Commodity Futures Trading Commission

As the fallout of Liborgate escalates, the next big bank to be impacted in the fallout started by Barclays civil settlement "revelation" is set to be troubled UBS, already some 10,000 bankers lighter, where as many as three dozen bankers are reported by the implicated in the fixing of the rate that until 2009 was the most important for hundreds of trillions in variable rate fixed income products. Only instead of attacking the US or even European jurisdiction, where the next big settlement is set to hit is Japan: a country whose regulators as recently as half a year ago promised there were no major issues with Libor, or Tibor as it is locally known, rate fixings. And while this most recent development will have little material impact on UBS' ongoing business model, the one difference from previous settlements is that it will likely include criminal charges lobbed against some of the 36 bankers. From the FT: "UBS is close to finalising a deal with UK, US and Swiss authorities in which the bank will pay close to $1.5bn and its Japanese securities subsidiary will plead guilty to a US criminal offence. Terms of the guilty plea were still being negotiated, one person familiar with the matter said on Monday, adding that the bank will not lose its ability to conduct business in Japan. The pact between the bank and the US Commodity Futures Trading Commission, US Department of Justice, UK’s Financial Services Authority and UBS’s main Swiss supervisor Finma is expected to be announced on Wednesday, although last minute negotiations continue."

All that glitters...

November sales of U.S. American Eagle gold coins are on track to be the best in 14 years as uncertainty surrounding the U.S. fiscal cliff and the election of President Obama led to safe haven buying. Buyers timing the market also increased coin sales by buying during sharp price movements that occurred in the beginning and end of November, coin dealers noted. Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion. Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998, data from the U.S. Mint's website shows. In October, the U.S. Mint sold 59,000 vs 50,000 ounces the previous year, while November marked its 2nd successive monthly rise. Coin banks have come in to buy the stock as the mint usually ends 2012 coin production in early December so it can begin minting the 2013 coins.

CME Group declared a force majeure at one of its New York precious metals depositories yesterday, run by bullion dealer and major coin dealer Manfra, Tordella and Brooks (MTB), due to “operational limitations” posed by Hurricane Sandy. MTB has “operational limitations” following Hurricane Sandy and can’t load gold bullion, platinum bullion or palladium bullion, CME Group Inc., the parent of the Comex and New York Mercantile Exchange, said today in a statement. MTB must provide holders with metal at Brinks Inc. in New York to meet current outstanding warrants in relevant delivery periods with compensation for costs, Chicago-based CME said. The CME said that MTB will not be able to deliver metal as the lower Manhattan company deals with "operational limitations" almost a month after the arrival of Hurricane Sandy. MTB is one of five depositories licensed to deliver gold against CME's benchmark 100-troy ounce gold contract, held 29,276 troy ounces of gold and 33,000 troy ounces of palladium as of Nov. 23, according to data from CME subsidiary Comex. In a notice to customers on Monday, CME declared force majeure for the facility, a contract clause that frees parties from liability due to an event outside of their control.

Moments after Goldman completed the trifecta of controlling every major developed world central bank, with its tentacles now in charge of the Fed, the ECB and now the BOE, Obama announced his designee for the new head of the SEC. The name of Mary Schapiro's replacement: Elisse B. Walter, and no, she did not most recently work for Goldman. Yes. Shocking (for Gary Gensler). Oh, and don't worry Mary Schapiro. Nobody will shed any tears over your departure: perhaps if someone had known you were there even one day over the past 4 years this would be different.

The yellow metal soared 4.9% in euros in one week from the 11 week low set November 2nd and has since fallen 1.3%.  The rebound from the November dip means prices should recover to reach the all-time euro high set last month, before rising to the point-and-figure target at 1,395 euros, said the bank’s research.  Point and figure charts estimate trends in prices without showing time. Gold may then reach a Fibonacci level of about 1,421, the 61.8% extension of the May-to-October rally, projected from the November low, Commerzbank wrote in its report on November 13th which was picked up by Bloomberg. Fibonacci analysis is based on the theory that prices climb or drop by certain percentages after reaching a high or low. “What we are seeing is a correction lower, nothing more,” Axel Rudolph, a technical analyst at Commerzbank in London, said by e-mail Nov. 16, referring to the drop since November 9th.  Rudolph remains bullish as long as prices hold above the November low at about 1,303 euros.  Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

