- Investors Shift Money Out of China (WSJ)
- Rajoy Risks Riling ECB in Bid to Avoid Union Ire (Bloomberg)
- Romney-Ryan See Fed QE as Inflation Risk Amid Subdued Prices (Bloomberg)
- Spanish savers offered haircut then money back (FT)
- Must wipe all traces of illegality and settle for $25,000: Standard Chartered Faces Fed Probes After N.Y. Deal (BBG)
- Greece debt report backs cuts plan (FT)
- Greece seeks two-year austerity extension (FT)
- Brevan Howard Looks To U.S. To Raise Money For Currency Fund (Bloomberg)
- Can he please stop buying gold? Paulson, Soros Add Gold as Price Declines Most Since 2008 (Bloomberg)
- BOE Drops Reference to Rate Cut as It Considers Policy Options (Bloomberg)
- EU Banking Plans Asks ECB to Share Power, Documents Show (Bloomberg)
Don't panic. Change is good. The S&P 500 futures market somehow dropped 1.25 points today - its worst in 10 days! - and yet, shock horror, data was positive, European leaders offered more jawboning support, and Treasuries weakened. NYSE volume remained bleak but S&P 500 e-mini futures (ES) volume rose to its highest in over a week (yes - we were stunned too - volume picked up as selling began) amid reasonable average trade size (especially as ES lost 1400). After VIX's implosion yesterday, it ramped over 1.25 vols higher today - testing back to 15% late on. The USD leaked higher all day, back to unchanged on the week (while Copper/Gold/Silver are all down 1.2-1.3% on the week - having gapped down on positive data this morning). Oil remains green on the week and spurted modestly higher on the day. Treasuries are still under pressure - not getting much back as equities sold off into the close - higher/steeper in yield by 4-8bps on the week now. Of course - the closing rampfest was inevitable as that stunning 4 point drop in ES was rapidly 'tickled' back up to near VWAP into the day-session close - though we note that ES was unable to get green and unable to reach the safety of VWAP with heavy 'down' volume after-hours. Cue 'Asian-opening-gap-worm' algo.
Remember - when in doubt, always blame it on the software: that way the risk of tainting one's "business model" no matter how irrelevant and anachronistic it has become, may be preserved - after all it is the vacuum tube's fault. If possible add the words "glitch", "dormant" and "stupid algo" and always, always, use the passive voice: once again - it can never be insinuated that a carbon-based lifeform (human, monkey, Mary Schapiro) was behind the screw up. Sure enough, here comes Knight two weeks after nearly destroying its trading platform responsible for 10% of the daily market churn, and to a big extent for the endless levitation to VWAP on low volume we have seen every day for the past 3 years, and blaming it all on "dormant software" which was accidentally reactivated. From Bloomberg: "Knight Capital Group Inc. (KCG)’s $440 million trading loss stemmed from an old set of computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter. Once triggered on Aug. 1, the dormant system started multiplying stock trades by one thousand, according to the people, who spoke anonymously because the firm hasn’t commented publicly on what caused the error. Knight’s staff looked through eight sets of software before determining what happened, the people said." Of course, one may ask just why did someone put in code in the first place, that multiplied stock trades by one thousand: is that the special turbo buy option reserved for when the Liberty 33 phone rings?
As was seen in Iraq, it is the people who suffer most from sanctions and economic and civil war and the Syrian people are indeed facing increasing hardships. Hunger is a problem that is growing more acute by the day. As the prices of what little food is available soar, there are increasing signs of desperation among parents seeking to feed families. Prices of fuel and medicine have also soared amid shortages compounding the misery of Syrians and leading to another humanitarian crisis. Professor Nouriel Roubini and other financial experts have pointed out that “you cannot eat gold.” However, people in nations suffering from currency and economic wars can testify as to how they can use gold in order to buy food, fuel and medicine for their families in difficult times. To wit, Syrian President Bashar Al-Assad announced measures facilitating imports of gold bullion coins and bars. Gold bullion imports no longer require a special permit and travellers are allowed to bring gold bullion coins and bars with them into the country, the decree said. Gold is, as it has done throughout history, protecting them and their families from the ravages of currency devaluation and economic collapse.
