• Monetary Metals
    01/28/2015 - 00:28
    It’s terrifying how fast the whole Swiss yield curve sank under the waterline of zero. Now even the 15-year bond has negative interest. The franc has reached the end.

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Iran Oil Flow Slows, Price Fears Rise – Risk of War to Support Gold

Iran's oil exports have dropped in March as buyers prepare for sanctions, and shipments are likely to shrink further if Obama determines by Friday that markets can adjust to less Iranian oil and tightens sanctions even further. Sanctions could eventually leave half of Iran's oil output cut off from international markets, according to analysts and officials. Iran is also being excluded from global commerce and the global economy by being locked out of the international payment system – SWIFT. SWIFT, the Brussels based clearing house, announced last week it will cut services to Iranian banks on foot of European sanctions, in order to comply with the EU Council. The service denial includes Iran’s central bank, which processes Iran’s oil revenues. Some 30 Iranian banks will be blocked from doing international business. History suggests that the trade, economic and currency war with Iran may soon degenerate into an actual war. Increasingly, the regime in Iran has little to lose in engaging in a more aggressive foreign policy – including attempting to close the strategically important Straits of Hormuz.



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Frontrunning: March 29

  • Obama budget defeated 414-0 (Washington Times) yes, the Democrats too...
  • German Central Banker: ECB Loans Only Buy Time (AP)
  • Baku grants Israel use of its air bases (Jerusalem Times)
  • Japan May Understate Deflation, Hampering BOJ, Economist Says (Bloomberg)
  • BRICS flay West over IMF reform, monetary policy (Reuters)
  • Five Portugal Lenders Downgraded by Moody’s (Bloomberg)
  • SEC Registration Captures More Hedge Fund Advisers (Bloomberg)
  • EU Nears One-Year Boost in Rescue Fund to $1.3 Trillion (Bloomberg)
  • Consumers plot emergency oil release as Saudi decries high prices (Reuters)
  • Japan Plans to Draft Stopgap Budget for First Time in 14 Years (Bloomberg)


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Overnight Sentiment: Lower

After two months of quiet from the old world, Europe is again on the radar, pushing futures in the red, and the EURUSD lower, following a miss in March European Economic and Consumer confidence, printing at 94.4 and -19.1, on expectations of 94.5 and -19.0, as well as an Italian 5 and 10 Year auction which seemingly was weaker than the market had expected, especially at the 10 Year side, confirming the Italian long-end will be a major difficulty as noted here before, and pushing Italian yields higher (more on the market reaction below). The primary driver of bearish European sentiment continues to be a negative Willem Buiter note on Spain, as well as S&P's Kramer saying Greece will need a new restructuring. Lastly, the OECD published its G-7 report and reminded markets that Italian and likely UK GDP will shrink in the short-term. This was offset by better than expected German unemployment data but this is largely being ignored by a prevailing risk off sentiment. In other words, absolutely nothing new, but merely a smokescreen narrative to justify stock declines, which further leads us to believe that next week's NFP will be worse than expected as discussed last night.



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Israel Army Cancels Passover Vacation While Korea Begins Fuelling Missile Test Rocket

In a double-whammy of mounting geopolitical tension, Channel News Asia reports that North Korea has started fueling a rocket in preparation for a launch date set for April 12 or 13. The supposed 'satellite launch' is being considered a missile test by the West and in the meantime snubbing Nobel Peace Prize winner Obama for his 'confrontational mindset'. In retaliation Pyonyang will not be receiving food aid (according to a Pentagon official). Meanwhile, Israel National News highlights that the Israeli Defense Forces (IDF) have taken the unprecedented step of canceling the long-customary leave for Passover and will instead remain on full alert. Careful to point out that this action did not stem from any planned military action (though soldiers dismissed that as obfuscation), IDF chief of staff Benny Gantz said Wednesday he gave the order saying he "does not accept" the notion of an army-wide vacation during Passover. A growing cadre of senior security officials and former IDF chiefs have called for a major Gaza incursion to uproot the terror infrastructure there. Gantz himself has described such an operation as "increasingly inevitable."



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This Is Where The Developed World's Households Have Invested Their Money

Yesterday we presented what the balance sheet of the developed, or better known as insolvent, world- recall there was over $21 trillion in excess debt as of 3 years ago, looks like, and the curious to some observation that trillions in liabilities also double up as assets, in what is easily the world's most confounding (to central bankers at least) global circle jerk. After all, one can not inflate liabilities, without also destroying the assets these double count as  at the same time. Yet while informative, that chart did not tell us anything we did not already know. However, the next chart we will present today will show a different aspect of the developed world, namely by indicating how the households of the three "richest" economies - Japan, the US and the Euro Area, have invested their money in various financial assets. And while this is merely the asset side of the ledger it shows how distinctly different the approach to capital allocation has been for countries in different stages of growth or ungrowth. What is most notable is the distinct distribution of capital in shares and equities within the three regions: it also shows why a sustained downtick in the US stock market is the deathknell of the modern economic experiment. What is also curious is that the investment of Japanese households into Insurance and Pension reserves, which in turn are then funneled into JGBs, is no larger than the US or European equivalent: it means that the true funding cost of the welfare state is roughly a third of all modern financial assets.