• The Bild is now a source for EURUSD stop hunts: Germany eyes 'bundled' loan payment to Greece-paper (Reuters, Bloomberg)
• Congress comes back Tuesday to confront “fiscal cliff.”  (Reuters)
• Gen. John Allen ensnared in Petraeus scandal (Politico)
• FBI Agent in Petraeus Case Under Scrutiny (WSJ)
• Comcast's NBCUniversal unit lays off 500 employees (Reuters)
• University Fees Stoke U.K. Inflation (WSJ)
• Consumers Closing Wallets in Japan Add to Noda’s Woes (Bloomberg)
• John McAfee Wanted for Murder... and explaining bathsalt anal suppositories (Gizmodo)
• Europe Gives Greece 2 More Years to Reach Deficit Targets (Bloomberg)
• Where Spain Is Worse Than Greece (WSJ)
• Microsoft's Windows unit head, once a possible CEO, exits (Reuters)
• Glitch stops NYSE trading in 216 companies (FT)
• Large European Banks Stash Cash (WSJ)
• The death of San Bernardino: How a vicious circle of self-interest sank California city (Reuters)
• Apple stores most productive US shops (FT)
• Treasuries See U.S. Falling Over Cliff as Yields Converge (Bloomberg)
• Bra-Bodysuits Make H&M One Hit Wonder as Zara Prospers (Bloomberg)

What is wrong with this market? The S&P 500, instead of grinding higher in the aftermath of QE3 actually hit its peak for the year the day after the policy announcement. Go figure. Maybe economic reality finally caught up with Mr. Market (there is a very fine line between "'resiliency" and "denial" — and keep in mind that the S&P 500 is still up 14% in a year in which profits are now contracting, not just slowing down)... On average, six weeks hence, the S&P 500 was up more than 9% after the policy announcement. It was all so novel! Tech on average was up over 11%, industrials were up 12%... ditto for Consumer Discretionary and Materials. The cyclicals flew off the shelves. But this time around. either Mr. Market is jaded or the laws of diminishing returns are setting in. Six weeks after the unveiling of QE3, the market is down 2%. This hasn't happened before. Every economic-sensitive sector is in the red, and even Financials — the one sector that should benefit from all the "sucking at the Fed teat" — have made no money for anybody!

That former Goldman, New Jersey and MF Global head Jon Corzine is absolutely convinced he is innocent of any client money vaporization or wrongdoing, and that the definition of the phrase "to Corzine (verb- to trust your money to a prominent individual and to find it has mysteriously disappeared)" is absolutely arbitrary, is not news to anyone. And if not convinced then at least at a complete loss to what actually happened. One just had to recall all the "I don't recalls" the Honorable Corzine told congress during the makeshift kangaroo court hearing on MF Global's collapse (even if the final outcome was less than desired).   So it's only logical that the Honorable Corzine asked a federal judge to "toss a civil fraud lawsuit accusing him of misleading investors about the risky bets the futures firm was taking before its collapse a year ago." The WSJ reports that "Corzine's lawyers blasted the investors' suit as a "jumble of assertions and accusations" that makes "no sense" that should be dismissed in a filing Friday in U.S. District Court in New York." But here is the kicker: MF Global may have mismanaged trades, Corzine's lawyers admit, but he sure didn't hide the risks or mislead investors about the firm's risk appetite or liquidity. Why? Because he was so convinced in the profitability of MFG he bought a whopping 50,000 MF Global shares in the open market two months before the firm collapsed. So let's get this straight: Corzine invested a whopping $225,000 (as a reminder, Corzine was CEO of Goldman Sachs for years) because he believed in the firm and not to give the impression that the firm was "safe" in order to avoid a full blown panic once the realization its was insolvent could no longer be hidden, and be wiped out on all of his stock, option and other MFG holdings? And this is what sophisticated lawyers use as evidence of his innocence? Seriously?

Earlier this week two former Merrill colleagues, since separated, were reunited on several media occasions, and allowed to spar over their conflicting views of the world. The two people in question, of course, are Gluskin Sheff's David Rosenberg, best known during the past 3 years for not drinking the propaganda Kool-Aid, and systematically deconstructing every "bullish" macroeconomic datapoint into its far more downbeat constituent parts, and his ebullient ex-coworker, Richard Bernstein, formerly head of equity strategy at a firm that had to be rescued by none other than Bank of America and currently head of RBA advisors, who just happens to be bullish on, well, everything. And since any attempt at holding an intelligent conversation on CNBC is ultimately futile (as can be seen here) and is constantly broken up by both ads, and interjecting anchors and show producers who care far less about facts than keeping the presentation 'engaging' (and going to such lengths to even allow Jim Cramer to have his own TV show), Rosenberg decided to dedicate his entire letter to clients today to "providing a rebuttal" of the slate of reasons why according to Bernstein the "we are on the precipice of a 1982-2000 style of secular market." What follows is one of the most comprehensive "white papers" debunking the bullish view we have seen in a while. Read on.

