Tuesday, October 23, 2012

On This Date In 1929, The Black Thursday Selling Has Begun

Last week, the misty eyed reminiscences were recalling the 25th anniversary of Black Monday. Today, we look even further back. 83 years back to be precise to this date in hallowed antiquity, when in 1929 the selling had officially begun, with what would ultimately culminate as the Great Crash. Cue Art Cashin: "on this Thursday morning, the market opened nervous but relatively steady. Within the first half hour, prices began to fade and the tape began to run late. By noon the tape was nearly an hour and-a-half late in reporting transactions in a market that had opened only two hours before. To speed the reporting digits were deleted and so "Radio" which had opened at 68 3/4 now showed on the tape at 8 3/4. But prices were moving so fast that the price was not 58 3/4 but 48 3/4 on its way to 48 1/4 before it would bottom in the afternoon at 44 1/2. To avoid confusion the Exchange published flash prices of selected securities on the slower moving bond tape." By early afternoon the cascade of prices caused an emergency meeting at the offices of J.P. Morgan across the street from the Exchange...."

Bank Of Canada Fires Shot Across Bow, Says "Withdrawal Of Stimulus Will Likely Be Required"

With the entire world engaged in global coordinated easing, slashing, burning, and overall lowering rates and printing money by the wheelbarrow, the Bank of Canada just fired a shot across the bow. Here is the kicker: "Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required." Surely they must be punished for this blasphemy in the holy church of Saint John Maynard and the apostles of collapsing fiat.

As Market Plunges, Bob Janjuah Opines: "Tactical Short Risk Time"

Dow Jones down 250, and a new bearish letter from Bob Janjuah? Lucky coincidence? Or conspiracy? You decide. From Bob: "How to play it? The SPX is the obvious pure risk short because of how rich it is against other equity markets. Outright is fine, so are options. Take a look at January 1350 puts for example currently trading at 20. If doing outright we would recommend a stop just above the recent highs at 1475. We also like the USD and Treasuries because the market has seen time and time again US problems do not lead to selling of (safe) US assets and it can and we think will be the same again."

No Third Term For The Bernank

While the theater of the presidential election hits peak season, and InTrade odds for this candidate or that are approaching flash crash territory, the one person who truly runs not only the US, but the entire "developed" world, Ben Bernanke, is going nowhere. At least not until January 2014. At which point he may be going somewhere - retirement. Reuters cites the NYT: "U.S. Federal Reserve Chairman Ben Bernanke has told close friends he probably will not stand for a third term at the central bank even if President Barack Obama wins the November 6 election, the New York Times reported." In other words: the republican Fed Chairman who mysteriously became a Democrat president's bestest friend (and has been publicly threatened by every other GOP candidate, including Romney, although that would be merely to replace him with Bill Dudley, not Glenn Hubbard)  that $4 trillion that the Fed will have in assets at the time of Ben's departure, and $5 trillion at December 31, 2014, just became someone else's problem. Good luck to that someone else unwinding a Fed balance sheet which as we explained previously, will at one point in the next 2 years hold well over half of the marketable US Treasury debt inventory. How the sale of this inventory will happen in a time of spiking rates (because that's what the Fed wants - inflation) is literally anyone's guess, because in practice it will never happen.

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A Slow Reduction In Standard of Livings Across The Western World

Eric De Groot at Eric De Groot - 3 minutes ago
Normal 0 MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; ... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

HFT Takes Over InTrade As Romney Flash Smashes

Since just after the US equity day session opened, Intrade's Obama and Romney markets have seen volume explosions. In what can only be described as HFT-driven chaos, perhaps someone is seeking a 'cheap' hedge on the equity market's freefall? or more likely, yet another rogue algo got loose and is toying with another market. Romney's odds exploded from 41% to 48%, crashed back down to 42% and are leaking higher once again. Obama's odds (and note the market was crossed for a while) have fallen off a cliff to their lowest since before QEtc at around 57%...

Where Do Stocks 'Belong'?

