Archive - Dec 2013

A month ago, regulators in Europe began their investigation into manipulation of the "London gold fixing" (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany's financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets.  As The FT reports, BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.

Over the course of the last few years we have vociferously exposed the growing inequalities and divergences between various elements of the status quo society. With even the President now seemingly inciting class warfare (which as we discussed here and here is becoming an increasingly  new normal "age warfare" issues); we roll out the wayback machine for 150 seconds of clarity from Doug Casey. With roughly half the American people net recipients of government support in some way (and work punished), Casey explains what happens when the entitled elect themselves (as Michael Burry so aptly noted "the party accelerates, and the brutal hangover is inevitable,") and the social and political consequences.

While fundamentals remain, for now, as useful as useful as having the only phone in the world; we demur to BofAML's technical analysis team for their short-term trading focus across various asset classes. In light of the only thing that matters, the Fed balance sheet (as Hugh Hendry so eloquently explained), BAML warns "beware the bear trap" in stocks...

With the recent deployment of China's air defenze zone, and the subsequent announcement of a comparable zone by South Korea which overlaps not only with China's own, but with that of Japan, it almost seems like a scenario designed to provoke an escalating conflict on the tiniest of provocations is actively being produced. A scenario such as the one US defense officials revealed today, when a guided missile cruiser operating in international waters in the South China Sea was forced to take evasive action last week to avoid a collision with a Chinese navy ship maneuvering nearby. Hold on: how can two massive ships, visible to the naked eye and certainly to radar from hundreds of miles away, "nearly collide"?

Wondering where all those JPY are going? Wonder no more... (and note the "deja vu")

One of these "forecasts" is wrong... do you believe in miracles?

"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering.  The optimistic view is an easy one.  While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital.  There is one simple truth about financial markets and investing:  what goes up must come down.   It is the downside risk that is most damaging to long term investment returns.  Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.

The small-cap-dominated Russell 2000 fell for the 2nd week in a row for its worst performance in 4 months (though bounced modestly off its 50DMA today). Stocks traded in a relatively tight range today - swinging around VWAP - following their only driver - JPY crosses, most of the day. NASDAQ 400 was rescued to ensure the headline-writers do not panic. Treasuries were flat to modestly better on the day but end the week mixed with 30Y -1bp and 5Y +5bps - collapsing the term structure to 6 week lows. Precious metals bounced to end the week +1%, which with the USD closing unchanged on the week, made them the outperformer across asset classes. VIX closed higher for the 4th day in a row (with the curve now its flattest in 28 months).

While 6% believe Bitcoin is an "Xbox game", we are impressed that 42% of Americans polled by Bloomberg know what the virtual currency is. Furthermore, 55% believe it is "not better" that Bitcoin be regulated...

Update: the shooter, who was a student at the highschool, is reported to have been killed as a result of a self-inflicted shot.

Another day, another school shooting. In a flashback to the Columbine tragedy, moments ago news broke that there were two people injured during an incident at Arapahoe High School in the 2200 block of East Dry Creek Road in Centennial, Colorado. According to Colorado's 9news, Police are calling it an "active shooter situation." No one is in custody at this time. The identity of the victims is not being released at this time. Arapahoe High School is a part of Littleton Public Schools. There are 70 different classrooms in the high school which covers a 254,000-square-foot area. There are 2,229 students that attend the high school. The school was built in 1964.

The $2.5 trillion hedge-fund industry is headed for its worst annual performance relative to U.S. stocks since at least 2005. As Bloomberg Brief reports, the funds returned 7.1% in 2013 through November; that’s 22 percentage points less than the 29.1% return of the S&P 500, with reinvested dividends, as markets rallied to records. Hedge funds are underperforming the benchmark U.S. index for the fifth year in a row as the Fed's inexorable liquidity pushes equity markets higher (and the only way to outperform is throw every risk model out the window). Hedge funds (in aggregate) have underperformed the S&P 500 by 97 percentage points since the end of 2008.

There are only a few UK and U.S. banks on the list of global safe banks. This should give pause for thought. Notice that many of the safest banks in the world are in Switzerland and Germany.

"You better watch out, you better not Skype, you better Log Out, you better not type, The NSA is coming to town..."

Zero Hedge users mostly agree the financial system will implode.  It doesn't take more than high school math skills to calculate that the current debt based money system has implosion built in, and it's guaranteed (this is one rare case we can use such a word in finance!), because at some point, not enough new money can be created to pay off an ever increasing debt base.  Collapse is a mathematical certainty.

We present the first half of Goldman's 100 best charts for 2013.