Archive - May 2011

Major strains in the U.S.-Pakistani relationship have rested on the fact that the United States is extraordinarily dependent on Pakistan for intelligence on al Qaeda and Taliban targets and that Pakistan in turn relies on that dependency to manage its relationship with the United States. Following the Raymond Davis affair, U.S.-Pakistani relations have been at a particularly low point as the United States has faced increasing urgency in trying to shape an exit strategy from the war in Afghanistan and has encountered significant hurdles in eliciting Pakistani cooperation against high-value targets. Now that the United States has a critical political victory with which to move forward with an exit from the war in Afghanistan, Pakistan now faces the strategic dilemma of how to maintain the long-term support of its major external power patron in Washington.

When the current stock market bubble pops, the last shreds of the Fed's legitimacy will be blown away. Strip away all the distractions, and the Fed's entire campaign to "restore confidence" and "animal spirits" so that the "recovery" magically becomes "self-sustaining" is based on one thing, and only one thing: the current stock market rally. The equities rally is the only metric of "success" the Fed can point to that isn't risible. Once the rally implodes, so too does whatever remains of the legitimacy of the Fed and the Federal agencies which have aided and abetted the Fed's unprecedented propaganda campaign to replace economic reality with happy-happy "managed perceptions." The "news" is always good, because who knows what the people might do if the flimsy official facades sway in the breeze of truth and then collapse in a heap? They might demand new leadership and systemic changes that would disrupt the cozy Status Quo partnership of cartel-crony Capitalism, Wall Street and the Central State fiefdoms.

Over the past few months many have wondered how it is possible that with the great amount of tightening current undertaken by the PBoC has China not seen any decline in its inflationary pressures over the past 6 months. Finally, courtesy of Sean Corrigan who first identified the so called reverse Cash-n-carry trade in China over two years ago, we have our answer on the "next Chinese investment craze" - money lending. In a nutshell, as the Economic Observer points out, the Chinese central bank has now outsourced nearly a fifth of all its capital lending to private sources. And as Corrigan explains: "…so, I guess what is happening here specifically is that Chinese cos buy metal abroad on USD credit (cheap, depreciating) - - possibly for extended term, then sell/buy the metal domestically for Yuan on the spot/futures market (reverse cash-n-carry), then lend out the Yuan on the curb market at double digit rates to bank loan-deprived customers in an appreciating currency into the bargain - - - - - ‘implied demand’, my foot!" Just as importantly, with everyone lending, the proceeds continue to funnel into precious metals now that the local stock and real estate market bubbles have popped. The only question is how long will this recycled source of capital last?

Weakness in many regional manufacturing surveys points to a decline in the national ISM.

While the world is caught up in a wave of largely irrelevant for the capital markets euphoria, things in Europe are once again going from bad to worse, as the weakest link in the European rescue has once again said no. Reuters reports: "Finland's eurosceptic True Finns party said on Monday it was sticking to its pre-election stance that it cannot support Portugal's bailout package.  We cannot with good conscience support Portugal's package nor the creation of permanent bailout mechanism. Neither do we approve the hike of Finland's guarantees in the temporary stability mechanism," the party said on Monday as its formal answer to Jyrki Katainen, the leader of National Coalition party, who is leading the talks to form the country's new coalition government." As has been reported previously, absent Finnish approval, the European rescue is virtually halted in its tracks, and means that there is no consensual green light for the EFSF rescue package. Additionally, as Europe has been kind enough to indicate in the past, "there is no Plan B." And to make things very clear, Finnish MP Soini that Greece is likely to restructure its debt and other will follow, but not under the ESM: "it is a structure that doesn't work." Needless to say the implications of a failed compromise on the bailout of not only Greece, but not Ireland and Portugal as well, means that should Finland retain its intransigence, the eurozone is pretty much over.

Want to send the bankers a message and serve up the biggest nightmare possible to bankers? Use the massive dip that they thought would scare all silver holders out of their position as an opportunity to finally extract yourself from the awful possibility that silver and gold paper derivatives such as the SLV, GLD, and gold and silver futures contracts may crash in value in the future. Convert your PAPER silver into PHYSICAL silver now.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 02/05/11

That's great ... but we could have gotten him 10 years ago ...

Killed in Pakistan...USA FTW

If you didn't see 60 Minutes on Sunday, this is a must watch interview, perhaps the best 60 Minutes interview ever...

It is difficult to understand what this means at this moment, but it permits the Obama administration to claim victory, at least partially, over al Qaeda. It also opens the door for the beginning of a withdrawal from Afghanistan, regardless of the practical impact of bin Laden’s death. The mission in Afghanistan was to defeat al Qaeda, and with his death, a plausible claim can be made that the mission is complete. Again speculatively, it will be interesting to see how this affects U.S. strategy there. Equally possible is that this will trigger action by al Qaeda in bin Laden’s name. We do not know how viable al Qaeda is or how deeply compromised it was. It is clear that bin Laden’s cover had been sufficiently penetrated to kill him. If bin Laden’s cover was penetrated, then the question becomes how much of the rest of the organization’s cover was penetrated. It is unlikely, however, that al Qaeda is so compromised that it cannot take further action.

On Friday we reported that MF Global hiked silver margins to roughly $25k per contract (following the CME's own two consecutive margin hikes of 9% and 10%).On Sunday night, not letting any public hysteria go to waste, Think or Swim follows suit and hikes the /SI margin to $30,037.50 and $6,007.50 for the /YI. At this point there is an outright scramble to get anyone with margin out of precious metals positions, which of course in the long run will merely reinforce the holding hands.

Update: It is now confirmed that Osama Bin Laden was killed in an air strike last week, and the US has the body. Expect the media to be drowned with stories of imminent terrorist "retaliation" which will push a flight to USD "safety" and purportedly drop commodities.

Lots of wild rumors about Obama's imminent late Sunday announcement to the nation, chief among which is that Bin Laden has been killed. The address can be followed live here.

Two key factors that appear to be contributing to the rapid move in overnight silver (and subsequent jump to pare half its losses) is i) the fact that Bolivia, despite being in a cash crunch has for the time being yielded to miner demands and has put its nationalization plans (as discussed previously here) on hold, and ii) there has been a dramatic bout of selling coming out of nowhere, despite the PM complex having opened very well bid earlier on, in what appears a coordinate effort to nuke silver exclusively.

It looks like the recent margin hikes by CME and MF Global finally took their toll on the Silver market.