Archive - Mar 2012

All you need to read and more.

Gold has been trading in a tight box around $1,660/oz today, as eurozone finance ministers meet in Copenhagen to discuss the scale of the permanent “bailout fund” set for July. Gold has been stuck in range of roughly $1,630/oz to $1,700/oz in recent weeks as risk appetite has returned after the latest European debt “solution” which saw the battered can kicked down the shortening road once again. Nothing has been solved with regard to the European debt crisis, and debt crises in Japan, the UK and the US now loom. The misguided panacea of heaping debt upon debt and shifting debt onto government balance sheets, debt monetisation and currency debasement is leading to continuing currency devaluations internationally. Despite this or maybe because of this - risk appetite returned with a vengeance as evidenced in equities internationally rising to multi-month and multi-year highs and the slight weakness in gold in March. So far in 2012, gold has performed well and is set to end the first quarter in 2012 with gains in all major currencies. Gold is 6.3% higher in US dollars, 3.2% higher in euros, 3.1% higher in pounds, 2.25% higher in Swiss francs and 12% higher in Japanese yen which fell sharply in the quarter.

• Greek PM does not rule out new bailout package (Reuters)
• Euro zone agrees temporary boost to rescue capacity (Reuters)
• Madrid Commits to Reforms Despite Strike (FT)
• China PBOC: To Keep Reasonable Social Financing, Prudent Monetary Policy In 2012 (WSJ)
• Germany Launches Strategy to Counter ECB Largesse (Telegraph)
• Iran Sanctions Fuel 'Junk for Oil' Barter With China, India (Bloomberg)
• BRICS Nations Threaten IMF Funding (FT)
• Bernanke Optimistic on Long-Term Economic Growth (AP)

A bevy of economic data misses overnight, including German and UK retail sales, Japan industrial production, UK consumer confidence, and a European economy which is overheating more than expected (2.6% vs 2.5% exp, although with $10/gas this is hardly surprising), and futures are naturally green. The reason: the broken record that is the European FinMins who are now redirecting attention from the slowly fading LTRO impact to the good old standby EFSFESM, which according to a statement by de Jager has now been agreed on at €800 billion, lower than last week's preliminary expectation for €940 billion in joint firepower. That this is nothing but a headline grabber is as we have noted before, as there is much doublecounting, capital allocation to and by the PIIGS as well as funding already assigned. It will likely take stocks some time before the realization dawns that this is not new capital and liquidity entering the markets, unlike QE on either side of the Atlantic, while the amount is largely inadequate to fill the multi-trillion liquidity shortfall, let alone "solvency" of European sovereigns and banks. So for now enjoy the greenness all around.

 The ponzi will fail, and the economy will reset - the only question is when.

How to profit by shorting fruit! I warned on this rotten berry 2 years ago & the model that I released proved quite useful!

David McWilliams (of Punk Economics) is back (previous discussions here and here) and this time he takes on the the flood of liquidity and the false recovery that has been created. Starting with a discussion of gas prices and the central banks' recklessness behind it, he swiftly shifts to the 'shambles in Greece' where more debt is supposed to solve the problem of too much debt yet again. From extreme highs in Greek rates to extreme lows in rates among the major developed economies he juggles with the conundrum of injecting liquidity to reflate a bubble in order to avoid the consequences of the bursting of a bubble - brilliant (as those Guinness chaps would say) - as this merely pushes the next crash out a few more years but making it bigger and more devastating. Global Central banks have pumped $8.7tn into the banking system to 'save the world'. Saving the banks has cost more money than it cost to fight WWII, the first Gulf War, put a man on the moon, clean up after last year's Japanese Tsunami, and the entire African aid budget for the last 20 years all put together. Context is key - is it any wonder asset prices have risen since there has been so much cash looking for a new home - why hold something that is printed everyday (cash) when you can hold something that is actually running out like oil or gold. The punchline is what goes in must come out - and that means inflation - as the 'trip' of excess liquidity comes home to roost. Must watch.

The guesstimates have all the accuracy of a coin flip.

The one indicator which the Chinese Politburo can not fudge: power production and hence: demand, speaks volumes about the true state of China's economy.

The following chart from the OECD via Goldman, speaks volumes as to just why it is that the "democratic" process is slowly but surely completely breaking down in the US. Of virtually the entire developed world, American voter turnout is the second lowest of all countries, and only modestly higher than South Korea, but well below 50% in either case. Furthermore, since the voting population is roughly equally split along the middle in its party affiliation, it is astounding that less than 25% of America's voters set the political stage every four years. One wonders just what the source of this record apathy may be: perhaps it is that as empirical data demonstrate, neither party actually represents any longer the interest of a majority of the US voters, but merely those of corporate lobby groups and, of course, Wall Street. As such, over 50% of voting age Americans don't even bother to make it to the ballots. It may thus be only a matter of time before disenfranchised if silent majority finally says enough, rereads some of this country's founding documents, and agrees that taxation is only fair with representation. Actually never mind: since about half of America pays no taxes whatsoever, the data actually makes perfect sense. And so the pillage of what's left of the American middle class will continue, with nobody batting an eyelid, until such time as the only items left in said class' possession are various weapons of assorted muzzle velocity and other sharp and/or dull but heavy objects.

Ever feel like standing in Benny and the Centrally Planned Inkjets' shoes while in the comfort of your own home? Don't. As the following table demonstrates, doing what the US government does on a daily basis is likely to get one incarcerated, prosecuted, exiled, guillotined, bound and quartered, and most likely scapegoated by a member of the administration.

The lecture series is complete and Ben can creep back behind the green curtain once again. Today's lecture focused on the aftermath of the crisis and a quick summary of just where Bernanke believes the recovery lies - Fed 95: Government 11. Unfortunately the word 'Progress' only appears once. When we asked Wordle to consider the speech, it gave us back what appeared to be a deus-ex-machina created tear-drop shape - somewhat ironic perhaps. Interestingly the words 'Credit Backs Just Markets' were at the very top of the pyramid and that led to the 'Financial Economy' making it clear just what is going on here. In an echo back to the last lecture on the crisis itself, there is some subliminal messaging with the phrase 'Mortgage Regulators Housing Crisis' appearing spookily close together. Rest assured though, Ben is not entirely self-aggrandizing as he used the word 'tool' a magnificent 30 times. Full presentation embedded in all its glory.

Simply said: the results were not bad enough. And with 60 million shares short, or almost a doubling in the short interest in a few months, absolutely everyone is bearish, and one may just see a SHLD type squeeze in the stock if and as a covering panic picks up.