Tag: news

“Priced In” appears to be the meme of the day but the overnight collapse in S&P 500 futures – perfectly tagging the 50DMA – was met with a slowly building avalanche of BTFATH-ers unable to resist missing out of the December Triple Witching seasonality. While stocks are screaming higher, the USD is practically unchanged, gold and silver have rallied back to unchanged, and Treasuries are modestly lower in yield.

 

 

Bonds moved first on the IP data, then stocks spiked on the US open…

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Stocks are un-surging on the “good” news in the headline beats for Industrial Production (biggest jump and biggest beat in 13 months) and Capacity Utilization (best since June 08). However, as is always the case, the underlying data hides some less than positive signs. The bulk of the gains in production were from Utilities (+3.9%) as colder-than-expected temperatures boosted demand (the same temps that retailers are crying about). Manufacturing output remains 3.6% below its pre-recession peak (though gains were broad-based).

 

Note the last spike of this magnitude was around the time of Sandy – and was entirely unsustainable…

 

 

Charts: Bloomberg

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The bomb scare has moved to the Ivies. Just out from the Harvard twitter account:

Alert: Unconfirmed reports of explosives at four sites on campus: Science Center, Thayer, Sever, and Emerson. Evacuate those buildings now.

— Harvard University (@Harvard) December 16, 2013

Alert: HUPD and CPD are on the scene and investigating. Stand by for more info. View emergency page for updates http://t.co/VAZ1odRYB9

— Harvard University (@Harvard) December 16, 2013

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The internationalization of the Chinese yuan has been a major story this year.   We have been suspicious that much of what passes for the internationalization yuan has been the “Sino-ificiation of Hong Kong and symbolic measures like numerous swap lines, none of which have been used.

That Chinese trade with its special administrative region Hong Kong should be conducted in yuan should hardly been seen as internationalization of the currency or the increase in the importance of the yuan globally.    It is a stretch to even consider trade between Hong Kong and the mainland as international trade any more than trade between New York and Texas would be.

The numerous swap lines are more interesting, but these are largely for show.  The lack of use reflects the lack of need.  Admittedly the swap lines may be more important for those centers, like London, Singapore, Zurich and the like that want to be offshore centers for RMB activity. 

Earlier today, the Sate Administration of Foreign Exchange (SAFE) indicated that Chinese companies had falsified $2.5 bln of foreign exchange transactions in the first eleven months of the year.  It reports that 112 companies were involved, of which 41 are facing administrative actions and 12 are believed to have broken the law. 

Even this may be the tip of the proverbial iceberg.  The fact that SWIFT reported that the yuan had moved into second place behind the dollar in trade finance captured imaginations, with many once again trumpeting the demise of the dollar.  Yet, as it turns out, this too may have been inflated.  It appears that trade finance (e.g. letters of credit)  that saw an increase in yuan use may reflect efforts to  disguise capital flows as trade flows.  Letters of credit is one way to access the relatively high interest rates in China.

The overwhelming majority of yuan trade finance was with Hong Kong (again), Singapore and Chinese companies.  According to SWIFT, the yuan had surpassed the euro in trade finance in January 2013 and again in March 2013, and then fell back into third place as the government crack down on fake trade invoicing.  Actual trade settlement in yuan has failed to keep up with its use in trade finance.  It accounts for less than 1% of the global total, a lower share than Thai baht and Swedish krona. 

The Commerce Ministry announced today it was removing some controls on yuan investment.  It appears that approval that for up to CNY300 mln investment is no longer required.  Rules that were previously announced for financial guarantees, financial leasing, small loan and auction industries appear to have been lifted.  Restrictions on investment in cement, steel, shipbuilding and electrolytic aluminum appear  to also have been lifted.  At the same time, officials reiterated that foreign companies cannot use cross-border yuan (CNH) to invest in Chinese securities, derivatives or used for trust lending.

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Today’s AM fix was USD 1,229.50, EUR 892.62 and GBP 754.57 per ounce.
Friday’s AM fix was USD 1,222.75, EUR 891.22 and GBP 750.89 per ounce.