Twice this year we have seen the US equity market become enamored of its own hope-holding, momentum-trapping, liquidity-driven, success while the bond markets (Treasury and High Yield) have remained a little less sanguine. This lack of exuberance among all but the equity players perhaps better reflects the sad reality of fundamentals (as we noted here) or perhaps this time it is different. To wit, the following two charts as a gentle reminder that gravity still exists and where the short-term floors might be...


Fed considering upping QE3 size and language

Eric De Groot at Eric De Groot - 1 hour ago
Normal 0 MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; ... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

QE to Infinity

Eric De Groot at Eric De Groot - 2 hours ago
Those worried that QE will be finite should read the headlines. Stock, gold, and commodities will be supported by the sea of liquidity, but it's easier to see panic right now. Headline: Earnings Cliff Ahead? Profit Outlooks Are 90% Negative Earnings conference calls are beginning to resemble crisis hotlines as corporate executives slash profit forecasts because of fears of higher... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Goldman's Tom "FX Scourge" Stolper Resumes Legendary Muppet Slaying

Greg Smith's 15 minutes of fame has come and gone, but the muppet crushing at Goldman is only starting to ramp up, courtesy of the man who singlehandedly has made sure Goldman's FX prop trading team should be the most profitable one in the entire universe by simply doing the opposite of what Goldman's clients do. As a reminder, sent out at 5 pm yesterday, as we alerted our Twitter followers: "Go long EUR/CAD on further risk premium compression in the EUR and a more dovish BoC... We recommend going long EUR/CAD at a current level of 1.296 with an initial target of 1.37 and a stop on a London close below 1.26." Big Oops (see chart). Then again, after Stolper epic failure to Impala the muppets on his last EURUSD trade reco, it is great to see him back to 0.000 batting form.

Video: The Technical Position Of The Market Is Poor

Admin at Marc Faber Blog - 2 hours ago
Related ETFs: SPDR SP 500 ETF (NYSE:SPY) * **Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Cartoon Comedy Or Concerned Criticism: Pick Your Favorite Debate Post-Mortem

The debates are over; and perhaps last night's 'chat' was the least interesting from any substantive angle of any of the interactions given the candidates tendency to agree on virtually everything (apart from bayonets) - and still say absolutely nothing. In the interests of being fair and balanced - as we always are - we present two sides of this epic farce. First, the Asian animated interpretation - for some light-hearted insight into just how our potential leaders are perceived across the ocean after last night's debate; and second, a more retrospective view by Ben Tanosborn on the three 'meaningless' debates - and the questions that should have been asked. "Mitt Romney and Barack Obama have shown to be equally adept at dealing with trivia and secondary issues... and equally inept at dealing with every substantive issue." 

Video: The 'Greatest Garbage' Could Rebound

Admin at Marc Faber Blog - 2 hours ago
In this "Squawk Box" excerpt, investor Marc Faber explains why it may be a good time to invest in Chinese and Japanese markets. *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Commodities 101

Admin at Jim Rogers Blog - 2 hours ago
With all commodities, the most important factor is supply and demand. - *in ETF Daily News * *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.*

Equities Set To Open With Biggest Gap-Down In 3 Months

S&P futures are trading down around 18 points in the pre-day-session market. This would be the largest gap-down day in three months, and only the third largest gap-down open in 2012. The market has broken to its lowest since QEtc was announced and retraced more than half of the Draghi 'Believe' moment spike...

The Gray Economy: Europe's €1.5 Trillion A Year Black Hole

With Greek tax-collectors under increasing pressure to squeeze their quote out of an increasingly bombastic population, Italy's Rossi arguing for the need to fight VAT evasion, and France taxing anything and everything that moves - all in the name of austerity; it seems, as Bloomberg Brief's Niraj Shah notes today that attempts to bring burgeoning debt levels in Europe under control - by tackling the unofficial, or gray, economy - may backfire. It seems, given the large and growing (average 17.3% of euro GDP or EUR1.5tn) size of the gray economy that the more governments try to capture 'gray' externalities (or hike VATs - up from 18.1% to 20% on average), they merely succeed in pushing more transactions into the gray area. A study by Schneider of Linz University finds that focusing on the gray economy may be counter-productive as some of the activities may act as a safety net and contribute to growth - in a counter-cyclical way - serving as a cushion for people facing wage cuts and job losses. With as much as 24% of Greece's economy now estimated to be 'unofficial', the Troika-inspired 23% VAT rate is having quite the unintended consequence it seems.