So the Fed is pinning its hopes on stimulating the economy via the wealth effect again, as it did when it revived the post-tech-wreck asset bubble in housing and credit in that now infamous 2003-07 period of radical excess. But here's the rub. While there is a wealth effect on spending, the correlation going back to 1952 is only 57%. But the correlation between spending and after-tax personal incomes is more like 75%. The impact is leagues apart. And that is the problem here, as we saw real disposable personal income decline 0.3% in August for the largest setback of the year. The QE2 trend of 1.7% is about half the 3.2% trend that was in place at the time of 0E2. Not only that, but the personal savings rate is too low to kick-start spending, even if the Fed is successful in generating significant asset price inflation. The savings rate now is at a mere 3.7%, whereas it was 6% at the time of QE1 back in 2009 and over 5% at the time of QE2 2010 — in other words, there is less pent-up demand right now and a much greater need to rebuild rather than draw down the personal savings rate. This is a key obstacle even in the face of higher net worth.

The EU assembly just voted affirmatively to impose a spate of rules to control 'high-frequency-trading that, as the WSJ reports, was advanced by Germany following their concerns that speedy traders have brought instability to markets. It is somehow reassuring that three-years after we first brought HFT to the mainstream's agenda, at least one nation is taking it seriously, doing something about it, instead of being filibustered into the 'liquidity-providing' meme. The rules will initially require registration, collect fees on excessive use of HFT methods, and install circuit breakers with the goals to "limit the risks associated with high-frequency trading" per a senior German FinMin; but the more stringent rules to come will have the greatest impact as they intend to include requirements for orders to rest on the exchange book for at least half-a-second, and potentially order-to-trade ratio caps. Not surprisingly, the HFTs believe a "one-size-fits-all approach would be very harmful." Indeed - to their profits.

• China carrier a show of force as Japan tension festers (Reuters)
• Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
• China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
• Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
• When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
• Italy's Monti Downplays Sovereignty Risk (WSJ)
• Portugal swaps pay cuts for tax rises (FT)
• Madrid faces regional funding backlash (FT)
• Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
• Race Focuses on Foreign Policy (WSJ)
• China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)

Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, L.P. and one of the most successful hedge fund managers of all time told Maria Bartiromo last week that he owns gold and that he sees no “sensible reason not to own gold”. The interview was part of the Council on Foreign Relations (CFR) Corporate Program's CEO Speaker Series, which provides a forum for leading global CEOs to share their priorities and insights before a high-level audience of wealthy and influential CFR members.  The respected hedge fund manager suggested that a depression and not a recession was likely and warned of social unrest and the risk of radical politics as was seen with Hitler and the Nazis in the Depression of the 1930’s. Dalio spoke about how “gold is a currency” and when asked by Bartiromo “do you own gold?”, he smiled and said “Oh yeah, I do.” The admission elicited a laugh from the CFR audience. Dalio’s interview is important as it again indicates how slowly but surely gold is moving from a fringe asset of a few hard money advocates and risk averse individuals to a mainstream asset. Wealthier people and some of the wealthiest and most influential people in the world are slowly realising the importance of gold as financial insurance in an investment portfolio and as money. This will result in sizeable flows into the gold market in the coming months which should push prices above the inflation adjusted high of 1980 - $2,500/oz. The interview section where Dalio is asked about gold by an audience member begins in the 43rd minute and can be seen here.

Marc Faber, one of the few analysts, to have predicted the current crisis correctly and to have protected his clients in the process, remains very bullish on gold. In another excellent Bloomberg interview, Faber said that “the trend for gold prices will be steady but the trend for the dollar and other currencies will be down. So in other words gold in dollar terms will trend higher.”  “How high it will go, you will have to call Mr Bernanke and at the Fed there are other people who actually make Mr Bernanke look like a hawk and so they are going to print money.” Faber is on record as to the importance of owning physical gold and he again warned about the importance of owning gold but not storing it in the U.S.  “You ought to own some gold but don’t store it in the U.S., the Fed will take it away from you one day,” Faber astutely noted. He said that Bernanke is a money printer and this could lead to massive inflation and the Dow Jones at 20,000, 50,000 or 10 million. Faber cheerily predicted that the “the Federal Reserve’s monetary policy will destroy the world” and “eventually we will have a systemic crisis and everything will collapse.”