For the past three years we have been pounding the table on one very simple fact: when it comes to jobs, there is a quantitative picture, which is often muddied by seasonal adjustments and political narrative but which the mainstream loves for the simply, clear plotline: "the US created [ ] jobs in the past month", and there is a qualitative one: one which takes into account the far more important quality of the jobs created in the US economy in whole or in part (such as in various states). It appears this simple logic has finally trickled down to those masters of the obvious at the San Fran Fed who have just released a paper titled "Job Growth and Economic Growth in California" whose summary is as follows: "California job growth over the past two decades has been relatively anemic compared with gains in the rest of the country. Nevertheless, economic output has grown faster in California than in the rest of the United States. One factor underlying this pattern may be the growth of higher-wage jobs in California, which has contributed more to output than to employment growth. This creates relatively few opportunities for low-skilled workers, which may help explain why poverty increased more in California than in most states over the period."
While there are obviously sellers in the gold market, there is also a dramatic spike in demand for protecting what is still being held (remember there is a buyer for every seller). Gold's short-term VIX (implied volatility) has spiked to 18 month highs above 29% but it is the steepness of the term-structure of volatility that shows just how much protection is being sought. The difference between the one-month volatility and one-year volatility is almost 10 vols - the highest level of inversion (short-term risk higher than long-term) since Lehman. It seems the market is extremely fearful of further volatility in the short-term but less concerned longer-term. What is also worrisome is that the last two times that Gold's VIX was this much higher than the S&P's VIX was June 2006 (when the first hedge funds started to implode from Subprime) and Sept 2008 (Lehman). It appears that gold volatility is signalling counterparty risk concerns once again.
The problem with cutting the links between risk and consequence and the real economy and the stock market is that a market deprived of feedback from reality is prone to disorderly disruption. Why is this so? Participants make decisions based on the information made available to them. If the information from the real world is suppressed or limited, then the decisions made by participants will necessarily be misinformed, i.e. wrong. If feedback from the real world is suppressed, then decisions will necessarily be bad. The only choice for participants who have lost faith in central planning's promise of permanently higher markets will be to abandon the manipulated markets entirely.
As Europe jerks from one political debacle to another, the French (mired in the PR disaster of Cahuzac - a tax tzar guilty of tax fraud) have decided forced honesty is the only policy left if they are ever to regain any credibility. From the Commission for Financial Transparacency, below is the full list of all French ministers assets - from cars and property to stocks and bonds.
Record Dow, record S&P, record debt, record plunge in gold, and now: record US households on foodstamps. What's not to like. While today's gold selloff may be confusing to everyone, one can scratch off some 23,087,886 US households, or the number that according to the USDA were on foodstamps in January and just happen to be a fresh all time high, as the likely sellers, especially when one considers that the average monthly benefit to each household dropped to a record low of $274.04. This number probably ignores, for good reason, the once every four years fringe benefits of Obamaphones and other such made in China trinkets.
The rapidity of gold's drop is impressive, concerning, and disorderly. We have seen two other such instances of disorderly 'hurried' selling in the last five years. In July 2008, gold quickly dropped 21% - seemingly pre-empting the Lehman debacle and the collapse of the western banking system. In September 2011, gold fell 20% in a short period - as Europe's risks exploded and stocks slumped prompting a globally co-ordinated central bank intervention the likes of which we have not seen before. Given the almost-record-breaking drop in gold in the last few days, we wonder what is coming?
Previously, levered hedge funds were forced to sell gold on stock margin calls. How long until today's gold plunge, the largest 2-day drop in the past 30 years, forces funds to start selling stocks to meet margin clerks vocal demands some time around 2pm today?
