Archive - Jan 28, 2011
The brand new game everyone is talking about...
David Freedom's portfolio is 30% Cash and 30% Gold.
Is he buying the dip?
Tyranny thrives by feeding on human necessity. It examines what sustains us, what we hope for, what we desire, what we love, and uses those needs as leverage against us. If you want safety, they will take it away and barter it back to you at a steep price. If you want success or respect, then you must bow to the existing arbitrary pecking order and play the game nicely. If you want to raise a family, then you must accept the state as a part-time parent. If you want kinship, then you must settle for a thin veneer of empty pleasantries and insincere associations. If you want independence, then you are simply labeled as a threat and done away with altogether. Autocratic rulers are first and foremost salesmen; they convince us that life itself has a “cost”, that we are born indebted, and all bills must be made payable to the establishment. First and foremost, we are sold on the idea that in all of this, we are ultimately alone… It is within these manipulated concepts of cost and isolation that we discover the foundation of all totalitarian cultures: Collectivism.
The steady climb in Fed assets continues, with the left side of Bernanke's balance sheet swelling to just under $2.5 trillion, as US Treasury holdings hit $1.13 trillion, implying that the Fed's DV01 continues to increase on a daily basis with every single POMO, as we have been pointing out since last summer, and which the Fed decided to address last week by changing its "accounting" rules and guaranteeing its assets can never decline. The differential between the US and China is now $233 billion and rising. We expect our now second-largest creditor to realize the game theory balance of leverage (no pun intended) is shifting away from its favor (and to the Fed), and to respond accordingly. Alternatively, maybe someone will finally readjust the UK's holdings to properly reflect what could very likely be simply Chinese debt accumulation.
Stunning numbers ...
Over the past few weeks we have dedicated quite a few articles to the WTI-Crude spread which today once again hit an all time record wide (here and here). Yet no matter the reason for the divergence, what is certainly lacking are explanations for why arbitrageurs have not stepped in to take advantage of this mispricing. While there has been much speculation, nobody has provided a comprehensive answer. Until today. Below we present the Weekly Tanker Opinion from Posen & Partners, "Light Sweet Dire Divergence" which gives what we believe could be the most credible explanation. Bottom line: just like in gold, there appears to be a dramatic divergence being created between the paper and physical markets in WTI. "The Brent crude oil benchmark currently represents the pricing benchmark for over 65% of the world’s traded physical crude oil. The WTI contract represents a pricing benchmark for about 30% of the world’s traded physical crude oil, while physical supplies of WTI are quite scarce. It should be noted, most of the crude oil being priced off the WTI contract is already trading at a significant premium to the contract itself implying that the market has already compensated for WTI’s lack of physical relevance. This could explain why shipping rates have remained depressed in the face of such a dramatic price discrepancy between the two contracts. It would also support the growing chorus of analysts, traders, and pundits calling for the Brent contract to be more indicative of fundamental demand for physical crude oil (versus speculative demand for paper WTI contracts)." Much more in the full note...
Today, history is being made in the Middle East. The Arabian streets woke up to the sound of sniper fire as a regime is defending itself, against the people of its own nation. The flames of anger have been fanned by decades of corrupt authoritative rule.
Following the first quantitative revolutions (of the variety inspired by quantitative easing) in history, we now have the first images of what quantitative looting looks like. If this is any indication of what to expect the next time Waddell and Reeds sells a few extra contracts, we are going to need much bigger forklifts.
Chairman of the Federal Reserve, Ben Bernanke, in an attempt to soothe global markets in the midst of a breakdown of uncivil society in Egypt, where strongman Hosni Mubarak is struggling to extend decades of control through iron-fisted use of security forces, scheduled a hasty Washington D.C. press conference at eight thirty EST Friday morning.
The Egyptian president (?) is speaking liverecorded (unclear from where). Somewhere, the Bernank is rehearsing the very same speech. Long, meandering speech, whose conclusion is that government is at fault. The government will be sacked and be replaced with new government tomorrow. Long Riot futures.
Following my thoughts on the fireworks going off everywhere in emerging markets, if you are not short emerging yet (EEM is a great proxy. Look at Bovespa in Brazil or TUR the Turkish ETF, it is all looking horrible and about to get completely decimated), you can still buy silver and sell Spanish equities. A few weeks ago when silver had broken the 50-dma I had pointed that it should retrace towards 25.80/26.50. We came right around those levels and caught a huge bid today. Confirmation by breaking out of the bearish downtrend channel since the recent highs would point towards new highs. Meanwhile the IBEX has completed a consolidation wedge and held resistance at 11,000. As a long as we stay below the afore-mentioned resistance the next stop on the way down is 9,600.
We were doing some diligence on Egyptian (now historic) gold holdings but unfortunately the following link no longer seems to work:http://www.cbe.org.eg/ To those who guessed correctly that this is the web site of the Egyptian Central Bank, you win whatever is held in the vaults of said building. Which we are willing to bet against all that is held in our own tungsten warehouse in Kentucky, is absolutely nothing. To any potential readers in Egypt, may we recommend you go politely enter the building at 31 Kasr El-Nil Street, Cairo, go to the basement and check on the precious metal inventory. There should be 75.6 tonnes of gold. Which incidentally may also be a sufficient motive for someone to pull off a Die Hard 23.
Jim Grant: "The Fed Is Now In The Business Of Manipulating The Stock Market...Should Confess It Has Sinned Grievously"Submitted by Tyler Durden on 01/28/2011 16:03 -0500
Jim Grant, who will never be accused of being a fan of the Criminal Reserve, and whose views on what will happen to asset prices in a printer-happy world are gradually being validated, appeared on Bloomberg TV, telling Margaret Brennan upfront that Bernanke owes the world an apology. Alas, after various revolutions around the world have been catalyzed by Bernanke's policies, we have a feeling that ever more oppressed people will soon see the Printer in Chief as a patron saint of violent revolution, alas against crony regimes fully supported by the US (and hopefully the US will view it the same way when its time comes). That aside, Grant's criticism of the Fed should really start to grate on the Chaircreature: "I think what would be very good for the Fed if there would be a confession, the Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which if it were the balance sheet attached to a bank in the private sector would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership if it were a different kind of institution...The Fed is now in the business of manipulating the stock market." Jim also has some very critical discussions on how the Fed never settles up on the $3.4 trillion in custodial debt on its books. As always, we can't get enough as more and more mainstream figures turn to bashing that biggest abortion of modern capital markets.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 28/01/11
Make no mistake ... a revolution in Egypt is a refutation of American policy.