Archive - Jun 2011

This report lays out an investment thesis for gold and one for silver. Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report. The punchline is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

If the green line passes 200 for any extended period of time, we just may have conditions that are very to quite very reminiscent of the first flash crash. We will warn readers if we see any persistent quote stuffing/churning activity on the NYSE, whose poor Liquidity Replenishment Points just may not be able to take it.

The world's most insolvent bank, Belgium's Dexia of course, is happy to bring this message of solidarity with the disenfranchised people of Greece who will be a fund flow conduit to keep Dexia alive for 3-6 months, via its subsidiary, the European Council: "With today's approval by the Greek Parliament of the revised economic programme, the country has taken an important step forward along the necessary path of fiscal consolidation and growth-enhancing structural reform. But it has also taken a vital step back – from the very grave scenario of default. This was a vote of national responsibility." No point in even pointing out the unbearable hypocrisy there.

Some curious language in the BAC settlement: “…In addition, because the settlement is with the Trustee on behalf of the Covered Trusts and releases rights under the governing agreements for the Covered Trusts, the settlement does not release investors’ securities law or fraud claims based upon disclosures made in connection with their decision to purchase, sell, or hold securities issued by the trusts. To date, various investors, including certain members of the Investor Group, are pursuing securities law or fraud claims related to one or more of the Covered Trusts. The Corporation is not able to determine whether any additional securities law or fraud claims will be made by investors in the Covered Trusts and, if made, to reasonably estimate the amount of losses, if any, with respect to such asserted or potential claims…” Uh, just how is that a settlement.

Wish you had some guidance with the confusion on whether what just happened is good or bad for the EUR and thus for the S&P? Well, don't read this post, which presents two diametrically opposite opinions on what is next for the euro, one from Goldman's Thomas Stolper (not Jim O'Neill or John Noyce, both of whom are massively short the European currency), and another from Citi's Steven Englander. The two couldn't be more diametrically opposite. That said, some of the mea culpas in the Stolper piece (the same guy who got not a single FX call right in 2010) are worth the $0.00 price of admission alone.

In 2009 I warned that putback risk will be the harbinger of big bank downfall. Not much was made of it then, but to quote WSJ now, $8.5 billion in putbacks for BofA could "embolden mutual-fund managers, insurance companies and investment partnerships to seek similar settlements with other major U.S. banks by arguing that billions of dollars in loans they bought before the housing collapse didn't meet sellers' promises or were improperly managed."

As we predicted yesterday, the knee jerk bounce in the second Greek bailout was already largely priced in. And now: heeeeeere's selling the news, led by a USDJPY carry unwind first, and soon spreading to other risk metrics.

Fascism wins again, this time by a 4 vote margin. The world is saved... for a few hours.

The EURUSD just plunged after an announcement that the Greek ruling party deputy has just voted against the austerity package. 100 pip kneejerk reaction. Imagine what will happen when the house of cards finally collapses.

Follow the live count at the previous post.

• Greek opposition lawmaker Papadimitriou as well as the Socialist Party dissenter Robopoulos said they will vote for the fiscal plan
• ECB's Stark said that a "Brady Bond" style solution would be in violation of the EU's no bailout clause, and rejected the idea that banks could exchange the Greek debt for paper guaranteed by the EU states
• Bank of Spain reiterated ECB's Trichet comment on strong vigilance
• EBA’s chairman said speculation that up to 15 banks failed stress tests were unfounded, adding that results are not finalised yet

Concerns arose due to reports that retail foreign exchange, spread betting and CFD providers are set to discontinue offering their gold and silver over the counter products. These allow speculators to take leveraged positions, short and long, in over the counter derivative products. After July 15, U.S. residents are prohibited from trading these OTC gold and silver derivative products. All precious metal transactions that are leveraged and not delivered in 28 days, must be conducted in a “designated contract market,” a board of trade or exchange designated by the CFTC. Those who own bullion should be reassured that their bullion ownership will not be affected as the legislation does not apply to the physical coin and bar market. The legislation will also not apply to contracts fully paid for or delivered within 28 days, and commodity futures contracts trading on an exchange such as the CME Group CME and the many other international exchanges. With regard to prices, some are concerned that there could be spillover from the OTC derivative market into the futures and physical market. Thus, some are concerned that the unwinding of OTC positions by U.S. residents could put result in falling gold and silver prices. We believe this to be very unlikely. We acknowledge that it may lead to an increase in volatility in the coming days and in the days preceding July 15th.

• Papandreou Races to Avert Greek Default as Protests Besiege Austerity Vote (Bloomberg)
• Wen Renews Chinese Vow to Buy European Bonds (WSJ)
• Tax standoff blocks progress in debt talks (Reuters)
• Asia looks to ‘friend’ Lagarde to honour IMF pledges (Reuters)
• Trichet Urges New Vision for Europe (Bloomberg)
• Athens tops agenda for Lagarde (FT)
• Senators back Obama over Libya (FT)
• SEC to propose conduct rules for swap dealers (Reuters)
• Deal reached to advance US trade pacts (FT)

Following yesterday's very disappointing 5 Year $35 billion auction by the US Treasury, Germany followed up today with its own unsubscribed bond auction failure, after Germany sold just €4.825 billion in 5 year bonds at the 2011 low yield of 2.16%. The problem - the auction remained technically undersubscribed as the €6 billion offer only received €5.445 billion in bids. Even on a sugar coated basis, the BTC was just 1.1, a plunge from the 1.9s seen recently. But such is life without the backstop of Primary Dealers who buy up everything there is, until they themselves are no longer able to flip the shell game. From Dow Jones: "The Bundesbank said all bids at the lowest price were accepted and it satisfied all the non-competitive bids at the weighted average price. The amount retained for market-tending purposes was about EUR1.175 billion, bringing the total issue size to EUR6 billion, as previously announced." Bottom line, with the pristine economy of Germany unable to sell bonds, what does that mean for the US and the rest of the insolvent "developed" world?

And no, contrary to reports, this is not an entire opposition party saying it will vote for the austerity package. It is just one person.

• GREEK OPPOSITION LAWMAKER WILL CAST VOTE FOR AUSTERITY PLAN
• GREEK OPPOSITION LAWMAKER SAYS MEDIUM-TERM PLAN IS ONLY ANSWER