications for the broad economy, and what the possible outcomes of the CCT product default are, here is Goldman's Q&A on a potential Chinese trust default.

"Endless Growth" Is the Plan & There Is No Plan B

After five years of aggressive Federal Reserve and government intervention in our monetary and financial systems, it's time to ask: Where are we? The "plan," such as it has been, is to let future growth sweep everything under the rug. To print some money, close their eyes, cross their fingers, and hope for the best. On that, we give them an "A" for wishful thinking – and an "F" for actual results. If we take a closer look at the projections, the idea that we're going to grow even remotely into a gigantic future that will consume all entitlement shortfalls within its cornucopian maw becomes all but laughable. Of course, the purpose of this exercise is not to make fun of anyone, nor to mock any particular beliefs, but to create an actionable understanding of the true nature of where we really are and what you should be doing about it.

Things That Make You Go Hmmm... Like Gold Bullion, Gordon Brown, & A Growling Bundesbank

2013 was an absolutely seismic year for gold, but, as Grant Williams details in his latest letter, the way in which the tectonic plates shifted has yet to be fully understood. Simply put, the gold in every central bank's possession around the world is the property of the citizens of that country - not of the incumbent politicians or central bankers. Consequently, if the people want it audited, there shouldn't be any reason to say no ... unless... Williams firmly believes that in the years to come, when we look back at the great game being played in gold, we will pinpoint January 16, 2013, as the day when it all began to unravel - the day the Bundesbank blinked and demanded its gold...

The Chart That Shows Why EU's Barroso Is A Liar

Despite record levels of unemployment across Europe (most specifically among the youth), record high (and surging) levels of loan delinquencies, and collapsing credit creation, the leaders of the EU continue to peddle their own brand of dis-information and willful blindness. While UKIP's Nigel Farage tongue-lashings are normally enough, EU's Barroso this morning unleashed the following:

*EU'S BARROSO SAYS ECONOMIC GROWTH 'SLOWLY RETURNING'; SAYS EU AT TURNING POINT IN CRISIS

However, as the following chart of earnings estimated for European firms shows, there is absolutely none, zero, nada sign on a 'turning point' and, as we have noted previously, unless the EUR weakens significantly, Europe will rapidly dip back into re-re-recession once again.

Short-Sellers Set-Up Shop As Sentiment Starts To Shift

"It's dangerous to be short still, but we might be building toward a moment where the market becomes quite vulnerable," warns Bill Fleckenstein who is finishing up the documentation on a new short fund he is about to start marketing. With the slowing growth of the Fed balance sheet, over 70% of the S&P's gains since 2011 from hope-driven multiple-expansion alone, bond and equity market sentiment at extremes, and (as Goldman warned) valuations anything cheap; it is hardly a surprise that, as Reuters reports, after years of hiding under their desks, short sellers are re-emerging - slowly. Whether outright short or long/short funds, the market-share of this corner of the business bottomed at approximately 25% in 2013, but in the last weeks, several S&P 500 companies have seen large increases in shares borrowed for short bets; and the "tide might be turning."

Frontrunning: January 17

  • NSA phone data control may come to end (AP)
  • China to rescue France: Peugeot Said to Weigh $1.4 Billion From Dongfeng, France (BBG)
  • China to rescue Davos: Davos Teaches China to Ski as New Rich Lured to Slopes (BBG)
  • Hollande’s Tryst and the End of Marriage (BBG)
  • Iran has $100 billion abroad, can draw $4.2 billion (Reuters)
  • Target Hackers Wrote Partly in Russian, Displayed High Skill, Report Finds (WSJ)
  • Nintendo Sees Loss on Dismal Wii U Sales (WSJ)
  • Goldman's low-cost Utah bet buoys its bottom-line (Reuters)
  • Royal Dutch Shell Issues Profit Warnin: Oil Major Hit by Higher Exploration Costs and Lower Oil and Gas Volumes (WSJ)
  • EU Weighs Ban on Proprietary Trading at Some Banks From 2018 (BBG) - so no holding of breaths?
  • Sacramento Kings to Accept Bitcoin (WSJ)