The American Elections

Between today and the American elections; virtually nothing else will matter. Gone are the promises of social redemption from Mr. Obama’s speeches because, in my view, the promises were not delivered upon. There is no ground swell of younger voters campaigning and voting for some sort of Orwellian new world order and I wonder just how many in this sub-set will actually vote for anyone. Gone are the speeches promising new hope for the next generation because America has run up the debt to the point that something must be done and we have reached the limit of our social indulgence and so that hard choices, tough choices, are going to have to be made by whoever assumes the American presidency.

What Is The Actual Book Value Of Germany’s Gold Reserves

German Federal auditors handed in a report slamming the Bundesbank for not inspecting their foreign held gold reserves to verify their book value. The report says the gold bars "have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight." Instead, it relies on "written confirmations by the storage sites."  The lion’s share of Germany's gold reserves (nearly 3,400 tons estimated at $190 billion) are housed in vaults of the US Federal Reserve, the Bank of England and the Bank of France since the post-war days, when they were worried about a Cold War Soviet invasion. The Bundesbank stated, “There is no doubt about the integrity of the foreign storage sites in this regard". In contrast with best industry practices Germany’s gold reserves do not seem to be independently verified by a third party. Philipp Missfelder, a politician from Merkel’s own party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German’s daily Bild reported. The Bundesbank won't let German parliament members inspect the German gold vaulted abroad because the central bank vaulting facilities supposedly lack "visiting rooms." And yet one of those vaults, the Federal Reserve Bank of New York, offers the public tours that include "an exclusive visit to the gold vault".

Daily US Opening News And Market Re-Cap: October 23

The MaƱana approach endorsed by the Spanish government is finally beginning to have its toll on investor confidence and after being contained by the so-called Draghi put, 2y bond yields are up over 20bps for the second consecutive day. The decoupling that is being observed is being driven by yesterday’s downgrade of several Spanish regions by Moody’s, citing deterioration in their liquidity positions. As a result, Spain runs a risk of being forced to raise the size of its regional bailout fund which stands at EUR 18bln, with EUR 17.2bln already tapped, as the latest downgrade will likely put an upward pressure on borrowing costs. Major equity markets in Europe are down close to 1%, led by basic materials and oil & gas sectors, as WTI continues to consolidate below the key USD 90 level, while spot Gold continues to lose its shine and is looking to make a test USD 1700. The second half of the session sees the release of the latest Richmond Fed report, as well as the weekly API report.

Frontrunning: October 23

  • Moody’s Cuts Ratings on Catalonia, Four Other Spanish Regions (Bloomberg)
  • And the market top: Billionaire Ross Interested in Buying Spanish Bank Assets (Bloomberg)
  • Japan Jojima denies govt seeks $250 bln BOJ asset buying boost (Reuters)
  • China hints at move to strengthen Communist rule (Reuters)... well everyone else is doing it
  • Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court (Bloomberg)
  • Obama, Romney now tied in presidential race: Reuters/Ipsos poll (Reuters)
  • Former China Leader Jiang Resurfaces Before Political Transition (Bloomberg)
  • Some in Congress look to $55 billion fiscal cliff 'fallback' (Reuters)
  • CLOs stage comeback in US (FT)
  • TXU Teeters as Firms Reap $528 Million Fees (Bloomberg)
  • China’s Factories Losing Pricing Power in Earnings Threat (Bloomberg)

