Archive - Aug 2012

They were never just going to sit there and take it. With the election cycle hotting up, the Chinese were an easy target for any and every finger-pointing blame game that US politicians were cornered with - but they are coming out swinging.  As WaPo (via AP) reports, China's government has ruled that US support to six US solar and wind projects violates free trade rules - and while they have pledged (promises are worth what exactly Mr. Draghi?) to cooperate in developing technology, they now accuse each other of improperly supporting their own producers and obstructing foreign competition (can't we all just get along in this centrally planned world?). At a time when WTI is breaking out (over $97) and Brent as EUR-priced highs, China's commerce ministry has called on Washington to stop the support and give 'fair treatment' to Chinese renewable products. These tri-party tensions - oh yes, Europe is involved too as in July the EU was asked to raise tariffs on Chinese solar cells - are only set to get worse as every nation attempts to unilaterally centrally plan and promote their own suppliers in the hopes of generating higher-paid jobs.

Some must read observations on the dangerous path down which American society is headed.

In the last two days, the venerable Best Buy has not only shot itself in the foot, but in the arm and leg - and potentially head too. Implicitly cutting hopes for a MBO-at-a-premium by hiring a new CEO (with de minimus turnaround experience), the company's earnings and conference call has confirmed that they will suspend their share repurchase scheme, reduced its annual earnings expectations, and has withdrawn guidance for fiscal 2013. As we warned the day of the Schulze-vaporware-MBO comment (which saw a spike from $17.63 to $23.55 at its highs that day) this was nothing but hot air and now it seems increasingly likely that not just the 68mm shares that Schulze owns now getting crushed 30% from those highs just over a week ago, but as AAPL has added a total BBY in market-cap this morning - and with the stock at near 10-year lows - we are afraid the commercial real-estate business will have some excess inventory very soon.

Russia continues to accumulate gold in its large foreign exchange reserves. The reserves include monetary gold, special drawing rights, reserve position at the IMF and foreign exchange. Russia’s central bank increased its gold holdings to 30.1 million troy ounces as of August  1st, from 29.5 million troy ounces a month earlier, according to a statement published on its website today. The gold reserves were valued at $48.7 billion at the end of last month, Bank of Russia said in a statement. Russia's gold and foreign exchange reserves rose to $510.0 billion in the week to August 10 from $507.4 billion a week earlier, central bank data showed last Thursday.  Russia's gold and foreign exchange reserves were $498.6 billion at the end of 2011. This means that Russia now nearly has some 10% of its foreign exchange reserves in gold bullion. 

Rule #1 that is cast in stone is "Preservation of Capital." There is certainly a place for some speculation at the edges but you do not, ever, put the core of your capital at risk. You may believe what you like about Europe. You may be wildly optimistic or incredibly pessimistic but what cannot be denied is that tremendous risk is currently present and that things could go wildly erratic in one direction or another. Economics, outside of the classroom, never exists without its cousin politics but the political considerations are now so huge and the money at stake is now so large that the sheer size of the capital on the table should and ultimately will give everyone pause. We are about to arrive at moments where the notion of "muddling through" will no longer be possible.

Tuesday has see little in the way of macroeconomic data, and much focus so far has remained on speculation over whether the ECB will buy periphery debt. Comments from the German ECB representative Jorge Asmussen overnight that he backs the ECB buying periphery debt as a means to prevent the "disintegration of the Euro", a seeming change in stance given that the Bundesbank continues to opposed such measures, lifted risk assets in early trade. As such, the Spanish and Italian spreads over the benchmark Bund are seen tighter by 12.9bps and 14.4bps on the day. Spain's 12- and 18-month T-bill was also well received, the country selling slightly more than the indicative range at EUR 4.512bln, with lower yields, though only the 18-month had a stronger bid/cover. Both the Spanish and the Italian 2-year yields have declined to lows last seen in May of this year. Similarly, two separate comments from German Christian Democratic Union (CDU) lawmakers concerning Greece and the possibility of making "small concessions" for the country so long as they lie within the existing programme also boosted risk appetite, as the probability of a Greek exit looks much less likely if it has the full support of Germany. Elsewhere, the UK unexpectedly posted a budget deficit in July as corporation tax receipts plunged, though this was slightly skewed due to the closure of Total's Elgin gas field in the North Sea. Today also saw UK CBI orders for August plunge, with the industrial order book balance at its lowest this year led by a weakening in the consumer goods sector.

A month ago, RBS' Nomura's permarealist Bob Janjuah wrnd tht mrtks r set 4 a squeeze breakout. He was right. Today, he has sent out an update, saying the party is over, the ramp is finished, and the time to sohrt ahead of a "major risk off phase" is here: "my stop loss on the risk off call effective immediately is a consecutive weekly close on the S&P500 at or above 1450. As the Global Macro Strategy team is looking for Mr Bernanke to disappoint markets at Jackson Hole next week, and also because we are confident that markets will soon discover that neither the ECB nor Eurozone politicians will actually be able to deliver on their ‘promises’, we are hopeful that our stop losses will not be triggered. For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favour."

• German central bank warns country’s financial health not a given (WaPo)
• Secret Libor Committee Clings to Anonymity After Rigging Scandal (Bloomberg)
• Peru Declares State of Emergency to Quell Violent Mining Protests (Dow Jones)
• Euro-Area Economic Adjustment Only Half Complete, Moody’s Says (Bloomberg)
• Wall Street Leaderless in Rules Fight as Dimon Diminished (Bloomberg)
• China Swaps Drop From Three-Month High as PBOC Adds Record Cash (Bloomberg)
• China invest $1 billion in U.S. Cheniere's LNG plant, Blackstone to act as intermediary buffer (FT, Reuters)
• Romney Offers Lukewarm Support for Fed Audit - Hilsenrath (WSJ)
• U.K. Unexpectedly Posts Deficit as Corporation Taxes Plunge (Bloomberg)
• Obama issues military threat to Syria (FT)
• Merkel Allies Signal Concessions on Greece Before Samaras Visit (Bloomberg)
• Chinese banks warned of foreign exchange risks (China Daily)

The timing of the report is interesting. Will it influence Bernanke? Maybe.

By now it should be painfully clear to involved that the Greek economy is nothing but a zombie, whose funding shortfalls and other deficit needs are sustained each month only courtesy of constantly new and improved "financial engineering" ponzi creations out of the ECB, the ELA, and other interlinked funding mechanisms which are merely a transfer of German cash into empty peripheral coffers. And while the attention of the world has moved on, at least for the time being, from the small country which has been left for dead with the assumption that Europe will do the bare minimum to keep it alive, but not more, Greece once again reminds us that not only does it still pretend to be alive, but that the zombie is getting hungry, and want to eat.

Why doesn't anyone see this ass contagion?

JS Kim of SmartKnowledgeU discusses the politics of the banker gold and silver price management game with Max Keiser.

Standing at the crossroads, believe I'm sinking down. (Some charts are saying not so fast.)

What Do Mental Health Professionals Say About Those Who Question 9/11?