On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio; the renaissance of gold in finance; "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.
Normal. 7bps instaswings in 10Y Treasury yields and 10 point S&P 500 e-mini futures (ES) dips and rips makes perfect sense. In a desperate bid to get back to VWAP and to hold off a fifth day of red closes in the cash S&P 500 (most in two months), equities were ramped up into the green in the last few minutes of the day only to be sold into hard (on heavier volume and larger average trade size) ending the day down 0.02 points at 1341.45. Quite a day as the 10Y auction and FOMC minutes made for a tempest in a teapot close to close (but cardiac arrests for many intraday). HYG (the high-yield bond ETF) was outperforming most of the day and provided the 'target' for the ramp at the end of the day as VXX dumped (thanks to a more-than 1 vol snap lower in VIX - sell that short-dated vol!!!) and TLT was stable. Oil's surge (inventories) accelerated as the USD leaked lower after its post-FOMC spike and Gold/Silver/Copper all pushed higher also. We can only assume that the post-FOMC drop of around 10pts in the S&P 500 was what many investors believe is enough to prompt swift action by the Fed to NEW QE - though between Oil's move and Treasury yields rising post the the auction (and more post FOMC), broad risk assets actually signal a slightly higher ES - though we suspect the utter collapse in cross-asset-class correlations is the signal that coordinated QE hopes are indeed fading and that the algos late-day reaction (rip) to Treasuries will be recalibrated to new reality soon enough. Cash S&P 500 ended up bouncing off its 50DMA and while ES ended the day +1.25pts, VIX dropped a much higher beta 0.75vols to close just below 18% - wth Treasury yields up 1-2bps by the close.
Presenting, with little comment, the ultimate arbiter of the truth - First Trust's Brian Wesbury - discussing his "Mark-to-Market accounting is to blame for it all; the economy is fine and is not reliant on Fed QE; 80,000 jobs creating; Facebook wealth-building" view of the non-zombie economy. So we presume: Forget China, ignore Europe, the fiscal-cliff is a molehill, and once the government stops spending/growing (which is his angle) then all will be well with this thoroughbred economy - as opposed to his non-zombie plough-horse (that unfortunately just leads us down a path of low/slow growth, labor force participation-lagging, deficit spending, social welfare dependent dysphoria).
The Borg collective formerly known as the US middle class may have no money left (and its credit cards have long since been maxed out), but at least it has every internet-connected gizmo known to man and Klingon. Not surprisingly, this development has not been lost on the very same retailers who are competing dollar for dollar with the vendors who sell these same faddy gizmos to the same Borg collective. For now retailers are losing. But, like stock traders and the administration they are full of hope. And spam. And will make it known. As SM reports, spam emails from retailers "jumped 20% in the first half of the year over the same period in 2011, according to a survey released this week by Responsys, a California-based marketing software company. In June alone, these stores sent an average of 18 emails per subscriber, up 21% on last year." Expect this number to only go up until virtually every email coming into one's inbox is a groupon ad, a penis enlargement device, a PFG "try us for 30 days for free" offer, or a 90%-off "one time only" for the latest value investing congress. Because the only cost associated with spamming people is printing extra email lists. The Fed Chairman can vouch for the sunk cost associated with hitting CTRL+P. So how long until iPhone spam filter makers are more profitable than Belgian caterers?
Americans work harder longer than any European nation aside from Spain. France, on the other hand, does not - with a retirement age five years earlier than the US (and only bested by the island of Malta). Over the long-term, Italy appears to be the worst case at 69 years (but in Italy-work-years this is only 51 years since they vacation three months per year). As the Washington Post points out most of the European nations (including Germany) are set to see their retirement ages raised in "a dramatic rewrite of the continent’s postwar social compact" highlighting that "measures that keep people working longer could prove one of the most significant social legacies of the debt crisis." But even then they only catch up to the American worker. Of course, the sad reality is that as workers get older, that retirement age will extend further and further away.
EURUSD has tumbled hard following the FOMC minutes as the much-hoped for 'we promise to print USD to infinity at the next meeting no matter what we see' phrase was missing. Two months ago, when the EURUSD was at 1.30, we asked if a 1000 pip move lower, based on relative central bank balance sheets, is in the cards. Today, we are 80% of the way there, with the Euro having tumbled 800 pips against the dollar as NEW QE gets priced further and further out - now implying a 20% likelihood of getting a new USD printing from the Fed within the next 3 months.
Just because Bernanke did not explain everything in the post-FOMC conference, here is more:
- A FEW FOMC MEMBERS SAID MORE STIMULUS WOULD PROBABLY BE NEEDED
- SEVERAL ON FOMC SAID FED SHOULD STUDY `NEW TOOLS' FOR EASING - C5 Galaxy??
- FOMC PARTICIPANTS SAW MODERATE GROWTH LIKELY IN COMING QUARTERS
- FOMC AGREED `IT WAS PREPARED' FOR FURTHER ACTION AS APPROPRIATE
- FOMC SAW `UNUSUALLY HIGH' UNCERTAINTY FOR JOBLESS, GROWTH
- SEVERAL OTHER FOMC MEMBERS SAW ACTION NEED IF ECONOMY WORSENS
Well, more stimulus was needed, and we got it in the form of Operation Twist 2. Nothing new, but algos need their flashing read headlines.