Gold rose $11.10 or 0.91% Friday, closing at $1,237.60/oz. Silver climbed $0.18 or 0.92% closing at $19.70/oz. Platinum fell $1.05, or 0.1%, to $1,357.70/oz and palladium fell $0.72 or 0.1%, to $714/oz. Gold and silver were both up for the week at 0.72% and 1.13%.

 

All eyes are on the FOMC this week and speculation is high that the Federal Reserve may taper. Fed policymakers gather for the last time in 2013 for a two day policy meeting that concludes this Wednesday.

The dreaded ‘taper’ is becoming a bit of a caper as the death of QE is greatly exaggerated. While a taper is indeed possible, any reduction in bond buying is likely to be small and of the order of less than $15 billion. This means that the Fed is likely to keep its bond buying program at close to $70 billion per month which is still very high and unprecedented for any industrial nation in modern history.

This still high level of debt monetisation, in conjunction with continuing zero percent interest rate policies is bullish for gold.

Gold in U.S. Dollars, 10 Day – (Bloomberg)

Gold was higher last week which was positive from a technical perspective but as of late morning trading in London, there has been, as of yet, little follow through.

The dollar looks overvalued, considering the overly indebted U.S. consumer and government, and is likely to come under pressure again in 2014 which will support gold and could lead to a resumption of gold’s bull market.

2013 has been a torrid year for gold and it is down 26%. Given the still strong fundamentals, we are confident that in a few years, 2013 will be seen as a mere blip in the context of a long term, secular bull market which will likely see gold prices have a parabolic peak between 2016 and 2020.

ETP liquidations have been one of the primary reasons for gold’s weakness in 2013. ETP holdings may continue to fall as more speculative investors reduce allocations to gold and some ETP buyers sold in order to move to the safety of allocated gold.

However, the supply demand data clearly shows that ETP liquidations are being matched by robust global demand, especially in China. Even if ETP holdings dropped by another 300 plus tonnes in 2014, average Chinese imports through Hong Kong alone are running at well over 100 tonnes per month.

Outflows of gold from ETFs amounted to 24.3 million ounces, nearly 700 metric tonnes, in 2013 from their peak at the end of 2012. Much of this gold was taken out of ETF holdings in London and shipped to refineries in Switzerland, where it was melted down and made into kilogramme bars, then sent to Hong Kong and ultimately to China.

Imports from Hong Kong to China totaled 26.6 million ounces or 754 metric tonnes through September alone. It is unknown where the gold would come from to replenish these ETF holdings were there a sudden surge in demand in the West in the event of a new sovereign debt crisis or a Lehman Brothers style contagion event.

Global Asset Performance Since ZIRP Began 5 Years Ago

Despite the 26% fall in 2013, gold is 44% higher in the last five years and has protected those who have bought it as a long term hedge and financial insurance against macroeconomic, systemic and monetary risks.

There is much negative noise and sentiment towards gold due to the recent price falls. The smart money ignores this noise and continues to focus on the long term. We are confident that gold will again perform well in the coming five years and protect investors from the considerable risks lurking out there today.

It is worth noting that gold fell 25.2% in 1975 (from $187.50/oz to $140.25/oz) and many experts pronounced the death of the gold bull market. Experts such as economist Milton Friedman warned that gold prices could fall further.

Gold in U.S. Dollars in 1975 – (Bloomberg)

Gold subsequently rose 6 times in the next 4 years – from January 1976 to January 1980 –  proving many extremely wrong.

A historical perspective is valuable today and history does not always repeat but often rhymes.

The death of the gold bull market is greatly exaggerated.
 
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Five months ago, we highlighted yet another in the inglorious roll of momentum-ignited stop-blasting manipulations of the US "stock market". In most cases, the furore dies down after a day or two as the algos find fresh meat… but in the case of USEC, it would appear the "berserker" algo we highlighted merely removed every willing buyer (i.e. forced short-cover-er) and was exhibiting the death throes of yet another micro-cap as the company has announced it is entering a pre-pack Chapter 11 bankruptcy – with existing stockholders receiving 5% of the new common stock.