- Must be those evil speculators' fault: Oil price inflates as speculators bet on stimulus (Reuters)
- Need moar stimulus: UK Coalition plans housebuilding stimulus (FT)
- Paul Ryan brings fundraising prowess to Romney presidential bid (Reuters)
- Chinese serial killer shot dead after massive manhunt (Reuters)
- Silver Hoard Near Record As Hedge-Fund Bulls Recoil (Bloomberg)
- World powers eye emergency food meeting; action doubted (Reuters)
- Clegg Said to Have Role in Picking King Successor as BOE Chief (Bloomberg)
- Standard Chartered CEO takes charge of Iran probe talks (Reuters)
- Risks must not hide positive China trends (FT)
- BOJ should not rule out any policy options: July minutes (Reuters)
- India Says Growth Sacrifice Needed in Inflation Fight (Bloomberg)
It is important to note that markets were also unusually calm during the two weeks of the Chinese Olympics in 2008. The 2008 Summer Olympic Games took place slightly later in August than the London Olympics – starting August 8 and ending August 24. Only days after the ending of the Chinese Olympics came massive market volatility in September and then seven months of market turmoil. Similarly to this Olympic year, in Olympic year 2008, gold traded sideways to down in a period of consolidation prior to further gains. Gold bottomed in September 2008 in euro and sterling terms. Another brief bout of dollar strength saw gold bottom in November 2008 in dollar terms. Besides the eurozone crisis (and the significant risk of the German Constitutional Court deciding on September 12th to reject the recently cobbled together alphabet soup response to the crisis (ESM etc etc) and significant instability in the Middle East, there is also the not inconsequential risk from the US Presidential campaign and the upcoming ‘fiscal cliff’.
European equities are trading flat to minor positive territory at the North American crossover having pared losses made following the weaker than expected Japanese Q2 preliminary GDP and reports from Chinese press that China's RRR cut might have been postponed as the People's Bank of China's reverse repo activity still satisfies liquidity needs. Elsewhere, Bank of America cut China's growth forecast from 7.7% to 8.0% for the year, commenting that the country's ability for monetary easing was constrained by house prices. Volumes have been particularly thin, however, and as there is no economic data scheduled for release from the US, it is likely to stay that way. Greek Q2 advanced GDP surprised markets, contracting at a slower pace year-over-year than Q1 and than was expected, boosting risk appetite across the board. As such, Spanish and Italian spreads are seen tighter by 12.6bps and 9.1bps respectively, with the Spanish 10-year yield holding below the key 7% and the Italian's under 6% despite the Italian government debt coming in at a record high of EUR 1972.9bln.
- Oil hits 3-month high above $114 on supply concern (Reuters)
- G20 plans response to rising food prices (FT)
- First centrally planned FX, now real estate - SNB Seen Targeting Bank Capital to Curb Property Boom (Bloomberg)
- EU hedge funds face pay threat (FT)
- Euro-Area Crisis Has ‘No Obvious End in Sight,’ BOE’s King Says (Bloomberg)
- King urged to widen recovery measures (FT)
- All threats "dwarfed" by Iran nuclear work: Israel PM (Reuters)
- Obama campaign attacks Romney’s pick (FT)
- Romney, Ryan hit the road in an energized campaign (Reuters)
- Yellen Must Show How 12 Fed Opinions Become One Policy (Bloomberg)
With the presidential elections fast approaching, the last thing the incumbent wants is for the one thing that can spoil the party - a surge in oil, and thus gas prices - to happen. Which is why despite a sharp return in Iran/Syria war rhetoric, we doubt that the trade off between a "wag the dog"-type transitory war euphoria and $5 gas will be an accretive one for the administration at least in the short-term. Others who certainly would prefer to avoid the record $140 WTI prices seen just before the Lehman collapse are the majors, where margin contraction can only be offset by very finite end-demand destruction. Yet there are those who not only would like to see a surge in oil prices, but in fact need it, to preserve their viability. Chief among them: Iran. Because according to a just released analysis by the Arab Petroleum Investments Corporation, the price at which oil (read Brent) must trade for Iran's budget to balance has soared to $127/barrel, the highest among all OPEC members, $20 higher than 2 years ago, and about $17 higher than the Friday closing price. And far more dangerously, the APIC study has also found that the cartel (which after last year's fiasco in Vienna is anything but) breakeven price has soared from just $77 two years ago to a whopping $99/barrel. Which means that any and every deflationary plunge in oil prices will inevitably be met with a supply collapse or else OPEC members are in danger of pricing themselves right into fiscal insolvency, and economic collapse.
