Gold Nears $1,700/oz After Bernanke QE Hints, OECD $1.3 Trillion Eurozone ‘Firewall’ And Despite Indian Gold StrikeSubmitted by Tyler Durden on 03/27/2012 - 07:43
Gold is targeting $1,700/oz after yesterday’s Bernanke QE hints and today’s urging by the OECD to boost the Eurozone ‘firewall’ by another $1.3 trillion. Gold is consolidating on yesterday’s gains today above the 200 day moving average (simple) at $1,687/oz after yesterday’s biggest daily gain since January. The gains came after Ben Bernanke warned of the risks to the fragile US economic recovery and signalled the Fed would keep interest rates low and further debase the dollar – boosting gold’s inflation hedging appeal. Gold is also likely being supported by the OECD’s warning that the debt crisis is far from over. The OECD said today that the euro zone's public debt crisis is not over despite calmer financial markets this year and warned that Europe's banks remain weak, fiscal targets are far from assured and debt levels are still rising. The OECD said that the eurozone needs to boost crisis ‘firewalls’ to at least $1.3 trillion. Gold likes the ‘trillion’ word and talk of ‘trillions’ and will be supported by the risk of the creation of trillions of more euros, pounds and dollars in the coming months. Indian jewellers are on strike to protest against a government levy on gold and the strike is entering its 11th day in most parts of India. It has brought gold imports to a near standstill from the world's biggest buyer of bullion in the peak wedding season. The Indian government for the second time in 2012 doubled the import tax on gold coins and bars to 4% along with an excise duty of 0.3 percent on unbranded jewellery.
- 6.0+ Magnitude quake strikes near Tokyo (USGS)
- Ireland Faces Legal Challenge on Bank Bailout (Reuters)
- Bernanke says U.S. needs faster growth (Reuters)
- Spain Promises Austere Budget Despite Poll Blow (Reuters)
- Orban Punished by Investors as Hungary Retreats From IMF Talks (Bloomberg)
- Obama vows to pursue further nuclear cuts with Russia (Reuters)
- Japan's Azumi Wants Tax Issue Decided Tuesday (WSJ)
- Australia Losing Competitive Edge, Says Dow Chemicals CEO (Australian)
- OECD Urges ‘Ambitious’ Eurozone Reform (FT)
- Yields Less Than Italy’s Signal Indonesia Exiting Junk (Bloomberg)
Any and all negative overnight news are now completely ignored as the scramble for risk hits the usual fever pitch following Bernanke's latest attempt to transfer cash from safe point A to ponzi point B, aka stocks. First, China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and reinforcing the case for policy easing, according to Reuters. This was the first Jan-Feb profits downturn since Jan-Aug 2009. Profits fell 5.2 percent so far in 2012, according to the industrial profitability indicator, published by the National Bureau of Statistics (NBS) every month. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009. Then there was the German GfK Consumer Confidence which unlike yesterday's IFO, missed: nobody cares. Also on the negative side was an earlier auction of Spanish Bills which sold EUR 2.58 billion, just barely off the low end of a target issuance of EUR 2.5-3 billion. As noted however, neither this, nor the series of US disappointments which looks set to end March with 15 of 17 estimate misses is relevant. To wit: French consumer confidence soared to 87 on expectations of 82, as the easiest and lowest common denominator to boost risk assets is now abused everywhere, by UMich, by Germany and now by France. And why would people not be confident - stocks everywhere are higher despite fundamentals. After all if something fails, there is a central planner to fix it. Never forget - the taxpayer credit card has no limits. Net result - green across the board.
UPDATE: Added link to Matthew Bishop's ebook 'In Gold We Trust'
On a day where gold surged generously on the same thesis with which it managed a five-fold increase in the last decade or so - that of paper money debasement - we thought it appropriate to get some context as to the yellow metal's history, current implications, and potential future. In a mere 111 seconds, we are treated to a history of sound money (from Croesus to The Bank of England to The Great Depression), the growing division between some of the world's most-famous smartest investors with regards to Gold's price (Buffett vs Paulson/Bass), Governments and Central Banks Spending and Printing 'experiments', and a discussion of the endgame of "Where Will All The Money Go?" - all with the help of a magical cartoon hand. As it seems the profligate control of the electronic press is now all that matters to an increasingly correlated and blind-leading-the-ignorant markets, perhaps it pays to consider how markets have changed reactions to the threat promise of the extreme easing upon which the equity market's heart beats so strongly. Once anxious of bond vigilantes (taken care of via LTRO reacharounds and direct Fed monetization), FX markets remain intervention-prone (just ask Azumi how many times he looks at JGBs or JPY risk-reversals every day), and finally to the stock (and vol) markets as 'Bernanke's trailing-strike Put' ensures 'the wealth effect' buoys us all the chosen few to greater and greater spending disconnects between value and price and potentially larger and larger mal-allocations of capital. With Corporate cash stockpiles so huge - the "Where Is John Galt?" line can't help but appear in many minds as reinvestment in a dilapidated, aging, increasingly less cash flow generating asset base remains to be seen.