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Is A Bad NFP Print Days Away - Goldman Says Warm Weather Added 70,000-100,000 Jobs; Now It's Payback Time

Three months ago, this site was the first to discuss the impact of abnormally high temperatures on "better than expected" economic data, which the mainstream media in its perpetual permabullish bias attributed to economic "growth", and not even to $1.3 trillion in ECB liquidity, which today even the ECB's Constancio admitted was nothing but QE: "The purpose of the European Central Bank's two three-year longer-term refinancing operations was to address banks' short-term funding issues and "nothing else." "The sole aim of the LTRO was to cater to the funding stress of euro area banks in general," Constancio said at a colloquium on macro-prudential regulation here. "It never crossed our minds that we were solving the sovereign debt crisis" with these measures. Hence QE, albeit masked by worthless collateral exchange to make the naive Germans believe the ECB was not outright printing money. It was. Now that the 'economy', and by that we mean the stock market of course, is finally turning over, the topic of the weather will start being far more prominently featured, as there will have to be a validation to unleash QE at either the April or the June FOMC meeting (something which the Chairman hinted at on Monday, and which Bill Gross has been saying for months). Why blame it on the weather of course. It is in this context that we show the latest Goldman Sachs economic outlook piece from Zach Pandl who now states that "unseasonably warm temperatures have lifted the level of nonfarm payrolls by 70,000-100,000 as of February." Call it erroneous seasonal adjustments (as we have for the past two months), call it a trigger happy BLS, or just call it people leaving their home more than if there was 6 feet of snow outside, the point is that now up to 100,000 jobs will have to be "given back." Which in turn means that next Friday's NFP forecast of +213K may just end up being as low as 113K, with the print coming just in time for the Chairman to commence warming up the printers, and soon enough to where more QE will give the president the sufficient bounce in stocks he needs to mask the debt ceiling breach in September.



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Guest Post: Renewable Technologies And Our Energy Future - An Interview With Tom Murphy

Rising geopolitical tensions and high oil prices are continuing to help renewable energy find favour amongst investors and politicians. Yet how much faith should we place in renewables to make up the shortfall in fossil fuels? Can science really solve our energy problems, and which sectors offers the best hope for our energy future? To help us get to the bottom of this we spoke with energy specialist Dr. Tom Murphy, an associate professor of physics at the University of California. Tom runs the popular energy blog Do the Math which takes an astrophysicist’s-eye view of societal issues relating to energy production, climate change, and economic growth.

In the interview Tom talks about the following:

Why we shouldn’t get too excited over the shale boom
Why resource depletion is a greater threat than climate change
Why Fukushima should not be seen as a reason to abandon nuclear
Why the Keystone XL pipeline may do little to help US energy security
Why renewables have difficulty mitigating a liquid fuels shortage
Why we shouldn’t rely on science to solve our energy problems
Forget fusion and thorium breeders – artificial photosynthesis would be a bigger game changer



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Is High Yield Credit Echoing 2011's Equity Nightmares?

For the last month or so, despite ongoing fund inflows, high-yield credit's performance has been generally muted. Compared to the exuberance of the equity market it has been downright flaccid and given how 'empirically' cheap it is on a normalized spread basis through the cycle (and the fortress-like balance sheets we hear so much about) some would expect it to be the high-beta long of choice in the new-new normal rally-to-infinity. However, it is not (and has not been since late January). There are some technical factors including a bifurcated HY credit market (between really 'good's and really 'bad's and illiquids and liquids), low rate implications on callability and negative convexity affecting price but the lack of share creation in the HYG (high-yield bond) ETF also suggests a lagging of support for high-yield credit. This is a very similar pattern to what was seen in Q1/Q2 last year as equity kept rallying away from a less sanguine credit market only to eventually collapse under the weight of its own reality-check. European credit and equity markets are much more in sync together as they have fallen recently but financials in the US exaggerate this credit-signaling-ongoing-concerns trend while equity goes on about its bullish business. Another canary dead?



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Some Childish Humor Courtesy Of Moody's

Moody's may never downgrade the US or France for that matter, but when it comes to its stable assessment of Dong Energy, its rock solid analysis truly stands out.



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Guest Post: What Do Bankers Dream Of?

When Wells Fargo CEO John Stumpf sleeps, he dreams -- like all good bankers -- about numbers.  He probably doesn't dream about the number 600 -- the number of foreclosure packages signed each day by his robosigners.  He probably doesn't dream about 14,420 -- the number of conveyance claims fraudulently submitted to HUD in exchange for $1.7 billion from the FHA [Inspector General report.] And, he almost certainly doesn't dream about his share of laughably small $25 billion penalty he and his fellow bankers might pay to slough off legal liability for the millions of Americans they've helped make homeless (don't know why they're bellyaching...they're all getting $2,000!) No, I imagine the number he fixates on is 35 -- the third rail around which his stock seems to go into spasms every time it gets close.   I'm exaggerating, of course; it's only happened three of the last four times since November 2007.  The other time, in September '08, the stock soared right through 35 to nearly 45 -- before plunging to 7.80 six months later. Stumpf might be dreaming about 35 a lot this week, as the stock's edging toward that buzzing rail yet again.  And, darn it, did the SEC have to pick this week to file that subpoena to compel him to hand over the documents he promised in regards to a $60 billion fraud investigationNow, with earnings coming up in a couple of weeks?



