The news during the last five days has been sparse as the regular year-end news items filter through the talking heads giving prediction after prediction about what will occur next year. Everything from the break-up of the EU to the closing of the Straits of Hormuz winds its way through the markets. The only significant story is the parking of LARGE AMOUNTS OF EUROS AT THE ECB as the distressed banks of Europe seem to want to place excess reserves with the Draghi Bank rather than buy the sovereign debt of Italy, Spain and the others.
It seems odd that the banks would borrow from the LTRO at 1% and receive a lesser rate on overnight deposits. The financial world is waiting for the results of the ITALIAN 3- and 10-year auction on Thursday so maybe the EU banks are stockpiling funds in an effort to be aggressive buyers of the DEBT. Just imagine the equity market’s reaction to a very positive auction: Year-end window dressing would meet no resistance.
Today’s action in the EUROPEAN DEBT markets resulted in a further steepening of the ITALIAN and SPANISH 2/10 curve as the Italian closed +207 while Spain gained 11 basis points to +197. These BULL STEEPENERS held the EURO steady and just don’t support the idea of banks failing to buy the shorter end of sovereign debt. It may all just be the thinness of the markets due to the holidays but something is definitely out of sync. Caution is advised as small orders can have large impacts and a positive headline auction result can ignite a RISK-ON trade.
***A news item of some interest to metals traders is that Zimbabwe, the second largest miner of PLATINUM, is planning to ban or heavily tax the export of unrefined platinum. As ZIMBABWE tries to recover from the terrible economic policies of Robert Mugabe, it is trying to build some type of manufacturing infrastructure. The DEPUTY MINES MINISTER, GIFT CHIMANIKIRE, has warned Impala Platinum Holdings and the Anglo-American Platinum of the government’s plans. The GOLD/PLATINUM spread has moved to record levels of late as the South African RAND’S DEPRECIATION has led to increased production by the world’s largest producer so as to make up a revenue shortfall.
If the GOLD/PLATINUM spread were to turn, it would signal that the Zimbabwe policy was having an impact, especially coming at a time of increased global auto production. It is important to note that PLATINUM will become a supply issue rather than a new bullish signal about precious metals in general.
***This is not a political statement. Today, President Obama placed two names forward for the FEDERAL RESERVE BOARD OF GOVERNORS: Harvard University’s Jeremy Stein and the Carlyle Group’s Jerome Powell. At this time I don’t know enough about the work of Professor Stein but I am very bothered by the nomination of Mr. Powell. The power of the Carlyle Group and its connections to the upper echelons of various governments makes the choice very questionable. President Obama likes to give verbal support to the Occupy Wall Street crowd but when it comes to delivering some sense of fairness to the corrupt Washington/Wall Street nexus Obama returns to business as usual. Carlyle Group is the poster child of two complexes: Eisenhower’s Military-Industrial Complex and Simon Johnson’s Financial/Political Complex.
The board of CARLYLE GROUP is a who’s who of the movers and shakers of the contemporary “crony capitalist” world and now they get a seat on the FEDERAL RESERVE BOARD. This is a very ill-advised pick especially as it is regularly revealed how the Washington insiders utilize non-public information in a “perfectly” legitimate way. President Obama came to Washington posing as a reformer but with this choice of Jerome Powell he forgot to get inoculated against arrogance. I had the AUDACITY TO HOPE FOR SO MUCH MORE. I am not doubting Powell’s qualifications but I question why the PRESIDENT cannot find economic stewards outside the BELTWAY or WEST OF THE HUDSON. If you needed a Cambridge man, MIT‘s Simon Johnson is certainly highly qualified.
Tags: Carlyle Group, Draghi, ECB, EU, Euro, Federal Reserve Board of Governors, gold/platinum spread, Italian auctions, Jeremy Stein, Jerome Powell, Obama, platinum, Simon Johnson, South African rand, Spanish 2/10 curve, Zimbabwe