Archive - Apr 25, 2011

After a weekend full of empty (or not) Chinese posturing, Marketwatch's Brent Arends has an interesting tidbit to add to the China vs US debate. "The International Monetary Fund has just dropped a bombshell, and nobody noticed. For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China." The year? 2016. So perhaps having a 5 year head start in selling the bonds of what will soon be even an official former superpower is not such a bad idea. "It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power." And here's why pretty soon America may be left without presidential candidates: "According to the IMF forecast, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy." Oh well, it was fun while it lasted.

• Bill Gross Battles Dealers on Outlook as Treasuries Gain (Bloomberg)
• Jim Saft chimes in: Triumph of gold, the anti-investment (Reuters)
• Fed Searches for Next Step - New Focus on Interest-Rate Plan as Controversial Bond-Buying Strategy Winds Up (WSJ)
• Iran says it has detected second cyber attack (Reuters)
• ECB-forced 'run on our banks' led to bailout (Independent)
• OPEC unlikely to change output in June (Retuers)
• China consumer prices likely to rise 4.5 pct in 2011 (Xinhua)
• China must watch for rising U.S. Treasury yields: researcher (Reuters)
• Tanks in Syria's Deraa city, bodies in street -witness (Reuters)

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 25/04/11

New home sales expected to rebound from record lows. Dallas Fed at 10:30 should confirm the Q2 economic contraction (expect Goldman to downgrade Q2 GDP if Dallas Fed comes under 10). After a one day absence, POMO is back, though today all Primary Dealer proceeds will likely go to fund margin calls.

Over the past few years, mainstream analysts have shown a tenacious blind faith in the U.S. economy and the dollar that goes far beyond religion to the point of mindless cultism, so, when even they begin to question the future of American finance (as has been occurring more and more everyday), you know its time to worry. For those that have been following my work since 2007, the events of the past few months have not been a surprise at all, however, for those just waking up to the ongoing implosion of our fiscal infrastructure, the bubbling inflationary meltdown just over the horizon and the nightmare unfolding around our national debt is rather shocking. Living through a full spectrum catastrophe is, to say the least, confusing, especially when you have no idea where the whole thing began. Until now, the mainstream media has provided nothing but economic fantasy for the masses. They have satiated the public with what amounts to financial toddler talk for helpless preschool minds averse to any research beyond their daily 15 minute sippy cup of New York Times, CNN, MSNBC or FOX cable news sound bites. I mean, have you ever actually stopped and read a Paul Krugman article more than once? Or listened carefully to an MSNBC economic piece? It’s like being violently accosted by a band of slobbering mental deficients with securitized ARM mortgages stuffed in their pants. Of course, fewer and fewer people are now buying what these hucksters are selling. With gasoline nearing $5 a gallon, grain prices doubling, and shelf prices beginning to skyrocket, it’s hard for even the most ignorant suburban schlep to remain oblivious to the problem anymore. We are no longer on the edge of the abyss; we have fallen into it head first…

I expect the silver bears to proclaim this recent huge move as a "blow-off" top that marks the inevitable bursting of the silver bubble. My take? Let’s wait until silver reaches the mid-triple digit range before we realistically start talking about a silver bubble.

You didn't think they'd forget did you. We predicted last week that the exchange would imminently hike silver margins. Well, our prediction was just a little off (and far more spot on than all those speculations about a weekend Greek restructuring and/or Chinese revaluation). As expected, the Shanghai Gold Exchange just announced it had raised the level of deposit required for its silver forward contract by 3 percent and may roll out further measures to curb excessive speculation and manage price volatility. According to the SGE, margins on its silver [Ag (T+D)] forward contract would be raised to 15 percent from April 25 compared with the previous 12 percent, according to a notice posted on its website. Silver did not even pretend to react on the news. And the upcoming silver hike by the COMEX will have absolutely the same effect.

While markets are relatively quiet everywhere, precious metals have just gone apeshit. Gold opens at $1,520 while silver hits $49.70 on the Comex, drops, and is backing up again last treading at $49.22, as the world is pricing in the end of the US reserve currency. The parabolic melt up is in full force and we expect the nominal Hunt high to be taken out today, after which the resistance is the real Hunt high somewhere around $140, courtesy of the Federal Reserve confetti.

Original piece here.

I was lucky enough to receive an advance copy of The Most Important Thing by Howard Marks, provided by Mr. Marks himself. The following is my extensive review of the book, which will be officially released on May 1st.