 

USEC Statement

…"We are pleased to reach agreement with a significant number of our noteholders on a plan to improve our capital structure…"

 

Discussions continue with the Babcock & Wilcox Investment Company (B&W) and Toshiba Corporation regarding agreement to restructure their preferred convertible equity investment. The noteholders and USEC have made a proposal regarding restructuring the Toshiba and B&W investment and the parties are in discussions on those terms and documentation which must be completed prior to implementing the financial restructuring plan. As strategic investors, Toshiba and B&W remain supportive on deployment of the American Centrifuge Plant.

 

The agreement with the noteholders, which includes the participation of financial institutions representing approximately 60 percent of the company’s debt, calls for the company’s $530 million debt to be replaced with a new debt issue totaling $200 million. The new debt issue would mature in five years and automatically extend an additional five years upon the occurrence of certain events. In addition, the restructuring plan contemplates that the existing equity will be replaced with new equity. The noteholders would receive 79 percent of the new equity as common stock. The plan calls for Toshiba and B&W to jointly obtain 16 percent of the new common stock, as well as $40 million in debt on the same terms as the noteholders, in exchange for their existing preferred equity investment. Existing stockholders would receive 5 percent of the new common stock. As noted above, the detailed terms for restructuring Toshiba and B&W’s preferred equity investment are being negotiated. Once implemented, the new capital structure will increase USEC’s financial flexibility and support the company’s continuing sponsorship of the American Centrifuge project.

 

In order to implement the terms of the agreement, USEC Inc. expects to file a prearranged and voluntary Chapter 11 petition for relief in the United States Bankruptcy Court for the District of Delaware in the first quarter of 2014. It is anticipated that none of the company’s subsidiaries will be filing for relief. United States Enrichment Corporation is anticipated to be a plan proponent for a limited purpose, but will not be included in the Chapter 11 filing. Such a filing is not expected to have any effect on on-going operations, suppliers, deliveries to customers or the American Centrifuge research, development and demonstration program.

 

…

 

The restructuring plan support agreement and related materials can be found in an 8-K publicly filed today with the Securities and Exchange Commission, and is available in the Investors section of the company website, www.usec.com.

On the bright side, this is how the world is supposed to work… failing companies "fail", are restructured, and enabled to re-grow… but zombified by ever-rolling debts, subsidies, and tax dodges… The stock is down 60% in the pre-open (back at "berserker" low levels)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YxVY8e-4nvs/story01.htm Tyler Durden

Five months ago, we highlighted yet another in the inglorious roll of momentum-ignited stop-blasting manipulations of the US "stock market". In most cases, the furore dies down after a day or two as the algos find fresh meat… but in the case of USEC, it would appear the "berserker" algo we highlighted merely removed every willing buyer (i.e. forced short-cover-er) and was exhibiting the death throes of yet another micro-cap as the company has announced it is entering a pre-pack Chapter 11 bankruptcy – with existing stockholders receiving 5% of the new common stock.

 

USEC Statement

…"We are pleased to reach agreement with a significant number of our noteholders on a plan to improve our capital structure…"

 

Discussions continue with the Babcock & Wilcox Investment Company (B&W) and Toshiba Corporation regarding agreement to restructure their preferred convertible equity investment. The noteholders and USEC have made a proposal regarding restructuring the Toshiba and B&W investment and the parties are in discussions on those terms and documentation which must be completed prior to implementing the financial restructuring plan. As strategic investors, Toshiba and B&W remain supportive on deployment of the American Centrifuge Plant.

 

The agreement with the noteholders, which includes the participation of financial institutions representing approximately 60 percent of the company’s debt, calls for the company’s $530 million debt to be replaced with a new debt issue totaling $200 million. The new debt issue would mature in five years and automatically extend an additional five years upon the occurrence of certain events. In addition, the restructuring plan contemplates that the existing equity will be replaced with new equity. The noteholders would receive 79 percent of the new equity as common stock. The plan calls for Toshiba and B&W to jointly obtain 16 percent of the new common stock, as well as $40 million in debt on the same terms as the noteholders, in exchange for their existing preferred equity investment. Existing stockholders would receive 5 percent of the new common stock. As noted above, the detailed terms for restructuring Toshiba and B&W’s preferred equity investment are being negotiated. Once implemented, the new capital structure will increase USEC’s financial flexibility and support the company’s continuing sponsorship of the American Centrifuge project.

