Wednesday, September 12, 2012

Citi: If NEW QE, Then Buy Gold

Some very curious thoughts ahead of tomorrow's FOMC announcement from none other than Citigroup: "There is a strong view in markets that 1) the Fed have to do a big QE, given the expectations that have been built up, and 2) the added liquidity will have a marginal effect.  Taken together this raises the risk that the assets that will benefit are those sensitive to liquidity, such as money substitutes and Treasuries, rather than assets that are sensitive to real business cycle expansion." Money substitutes = gold

72 Seconds Of Sanity On Europe

Instead of waffling on for an hour about all the wonderful things that Europe will become as a stronger world power if only everyone can just get along, give up sovereignty, and bow to Barroso, Daniel Hannan sums up perfectly what 'should' happen in order for some closure and resurrection to occur in the dis-union.

Here's Hilsenrath With What To Expect Tomorrow

By now everyone knows that the WSJ's Jon Hilsenrath is spoon-Fed information directly by the Fed. Even the Fed. Which is why everyone expected the Fed to ease last time around per yet another Hilsenrath leak, only to be largely disappointed, invoking the term Hilsen-wrath. Sure enough, it took the market only a few hours to convince itself that "no easing now only means more easing tomorrow", and sure enough everyone looked to the August, then September FOMC meetings as the inevitable moment when something will finally come out. So far nothing has, as the Fed, like the ECB, have merely jawboned, since both know the second the "news" is out there, it will be sold in stocks, if not so much in gold as Citi explained earlier. Regardless, the conventional wisdom expectation now is that tomorrow the Fed will do a piecemeal, open-ended QE program, with set economic thresholds that if unmet will force Bernanke to keep hitting CTRL-P until such time as Goldman is finally satisfied with their bonuses or unemployment drops for real, not BS participation rate reasons, whichever comes  first. As expected, this is what Hilsenrath advises to expect tomorrow, less than two months from the election, in a move that will be roundly interpreted as highly political, and one which as Paul Ryan noted earlier, will seek to redirect from Obama's economic failures, and also potentially to save Bernanke's seat as Romney has hinted on several occasions he would fire Bernanke if elected. Here is what else the Hilsenrumor says.

Bill Gross Sells $30 Billion In Treasurys In August As Total Return Fund Cuts Government Exposure By Over A Third

While others were buying TSYs in the month of August on hopes of frontrunning the central printer, and expectations that Bernanke's NEW QE announcement will lead to even more flattening in the curve (even though as we explained there is only $650Bn in free 10-30 year private sector inventory available in the entire market), Bill Gross, via PIMCO's flagship Total Return Fund, was busy selling. So busy in fact that over $30 Billion in US paper was dumped to unwitting investors, resulting in the move wider by the 10 Year paper which at auction earlier today priced at a multi-month high yield. As a result at the end of August, PIMCO's total Treasury exposure was just 21% of total AUM, the lowest since August 2011. And what did Pimco do with the proceeds? Nothing - it merely satisfied its margin cash position, which plunged from -18% to -6%.

Grand Theft Auto: FOMC City - Bank Robbers Throw Cash Out Of Volvo In South Los Angeles

Once upon a time we thought that literally throwing cash out of rapidly moving objects was a privilege strictly reserved for Fed chairmen. Not any more. Moments ago, a car chase in South Los Angeles went horribly right, when two bank thieves who managed to find a Bank of America branch which actually had cash in it, and robbed it, proceeded to throw cash out of the moving car as it was being chased by a cohort of cops. Since the getaway car happened to be a Volvo, they naturally failed to get away, but not before they became local Robin Hood-type heroes to the massive gathering of gawkers all of whom would appear gainfully employed if only they were not just standing there, doing nothing, and hoping to steal the already stolen money in a major LA intersection at 11:30 am local time on a Wednesday. At least we now have the first two joint candidates to take over the BOE's soon to be vacant governorship.

