It appears that the world is awash with Schadenfreude as analysts and pundits are experiencing great satisfaction and joy in the misery of others. Today the European automakers released sales data for March and the numbers were much weaker than the markets had expected. Registrations fell 10 percent and German auto sales dropped 17 percent. It appears that European auto sales in the passenger market are expected to hit 1993 levels. Ford and Peugeot also saw double-digit falls in sales. The euro rally against the YEN is dramatically biting into German car sales and the proof is in the fact that Japanese auto production has increased, and Toyota, Honda and Nissan stock prices have performed very well during the last six months.
Posts Tagged ‘silver’
What ailed the markets yesterday seems to have moved to the back pages and the equity markets recovered most of their losses. Gold and silver staged very tepid rallies considering the massive selling that took place during the past week. The global equity markets are still comfortable with central bank policy and even a terrorist attack on U.S. soil cannot shake of confidence of investors seeing high profits, low inflation and no alternative to the returns on equity. It is an old theme but when a market continues to discount unfavorable data and news the power of momentum is in full bloom.
Notes From Underground: Not Quite Groundhog Day, But It’s Time for the Unemployment Report to See Its ShadowJanuary 31, 2013
Will it be another mediocre report or will the economy show signs of life after the “fiscal cliff” issue was pushed down the halls of Congress? The robustness of the equity markets would certainly make one presume the jobs data “ought” to be better, but my readers are well aware that its ultra low interest rates that put the continued bid to global stocks. In fact, low wage growth and low interest rates have been a dynamic duo for corporate profits as high unemployment continues to keep downward pressure on wages and, of course, corporations are borrowing massive amounts of money through bond offerings and bypassing the need for bank financing. The recent GDP release showed that wages and bonuses had a large increase in the fourth quarter but that was due to businesses bringing dividends and bonuses forward to 2012 so as to beat the tax increases in the new year.
The world’s equity markets continue to float on the continued liquidity provided by the world’s central banks. Last week the European markets saw short-term rise on the announced payback of LTRO (Long Term Refinancing Operation), which was money lent by the ECB to European banks to prevent the wholesale selling of sovereign and commercial debt that had fallen in value. The European Central Bank took the devalued bonds and provided the banks with cash euros. This prevented a total collapse of the sovereign debt markets. Now banks that are flush with liquidity are taking back the debt and paying back the EUROS resulting in a short-term tightening in the EURIBOR RATES. Prior to the last ECB meeting, I advised that the ECB could cut rates for the market had already priced in a rate cut. Last week’s action, while a tightening, is actually a market reversing expectations, which is why the global equity markets had so little reaction.
It was only a year ago that the PRECIOUS METALS were laboring under the continued selling of GOLD and SILVER as the John Paulson hedge funds were liquidating long positions to meet the huge amount of redemptions by long-time investors exiting the decade’s best performing FUNDS. In a repeat, Morgan Stanley announced today that it was redeeming its investors out of Paulson’s two largest funds after another year of questionable performance. In today’s world where one hedge fund can hold massive positions, divestment by disgruntled investors can initiate massive corrections. In 1980, when the Hunt Brothers caused great turmoil in the silver markets, they had a mere BILLION DOLLARS to play with (the Paulson funds control close to $15 billion under management.) As traders and investors it’s our job to be cognizant of all the animals in the jungle. When the elephants retrace their steps from the watering hole, small animals can get crushed (Niederhoffer).
Friday’s unemployment report solidified the TRIFECTA of LIQUIDITY for the week. ECB President Draghi seeded the “liquidity clouds” at Thursday’s press conference by announcing the installation of the OTM (outright monetary transaction), which will allow the ECB/ESM to purchase unlimited amounts of sovereign debt of up to three-year duration–of course with conditions for those asking for help. Draghi is hoping to buy the whole EU project enough time so that a FISCAL UNION CAN BE FORMED WITH THE ABILITY FOR THE EU TO ISSUE A TRUE EUROBOND.
Yes, the FED released its FOMC statement today and there were no changes to the FED’S POLICY NOW AND FOR THE EXTENDED PERIOD INTO 2014. So here was nothing to upset the markets and as I read the statement for the third time in a 15-minute period, old man thoughts turned to BUYING GOLD. As a veteran trader and subsequently global macro investor for 35 years, the price action did not perform to my satisfaction. The January 25 FOMC statement was very similar. While that FOMC missive provided for the impetus for GOLD to rally and close on its highs, the action today was totally opposite as GOLD sold off and the EQUITY MARKETS RALLIED. The January 25 release also saw the EQUITIES RALLY into the close but today the stocks left the GOLD behind.
Wow! Wednesday’s market reaction to words not said was extraordinary. The LTRO went very much as expected and the selloff in the EURO was in step, but the reaction of the GOLD and SILVER to unspoken words was quite unusual. Many questions were raised as to the market reaction. The GOLD sell off is rational if the premier haven was elevated simply on the belief of further easing by the FED.
Last night the BOJ announced its monetary policy and revealed inflation targeting and an increase in its variation on the theme of QUANTITATIVE EASE (QE). The INITIAL reaction has been that the YEN was heavily sold against the DOLLAR and other currencies. Is this action by the BOJ and supported by the MOF (Ministry of Finance) going to succeed in weakening the YEN? October 31, 2011, the BOJ intervened in the currency markets by BUYING DOLLARS AND SELLING YEN and on that day took the YEN FROM 0.7560 to 0.7960.