Following the earlier microphonegate (someone really need to tell politicians that any time they speak, they are now on the record always, and no just for the benefit of the NSA's brand spanking new compound in Utah known as "1984", that includes Portuguese and German politicians too) it was only a matter of time before the more conservative republican elements went beyond the simply rhetorical and asked some pointed questions, such as this from Mike Turner, Chairman of the House Armed Services Subcommittee on Strategic Forces, who minutes ago said that "It’s Unclear What the President has Offered up to the Russians as Bargaining Chips." Additionally, what is funny is that a part of the much hated NDAA which essentially eliminates the bill of rights for American citizens who are suspected of terrorist activity, Congress specifically targeted missile information sharing with Russia. To wit: "Congress has included in the FY 2012 National Defense Authorization Act, Congress, which the president has signed into law, a provision constraining his ability to share classified U.S. missile defense information with the Russian Federation. Congress took this step because it was clear based on official testimony and Administration comments in the press that classified information about U.S. missile defenses, including hit-to-kill technology and velocity at burnout information, may be on the table as negotiating leverage for the president’s reset with Russia." So let's get this straight - Obama signs the NDAA, with supposed reservations because he is well aware it is unconstitutional, and yet when it comes to its plain vanilla provisions, he violates them? Has anyone figured out yet what follows a banana republic in the escalation to pure centrally-planned lunacy, because America is there now.
Earlier today we presented an extended case by Caixin's Andy Xie, who is now confident that a massive 40% devaluation of the Yen is imminent and inevitable (with dire consequences for regional trading partners), as the opportunity cost, now that the Japanese economy is no longer competitive in the New Normal world (read trade surplus) of delaying what every other central banks has been doing so well (just observe the nominal surge in risk assets at 8 am this morning when Bernanke made it clear more real dilution is coming, as predicted here just yesterday), is the 3 decade long overdue pop in the JGB bond market. Yet as Xie notes, either of these two bubbles popping - the JPY or the JGB - is fraught with danger as both will confirm that three decades of central planning have failed. What is worse, Japan would then become a case study for failed central planning (yes, redundant), everywhere, but nowhere more than in the US. Which in turn, would not be a surprise to most, or at least to those who don't chase dead end momentum trends and heatmapped assets in simplistic hopes of finding a greater fool 1 millisecond into the future. It also would not be a surprise to anyone who sees the following chart from John Lohman which shows the gradual failure of central planning since the second global depression started in 2007 (and offset to date by $7 trillion in central bank private-to-public risk offset), during which time the BOJ has been forced to load up its balance sheet with substantially more assets than its GDP has grown by. Alas, this trend will accelerate which is why with time the exponential chart of central bank balance sheet expansion will only get more "exponential" until it finally pops, bringing with it an end to the truly last bubble. We can only hope we are somewhere far away when that happens.
In today's open mic farce that has made the president a target of a fresh republican onslaught, we have Obama telling Russian presidential pawn Dmitry Medvedev that "this is his last presidential election", and that he will have "more flexibility after the election." One can only assume that Obama is referring to the aggressive NATO expansion which has angered Russia substantially as noted previously, and even led to Russia putting radar stations on combat alert. It could be this or it could be anything, including US posturing vis-a-vis Syria assuming the stance a huanitariam, if completely impotent, do-gooder globocop, or for that matter any other foreign policy fiasco in which Russia now have the upper hand by default. Naturally, one wonders why Obama would be pandering to Russia (well, aside for the country's premier export position when it comes to nat gas and crude of course) in the first place. Or more importantly, as the GOP has now figured out, why does the president need to be more flexible after the election to begin with, and to what other special interest will Obama be far more responsive than to his mere electorate. Either way, nothing but more theater as central planning continues on its merry way to terminal dislocation with reality.
Gold managed a 1.8% surge today (back above $1690 and its 200- and 100-DMAs and its largest jump in 2 months) from Friday's close thanks to the combination of the ECB on Friday and Merkel and Bernanke today assuring the world that anything more than a 2% dip in stocks will not be tolerated. While Silver outperformed Gold from Friday's close, based on its 2-3x beta of the last year this was a notable 'underperformance' as Gold outpaced everything (beta adjusted). Perhaps importantly, the S&P 500 when priced in gold met and rejected resistance at a key level today - even with its nominal 30pt rally off of Friday's S&P lows. Volumes were abysmal with stocks well below YTD average and the S&P futures 20% below average and among the lowest few days' volumes of the year. Credit markets did not participate as exuberantly (though HY outperformed IG as you would expect) but the day seemed split into 4 segments: pre-Bernanke (quiet/sideways), Bernanke to US Open (rampfest, Gold outperforms, TSY rally), US Open to EU Close (TSY selloff notably, equities sideways, Gold rips), and then from EU Close to US Close (Equity/Gold/TSY rally as USD leaked lower). In FX, JPY was relatively stable at its lows after Bernanke's speech as the rest of the majors strengthened versus the USD (as EUR broke above 1.3350 once again). Oil managed a small rally on the day but underperformed the USD's 0.5% weakness from Friday as Treasuries were very flip-floppy today - ending the day with a small twist around 7Y (30Y +3bps). VIX made new lows and closed there as the term structure flattened further to its flattest in almost 4 months (with the largest six-day flatttening in 8 months).