Former Defense Secretary Says US Will Probably Enforce "No Fly Zone", "Take Aggressive Action" Over SyriaSubmitted by Tyler Durden on 08/10/2012 20:24 -0400
Three months to the election? Check. Which means war-mongering rhetoric, once considered a staple of the GOP, may very soon become action, first in Syria, and soon, everywhere else. From Bloomberg: "The U.S. and allied forces probably will impose a “no-fly zone” over Syria and take other “more aggressive action” against the Syrian regime, former Defense Secretary William Cohen said. While the U.S. has been leery of another military intervention after a decade of wars, “We’re coming to the point, however, where the violence is getting so severe, I think, that you’ll see a movement towards setting up those no- fly zones,” Cohen said on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend." Is war and immediate geopolitical escalation guaranteed? Not yet: "The former Pentagon chief and Maine senator, now chairman and chief executive officer of the Cohen Group consulting firm in Washington, said any U.S. military action would depend on participation and support from allies." Although desperate times, and by that we mean unfavorably trending popularity ranking, will certainly require desperate measures. Such as the continued massive build up of US naval assets in the middle east.
Iran has been pushed into a corner and is fighting for its life. The safest weapon in its arsenal is an economic strategy; and it is the one point where the United States is vulnerable. It is no secret that many governments object to the sanctions and are willing to deal outside of normal channels for a reduced price. If the Iranians should use the new private traders to dump a few million barrels of oil onto the market at a sharply discounted price, they just might encourage one of these governments to openly defy the United States for a bargain. As a persecuted minority, the Shia have learned that the weaker in a conflict must employ cunning rather than muscle. It is the inherent weakness of the alliance that is Iran’s strength. The unwillingness of Washington to pressure supposed allies and the simple fact that there are buyers willing to defy the sanctions secretly reveals the cracks in the system.
The Financial Times published an interesting article on Wednesday by a Tokyo-based analyst with Arcus Research, Peter Tasker, entitled of 'Cash out of gold and send kids to college'. The article is interesting as it is an articulate synopsis of those who are either negative on and or bearish on gold. It clearly shows the continuing failure to understand the importance of gold as a diversification and as financial insurance. Tasker incorrectly states that gold is "just another financial asset, as vulnerable to the shifts of investor sentiment as an emerging market." He conveniently ignores over 2,000 years of history showing how gold is a store of value. He also ignores recent academic research showing gold to be a hedging instrument and a safe haven asset. Another fact unacknowledged is how gold has clearly been a store of value since the current financial and economic crisis began in 2007. Since then gold has protected people from depreciating financial assets (such as equities and noncore bonds) and from depreciating fiat currencies such as the dollar, the pound and more recently the euro.
- Gu Kailai Trial Has Ended, verdict imminent (WSJ)
- Greek unemployment rises to 23.1 pct in May, new record (Reuters)
- Greece’s Power Generator Tests Euro Fitness Amid Blackout Threat (Bloomberg)
- Fannie Mae, Freddie Mac Results May Ease Wind-Down Push (Bloomberg)
- Monti takes off gloves in euro zone fight (Reuters)
- U.S. Fed extends comment period for Basel III (Reuters)
- HP in $8bn writedown on services arm (FT) - must be good for +10% in the stock
- News Corp in $2.8bn writedown (FT) - must be good for +10% in the stock
- Japan to Pass Sales Tax Bill After Noda Avoids Election Push (Bloomberg)
- China May Set New Property Controls This Month, Securities Says (Bloomberg)
Fed and Treasury Irate at NY Bank Regulator's Vulgar Display of Public Diligence with Standard CharteredSubmitted by ilene on 08/08/2012 16:27 -0400
Only the little people are meant to suffer for their country.
- Regulators irate at NY action against Standard Chartered (Reuters)
- Recession Generation Opts To Rent Not Buy Houses To Cars (Bloomberg)
- Egypt launches air strikes on militants in Sinai (Reuters)
- Loan-Shark Lending Surge Feared In Japan (Bloomberg)
- US seeks $3bn for Sudan oil deal (FT)
- Home Prices Climb as Supply Dwindles (WSJ)... not really- just money laundering in the form of ultra luxury home purchases soars
- A lifeline is thrown to the periphery - Smaghi (FT)
- Standard and Who? Greece Credit-Rating Outlook Lowered by S&P as Economy Weakens (Bloomberg)
- BOE Cuts Growth Forecast, Sees Inflation Below Goal in Two Years (Bloomberg)
- S&P Takes CreditWatch Actions On Four Spanish Banks (Reuters)
- Japan Gets Reprieve as Drop in Oil Eases Trade Impact (Bloomberg)