German Constitutional Court OK's ESM but with conditions/ESM cannot be issued a banking license/ gold and silver raided/

Good evening Ladies and Gentlemen: Gold and silver suffered from a mini raid today.  Gold finished the comex session at $1730.60 down only $1.20 on the day.  Silver finished  the session at $33.23 down 28 cents.  Silver at one point was down to $32.40.  Tomorrow is a very important day (FOMC statement) with respect to whether the Fed engages in  official QEIII  or not.  I believe that there will

MF Global On Steroids

Dave in Denver at The Golden Truth - 7 hours ago
*There is no way over, under, around or through the fact that no progress will be made as long as the world is divided up between the rulers and the ruled and the ruled accept their lot...There has never been any shortage of those who want to rule. The problem has always been with the vast majority who are content to be ruled. Today’s global outcry for the manufacturing of more and more “money” out of thin air is an eloquent testimony. It shows that most people have no understanding of freedom, markets or money. Lacking such understanding - and having no desire to gain it - most pe... more » 

Ebb, Flo, Patience, Discpline, Then Fight

Eric De Groot at Eric De Groot - 9 hours ago
Roham, Your trading instincts are improving. You know the invisible hand can’t resist "pushing" the paper markets around official policy meetings and other bigwig powwows. Experienced position traders always reduce their position into strength; Jim often recommended releasing 1/3 of the original position to manage risk and ego. Gunslingers which include yours truly at times tend to flip their... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Mailbox Comments

Eric De Groot at Eric De Groot - 11 hours ago
Hi Eric, Good comments on trusting government. Regarding 401Ks and IRA's it should now be obvious what's at the end of the road. The Government is so honest they have actually told us in the form of the recent confiscation of segregated accounts at MF Global etc. In those cases when a bank lends money to a financial institution it takes priority on the return of money when said... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

It`s Going To End Terribly

Admin at Jim Rogers Blog - 11 hours ago
The 30 percent gains since last October have been largely driven by one catalyst -- the Fed. The Federal Reserve is pumping huge amounts of money into the market. This is a Federal Reserve rally. The money has to go somewhere and its going into the stock market and the commodity market. It’s going to end terribly. - *in CNBC* Related: S&P 500 Index ETF (SPY) *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is ... more » 

Liquidity Follows Its Own Terms

Eric De Groot at Eric De Groot - 12 hours ago
Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect), Mark Twain's Notebook, 1904. The side of the boat that expects the Fed to act tomorrow is becoming crowded. Jim is right, liquidity is inevitable, but it will come on it's own terms. If a huge liquidity blast was coming tomorrow, the invisible hand would already know about it. That... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

There Has Been A Very Significant Economic Slowdown Globally

Admin at Marc Faber Blog - 13 hours ago
There has been a very significant economic slowdown globally in real terms. We are in recession in Europe. We have hardly any growth if it was measured properly in the U.S., and in asia, i'm not saying we're in a slump, but we have a tremendous recovery, 2009 to 2011, and just over the last six months the asian economies have come off the peak. In other words, we have high economic activity but in my view no longer any growth in asia. - *in CNBC * * * *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Video: It`s A Federal Reserve Rally

Admin at Jim Rogers Blog - 13 hours ago
With the S&P 500 Index up 30 percent since last October, investor Jim Rogers reveals what he sees driving the market. Related: SPDR S&P 500 Index ETF (SPY) *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.* 

Schiff Vs. Insana; Matter Vs. Anti-Matter

Perhaps no better example of the two camps of perspectives on the market's performance and the Fed's expectations was on display this afternoon on CNBC. In the 'we need some destructive asset clearing in order to get back to any sort of growth trajectory and the Fed is feeding an inflationary monster with its band-aid upon band-aid money-printing' camp is Peter Schiff; while the other side of the investing octagon is Ron Insana who sees a '100% rise in stocks as evidence of something and that the Fed must do something, anything in order that we avoid the reality under the surface of a deleveraging deflationary world economy'. We are not sure of the winner as the shouting became too much to bear - but nevertheless the vociferous nature of the two combatants (each proclaiming their #winning-ness) shows the bifurcated world in which we live.

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Goldman On Spain's Tension-Inducing Arrogance

The opposition seen in Germany in response to Mr Draghi’s preparedness to buy sovereign debt implies that current posturing in Spain will not wear well with the politics of signing a Memorandum of Understanding in Germany. As Goldman notes, the more the Spanish administration indulges domestic political interests and is perceived to be taking undue advantage of external support, the more explicit conditionality is likely to be demanded. This would add to any existing tensions, given Spain’s opposition to conditionality. This is disappointing partly because it is avoidable if Spain were to accept the external support on the terms currently available. Spain will have the opportunity in the coming weeks and months to demonstrate that it wishes to avoid these incipient risks. But we, like Goldman, continue to believe that some of the incentives created by Mr Draghi's preparedness to act could prove difficult to resist- and will thus delay any real game-changer that is priced in.