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US Debt Ceiling D-Day: September 14, 2012

Earlier today, outgoing Treasury Secretary and tax challenged part-time pathological liar (see here) Tim Geithner said that any worries of the US debt ceiling are misplaced, and that at best such an event would occur "late in the year" (and to think the August 2011 extended $16.394 trillion debt ceiling was supposed to last well into 2013). Naturally, coming from Geithner, it meant this statement was a flat out lief the second it left his mouth, which is why we decided to do our own analysis of just when the latest and greatest debt ceiling would be breached. The answer is that at the current rate of debt issuance, which incidentally is going to accelerate sharply due to the recent extension of the payroll tax cuts which will require an incremental $100-150 billion total debt to be funded, and extrapolating future issuance solely on historical patterns, the US debt ceiling D-Day will be September 14, 2012. This means that there will be just over 6 weeks for the GOP to hijack each and every presidential debate before the November election with just this topic. Because there will hardly be anything more humiliating for Obama than to have to defend his platform even as the country is once again past the verge of insolvency, and forced to "commingle" retirement funds to keep Treasury operations running. Which incidentally is just as we predicted would happen when we explained why the GOP fast shelved the payroll tax debate so rapidly. It was nothing but a prelude to precisely this. Because once it is raised, and it will be raised of course, next up will be yet another ratings downgrade by S&P and this time, Moody's as well. All of which will most likely happen before November.



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Commodities Weak As Stocks Drop To Short-Term Credit Reality

The last 90 minutes of the day dragged ES (the S&P 500 e-mini futures contract) back up to the safety of its VWAP on what seems to be some comments by Jamie Dimon on the Fed looking for much larger job creation (prompting QE3 moves) or another housing bottom-call? After what had been an ugly day in which stocks sold off (aggressively after the European close) back to the post-Bernanke reality that is the less sanguine credit markets, the USD weakened, commodities and stocks popped (led by financials), and Treasuries sold off (belly underperforming). It seems that no matter who comes on TV nowadays and says anything, the algos market will rally. By the close, Financials were the only sector in the green (as GS and JPM surged but not so much BAC or MS) but Materials, Energy, and Industrials were the worst. VIX managed to get above 17 before reversing back to unchanged and the term-structure steepened back a little. Gold (which dropped the most in 2 weeks today after Goldman's long call) remains the only metals/oil commodity higher on the week - though only marginally - as plunges in Oil and Silver bounced quite positively into the close. Stocks underperformed credit on the day in general but the low volume limp up into the close saw them even out and we note that as ES hit its VWAP - heavier negative delta volume came through somewhat suggesting this was an effort to ease institutional exit - as both NYSE and ES volume was above average. 30Y Treasuries are back to higher in yield for the week but this afternoon's selloff lifted yields 4-5bps off their earlier lows. Broad risk assets led the equity market down but quite coincidentally, the S&P ended the day almost perfectly in CONTEXT with risk assets and credit/vol (after a significant dislocation the last few days).



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Chris Martenson Explains How Gold Is Manipulated... And Why That's Okay

The price of gold is being actively managed by central planners and their proxies. The main culprit here appears to be the US authorities, as the manipulation is most apparent in the US open gold market. For the most part, this 'management' has resulted in letting the price of gold rise, but not too much, or too quickly.  The price of gold has always been an object of interest for governments and central bankers. The reason is simple enough to understand: Gold is an objective measure of the degree to which fiat money is being managed well or managed poorly. As such, whenever paper money is being governed poorly, the price of gold becomes an important barometer. And this is why the actual price of gold is a strong candidate to be 'managed.' Or 'influenced'. Or 'manipulated'. Whichever word you prefer, they all convey the same intent. Some who are reading this are likely having an eye-rolling moment because they hold a belief that there is no conspiracy to manage the price of gold. This is an interesting belief to hold because it runs heavily against the odds. We could spend a lot of time discussing how a belief such as 'gold is not being manipulated' gets promoted and inserted into the popular consciousness, but we won't. Instead, we'll simply note that the people who hold this belief -- and you may be among them -- react to the concept at a visceral level, often with strong emotions such as anger or contempt, and even anxiety. When a strong emotional response surfaces during a conversation of ideas, it usually means that beliefs are in play -- neither facts nor logic. Experience has taught me that when someone becomes dismissive or angry or hostile when the idea of price manipulation is discussed, it's best to simply drop the conversation and move on. No combination of logic or facts is effective against a deeply-held belief. It's better to wait until some new evidence calls that belief into question, opening the door for revisiting the topic. But for those with an open mind, there is a very interesting trail of dots to connect.



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