Archive - Aug 2012

The chart below, which is a time series showing the total "Gold Held by the US Treasury and the Federal Reserve" (which for all intents and purposes are interchangeable), demonstrates vividly the moment when the US government enacted Executive Order 6102, aka the "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States" order which criminalized the possession of monetary gold "by any individual, partnership, association or corporation." But not the government of course. Spot the moment after which gold confiscation by the US government (also known as a 40% USD devaluation) from its citizens was legalized.

Governments Indefinitely Detaining Citizens In Psychiatric Wards Without Due Process of Law

Every now and again the coincidences (or some might call them conspiracies) become too much to bear. We have noted the incessant deep-pocketed use of volatility as a levered way to manage equities up (or down we suppose should the need arise from a centrally-planned banking institution that does not feel the incumbent is in his court). Today was a great example of the desperate interaction of the world's most over-owned (and biggest) company and selling pressure over-whelming the VWAP algos. As the chart below shows, the early selling pressure in AAPL smashed prices down to yesterday's close and closing VWAP; volumes surged as algos piled institutions out but they soon got overhwhelmed as the price fell through their VWAP level (which means the costs start to pile up to the market-maker's algo which promised VWAP execution). Immediately Plan B comes into play - Sell Vol Hard!

In the aftermath of its recent epic hacking, Reuters decided to take down its in house blogs. Few people noticed, and from what we hear they are still down. However, when Reuters' 3000 - the firm's FX trading platform: "one of the two key systems used by currency traders around the world, experienced an outage Tuesday, according to several market participants" goes down, and has yet to come up, we can only hope that someone has paid attention unless FX trading is also now thoroughly dominated by algos as well) to a market which transacts to the tune of several trillions in notional every day. But perhaps most interesting is that the "break" occurred at precisely 3:13 pm, at just the moment when the accelerating selloff in the EURUSD, and thus the broad market, could have caused quite a headache for those whose reelection chances are dependent on the S&P being as high as possible heading into November.

Bill Murphy

 www.LeMetropoleCafe.com

August 21 – Gold $1639.90 up $19.80 - Silver $29.42 up 83 cents

Gold And Silver Begin Launch On Schedule

After touching four-year highs this morning, the S&P abruptly turned tail and sold back down. AAPL slumped hard off its all-time record high open just shy of $675 - reverting NASDAQ to its peer indices and broadly equities had the worst day in 3 weeks (and only its 4th down day of the month of August). S&P 500 e-mini futures (ES) volume surged to its highest in three weeks - and average trade size was its highest since the lows in early June - along with its largest daily range in three weeks. Volatility jumped (amid some extreme gappiness as AAPL started to lose it) back above 15% (up over 1 vol) - leaking modestly lower into the close as ES saw some intraday covering to lift it 'off-the-lows'.

It may come as a surprise to some of our younger readers, that the Eurozone, and its associated currency, is merely the latest in a long series of failed attempts to create a European currency union and a common currency. Three of the most notable predecessors to the EUR include the Hapsburg Empire, the Soviet Union, and Yugoslavia. Obviously, these no longer exist. Just as obvious, all of these unions, having spent time, energy, money, and effort to change the culture and traditions of member countries and to perpetuate said unions, had no desire, just like Brussels nowadays, to see these unions implode. The question then is: what happened after these multi-nation currency unions fails. VOX kindly answers: "they all ended with disastrous hyperinflation."

We have discussed the broad divergences between high-yield credit and equity markets (the former not enjoying the ebullience of the latter) and noted the dismal volume and average trade size of the most recent surge to new highs. Barclays points out one more concerning factor in the rally - the very unusual underperformance of lower quality, higher beta credit. Typically, the B-rated-and-below credits will majorly outperform in any real risk-on rally (just as they did in the first quarter of the year), however, in the last 2-3 months of equity exuberance, this has not been the case at all - as it seems the rally has been used to position in higher quality names (and remain liquid). Just another glimpse of the matrix under the surface.

If you still require proof that in the short term, market action is driven by perceptions and sentiment rather than reality, here it is. It is worth quoting again what Mrs. Merkel said in Ottawa in toto:

“The European Central Bank, although it is of course independent, is completely in line with what we’ve said all along. And the results of the meeting of the central bank and their decisions, actually shows that the European Central Bank is counting on political action in the form of conditionality as the precondition for a positive development of the Euro.”

Does this sound like 'unlimited bond buying without preconditions' to anyone? No? Investors seemed to think that is what it meant. We see no painless way out for Spain, regardless of what ultimately happens. Even if the ECB were to act without conditionality or limits, it could not possibly alter the underlying solvency problems -  and this isn't going to happen anyway. So what are markets currently pricing in? Everybody seems quite certain of a happy end at the moment. The bet is that massive central bank intervention is heading our way in the near future and will boost asset prices further. This is a mindset that has very likely set up the markets for disappointment.

Whether it is because the CME just did it; or it's all their clients have left; or Gold volatility is lower than EURUSD volatility (9.0% vs 9.6% in last 3 weeks); or they see the painting on the wall of Draghi's grand-plans, the LCH-Clearnet just announced that as of August 28th, unallocated gold will be accepted as collateral for margin cover purposes. This now means all the major exchanges accept worthless barbarous relics as collateral - as well as worthless fiat paper 'money'.

If this doesn't piss at least a 20% of you off, and scare the remaining 8% into reading the next installment, then I obviously haven't been doing my job. Alas, I'm pretty good at what I do!

We're doomed, doomed, I tell you. 

Walls-of-worry; Short-squeezes; money-on-the-sidelines; Everyone's Bearish, right? Well, instead of just listening to the drone of the mainstream media and talking heads, who appear once any rally appears in the hope of garnering some more AUM and taking commissions, we thought it worth a few minutes to look at actual data, positions, and sentiment across equity, debt, and FX asset classes. Sure enough - here are ten charts that show investors are anything but bearish and that the ammunition for the next leg from here can only come from central-banks (and we are concerned that disappointment is due).