Succinctly summarizing the positive and negative news, data, and market events of the week...
Gross: Strategists/writers I follow? Dalio, Durden, Bianco, Arnott, Aitken, Santelli, Grant, Grantham, Inker, Marks, Quaintenance & Brodsky
— PIMCO (@PIMCO) August 9, 2013
From Bill Gross: "Capitalism depends on the successful offering and capture of carry in its multiple forms. If capitalism is faltering (recession) in developed/developing economies and yields are close to the zero bound, then portfolios should have less carry than before. If prospects are mediocre, portfolios should be overweight carry. If prospects are very bright, they should again be underweight bond carry. If we can be mindful of this, and accurately forecast it, we will be successful. This may be the most important conceptual change I have ever written about in an Investment Outlook. Readers who have stuck with this Outlook at least to this point have a scoop, if not a magic feather."
— PIMCO (@PIMCO) August 7, 2013
We had absolutely no concern about the outcome of today's 5 Year auction: after all, when push comes to shove, Bill Gross who yesterday was pitching 5 Year bonds to twitter would have certainly bought up the entire issue. Yet we were surprised to find that Direct Bidders, among which such bond kings as PIMCO, tendered only $6 billion (a 47% hit rate) in bids into today's $35 billion auction. Odd - could Bill Gross have been untruthful in expressing his interest in the bond and was merely looking for greater fools? Unpossible.
— PIMCO (@PIMCO) July 23, 2013
Gold surged over 3% yesterday due to what appears to be have been significant short covering due to concerns about gold backwardation and the continual haemorrhaging of gold inventories from the COMEX.
Concerns about a default on the COMEX, once the preserve of a few observant market watchers, are becoming more widespread as we appear to be witnessing a run on the highly leveraged bullion banking system.
Very robust physical demand from the Middle East, Asia and particularly China and a decline in the dollar also helped prices log their biggest one-day gain in over a year and their first close above $1,300 an ounce in nearly five weeks.
Gains in silver futures, meanwhile, outpaced gold’s rise, with silver surging 5%.
- Earthquake Sends Kiwis Screaming From Wellington Buildings (BBG)
- China quake death toll more than doubles to 54, hundreds hurt (Reuters)
- In 2011, Michigan Gov. Snyder said bankruptcy wasn't an option for Detroit. Two years later, he changed his mind (WSJ)
- GlaxoSmithKline says Chinese laws might have been violated (FT)
- SEC Tries Last Ditch Move to Put SAC’s Cohen Out of Business (BBG)
- Detroit’s Bankruptcy Reveals Dysfunction Common in Cities (BBG)
- Obama to start new offensive on economy (FT)
- As WTI and Brent reunite, Gulf of Mexico faces squeeze, not glut (Reuters)
- Extended Stay Files for Public Offering (WSJ)
- Apple Developer Website Hacked: Developer Names, Addresses May Have Been Taken (MacRumors)
- Treasuries Not Safe Enough as Foreign Purchase Pace Slows (BBG)
Don't look now but futures are up as usual, driven higher by both good and bad news. The biggest event of the weekend, if largely priced in, was the victory by Abe's coalition in the upper-house leading to the following seat breakdown. Of course, judging by the Yen and market reaction, which barely managed to eek out a gain: its first in four trading days, the event was largely of the "sell the news" type despite such bold proclamations: "Abe’s victory in the upper house is bullish for Japanese equities and the Japanese economy as a whole, as the removal of political headwinds bolsters the government’s ability to press forward with all ‘three arrows’ of its growth strategy," John Vail, Tokyo-based chief global strategist at Nikko Asset Management Co., which manages $162 billion, wrote in an e-mail. Elsewhere in Europe, Portugal bond yields have plunged by roughly 60 bps on news that the Portuguese President Silva has backed the centre-right coalition government, consequently ruling out snap polls. Well, what else is he going to do? This also comes on the heels of a Goldman report that said a second bailout for the country will be necessary and will likely be discussed in the fall. That too is bullish. What also was bullish in Europe apparently is that government debt hit a new record high of 92.2% of GDP. Remember: debt is wealth so just buy more futures. Looking forward to the US, the market will focus on the latest existing home sales data, the Chicago Fed activity index, as well as earnings report releases from McDonalds, Texas Instruments and Halliburton and a bunch of other companies that will beat EPS and miss revenues.
