Archive - Jun 2010

Stocks have once again decoupled from FX, with the now defunct EURJPY being ignored and even the relevant AUDJPY decoupling. The only relevant signal today seems to be the temporarily successful gold price supression by the Wall Street paper gold dumping brigade. Eithe way selling overvalued stocks and hedging with cheap FX pairs is the right trade here. Alternatively one could buy the EURJPY and sell the AUDJPY.

Paul Mylchreest periodic report on all that is important is, as usual, a must read. In this issue:

• Buying Oils and Rare Earths
• Gold and the Euro - rumblings of economic discontent
• Feedback from the secretive Bilderberg & Trilateral Commission
  meetings
• Why we shouldn’t be surprised that Obama has failed to live up to all
  the hope
• Arch Crawford’s warning of a rare planetary alignment
• Decoding Stanley Kubrick’s Eyes Wide Shut

Gold at all time record highs? Goldman Sachs sending bankers to pitch a Radioschack LBO to gold? Can't have that - here comes the royal PM beatdown courtesy of Jamie Dimon's completely unflagrant gold plunge enforcement goons. Also, let's not forget - let's *not* forget, Dude - that keeping gold, a precious metal, for uh, domestic, you know, within the city - that (soon) aint (gonna be) legal either.

Just headlines: "the audit board violates constitution, supreme court finds." As Reuters explains: "At stake in the case is how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in 2002 in response to the Enron and WorldCom accounting scandals. If the Supreme Court strikes down the board, the ruling will put pressure on Congress to revisit the law, opening it up for potential changes in the reporting duties of companies." Then again, who even pretends we have remotely credible filings anymore? With FASB indefinitely locked in the basement and companies allowed to report their numbers on a mark-to-unicorn basis, it is all lies anyway.

Yet another smackdown by the inimitable Rick Santelli of all that is fiat, and its henchmen. "Go read some Austrian economist instead of the funny pages." Santelli tells Liesman, to which the response is "I am ready to talk about Fred Hayek, John Hayek, and Selma Hayek." Followed promptly by the Santelli coup du jour: "Go back to Russia where you understand the state and the citizen."

Well, at least Ben Bernanke will never be able to conduct sworn testimony claiming nobody warned him about the adverse side-effects of ZIRP. As part of its 80th annual report, the BIS has dedicated an entire chapter to diagnosing Ben Bernanke's terminal Keynesianism, entitled: "Low interest rates: do the risks outweigh the rewards?" The openly negative, and borderline critical narrative, coming from the central banks' central bank, adds yet more fuel to the rumor that there is an open schism developing between the BIS and the Fed, with the IMF's increasingly fiat-y SDR likely to suffer as a result. Whether the BIS is planning the creation of some non-fiat currency, as some have speculated, is unknown at this point.

This guy has got to go. Maybe we should just get rid of the lot of them.

It's not even funny any more: "Trade Update: Last Monday we opened a short $/KRW trade on the back of the currency reform in China and consequent anticipation of CNY appreciation into the G20.  In the event, while the $/CNY fix moved lower by 0.5% on the week, this was less than anticipated and the volatility of the $/CNY intraday trading generated uncertainty in the market.  While the KRW initially appreciated on the news, less than anticipated CNY appreciation and risk off jitters associated with financial reform in the US ultimately caused $/KRW to trade above our stop leading to a potential loss of 2.2%.  The KRW has underperformed the rest of the region since late August, however we continue to expect the currency to strengthen going forward and will look for further opportunities to take advantage of this view."

In the tug of war between the U.S. urging the European nations to buy more stuff, and the EU insisting it was that very behavior that got us into the problem in the first place, score one for the Continent. It is clear that the U.S. does not carry as much weight as it used to internationally. While the Krugman-Geithener-Bernanke troika scratch their heads as to why the EU can be so stupid on this, let us remind the KGB that while U.S. memories may carry the scars of the Great Depression, theirs is a different reality, one heavy with the Weimar Republic and inflationary collapse. But let’s be practical. Any austerity measure imposed by a government only becomes tolerable to a people when that government has the ability to print its own money. So, whether the Germans admit it or not, there will be money, and lots of it. What other way is there to quell the civil unrest that will accompany a spoiled populace having its candy taken away? Believe me, the only countries that will abide by strict austerity measures will be those with printing presses.

