The melt up is intact in today’s trading. The market has reached oversold levels, and we will see another aggressive bounce, once again. Markets up and down are all part of the game, but how is the long term picture progressing? Since the last financial crisis, we have learnt nothing. We have more debt, banks are massively leveraged again, and nobody is even remotely trying to fix the structural problems, beside blaming certain individuals causing speculation. Welcome to the “Wolf Pack”. Spiegel reports,
The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an elderly sociology professor. Books line the dark, floor-to-ceiling wooden shelves in his office in Manhattan, alongside a bust of Theodore Roosevelt and an antique telescope.
Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It’s the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.
People like Taylor are “like a pack of wolves” that seeks to tear entire countries to pieces, said Swedish Finance Minister Anders Borg. For that reason, they should be fought “without mercy,” French President Nicolas Sarkozy raged. Andrew Cuomo, the former attorney general and current governor of New York, once likened short-sellers to “looters after a hurricane.”
The German tabloid newspaper Bild sharply criticized Taylor on its website, writing: “This man is betting against the euro.” If that is what he is doing, he is certainly successful. While Greece is threatened with bankruptcy, Taylor is listed among the world’s 25 highest-paid hedge fund managers.
A well-read man, Taylor likes to philosophize about the Congress of Vienna and the Treaties of Rome. But is this man really out to speculate the euro to death? And does he have Greece on his conscience?
Full must read article, click here.
Back in the low volatility days, only some months ago, The Trader was arguing for a higher volatility environment ahead. The “Teflon” market was attracting too many people putting their money into the same trade. The Teflon market, caused partially by the QE2, made people believe the market would always stay high and volatility low. QE programs have created an environment where people driven by fear of missing out on the rally, simply put less weight on the possibility of risk coming back to the market. Back then, the VIX, proclaimed by CNBC as dead, was trading at 15, give or take.
During the last week’s harsh correction, many have been very wrong, and these short volatility players have been chasing volatility for some weeks. As Taleb once said, “Don’t buy vol when you have to, buy it when you can”. With vols and skew having hit some rather extreme levels, there could be some opportunities for the brave ones. Below some charts by Soc Gen;
By Gold Core;
All major currencies are higher against gold today including the US dollar, despite the dollar falling on international markets.
Gold reached new record nominal highs at $1,913.50/oz overnight and profit taking and traders nervous about potential margin increases have led to a 1% fall in dollar terms today. Gold has fallen by more in euro and sterling.
Gold remains higher than at this time yesterday and is trading at 1,876.60 USD, 1,295.40 EUR, 1,135.40 GBP, 1,470.90 CHF and 143,670 JPY per ounce.
Gold’s London AM fix this morning was a new record nominal dollar high – 1,886.50 USD, 1,301.75 EUR, 1,138.64 GBP per ounce (from yesterday’s 1,877.75 USD, 1,303.17 EUR, 1,139.55 GBP per ounce).
Silver has also fallen after yesterdays and last week’s sharp rise. However smart, risk averse money sees silver bullion as a buying opportunity at these levels after the recent period of consolidation between $33/oz and $42/oz.
UBS have raised their 3 month forecast for silver sharply from $30/oz to $50/oz. They suggest that investors are too nervous to short gold and may prefer to buy silver instead.
Silver remains more than 16% below the record nominal high seen in late April 2011, and in January 1980. While gold at $1,888 is now 120% above its nominal 1980 high of $850/oz.
Quick Update of the IV Skew charts as the market is fading some of this mornings bullish (no volume) sentiment. (Italian Banking Index coming off further on rumours some of the Banks are having funding problems). Skew Update By Macro Story;
Based on the skew trend which correlates very well with the overall SPX trend and the implied volatility skew vix divergence it appears more selling is at hand. Below are updated charts of both correlations.
The skew continues to trend lower and based on past correlations with SPX it appears equities will continue lower as well.
IV Skew Vix Divergence
Based on the reversal in the divergence it appears the counter trend rally in equities has run its course and is ready to continue lower. With the skew trending down and the vix possibly testing the 48.00 level the divergence should in fact continue trending lower.