Based on the following quotes just uttered by the Chairman...
- BERNANKE: WALL STREET HASN'T BENEFITED MORE THAN MAIN STREET
- BERNANKE SAYS FED `VERY FOCUSED' ON MAIN STREET
... Bernanke's next career as a sit-down comedian smash hit is guaranteed.
- India Joins Brazil to China in Efforts to Tighten Liquidity (BBG)
- Seven dead as police and protesters clash in Egypt (Reuters)
- U.S. senators fail to cut deal, head for showdown on filibuster (Reuters)
- Gasoline Tankers Beating Crude for First Time on Record (BBG)
- Smithfield's China bidders plan Hong Kong IPO after deal (Reuters)
- Bitcoin ETF plan struggles to find support (FT)
- Big Home Builders Gobble Up Rivals Starved for Cash (WSJ)
- Putin wants Snowden to go, but asylum not ruled out (Reuters)
- Zimmerman's lawyer calls prosecutors 'disgrace' to profession (Reuters)
- McDonald’s to bring Big Mac to Vietnam (FT)
- Korean Pilots Avoided Manual Flying, Former Trainers Say (BBG)
Something is way off: either the unemployment data is very much wrong and the real unemployment rate is far higher especially when normalized for the collapsing labor participation rate and the surge in part-time and temp workers, or the GDP calculation is incorrect and the economy is growing at a 4%+ rate. (It isn't). The scarier implication is that in addition to all other seasonally adjusted economic data points which have become painfully unreliable, daily Treasury tax receipts must also now be added to the docket of meaningless and corrupt data points. The question of just how the Treasury could explain a massive (and deficit boosting) cash discrepancy could only be answered if somehow the Fed is found to be parking cash directly into the Treasury's secret basement.
From Bill Gross: "In trying to be specific about which conditions would prompt a tapering of QE, the Fed tilted overrisked investors to one side of an overloaded and overlevered boat. Everyone was looking for lifeboats on the starboard side of the ship, and selling begat more selling, even in Treasuries. While the Fed’s move may ultimately be better understood or even praised, it no doubt induced market panic. Without the presence of a “Bernanke Put” or the promise of a continuing program of QE check writing, investors found the lifeboats dysfunctional. They could only sell to themselves and almost all of them had too much risk. A band somewhere on the upper deck began to play “Nearer, My God, to Thee.”"
- Scalpel in Hand, Chinese Premier Li Stirs Reform Hopes (Reuters)
- Obama Sets Conditions for Keystone Pipeline Go-Ahead (FT)
- World’s Most Indebted Households Face Rate Pain (BBG)
- SAC Probers Weighing 'Willful Blindness' Tack (WSJ)
- Draghi Says ECB Ready to Act, Calls for Investment Over Tax (BBG)
- U.S. Tops China for Foreign Investment (WSJ)
- Basel Presses Ahead With Plans to Limit Bank Borrowing (FT)
- Gillard Ousted as Australia PM by Rival Rudd (FT)
- Japan Economic Strength Will Show in Stocks, Nishimura Says (BBG)
Bill Gross, of PIMCO and serious bond duration pain, finally comes clean: the man who has been criticizing the Fed for years for one after another misguided policy (all of which ultimately culminate with the New York Fed's markets desk going "wave it in" this or that) to the point where he began sounding like a Zero Hedge broken record, opines on the taper. And it is here that Bill's colors truly shine through: "We agree that QE must end. It has distorted incentives and inflated asset prices to artificial levels. But we think the Fed’s plan may be too hasty." In other words, please let me have my Fed and central-planning criticizing cake (but don't actually enact my free market suggestions) and let me eat my management fees too (and no monthly redemptions please). And there you have it: populist critic by day, pandering P&L defender by night.