Archive - May 2011

I'm trying to get more bullish, really I am – but to do so I end up reading and my reading leads to stuff...that SHOULD NOT BE IGNORED.

and BuRN PaPeR MoNeY!

In early trading, silver is down nearly 20% from Friday highs, and just under 15% from its Friday closing fixing, hitting just over $42 in a slide of $6 commencing just after 18:25 pm. The reason for the collapse is not immediately clear, although concerns of a Chinese slowdown and overtightening are rumored to have been among the culrpits. The circumstantial evidence is in the OZ pairs, with the AUDUSD which has long been a high beta proxy for China plunging in early trading as well. Oddly enough, gold has been spared most of the carnage in silver, and was down about 1% in early trading. Overall, this appears to be nothing more than a short covering episode in the USd provoked by nothing factual. We will keep an ear open for any incremental data to determine if there is any actual reason for the plunge, such as for example that the BOJ has suddenly decided not to pick up the baton in trillions of monetizations over the next few months, instead of just another bout of technical selling.

Two quarters ago it was the muni implosion, last quarter it was sovereigns blowing up (again). Now, it's oil, and the stench of out of control inflation sending precious metals to daily all time record highs, that is keeping Wall Street up at night (yet doing nothing than seemingly providing one after another "buy the dip" opportunity). Every quarter the prevailing investing and spec opinion focuses on one key bogeyman in the wall of worry and refuses to let go, even as, or particularly because of, the Fed, in conjunction with the HFT-controlled market, sells vol to the point where everyone pretends risk is under control. Of course, it isn't, and neither the muni crisis has gone away, nor the threat of sovereign insolvency, nor pervasive inflationary threats (just buy gas in Europe). However, the fact that the Fed systematically takes on one conventional wisdom risk factor after another, and sells into every vol rally, almost certainly via curve exposure, but arguably via equity volatility indices as well (see thought by Artemis Capital on the subject), masks the symptom of an underlying systemic collapse until the market focuses on the next hotspot, which the Fed may or may not be able to resolve. And since we have finally moved on the biggest Fed artifact of all: inflation (and rampant one at that), the Fed's ability to extend and pretend the inevitable correction that needs to happen to push oil down to sub-$100 may be now coming to an end.

It is not easy to destroy the greatest empire in the history of mankind. The 20th Century was the American Century, but as with all empires, the combination of hubris, monetary debasement, imperial overreach and delusional overconfidence have set in motion the inevitable downfall of the American Empire. The policies, decisions, beliefs, and institutions implemented over decades have led the country to the threshold of financial disaster. Based on my observations, a catastrophic combination of demographics, fiat currency debasement, titanic levels of debt, smothering taxation, power in the hands of the few and Wall Street greed have led us to peak Empire. It will be downhill from here as we experience collapse, revolution and ultimately, retribution for the guilty and presumed guilty. I have already addressed the Baby Boomer generation’s contribution to our current plight, to the delight and accolades of Boomers across the land in For a Few Dollars More – Part One. The Boomers were a victim of their size and the timing of their arrival on the scene of empire collapse. Their delusions of debt based wealth and me first attitude could not have been satiated without the creation of the Federal Reserve and the institution of the personal income tax in 1913.

And neither is a little accounting fraud, a little control fraud, or a little Ponzi scheme...

This guy hasn't got the slightest idea (or wants it to appear that way), and more Silver Shenanigans from Europe...

Just because 1,000,000,000,000.00 is so 2011, Japan brings you 1,000,000,000,000,000.00 just in time for 2012.

While it will not surprise anyone that Japan, which for the past 3 decades has been a monetary policy basket case caught in what bankers like calling a deflationary spiral (yet which others like Sean Corrigan merely define as prices re-indexing to a fair value absent endless cheap credit crutches), has constantly had to resort to a record loose monetary policy coupled with endless episodes of quantitative easing, some may not know that over the past month Japan has seen its current account balance swell by $250 billion, or nearly half the entire Fed QE2 monetization mandate. And as the BOJ continues to disclose the full extent of the Japanese economic devastation following March 11, we are confident that very soon the most recent episode of Japanese “printing” will surpass the $600 billion that the Fed is injecting into the US economy (in addition to the roughly $250 billion in Treasury bonds monetized by the BOJ each year): an amount roughly 5 times greater than America's when expressed as a ratio of GDP. It is thus no surprise then that Bernanke does not seem too concerned with the purported end of QE – after all money printing is merely moving from developed world point A to developed world point B. And thanks to monetary linkages of “globalization” all this brand new money will once again find its way into speculative assets, and thus, Fed mandate #3 favorite - Russell 2000. Below we provide a closer look at what exactly the current and future, Japanese QEasing will look like.