Archive - Dec 2010

Gold investors tend to focus overwhelmingly on the relationship between the US dollar and gold, citing that a lower dollar leads to higher gold prices in US dollars. Whilst this may be generally true, there is another relationship that does not get as much attention as we believe it deserves, and that is the relationship gold has with US real interest rates. For the first few years of this gold bull market, it was sufficient simply to acknowledge the USD down, therefore gold up dynamic, but now things have changed. Over the past couple of years gold has rallied when the greenback has been making gains, as well as when it was weakening, therefore investors must now take note of the inverse relationship between US real interest rates and gold, which has been observed consistently over the last couple of years.

JPM's cornering of the copper market must be proceeding successfully, as the firm has apparently developed a sense of self-confidence that it can now move from banging the silver close to banging the commodity right at the open (even when there is no OpEx on the horizon). A straight line $10 drop in which every bid is taken out is precisely the same activity that ex-Moore trader Chris Pia got in trouble for some time ago. Of course, when HSBC and JPM do it, it is perfectly acceptable. In the meantime, China, which is now practically openly buying up gold in the open market, thanks Blythe for this $10 dip in the country's cost basis. Lastly, we continue to await news of how the $1 trillion+ in incremental debt is going to monetize itself.

Price stability is the new fad among Fed critics who understandably want to see its mandate reduced. The problem is that even if the Fed could engineer price stability, this would be very economically damaging. Prices gyrate with regularity, and their movements tell producers what we want more and less of. If the Fed is to be given any mandate it should be one in favor of dollar-price stability. Nothing more than that.

"WikiLeaks coined a new type of journalism: scientific journalism. We work with other media outlets to bring people the news, but also to prove it is true. Scientific journalism allows you to read a news story, then to click online to see the original document it is based on. That way you can judge for yourself: Is the story true? Did the journalist report it accurately? Democratic societies need a strong media and WikiLeaks is part of that media. The media helps keep government honest. WikiLeaks has revealed some hard truths about the Iraq and Afghan wars, and broken stories about corporate corruption." Julian Assange, The Australian Op-Ed

With recent revelations of the fraudclosure scandal, and a spike in interest toward all things REO, we decided to go back to basics and present some "appendices" over why this process of excess bank inventory clearance is so important and what its implications are, especially in a world in which foreclosing has suddenly become legally impossible.

Those who are about to spend another 20% of their paychecks to cover the cost of surging food and gas prices, salute the wealth effect. For everyone else, there is the discount window. WTI Crude has just passed $90.57 (and at last check was at the highest it has been since mid-2008). We hope Ben Bernanke has plans how to deal with oil passing $100 (to the upside) - at today's rate of dollar devaluation, that target should be taken out by the end of the month. And in addition to supermarkets, next up one can safely cross out all companies that use petroleum distillates in the COGS. In fact, everything that worked in the spring of 2008 as the bubble was on the verge of blowing up last time, should work all too well. And back then we didn't even have a daily POMO...

Now that risk assets once again are trading purely on monetary stimulus vapors, and broad dollar weakness, we expect that precious metals will continue generating better beta than the S&P. Sure enough, this morning silver is up nearly 2%, with gold spot also just passing an all time high of 1,428.85. At this point every uptick in stocks is offset by a grater loss in purchasing power, and after various commodities opened limit up earlier, it is only a matter of time before the hot topic of mid-November: margin collapse, is back on the radar screen. But, as always, at least the wealthiest 1% of America which has the bulk of its net worth in the stock market, and recently, in gold, is making off like a bandit.

• Draconian Budget Set to Pass After Lowry Gives His Backing (Irish Times)
• Euro Collapse 'Possible' Amid Deepening Divisions Over Bail-out (Telegraph)
• China Outstrips Fed With Liquidity Risking 2011 Inflation Spike (Bloomberg)
• Deal Struck on Tax Package (WSJ)
• Dublin Woos MPs Ahead of Budget Vote (FT)
• China Buys Most Korean Bonds in 6 Months as Won Falls (Bloomberg)
• EU Rules Out Immediate Aid Boost, Banks on ECB to Fight Crisis (Bloomberg)
• The theatrical farce continues: Obama Summons CEOs to White House for Talks Amid Change (Bloomberg)

• Technologies AG, maker of grinding tools, for about $448M.
• Advantest Corp. makes a buyout proposal to Verigy Ltd. worth nearly $730M.
• Autoliv has $1B for Japan acquisitions as car production rebounds.
• AutoZone's Nov. net income rises from $143M to $172M.
• Bio-Rad announces pricing of public offering of $425M senior notes; to repay old debt.
• BP said to weigh sale of some North Sea assets to fund Gulf spill clean-up.
• Dollar General's Q3 net jumped 69% to $128.1M helped by 10% rise in sales to $3.22B.

As of 9:30 am GMT, Julian Assange is no longer a free man. Bloomberg reports that the Wikileaks founder was arrested by London police over rape allegations made in Sweden. "Assange, 39, was arrested “by appointment” today at 9:30 a.m. after an international request by Swedish police for the Australian’s detention, a Metropolitan Police spokesman said today in a phone interview. He is to appear at City of Westminster Magistrate’s Court at 2 p.m. today, a court official said... The arrest follows a European arrest warrant on one count of unlawful coercion, two counts of sexual molestation and one count of rape allegedly committed in August 2010, the police’s extradition unit said in an e-mailed statement.The arrest warrant was sought by prosecutor Marianne Ny, who said she had been unable to question Assange. Ny started her investigation on Sep. 1 after Stockholm-based Chief Public Prosecutor Eva Finne dropped the rape charge and reduced the molestation charges. A lawyer for the two alleged victims in the case had appealed Finne’s decision." Of course the only thing that is on people's minds is whether (and when) the Australian will release the decryption code to the 1.4 GB torrent file that among other things, may contain data that will "bury" Bank of America. In other news, score one for having unprotected sex with free speech.

As a reminder today is the day when Europeans are supposed to withdraw money from their bank, not necessarily in a beneficial manner. And maybe the action is already having an impact with the Bank of Ireland apparently the first casualty. BBC reports: "Customers of one of Ireland's largest banks have been unable to access their cash accounts through ATMs or online. The Bank of Ireland said it became aware at 1000 GMT on
Tuesday that ATMs were not working and customers were unable to make
online transactions. A spokesperson said the fault lay with the bank's internal system and engineers were working to restore normal services." And by bank's internal system presumably one meant lack of money...Perhaps Eric Cantona will have the last laugh after all.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 07/12/10

The American Dream is dead, and we are responsible. Yes, I know what you are thinking. How can I possible say this when corrupt politicians and even more corrupt bankers are responsible for killing the American Dream? Of course I acknowledge this fact, but without our willing, gleefully ignorant participation in their “Death Race to the Bottom 2014” game, the death of the American Dream would not be possible.

If any Fed asks you who is WilliamBanzai7, just say WTF...

FINRA oversees the broker dealers, and 70% are calling for increased transparency. FINRA blew them off. Those 70% represent America more than the large banks located on Wall Street. What truly amazes me is how little attention is being paid to this outfit.