The BEA's May Personal Income and Spending data is out - as expected, with gizmos like the iPad out there, Americans once again outspent themselves: May Income came in at 0.4%, below expectations of 0.5%, flat with a revised April reading of 0.5%; Spending on the other hand was greater than expectations of 0.1%, coming in at 0.2%, compared to a previous reading of 0.0%. Yet despite the excess spending, the Personal Savings rate climbed to 4.0% - an increase from last month's revised 3.8%, and the highest since September 2009.

BP has discovered the largest and most powerful well in history, and control of it may be outside existing technology. Less than 1% of the spilled oil is ending up on the beaches. Possibly 36 million barrels will end up in the sea, the same amount put there by German U-boats during WWII. The best historical analogy is not asbestos or tobacco, but Vioxx. Not for widows and orphans

"We know that Tony Hayward is leaving his position and he will introduce his successor," Igor Sechin told reporters ahead of a meeting with Hayward. Sechin, who is deputy prime minister and board chairman at Russia's biggest oil company, Rosneft, was responding to a question asking about the subject matter of the meeting.

And an immediate refutation from BP: "BP spokeswoman Carolyn Copland in London said the report 'is definitely not correct.'"

Some Fed economist (with a hard-earned Ph.D mind you) named Kartik Athreya (who lasted at Citigroup as an associate Vice President for a whopping 7 months before getting sacked in 1998 only to find solace for his expiring unemployment benefits in the public sector) has written the most idiotic "research" piece to come out of the Federal Reserve since 1913, and the Fed has written a lot of idiotic research since then - after all you don't destroy 98% of the dollar's purchasing power in 97 years with non-idiotic research. But this just takes the cake. In "Economics is Hard. Don’t Let Bloggers Tell You Otherwise" Kartik says: "I argue that neither non-economist bloggers, nor economists who portray economics —especially macroeconomic policy— as a simple enterprise with clear conclusions, are likely to contribute any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public." Alas, all Kartik achieves is to convince the general public that feeding Fed "economists" alcohol after midnight and letting them directly upload their resultant gibberish to the Fed's broad RSS feed the second they think they have a coherent thought , is generally a disastrous idea. In his piece, which has no other intention than to discredit and outright malign bloggers such as Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich, Athreya says: "In what follows I will argue that it is exceedingly unlikely that these authors have anything interesting to say about economic policy. This sounds mean-spirited, but it’s not meant to be, and I’ll explain why." Instead in what follows, the Fed presents 4 pages of thoughts so meandering, that the author's blood alcohol level must have certainly been well above the legal norm for the duration of the writing of this ad hominem pamphlet.

• Asian stocks fluctuate; Japanese banks decline on Mizuho's share-sale plan.
• Caribbean storms strengthen, may head for oil spill.
• China sets the exchange rate for the yuan at its highest in five years.
• China shares fall on concerns Agricultural Bank of China’s IPO might depress market.
• China, as part of fuel efficiency measure, to shut down small thermal power units totaling 10 million kilowatts in capacity this year.
• Consumer spending in US probably little changed in May as incomes rose: Survey.
• Dubai port operator DP World cancels plans for London stock listing until at next year.
• Group of 20 Nations agree on higher bank capital to avert financial crisis.
• Romania said it would raise taxes to shore up state finances.

Last week we pointed out that the CHF could be quickly becoming at least a figurative reserve currency. With it promptly approaching parity with the USD (1.0840), and hitting new all time highs against the Euro, the market may have just taken such musings seriously. Regardless of where this slide ends, all it shows is that ever more deposits from across Europe keep getting shoved into Swiss banks - can you spell ongoing, behind-the-scenes, European bank run?

As for the forced return to the gold standard, that is continuing as planned: gold is back to just off all time highs.