It appears that while some will argue that all is well and all we need are some animal spirits to bring us out of the doldrums, it would appear that governments and central banks disagree. Having recently discussed Argentina's forced bank-lending (and of course the BoE's wink at Barclays), we now hear a German think-tank (DIW) is strawman-ing an idea to force the wealthy to buy government debt (or lend "transfer" up to 10 per cent of their net worth). As the Germans come under more and more pressure to save their friendly neighbors the compulsory loans from anyone with a net worth above EUR250k would provide around 9% of annual GDP (or EUR230 billion) that could be mobilized to support the Euro-rescue efforts. As FAZ, Handelsblatt, and Die Welt note, this is not being well-received as the ZEW (Center For European Economic Research) reacted critically that this "would be a huge intrusion into property rights, and probably not possible under German law" running the major risk that "with enforcement action it will probably not be able to regain market confidence," and while a similar system had been installed after the Great Depression in the 1920s (as well as after WW2), these previous loans encumbered real estate properties and not directly to cash.
We discussed this three months ago (not as policy recommendations but as expectations that all wealth will be extracted to prevent what 'they' think is pending social collapse), and while it will not be popular, it seems either directly through this route or indirectly through banking repression, the forced financial tax that we wrote of back in September is exactly what is occurring - as there are only painful ways out of this miasma.
Only one word to explain the just completed 10 year reopening auction. WTF!!! While the 10 year When Issued was trading at 1.516% at 1pm, when the release hit of the final High Yield on the bond, jaws dropped, as it came at a shocking 1.459%, nearly 6 bps inside of the WI, a record, a yield which also was a record, a Bid To Cover of 3.61 which was the second highest ever, second only to the 3.72 in April 2010, but it was the internals that were the most jarring of all. Unlike all recent auctions in the past 4 years, the Primary Dealer take down was only 14% a record low in recent years, and a hit rate of 6.8%, another record low. The offset: Directs, which took down a whopping 45.4%, another record, after tendering a record $16.9 billion in bids. All in all there was no definitive reason to explain why this auction was so very, very off the charts, and so mispriced by the secondary market, suffice to say WTF, and that this is what happens when there continues to be just one game in town: frontrun the Fed! Three possibilities: i) either someone was caught massively wrong-footed going into the auction and covered a massive short into the primary market, ii) capital reallocation from European money market funds which as we explained last week are now all dead, or iii) some "Direct" entity somewhere, has a gaping need for good collateral and would literally pay anything for US paper ahead of an even bigger margin call. The reason we say this is that only 51.7% of the auction priced at the high yield (remember: Dutch Auction): and the low yield was 1.36% - someone, supposedly a Direct Bidder, was in a furious rush to get any paper, at any price. If the latter, we will find out very soon.
It’s been said that the definition of insanity is to do the same thing over and over again but to expect a different result. On that basis, the western world’s economic policymakers are clearly certifiable. They cut rates. It does nothing. So they cut rates again. And again. They in debt future generations to ‘stimulate’ the economy. It does nothing. So they stimulate again. And again. Nothing that central banksters or politicians have done since the 2008 global financial crisis has fundamentally changed economic conditions. Yet they keep applying the same remedies, drawn from the same old Keynesian playbook. The false premise which guides their decisions is that we can all grow wealthy by borrowing and consuming, instead of by producing and saving. People have been sold this lie for more than a generation. It is embedded in social DNA. In the current western economic system, you are rewarded for going into debt with all sorts of tax deductions. Save money, on the other hand, and you are punished through taxation and inflation. The incentives are all wrong; it’s no wonder that people have over-borrowed and overspent given that the system is so blatantly slanted to promote such behavior.
Gold Report 2012: Erste's Comprehensive Summary Of The Gold Space And Where The Yellow Metal Is GoingSubmitted by Tyler Durden on 07/11/2012 - 12:21
Erste Group's Ronald Stoeferle, author of the critical "In gold we trust" report (2011 edition here) has just released the 6th annual edition of this all encompassing report which covers every aspect of the gold space. What follows are 120 pages of fundamental information which are a must read for anyone interested in the yellow metal. From the report: "The foundation for new all-time-highs is in place. As far as sentiment is concerned, we definitely see no euphoria with respect to gold. Skepticism, fear, and panic are never the final stop of a bull market. In the short run, seasonality seems to argue in favor of a continued sideways movement, but from August onwards gold should enter its seasonally best phase. USD 2,000 is our next 12M price target. We believe that the parabolic trend phase is still ahead of us, and that our long-term price target of USD 2,300/ounce could be on the conservative side."
The last forty years have seen five distinct regimes in the relationship between gold prices and Treasury yields. It would appear that the current regime (from 2006 to Present) is 'different' indeed as the Keynesian end-point seems to have arrived.
As many observers have noted, you can expand the money supply but if that money ends up stashed as bank reserves, it never enters the real economy, nor does it flow into household earnings. The velocity of that "dead money" is near-zero. M2 declined in the housing bubble as the velocity of money skyrocketed: everyone was pulling money out of housing equity via HELOCs (home equity lines of credit) and spending the "free money" on cruises, furniture, big-screen TVs, boats, fine dining, etc. The recipients of that spending also borrowed and spent as if the "free money" would never end. If M2 expansion is the only thing propping up an artificial market, what happens to the stock market rally as M2 rolls over?