Archive - Apr 2011

He who wants Lent to seem short should contract a debt to be repaid at Easter. Italian Proverb

Not content with rising by a dollar during all recent regular work days, silver is now up a buck on a holiday. Doesn't make much sense, but we'll take it.

If rising oil pushes the real economy over the cliff, voters will not be re-electing incumbents in 2012. Welcome to reality, Ben. Your "let's pretend the recovery is real" game is nearing an end. If you push the dollar down any more, then oil will go up and tip the real economy into a recession that QE3 will only make worse as you send the dollar into freefall. If the dollar rises, then your beloved "wealth effect" dies a horrible death on the rocks below. Take your pick, but choose wisely.

It appears rumors that Greece is set to restructure its debt are about to come true. According to Greek daily Ta Nea, reported by the Guardian, "the government was mulling "a velvet restructuring" that would include extending outstanding debt and a voluntary agreement with lenders to modify repayment terms." More: "Greece  is considering ways to restructure its debt – such as by extending the life of its loans – two national newspapers claimed on Friday, joining a flurry of recent reports on the prospect that Athens might be forced to default." Not surprising, this comes hot on the heels of continued lies about the stability and viability of the eurozone and the euro, which recently surged to nosebleed levels only to allow it to drop from the highest possible position when the realization that the dominoes are falling finally sets in. But never one to be bound by the confines of reality, where one is accountable and responsible for their actions¹ (1: except all millionaires and billionaires bailed out by the Bernanke Put), Greece is now calling in Interpol to put the blame for its latest and greatest bankruptcy on a Citigroup trader: "A London trader working for US bank Citigroup  is to be questioned by investigators over an email at the centre of an investigation by the Greek authorities into rumours that Athens could be forced to restructure its national debt as early as this weekend." So, it is a trader fault for pointing out the market's reaction to what is so glaringly obvious even a caveman finance minister from Athens will realize it, and not the fact that one needs to apply a new Excel #Ref! patch in order to express Greek debt to GDP. The lunacy. The lunacy.

It has been done before (here, here and here) and it certainly will be done again. In the meantime, here is Adolf, reprising in his now traditional role as Jamie Dimon, learning that the Comex is out of silver.

Over the past two days we reported (here and here) on the Shanghai trucker protests over high has prices and low wages, which from peaceful promptly turned violent as more people joined the clashes against police (it appears only in America do people not protest these things). Today we present a first person recount of what is really happening in China, as unfortunately nothing coming out of the world's "fastest growing" economy can be relied upon.

According to incoming reports, a protest in Damascus has turned violent and possibly deadly after security forces used teargas and live ammo to disperse protesters. Reuters reports: "At least three protesters were injured on Friday when Syrian forces fired live rounds at a large pro-democracy demonstration in the Damascus suburb of Douma, a witness said. "Thousands took to the streets in Douma. I helped carry three people the bullets hit in the leg," the witness said." Sky News adds: "Syrian security forces have used teargas to disperse protesters in the capital Damascus, according to reports. It follows reports the Syrian army was deployed overnight in the city of Homs - ahead of Friday prayers. Syria's protest movement has promised a day of demonstrations on what it is calling 'Great Friday'." Ironically all this happens just after the country's age old emergency laws were lifted earlier this week "to herald a new era in human rights." Perhaps rights to get shot in the head? Either way, with Syria oil production minimal, do not expect any imminent intervention by the globocops in the imminent future, unless violence threatens to spill over into the Golan Heights.

Is Canada's largest pension fund manager building a future on solid foundations? You bet it is...

McDonald's coffee customers are more loyal than Starbucks', and there's a web site founded 10 years ago dedicated to oppose Starbucks ....