Overnight Sentiment: Crashy

Easy come, easier go. After yesterday's last hour ramp driven by a MarketWatch article that said absolutely nothing new about the Fed's monetization plans and an AAPL surge which saw the firm add $22 billion in market cap in one day (or more than the market cap of CBS Corp) sent stocks green, the overnight session has taken it all away and then some, with futures now trading roughly 12 ticks lower or at yesterday's lowest levels. The catalyst is, once again, Spain where Moody's downgraded five Spanish regions including Catalonia after the market close (for the reason, see our piece from the weekend "Spanish Regional Bailout Fund Runs Out Of Money"), coupled with news from Confidencial that Spain's budget deficit will overshoot the EU target of 6.3% and hit at least 7.3%, driven by a €10.5 billion deficit in the social security system, trashing the promises from last month's Spain's "reform" package, and as BNP said (confirming what we warned weeks ago), making the conditionality hurdle suddenly that much higher for Spain. And just as the world was getting comfortable that Spain will get away with using the OMP with virtually no conditions. The cherry on top came from France where the business conditions index slid to a 3 year low on expectations a trough had been put in place. The result is a tumble in the EURUSD to below the 1.3000 barrier, dragging stock futures, commodities, and of course Europe with it, sending the Spanish bond curve yield higher, and generally giving a very sour mood to the day as traders walk in.

Today’s Items:

The Exodus of China’s Upper Class Continues

Things in China are much worse than many believe.   In fact, many of China’s upper class are trying to get as much money out of the country before the collapse happens.   Estimates of $225 billion has left China in the 12 months leading up to September.   What is interesting these Chinese are willing follow the West anywhere, instead of China.    Maybe it is out of morbid curiosity.

QE3 Side Effects

QE3 has quickly made its way into Asian markets.   Central banks in Asia spent $18 billion to curb the rise in their currencies.   The inflation created with this printing will increase prices from food to fuel.   Whatever Benji Bernanke is lacking in ethics, he appears to more than make up for in dishonesty.    So, get out of these ponzi schemes and into real assets.

Iran Has Agreed to Nuclear Talks

It is amazing that Obama has gone from a crystal-clear promise to stop Iran from getting nuclear weapons to having nuclear talks within four years.   Not!    Yes, this is a so-called last-ditch effort to stop a war between Iran and the US; however, why would those in Iran believe anything that comes out of Washington and vice-versa?    Hell, when it comes to Obama, Romney, or Ahmadinejad, one can tell that they are lying simply because their lips are moving.   Perhaps, Iran and the US could have a Beer Summit.

Pay Gap Between Government and Private Widens

The gap in pay of private-sector workers over federal employees and has jumped 8 percentage points since last year and now is at 34%. This is the second year of a pay freeze for federal employees.   Just imagine the excitement when those mandatory fiscal cuts become active starting in 2013.

Romney Owns the Voting Machines

Tagg Romney, son of Mitt Romney, has purchased electronic voting machines that will be used in the 2012 elections in some states like Ohio, Washington, and Colorado.   Let’s see, Ohio is a critical swing state this election and Romney effectively controls the voting machines.   Hmm….   No conflict of interest here folks.    Not!!!

2012 Race Called

Well, color my thumb purple folks because Obama has already won the election weeks ahead of the vote. At least according to a CBS News graphic that showed Obama winning the election with 43% of the vote nationwide to Romney’s 40%. Even if this were a simulation, it is very clear how the media follows the dictators Chavez, Castro and Putin in supporting Obama.

Third Presidential Debate

While disagreeing on style; such as Romney leveling the “Apology Tour” accusation with Obama’s pathetic “Ask the Reporters” response, both candidates clearly signaled many of the same foreign policy actions.    With that, the US’s war-drums to control oil production nations will continue; however, could this policy be soon pointless?

Gasoline from Thin Air

In a possible “game-changer”, British scientists have developed a way to create synthetic gasoline with only air and electrical power.    Because it (the gasoline) is made using hydrogen and carbon dioxide, it is carbon-neutral.   When, and if, this method goes into full production, how long before US forces liberate the UK?

Finally, please prepare now for the escalating economic and social unrest.    Good Day!

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