Few men have a resume quite like Jon Corzine. Not only has Corzine served in the U.S. Senate and been governor of New Jersey, he has also been the CEO of Goldman Sachs and the recently imploded brokerage firm MF Global. The insider blood filtrated through cronyism and the endless squandering of the public dime flows heavily through his veins. When MF Global went belly up back in the fall, Corzine was finally revealed for the inept, overly connected bureaucrat he really is. Corruption seemingly follows the former Senator, Governor, and banker like shadows on a sunny day. Earlier this week, New Jersey was declared the least corruptible state in the union much to the surprise of, well, everyone. But as the great Jonathan Weil pointed out, the methodology in the study conducted by the Center for Public Integrity was horribly flawed.
Every quarter the Office of the Currency Comptroller releases its report on Bank Derivative Activities, and every quarter we find that the Too Big To Fail get Too Bigger To Fail. To wit: in Q4 2011, of the total $230.8 trillion in US outstanding derivatives, the Top 5 banks (JPM, BofA, Morgan Stanley, Goldman and HSBC) accounted for 95.7% of all Derivatives. In some respects this is good news: in Q2, the Top 5 banks held 95.9% of the $250 trillion in derivatives. Unfortunately it is also bad news, because $220 trillion is more than enough for the world to collapse in a daisy chained failure of bilateral netting (which not even all the central banks in the world can offset). What is the worst news, is that the just released report indicates that in addition to everything else, we have now hit peak delusion, as banks now report to the OCC that a record high 92.2% of gross credit exposure is "bilaterally netted." While we won't spend much time on this issue now, it is safe to say that bilateral netting is the biggest lie in modern finance (read How US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends With A Bang, Not A Whimper for an explanation of this fraud which was exposed completely in the AIG collapse). And just to put this in global perspective, according to the BIS in the first half of 2011, global derivative gross exposure increased by $107 trillion to a record $707 trillion. It will be quite interesting to get the full year report to see if this acceleration in gross exposure has increased. Because if it has, we will now know that in 2011 European banks were forced up to load up on several hundred trillion in mostly interest rate swap exposure. Which can only mean one thing: when and if central banks lose control of government bond curves, an rates start moving wider again, the global margin call will be unprecedented. Until then we can just delude ourselves that central planners have everything under control, have everything under control, have everything under control.
Chinese Business Media Cautions Japanese Bond Bubble Is Ready To Burst, Anticipates 40% Yen DevaluationSubmitted by Tyler Durden on 03/26/2012 - 14:50
It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning's tungsten brick road. Yet in the aftermath of last month's stunning surge in the country's trade deficit, this, and much more may soon be finally ending. Because as Caixin's Andy Xie writes "The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then." As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: "Yen devaluation is likely to unfold quickly. A financial bubble doesn't burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low. Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government's solvency could lead to a collapse of the JGB market." It gets worse: "Of course, the government will collapse with the JGB market." And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world's rapidly declining 3rd largest economy to take precautions for when this day comes... soon.
We have discussed the money-on-the-sidelines fallacy a few times recently in the context of the circular money-flows (clear misunderstanding of the idea of a buyer and a seller) as well as mutual fund cash levels, retail sentiment, demographic shifts, and insider transactions. There is mounting evidence, as Morgan Stanley's Michael Wilson notes, that 'make no mistake...institutional investors are all-in' as the rolling beta of mutual funds relative to the S&P 500 tops 1.10x at multi-year highs, institutional investors are most exposed to high beta sectors since MS data began, and long/shorts funds are near their most levered long since MS records began. Combine this with the massive surge in Insider Selling transactions in the last few weeks (apropos Charles Biderman's comments on the rally's support by Insider buying til now) and perhaps bearish retail sentiment will lead this market down as we hope that finally 'money-on-the-sidelines' fades from the parlance of all but the most aged and incompetent of market prognosticators.
As we noted this morning, the hope trade seems to be morphing from 'we don't need no stinking QE' to 'good is good but bad is better' as 14 of the last 16 data points have missed expectations. With a relatively heavy calendar of data this week, we are sure there will be ups and downs and micro-trends to call for the all-in but as Jim Reid if Deutsche Bank notes, this is the start of the point in the year when seasonals have often led to data disappointments over the past decade. The data typically beats expectations between November and January but then disappoints for 8 of the next 9 months with the notable exception of May. Overall its certainly a relationship to have in mind, especially as we travel through a period, theoretically, post maximum liquidity for now. Adding to this concern is the fact that real economic activity has 'improved' less and less with each extreme easing action by the Fed - with 'Operation Twist' barely budging the needle on ECRI's growth index relative to QE1 or 2 - and with economic data missing expectations rather consistently already, history suggests negative returns for the S&P will be evident.