What goes down must come up and vice versa. Let’s see how far this squeeze will take us, before every sceptic is long and the real collapse starts. For now, enjoy the risk on trade, unless you are long the Italian Banks….
Europe trading relatively “squeezy”, just like yesterday’s morning session. Renewed chatter of a big asset allocation (2 billion USD) programme in the market. With non existent volumes, both up and down, we can only look the allocation programme drive prices on no liquidity. Below, Stoxx flirting with resistance levels again;
Well, he should have understood, you can’t tell the truth. Sharma is leaving S&P, to be replaced by Douglas Peterson, COO of Citibank. Upgrade of the US rating shortly?
The Financial Times and The Wall Street Journal reported that Deven Sharma will stay on as an adviser to S&P’s parent company, McGraw-Hill Cos., until the end of the year. They said S&P plans to make an official announcement Tuesday before the U.S. financial markets open.
The newspapers cite people familiar with the matter who say Sharma’s move was in the works well before S&P downgraded its rating on the U.S. to AA-plus on Aug. 5.
The Financial Times also said Sharma’s decision to leave S&P was not due to recent reports that the Justice Department was investigating whether the agency improperly rated dozens of mortgage securities in the years leading up to the financial crisis in 2008. It said the move is the result of S&P splitting its data, pricing and analytics business from its ratings business.
The US justice department says Deutsche Bank knew in 2006 that a mortgage company it was preparing to buy lied to the US government about its mortgages, Reuters reports, yet went ahead with the purchase and should be held financially responsible. http://ftalphaville.ft.com/thecut/2011/08/23/659791/deutsche-knew-of-mortgage-company-problems/
Andy Coulson, the former editor of the News of the World who has been arrested on suspicion of involvement in phone hacking, received significant payments from News International after he took up his role under David Cameron as the Conservative party’s communications chief in 2007. http://ftalphaville.ft.com/thecut/2011/08/23/659806/coulson-received-now-payments-as-tory-aide/
Goldman Sachs chief executive Lloyd Blankfein has hired high-profile Washington lawyer Reid Weingarten, Reuters says, citing an unnamed government source, as the Justice Department continues to investigate the bank. Goldman Sachs shares fell almost 5 per cent on after the report reignited concerns that the bank’s legal headaches may return http://ftalphaville.ft.com/thecut/2011/08/23/659766/goldman-shares-fall-on-blankfein-lawyer-report/
The China Flash PMI index suggests the country’s manufacturing sector could shrink in August, for the second month in a row. Bloomberg reports the HSBC/Markit Economics purchasing managers’ index was 49.8 in August after a final reading of 49.3 for July. http://ftalphaville.ft.com/thecut/2011/08/23/659726/china-pmi-flash-suggests-second-negative-month/
A son of Muammar Gaddafi who rebels said they had captured appeared with cheering supporters in Tripoli, says Reuters, giving a boost to forces loyal to the veteran leader trying to fight off insurgents who say they control most of the capital. Saif al-Islam, http://ftalphaville.ft.com/thecut/2011/08/23/659721/rebels-battle-to-control-tripoli/
Gold has climbed back to all-time highs as a rally on Wall Street fizzles amid uncertainy about the price of oil, the direction of the Federal Reserve and the pace of economic growth, reports the FT’s global market overview http://ftalphaville.ft.com/thecut/2011/08/22/659631/risk-rally-fails-to-gain-traction/
Angela Merkel, German Chancellor, has repeated her country’s refusal to join other eurozone states in issuing joint “eurobonds” as protection from the debt crisis, the FT reports. “The markets want to force us into doing certain things http://ftalphaville.ft.com/thecut/2011/08/22/658981/germany-defies-call-for-eurobonds/
Libya could return to the global oil market within weeks after the rebels appeared to be on the brink of victory, but the full resumption of output is months, if not years, away. Libya produced about 1.6m barrels a day of oil before the start of the civil war, but the six-month conflict has reduced the flow to just 50,000 b/d, according to industry estimates. http://www.ft.com/intl/cms/s/0/3e3e2974-ccd7-11e0-88fe-00144feabdc0.html#axzz1VpA0w13T