Archive - May 2011

• China’s Top Fund Manager Favors Commodities as Inflation Worsens (Bloomberg)
• U.S. Warns China Is Closing Up Again (WSJ)
• Bullish for destroyed crops: France’s Second-Hottest April in Century Desiccates Farm Fields (Bloomberg)
• A Mission Not Yet Accomplished (David Leonhardt)
• FM for Flexibility in IMF Capital Flow Control Framework (Business Standard)
• Syrian Troops Storm Damascus Suburb, Make Arrests (Reuters)
• Hamas and Fatah sign reconciliation deal to end four-year rift (Xinhua)
• Central Banks Expand Gold Reserves With $6 Billion in Purchases (Bloomberg)
• BOE Holds Interest Rate at 0.5% on Signs Recovery Is Fading (Bloomberg)

Gold stabilised in Asian and early European trading prior to a 1% fall, while silver’s sharp price fall continues and silver is now down 20% in USD terms in 5 days. The huge and unprecedented increase in margin in the paper silver market has forced some weak hands out of the silver market and allowed the concentrated shorts on Wall Street to press their advantage to the downside.

The ECB rate decision (unchanged) has come and gone, and now everyone is focusing on the follow up conference at 2:30 CET (in less than 40 minutes), at which Jean Claude is expected to announce whether he will continue at the current rate of tightening with a June rate hike, or, since the global economy is once again contracting, will declare all those who called his rate hike decision idiotic, correct, and proceed to keep liquidity flat, if not loosen once again.

In line with expectations. The conference following the announcement is where everyone will be, expecting to hear if the ECB will tighten imminently, or, far more likely, not.

Quiet day in the US where just jobless claims will provide the last jobs datapoint before tomorrow's NFP. Attention will be focused on Europe where if not today, then very soon, Trichet will admit his mea culpa for hiking rates prematurely, now that the German economy is taking a big turn for the worse.

A look at the year to date SS numbers. A guess on the NFP due out on Friday

Following a near record surge in February, March German manufacturing orders plunged far lower than consensus, dropping -4.0% on expectations of a 0.4% rise, as a decline in investment goods limited growth in Europe's largest economy, the economy ministry said Thursday. "The participation of large orders was strongly below average," the ministry said in a statement. This eliminates any possibility of an ECB rate hike later today (to be followed closely by Zero Hedge), and validates our assumption that the ECB rate hike regime was flawed, and not only will Trichet not do anything today, but will be forced to return to a dovish stance within a few months, leading to a reversal of recent tightening and to a validation of Goldman's warning on the EURUSD which has at this point very likely topped out.

Goldman, which some time ago posited a 1.50 target in the EURUSD, is starting to get rather nervous about its recommendation: "We expect the dollar depreciation trend to extend in the twelve months ahead. In the near term, however, recent cross-asset correlations could mean that equity market softness would translate to dollar strength. This could especially be the case in the event that markets start to perceive the recent slowdown in data as deeper and more global in nature. This is not our expectation at the moment. However, given that we are less than 1% away from what was initially considered an ambitious target of 1.50 in our long EUR/$ recommendation, any incremental increase market volatility could significantly tilt the overall risk/reward of the trade. Hence we are watching relevant developments across risky assets closely." In other words, now that the intertim silver "bubble" has popped, the EURUSD may be next to follow, since the key requirement for a market drop, and further monetary easing greenlighting, is unexpected, and not priced in, dollar strength. Based on this Goldman piece, it may be coming very soon.

As the days go by, we are getting the feel that this is becoming more than a normal correction for silver. It looks like the first phase of the secular bull has been completed! So what's next for the white metal?

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

Quebec's hedge funds are about to get a boost from some big players...

Atlantic Capital Management submits the following extended report on recent developments in the monetary arena: "The Federal Reserve System operates monetary policy as if economic activity during the asset bubbles was representative of true economic potential. To the Fed, the Great Recession has pushed economic activity so far below that potential it can stimulate with zero interest rates and quantitative easing well into the future, even after two years of it already. We believe the Fed is mistaken for the reasons contained in this report. Chief among them is that The Great Recession actually brought the economy back down toward its true potential. Further than that, it is likely that the current weak recovery is still running above true potential, and that is leading to a wide array of problems. Inflation pressures are the biggest."

A month ago, Zero Hedge observed the collapse in March real estate prices and number of transactions in Beijing (here and here), speculating that this could be the beginning of the end of the Chinese real estate bubble. Today, courtesy of the Hong Kong land registry service, we find that the drubbing has shifted from mainland China to Hong Kong. "The number of sale and purchase agreements for all building units received for registration in April was 10,386 (-23.1% compared with March and -27.4% compared with April 2010). Among the sale and purchase agreements, 7,635 were for residential units (-27% compared with March and -37.6% compared with April 2010)." This number of transaction is the lowest since March 2009. As for the actual money changing hands: "the total consideration for sale and purchase agreements in respect of residential units was $39 billion (-24.8% compared with March and -26.8% compared with April 2010)" - another low, as this is the biggest Y/Y drop since June 2010. Yet, not too surprisingly, the actual prices of real estate remain sticky. As Bloomberg reports: "Housing prices in the city, ranked the world’s most expensive place to buy a home by Savills Plc (SVS), have gained more than 55 percent in the past two years on record-low mortgage rates and an influx of buyers from China. The government in November increased property transaction taxes and pledged to boost land supply amid public protests that housing prices are becoming unaffordable and as the central bank warned about the risk of a “credit-fueled property bubble.”" The reason for this is that despite the cash-n-carry scheme described by Sean Corrigan recently, credit was suddenly become so scarce that it is only available to the wealthiest, who in turn are not, for now, in urgent need of hitting bids, thus preventing prices from attaining market clearing levels.

Tuur Demeester submits this comprehensive special report which analyzes the collapse of the Soviet Union, focusing on ten core crashes of the once "evil empire." Subsequently, as he submits: "I make a point by point comparison with Europe today, and come to the conclusion that its situation does not differ all that much with that of the imploding USSR. As a matter of fact, the parallells are often startling. There are plenty of disquieting evolutions going on in Europe today: the riots in the PIIGS countries, the appearingly permanent crisis in the banking world,... Maintaining the status quo is no longer possible, that much is clear. But what will the change look like? Will it be a steady reform, or on the contrary a sudden crash of the European Union and the euro?" For a very original take on the future of the European Union, read on.

No one was interested in information from the kingpin himself?