Archive - Mar 25, 2011

We’ll share a couple of new pieces of information we’ve come across since our Aussie Pride post just a few days ago. To begin, we think it’s worth noting that the peak in existing house sales in the U.S., led the peak in price by about six months. It is intuitive that, Activity Leads Price in the real estate market. With that little nugget in mind, homeowners in Australia may wish to note the following press releases from HIA’s Economics Group.

A second government falls in one week, after Canada's conservatives are defeated in a no confidence vote, following Portugal government fall on Wednesday. Belgium must feel like a veteran in the anarchy department, which seems to be claiming more and more countries, or at least those that do not adopt a revolutionary route.

Stop whining, citizen ... eat some radioactive spinach and just wash it down with Corexit!

From Dow Jones: "An inflation-only mandate would be more appropriate for the U.S.
Federal Reserve than its current dual goal of managing price stability
and facilitating job creation, U.S. Federal Reserve Bank of Dallas
President Richard Fisher said Friday. "I do believe that the full employment mandate puts us on a slippery
political slope," Fisher said in a panel discussion in Brussels.
"Personally, I would prefer to have a single mandate." Somehow we doubt this statement was preapproved by your friendly Ministry of Truth big brother.

That chart from Tyler's article is reason enough by itself to get back to our BBB strategy (bullets, beans and bullion) and head for the fallout shelter - even without the fact that there is ACTUAL FALLOUT spreading across the globe from the STILL NOT FIXED nuclear reactor in Japan.

The no confidence vote in Prime Minister Stephen Harper's Canadian government is expected to start momentarily. Just like two days ago when Portugal fell, this event will likely be seen as a buying opportunity of both the USDCAD and the CADUSD. After all - there are trillions in excess liquidity sloshing around which must be put to use even if in mutually offsetting trades. Follow the event live at the following webcast from CTV.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/03/11

The bears are back, discussing the usual topics du jour, which in this case is a rather humorous listing of the most recent 99 black swans year to date in 2011, and their impact on silver. Funny stuff.

Highlights from the just released speech by Philly Fed hawk Charles Plosser:

• Fed's Plosser says would want to make explicit the Fed's commitment to a numerical inflation objective
  
• Says important to communicate a systemic plan that describes where Fed is going, how it will get there
• Says his proposed strategy would tie pace of asset sales to size of interest rate increases
• Says his preferred exit strategy would raise rates, shrink balance sheet concurrently
• Says failure to exit in timely manner will have serious consequences on inflation, economic stability in future
• Says monetary policy will have to reverse course in the not too distant future
• Says consumer spending continues to expand at reasonably robust rate
• Says US economy seems to be on much firmer foundation
• Says labor market conditions are improving

In other words, an attempt to return confusion over the fate of QE3. As for the Fed existing anything.... good luck. As part of his exit proposals, Plosser proposes two exit plans (12 and 18 months) both of which sees a dramatic reduction in reserves, a hike in IOER, and asset sell offs. Should the Fed indeed proceed to do this, the market will prolapse.

The latest news from Fukushima continue progressing from bad to worse. Which of course means that the (physical) silver lining around the mushroom cloud will be that much more potent: after all, the greater the destruction, the higher the Russell 2000. Just ask the Keynesians.

• FUKUSHIMA REACTOR VESSEL MAY HAVE STUCK VALVE, UCS SAYS
• TEPCO FINDS POOLED WATER AT ALL FOUR TROUBLED REACTORS: KYODO
• INCREASED RADIATION RELEASE FROM FUKUSHIMA POSSIBLE, UCS SAYS

This in turn has prompted the Japanese government to increase the "voluntary" evacuation radius frmo 20 to 30 kms, finally. Shortly, this will be 80. But not before many more innocent people are irradiated and sacrificed at the altar of Nikkei 10,000 (and RUT 36,000).

While today's consumer confidence index missing expectations (at 67.5 or the lowest since April 2009) was not a big surprise following our prediction of just that happening when we reported that the Bloomberg Consuemr Comfort index hit a 7 month low, what was very disappointing was that the Expectations component had its fifth largest drop in history, plunging from 72 to 58. This is a lower reading than that recorded when the "recession", according to the NBER at least, was still raging. As a reminder the recession ended with "expectations" at 70.

And there goes Syria.

An evil plan to raise the prices of Thin Mints while no one is looking. If you can’t trust the Girl Scouts, who can you trust? In this deflationary environment, companies are loathe to raise prices. Food companies are especially hard hit, with many commodities like wheat, corn, sugar, soybeans, and coffee up 50%-300% in a year. Any attempt to pass these costs on to consumers is punished severely. Who will betray me next? The US government? The Department of the Treasury? The Federal Reserve?

Three months ago, there was some confusion when SocGen's Dylan Grice, one of the brightest big picture strategists out there, released a report profiling the long-term real return on commodities (which was zero), leading some to speculate he was bearish on gold and/or other precious  metals. Today, Grice puts the matter to rest with his latest Popular Delusions piece: "Why this commodity specific value investor likes gold." To wit: "In the hard sciences knowledge builds cumulatively. It propels the relentless growth in man’s ability to do more with less, which makes commodities such a lousy investment in the long term. Yet in the realm of social decision-making mankind is a fool, unable to learn the wisdom of posterity and doomed to repeat its mistakes: the first credit crunch occurred in the Rome of 33AD and the ancient Greeks lived with high inflation. Confidence in central bankers’ ability to learn from past inflation is as likely to be misplaced as it was in their ability to learn from past credit booms. Gold remains the cleanest insurance against such overconfidence." And confirming gold's very unique position in the investment pyramid, Grice's conclusion borders on the ontological: "Shorting mankind’s ingenuity isn’t a smart thing to do. But ingenuity isn’t wisdom. And shorting mankind’s ability to absorb wisdom … well, aren’t you silly if you don’t? With less of the technological risk you’re taking when you buy any other part of the commodities complex, gold is the oldest, purest and simplest way." It appears ever more are starting to agree with this perspective.

The People’s Bank of China are very positive on gold in their just released annual Financial Markets Report. They remain concerned about risks posed to fiat currencies such as the dollar and euro, about asset price bubbles internationally and the risk competitive currency devaluations poses to fiat currencies. The report is much more positive than last year when they appeared to talk down gold’s prospects somewhat. Skeptics suggested that this was in order to allow them to continue accumulating gold without the price running away from them. The Chinese central bank said that inflation risks in economies internationally will support demand for gold, with prices for the precious metal likely to continue to make record highs. While the risks of falling gold prices shouldn’t be ignored, political conflict is likely to support higher gold prices. Inflation risks mean demand for gold will remain strong and investment demand from a 'value preservation' angle will be very strong supporting gold at higher levels. It said it is considering allowing more foreign financial institutions and companies to participate in China's interbank bond market, beyond international development agencies, and it is studying gradually opening the country's gold and futures markets to overseas yuan holders.