AAPL Leads Stock Surge To New Highs

Broadly speaking, risk assets were not as dismal as equity markets today - holding on near the highs for much of the day. The late day surge higher in AAPL - that dragged everything higher - was a recoupling to risk-assets on the day as volume surged and average trade size picked up significantly. AAPL ended up at the record-high day's closing VWAP (around $672) perhaps suggesting some algo-driven liftathon to enable the bigger boys to exit the heavily-weighted-in-the-index name - and right in front of Bernanke's big day tomorrow, it seems odd - other than short-covering squeezes - to be positioning this heavily long. HYG once again soared (playing catch-up to HY credit spreads), VXX tumbled into the close as VIX dropped following the ESM decision (though was not as ebullient as stocks ahead of tomorrow's NFP). Treasuries just kept leaking higher in yield (now 5 to 30Y yields higher by 5-10bps on the weeks) - and crushing the spread to MBS. The USD was stable most of the day after early weakness, on EUR strength after the ESM decision, was unwound. A bump-and-dump in commodities ended generally unchanged aside from Silver which had its own mysterious flash-crash soon after the US day session close. Credit tracked stock generally on the day and was quiet. S&P futures take out (after-hours) the highs of the day/year/four-years (as contracts rolled). Need Moar QE.

iTaxes Vs. Uncle Sam's Friends And Family Plan

Yesterday, news broke that the US government has awarded a whopping $104 million to convicted felon and former inmate Bradley Birkenfeld. It was a big headline and you likely saw the news… but it’s worth a deeper look. Because if there is one story that neatly summarizes what is wrong with the US these days, it is the case of Mr. Birkenfeld.

iPhone 5 vs iPhone 4S - First Look

If this is what 0.3-0.6% of US GDP (according to JPMorgan) looks like, then the US is truly in desperate need of not only QE3, but 4, 4S and 5. Also, since it is not on the front, we can only assume the "Samsung Inside!" sticker is on the back.

Here Is The First Post-ESM-Decision 'Nein' From Germany

German FinMin Schaeuble has been on TV for the last 30 minutes explaining the 'bailout' reality to the ugly mob that is the German taxpayers. Less than 12 hours after the German Constitutional Court rejected complaints against the ESM - though added conditions capping German indebtedness - it seems the need to explain the limited 'unlimited' liability to the people is high. To wit:
  • NEIN - "No country in Europe" can hope for the ECB to "fire up the money printing press," Schaeuble says. Germany "will make sure that it doesn’t happen"

Inside The Student Loan Debt Bubble

We have long discussed the rapid rotation of credit growth from housing and credit card to auto loans and now student debt as the US is not deleveraging in reality at all. A recent report from the Kanasas City Fed notes that in the last 7 years, student loan debt has grown at a staggering 13.9% annual rate. This rise in debt has been accompanied by a notable rise in the percentage of delinquencies (over 10.5% and 8.8% over 120 days past due) as the complex web of the student loan market structure strangles hope for many willing learners. The clear message is that student loans present problems for some borrowers, though, at the same time, the analysis suggests that student loans do not yet impose a significant burden on society from their fiscal impact - even though rather stunningly the Federal government is now 93% of the market. We would add that high student loan debt and its associated payment burdens have left many wondering if the value of a college education outweighs the costs - especially as we note that less than 40% of borrowers are under 30 and more than a third still owe in their 40s.

Why (For The Fed) It Is All In The Foreplay

Much has been written on the fading efficacy of the Fed/ECB grand-monetization schemes over the past few years. The following chart clarifies the market's apparent 'getting-religion' moment and that since QE1 - and the wake-up call that indeed the Central Banks of the world will inflate their way out of this mess - the market has increasingly front-run (and therefore removed) much of the actual balance sheet expansion efforts of the monetary overlords. One thing is sure, the latest ramp in stocks is absolutely front-running 'something' big from the Fed/ECB and for now, they are late! Does the Fed need to re-instill some discipline in order to regain its omnipotence?

Apple Presents iPhone 5, Market Unimpressed

To the complete shock of absolutely nobody,  Apple has unveiled the iPhone 4GS Botox Turbo 5
All the market wants to know is if it will buy Spanish bonds, and if it is acceptable ECB collateral. Everyting else is now just part of the annual, soon to be semi, quarterly, and so on, facelift. AAPL shares sliding - after reaching up to yesterday's closing VWAP at $664 (now at yesterday's lows)
Finally, the most important question - when is the iPhone 6 (with the purchase funded by the iBank captive leasing arm) coming?