In response to the president's moronic witch hunt of oil "traders" which, for a POTUS so set on distinguishing himself from the prior administration, was only missing the phrasing "read my lips, no more speculators" for people to suffer the biggest glitch in the matrix to date, we decided to present this note from Jared Dillian, editor of the Daily Dirtnap published back in January discussing the imminent surge in food prices, which however is just as applicable to the surge in any commodity, and most certainly crude. Dillian's point is so simple we are not at all surprised that it is lost on all sock puppets in Washington. "I say that speculators have a very important role to play in setting commodity prices, and the very idea that we would limit the role that speculators play in commodity prices is an early signal that world food markets are about to get a good deal more unfree, which means we are about to undo all the progress we have made in the last fifty years. This is why speculators are important in setting prices. They make money. That is their job. Making money is an end in itself. But an interesting by-product of a speculator setting prices is that he forces the producers of the commodities to respond, and consequently, adjust production." To be sure, there are always those speculators who in their pursuit of price disequilibria, through the wager of capital, will break the law, just as there are those who will commit criminal acts in every aspect of life. But for the most part, speculators operate within the confines of the law, as poorly drafted as it may be. Yet the core point remains: by pushing the clearing price substantially from the equilibrium due to excess demand (or supply) specs merely precipitate an equal and opposite reaction which promptly corrects this disequilibrium. As Dillian concludes when observing a hypothetical explosion in food prices: "Well, guess what: when prices are ten times higher, the market is
going to be full of farmers, and nobody is going to complain very much
about that." Q.E.D.

Over the past few weeks I have followed, with something oscillating between frustrated interest and frustrated apathy, what now passes for political theater. Or, I should say, budget-minded theater, for never has a topic of debate so fitted its mode. What bothers me most is not that the show contains thousands of actors and critics performing on thousands of stages, making coherent debate impossible, relegating revues of Simpson's Bowels to off-off-Broadway matinees, and leaving each potentially useful turn -- first a soliloquy by Ryan and then one by Obama -- quickly clouded with the dust kicked up by its champion's clumsy steps; What bothers me most... wait for it... is that the debate is about entirely something else than it claims to be. Return to the revolutionary, insightful phrase we were recently taught: "live within our means." What are our means, really? Are they numbers in congressional bills? Numbers our online bank accounts display? Pieces of paper? These are but (poor) representations of our true means: the resources the planet affords us and that we waste -- err consume -- and are encouraged to waste by the government in order to grow our economy like some chart-shaped chia pet.

Not billions ... but TRILLIONS?

Once again we are reminded why we like Jim Grant so much. From his latest Grant's Interest Rate Observer (which, trust us, is worth the subscription): "Almost 30% of the respondents to a poll conducted by UBS a few weeks back said they anticipate a third round of so-called quantitative easing... We count ourselves among the expectant 30%. To its congressional directed dual mandate the Bernanke Fed has unilaterally added a third. It has undertaken to make the markets rise. The chairman himself has more than once taken credit for the post-2008 bull market (on one such occasion in January, he reminded the CNBC audience how far the Russell 2000 had come under Fed ministrations). Could he therefore stand idly by in the face of a new bear market. Byron Wien, vice chairman of Blackstone Advisory Services, went on record the other day predicting a summer swoon in stocks following the scheduled winding down of QE2 in June. Let us say that Wien is right, and that, furthermore, drooping stocks are accompanied by sagging house prices and a weakening labor market. Bernanke was hard put to explain why he chose to let Lehman go while acting to save Bear Stearns. He would be harder put to explain why he chose to implement QE1 and QE2 but, in another hour of need, refused to launch QE3." And "Sooner or later, gravity turns speculative markets into investment markets. When this transformation occurs, the Fed will confront the need to bail out the innocents it had previously bailed in. Hence, QE3." And therein lies the rub. Simple, sweet, and, for the US dollar, suicidal.

That over the past few years there has been a substantial push to expose some of the chicanery at the SLV iShares silver ETF, especially among the non-indoctrinated blogosphere, is no surprise. After all fear of a massive paper silver wipe out is not only the reason for success of Eric Sprott's physical silver ETF, but for the massive and consistently record premium over NAV of the PSLV. Yet up until now, we were not all that concerned about such allegations (despite having written about this ourselves on several occasions). After all, the one thing that would essentially validate such, at time exorbitant, allegations, was missing: a formal refutation. That is, until now. Kevin Feldman, a Managing Director in the iShares unit of BlackRock, has just blasted out the following email which we were lucky enough to become privy to. Basically, we now have the one and only thing we were missing: an official denial of all the "rumors." It may now be time to abandon the SS SLV, because if this letter is the best defense iShares can muster, then SLV holders may be in trouble. But better confirmation than. And leaving the content of the letter aside, its existence, and that Blackstone itself is willing to engage the tinfoil hat clad blogosphere, is the biggest red flag so far...

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/04/11