Archive - Jan 2013

Last week we reported that in the aftermath of the so far disastrous French campaign to eradicate "rebels" in the north of Mali, because of their implied threat fo Europe, that "US Drones, Boots Arrive In Mali." Turns out we were wrong, and as the case virtually always is, for some reason there was already a US presence of at least three US commandos in Mali in the summer of 2012. What they were doing there remains a mystery, as it is a mystery if the ever co-present flip flops on the ground were there inciting the perpetual scapegoat Al Qaeda to do this, or that. Or maybe it was not the CIA. Maybe it was the Army's "little-known and secretive" branch known as the Intelligence and Security Command. Regardless, what becomes obvious is that while the US was on the ground and engaged in secret missions, it needed an alibi to avoid "destabilizing" the local situation once its presence became conventional wisdom. It got just that, thank to one Francois Hollande just over a week ago.

 I used to like DealBreaker, I really did. Alas that was in my younger years before I made a (very) small name for myself and before I took the red pill offered to me by ZeroHedge's Tyler Durden. Now I realize that sarcastically apologizing for the nefarious character of the financial world is pretty much the same as just plain-old apologizing for it... except funnier. Case in point, here is an excerpt from an article published on DealBreaker a few hours ago entitled "Regulators Close Aquarium Door Behind Escaped Whale":

Courtesy of Diapason's Sean Corrigan, here are some 22 charts taking us around the world's markets and back.

If you say…what is good science is prediction… and you can’t predict the most important event in 75 years, what good are you? In particular, it might be very nice you can talk about the likelihood of an one tenth increase in GDP growth rate…and you miss a major economic downturn….or worse, they said the things can’t happen… We all know the shock in this crisis…was a credit bubble and we have had those credit bubbles since the beginning of capitalism…So it was remarkable the intellectual bubble led people to believe there were no such thing as credit bubbles when there was 200 years of history of that…..How could people be so stupid? …The theory was with well functioning financial markets, spreading risk, diversifying risk, risk is contained. They came to believe the models and that’s always dangerous..

I know margins have come down, but are still too high relative to the volatility and price in the contract.

Pleasant insider trading dreams...

Over the past few months, the perception has been that the risk of a meltdown in Europe (characterized by the loss of market access for Spain and Italy) has grown increasingly remote. The relative calm comes courtesy of the ECB which conventional wisdom has it, began acting "like a real central bank" in September when it announced it was willing to throw eurozone taxpayers' wallets behind theoretically unlimited purchases of Spanish and/or Italian bonds. This promise of course, was meant to discourage so-called "bond vigilantes" (otherwise known as investors who know a bad deal when they see it) from "speculating" on rising periphery bond yields. As it turns out, the effect of the as yet untested Draghi put has been dramatic. Spanish and Italian 10s have tightened by a ridiculous 240 basis points since late July. 

Silver is like gold in many ways; both are precious metals with long histories as currencies. They are malleable, lustrous, ductile, resilient, and rare. However, as Visual Capitalist illustrates in this spectacular infographic, silver investors should be aware of the three main differences between silver and gold. From silver's relative volatility and correlation to industrial demand, track record, diversification benefits, and the three ways to get exposure to silver, this colossal image provides everything you need to know in one place.

The market has been rallying over the last few weeks as the bulls have definitely taken charge in the New Year.  Most of the recent analysis has pointed to signs of an improving economy and stronger employment as the driving force behind the advance.  My view has clearly been that it has been the impact of the Fed's liquidity injections pushing asset prices higher. There is one caveat here.  Last winter was the warmest winter on record in 65 years which skewed much of the seasonal data by allowing work to continue when normally workers would have been shut in due to inclement weather.  We are seeing the exact same anomalies occur this year as the winter is currently the warmest in the last 55 years combined, and when combined with lower energy prices, is giving a temporary boost to incomes. As we witnessed in 2012 - when the seasonal adjustments come back into alignment in the spring the drop off in reported economic activity will be fairly severe.

Over the last decade, the economy (and implicitly the jobs of US citizens) have suffered significant swings. The chart below, however, clarifies exactly where the 'missing' jobs have gone (and with a slight silver-lining) where we have gained jobs. As is clear, the Oil & Gas industry has seen its total number of employees rise over 40% in the last ten years - while Manufacturing and Construction industries have each lost around 20% of the total employees. Of course, net net, given the precipitous drop in labor force participation, the US is losing the 'employed' dramatically over this period as the incentive (as we noted here) to work and demand for work (in a cost-cutting ZIRP environment) remain negligible.

Yesterday we broke the news of what is prima facie evidence, sourced by none other than the Federal Reserve's official August 16, 2007 conference call transcript, that then-NY Fed president and FOMC Vice Chairman Tim Geithner leaked material, non-public, and very much market moving information (the "Geithner Leak") to at least one banker, in this case then Bank of America CEO Ken Leiws, in advance of a formal Fed announcement - an act explicitly prohibited by virtually every capital markets law (and reading thereof). It was refreshing to see that at least several other mainstream outlets, including Reuters, The Hill and the NYT, carried this story which is far more significant than Season 1 of Lance Armstrong's produced theatrical confession and rating bonanza. What, however, the mainstream media has not touched upon, yet, is just how profound the market response to the Geithner Leak was, and by implication, how much money those who were aware of what the Fed was about to do, made. Perhaps, it should because as we show below, the implications were staggering. But perhaps what is even more relevant, is why the Fed's previously disclosed details of Mr. Geithner's daily actions at the time, have exactly no mention of any of this.

It’s all a money game on Wall Street.

China now buys more gold than the Western world. Does that mean, as some commentators are suggesting, that future price growth for the gold price depends on China? That if the Chinese economy weakens and has a hard landing or a recession that gold will fall steeply? Of course, this is only one factor. With the global monetary system in a state of flux - with many nations creating bilateral and multilateral trade agreements to trade in non-dollar currencies, including gold - emerging market central banks see gold — the oldest existing form of money — as an insurance policy against unpredictable changes, and as a way to win global monetary influence.  As Zhang Jianhua of the People’s Bank of China said: "No asset is safe now. The only choice to hedge risks is to hold hard currency - gold."

The groupthink for investors today is predicting three major outcomes for 2013. Unfortunately, they will likely all prove to be popular delusions.

Almost two years after the awful nuclear disaster occurred, a fish caught near Fukushima on Friday January 18th had a record-breaking level of radioactive contamination over 2500x the legal limit. TEPCO measured 'Mike the Murasoi' at 254,000 becquerels per kilogram (with the limit for edible seafood at 100 becquerels). As Le Monde reports, the previous record (caught on August 21st 2012) was a mere 25,800 becquerels/kg. As further precautions, TEPCO is installing new nets 20km around the Fukushima Daichi site to avoid highly contaminated fish gettig too far and being consumed by other species. While Mike's family are no doubt distraught (at him being caught and being so radioactive), it appears (somewhat disappointingly) that there is no apparent third eye, lazer fins, legs, or other 'expected' 'blinky' malformations.