$21 Billion In 10 Year Bonds Sold In Unremarkable Auction

The stellar 3 Year bond auction from yesterday is a memory, as Treasury prices $21 billion in very much unmemorable 10 year reopening. At 1.764%, the high yield was a tale to the 1.760% When Issued, and the highest yield since May 2012. The Bid To Cover also was also rather weak, at 2.85, well below the TTM average 3.07. Internals were also unspectacular with Indirects taking down a well below average 36.2%, compared to 41.94% avg in the past 12 auctions, Dealers taking down 52.2%, and Directs responsible for the rest or 11.6%. All in all very much a run off the mill auction, which takes us two thirds of the way to raising a net $28 billion in new debt this week, and closing just why of $16.1 trillion in debt (yes, it does seem like we just crossed the $16,000,000,000,000 barrier yesterday).

Europe Has Had Enough, But Can It Stand Up To Gazprom?

Gazprom has Europe’s natural gas market in a stranglehold and Europe is attempting to fight back, first with a raid last year on the Russian giant’s offices and then with a probe launched earlier this week against its allegedly illicit efforts to control the EU’s natural gas supplies. The bottom line is that the same natural gas revolution in the US, which was enabled by hydraulic fracturing (fracking), is now threatening to loosen Gazprom’s noose on the EU, and Gazprom simply won’t have it. Let’s not pretend that energy companies are clean and that governments aren’t using them to forward nefarious geopolitical objectives (US multinationals in Northern Iraq, for instance). The point is not to paint Gazprom as the ultimate evil in energy. This is about Europe, and the EU’s “Mommy Dearest” struggle with Gazprom, which is undoubtedly playing an underhanded energy-politics game worthy of the most sinister of accolades.

Money Market Funds Venture Back To Europe - But Only Secured 'Core' Credit

The headlines proclaimed - confidence is back and the money-market funds are buying European debt again. This makes perfect sense, Europe is fixed and they are backing up the Corzine truck!! Well, no! According to the report from JPMorgan, Prime MMF assets rose $16bn but the bulk was in secured exposure to German and French banks - not exactly the kind of risk-on short-end exuberance that investors are supposed to infer from the headlines. Just as we have seen everywhere, collateral is king and secured credit is the preferred way - even if it comes at a premium. It seems that while the tail-risk is supposedly gone, even short-duration funds are not comfortable with the conditionality. Isn't it odd how headlines (from Reuters: U.S. money funds add euro zone debt in August) can be so different from reality?

European Stocks End Green (But Leaking) As Sovereigns Stagnate

There has been a lot of bluster this week that tail-risks have been removed from Europe (thanks to The Dreme) and now ESM ratification can continue to hold up Europe's insolvent states. Europe's equity markets continue to lift (though slower and slower), Europe's VIX has fallen again (post ESM decision), Europe's credit spreads continue to compress and squeeze tighter, and sovereign bonds rally - at the short-end. The one fly in the ointment - is that the last three days have seen very little movement in Bond yields for Spain, Italy, and France - only Germany's 10bps yield decompression has been the driver of perceived risk changes for the periphery. EURUSD is now 1 sigma rich to its swap-spread fair-value model - which is unusual. It seemes -just as in the US MBS market - the rumor has been bought, as stocks in Europe also leaked lower from the ESM announcement time spike.

Visualizing US Income Disparity, Or How The Rich Have Gotten Poorer For The Fifth Year In A Row

There was little of note in the annual US Census Bureau update titled "Income, Poverty, and Health Insurance Coverage in the United States." The key number everyone hones in on in this report - the number of America living in poverty - is already well known courtesy of foodstamp data. Per the Census bureau this number was 46.2 million Americans in 2011 or "after 3 consecutive years of increases, neither the official poverty rate nor the number of people in poverty were statistically different from the 2010 estimates." Actually this statement is quite wrong as the foodstamp data speaks a very different story, but it is an election year, and most people are mathematically challenged. Either way of looking at it, 15% of the US population living in poverty is hardly a statistic to be proud of, regardless who is president. Which brings us to a second point: when looking at the wealth dispersion by percentile, Wharton economist Justin Wolfers commented that "The rich just keep getting richer." Actually, based on the Census data he was looking at this also is wrong, as the underlying series shows that both the household income of the uber-wealthiest 95th percentile, as well as the income spread between the 95th and 10th percentile, over the past 5 years has actually been going down. In fact, the average income of the richest disclosed percentile is $186,000, or the lowest since 1999. So yes, the rich may be getting richer, but it certainly is not based on Census data, which shows that the wealth of the top percentile has been not only flat but modestly declining for 12 years.

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