 

In order to implement the terms of the agreement, USEC Inc. expects to file a prearranged and voluntary Chapter 11 petition for relief in the United States Bankruptcy Court for the District of Delaware in the first quarter of 2014. It is anticipated that none of the company’s subsidiaries will be filing for relief. United States Enrichment Corporation is anticipated to be a plan proponent for a limited purpose, but will not be included in the Chapter 11 filing. Such a filing is not expected to have any effect on on-going operations, suppliers, deliveries to customers or the American Centrifuge research, development and demonstration program.

 

…

 

The restructuring plan support agreement and related materials can be found in an 8-K publicly filed today with the Securities and Exchange Commission, and is available in the Investors section of the company website, www.usec.com.

On the bright side, this is how the world is supposed to work… failing companies "fail", are restructured, and enabled to re-grow… but zombified by ever-rolling debts, subsidies, and tax dodges… The stock is down 60% in the pre-open (back at "berserker" low levels)

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After posting a surprising drop in November to -2.21, or only its first negative print since a freak first half of 2013 aberration, the spin was quick to explain away the drop with the government shutdown, which surprisingly affected precisely nothing else in the economy but just a few diffusion indices (and led to epic surges in various PMI prints). Moments ago, the December Empire Fed PMI print came out, and it was once again a dud, printing at 0.98 on expectations of a rise to 5.00 which also was the fifth consecutive miss to expectations in a row. The decline was driven by ongoing weakness in New Orders, which remained negative at -3.54, while Unfilled Orders tumbled deep into the red, from -17.11 to -24.10, while inventories supposedly cratered from -1.32 to -21.69. We say supposedly because other recent surveys have shown that the surge in inventory accumulation from Q3 into Q4 has continued.

The only actual good news was that corporate margins may be finally picking up, as priced Paid declined modestly from 17.11 to 15.66 while prices received rose from -3.95 to 3.61. However, the biggest surprise in the monthly update was not the average employee workweek which declined once again from -5.26 to -10.84, further confirmed by the US Labor Costs data released simultaneously by the BLS which showed a 1.4% decline Q/Q (so much for wage inflation), but the Number of Employees, which as if magically, were 0.00 in November and moved violently to… 0.00 in December. One wonders just whose Non-Random Number Generator the NY Fed is using for this particular time series.

Of course, this blurb may have been just what the market ordered, which rose to fresh pre-market highs on the report, especially since as the Survey announced, “Labor Market Conditions Remain Weak.” It adds:

Price indexes pointed to a continued moderate increase in input prices and a small increase in selling prices. The prices paid index was little changed at 15.7, while the prices received index rose eight points to 3.6. Labor market conditions remained weak. The index for number of employees was 0.0 for a second month in a row, indicating that employment levels remained unchanged. The average workweek index was negative for a second month; with a six-point decline to -10.8, the index signaled that workers were working fewer hours, on average.“

For the algos, this is the buy signal from god, since whatever is bad for the economy, and workers, is great for the markets, and taper delay.

One final point: as part of this month’s survey, the supplementary questions asked manufacturers to assess how much of a problem certain business issues were for their firms and whether the issues were expected to become more or less of a problem in the year ahead. As in earlier surveys, the issue cited most frequently, by far, as a major problem was the cost of employee benefits. Read: Obamacare. Moreover, fully 80 percent of respondents expected that this would become even more of a problem a year from now. Finding qualified workers emerged as the second most widespread problem, eliciting a considerably larger degree of concern than in earlier surveys. This, too, was expected to become more of a problem in the year ahead by a wide margin. In contrast, the availability, cost, and terms of credit were seen as relatively minor problems that would become even less consequential over the next year.

Expect many more laments about Obamacare next year when the full impact on the bottom line is finally felt.

Source: NY Fed

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