Europe remains in a critical state - despite the protestations of its leadership and the indications of its nepotistic bond markets. Unconventional monetary operations have enhanced liquidity, but have done little-to-nothing to solve the real issue - insolvency. As Jassaud and Hesse note, vulnerabilities remain; as reliance on central-bank liquidity is still high especially for banks in peripheral countries. Assets continue deteriorating and remain on banks’ balance sheets, weighing on profitability. Non-performing loans (NPLs) in EU banks continue to soar, drastically outpacing loan growth. Since 2007, loans to the 'real' economy have decreased by 3% while NPLs increased by almost 150%, i.e., €308 billion in absolute terms. This trend shows no sign of reversal, reflecting the continued macro deterioration in parts of the EU and the absence of restructuring (until the new 'template'). Between these soarng NPLs, Germany's new template, and the relative size of gold holdings among the troubled European nations, we suspect the social farbic will contonue to tear a little more.
For the fourth month in a row, NAHB's sentiment index missed expectations. With 'real' data on the housing recovery beginning to fade, we now see confidence in the sustainability of the 'recovery' starting to fade. Today's NAHB print is the lowest in six months and is the fastest 3-month drop since June 2011.
Another day, another muppet bites the dust.
There is blood running in the gold market this morning after vicious selling which began on Friday afternoon and continued in Asian trading and through into European trading. Gold has fallen another 4.4% today after a huge number of stop loss orders were triggered at $1,480/oz pushing gold lower. Reports suggest that a futures sell order worth $6 billion, equal to 4 million ounces or 124.4 tonnes of gold, by a large investment bank sent prices plummeting and spooked the markets contributing to the decline. The order was believed to have been placed through Merrill Lynch's brokerage team. Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions. It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by GATA. Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories. The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.
Just four days ago we noted the 'endgame' scenario that JCP appears to be heading in as they looked to raise new capital. It would appear things have escalated a little more quickly than hoped. Amid chatter of vendor concerns and what appears to be a slower process than they hoped for raising capital, the firm announced today, that "the Company has drawn $850 million out of its $1.85 billion committed revolving credit facility. Proceeds will be used to fund working capital requirements and capital expenditures, including the replenishment of inventory levels in anticipation of the completion of its newly renovated home departments next month." More worrisome is the fact that the firm managed to extract only $850 million on $2.3 billion in Inventory: while not completely worthless as we first suspected, it appears JPM is only willing to give JPM credit for about a third of its inventory at liquidation value. Remember that the revolver it is the cheapest financing JCP has in palce which raises the question - why not draw more? Ask JPM.
As if the world needed yet another confirmation that the US economy is floundering (even if it means a new all time high for the now largely laughable farce formerly known as the S&P500), it just got it courtesy of the April Empire Fed Mfg Index, which dropped for the second month in a low to the lowest since January, printing at just 3.05, down from 9.24, and well below expectations of 7.00. Supposedly this too will be blamed on either balmy April weather, or Easter. The key New Orders index dropped from 8.18 to 2.20, which in itself may be insufficient to push the S&P to new all time highs, so the Shipments drop from 7.76 to 0.75 should definitely top the ES well into the green. The only piece of bad news for the "market" was the Number of Employees, which rose from 3.23 to 6.82. Although this may be one of those reports where bad data is great, but good data is greater.
The first time the Status Quo/Troika tried to force a (not so) stealthy gold confiscation on an insolvent European country was back in early 2012, when as part of the most recent Greek bailout MOU, it was disclosed that "Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal." However, the public outcry was so loud that the Troika had no choice but to shelve its plans and proceed with a full scale bondholder restructuring instead. Fast forward to last week, when Europe's appetite for physical gold came back with a bang, this time as part of the Cyprus "Debt Sustainability Analysis", and subsequent comments from Mario Draghi, demanding that tiny Cyprus, whose opposition, already weakened by the confiscation of uninsured deposits would be far less vocal than Greece's, sell off €400MM, or virtually all of its sovereign gold, over 10 of its 13.9 total tons, to cover the excess costs of its ever ballooning sovereign bailout. So who's next? It remains to be seen, although we are certain there will be a very clear correlation between the next country to see its gold "purchased" by the status quo, likely some time in the next 1-3 months, and the amount of total non-performing loans on said country's bank balance sheets. The usual suspects are presented below. And, in the parlance of Goldman Sachs, these countries better scramble to sell, sell, sell now before gold hits 0, or maybe even goes negative.