Archive - Apr 2013

Two days ago we first posted a Youtube clip in which a Greek reporter asked Argentina's Economy Minister Hernan Lorenzino a simple question: "what is inflation in Argentina" - a sensitive topic to a country with price and capital controls, and where inflation ranges between 0 and 20% depending on whether one uses official, or unofficial but based on reality, data. The result was a why we dubbed the clip "Thursday humor" as after several minutes of meandering gibberish, Lorenzino concluded by telling his aided that "he wants to leave", which in turn promptly became a twitter hashtag meme #mequieroir, in which the minister's response to a simple request for the truth was promptly lampooned around the world. However, that may have been just the beginning of Hernan's problems. As Bloomberg reports, citing Clarin, Argentina's president CFK, was also quite taken aback by the bumbling economist that she met with him subsequent to the interview going viral, and told him he has lost credibility and the most likely next step is his resignation.

A bank in some European country such as Spain lends money but the collateral, Real Estate or commercial loans, are going bad. The bank then securitizes a large pool of this collateral and pledges it at the ECB to receive cash. In many cases to take the pool the country has to guarantee the debt. So Spain, in my example, guarantees the loan package which is then pledged at the ECB and is a contingent liability and which is not reported in the debt to GDP ratio of the country but nowhere else that you will find either. “Hidden” would be the appropriate word.  Then as time passes the loans get even worse so that the ECB demands cash or more collateral because they will not be taking the hit; thank you very much. The bank cannot afford to post more collateral so that the country, Spain, must post the collateral and add an additional guarantee for the new loan or they must post cash which is oftentimes the case.  Consequently as time passes and more cash has been spent the country, Spain, begins to run out of capital and the 10.6% deficit figure, that Spain announced recently, is not anywhere close to the actual reality so that they will get forced to officially borrow more money from the ESM as the sovereign guarantee of bank debt becomes unsustainable.

Using cheap debt to buy assets makes a lot of sense right now, but only if it's done right. That wasn't the case with the world's largest retail M&A deal this year.

Overview of the price action in foreign exchange and outlook for the week ahead.  

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix. Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

Bulls are still in charge of markets despite the shallow 2 to 3% correction the previous week. The conundrum for most investors remains, where else are you to put your money despite obvious risks and deceptive conditions? The Fed is forcing people into stocks, period.

As the world looks ominously in the direction of Chechnya, we thought this clip of the far less serious 'artist of the Chechen Republic' may be of interest as well as amusement. Watch as the Russian Jim Cramer-ubercaffeination and exuberance equivalent, Nikita Dzhigurda, explains to this novice trader how to buy $1 million worth of Facebook shares..."are you sure?" the trader anxiously asks... and instead of the ubiquitous "Buy, Buy, Buy" we hear claxoned day after day usually accompanied by cow sounds; the hirsute adviser, once diagnosed with 'hypo-manic psychosis' and currently spitting image of Rob Zombie, delivers the punchline, "yeah, fuck it!" Because nobody does things in Russia half-assed.

When just one firm accounts for 99.3% of the physical gold sales at the COMEX in the last three months it’s not what most of us on this side of the rainbow would consider “broad-based” selling.  Of course discovering this kind of relevant information requires an internet connection, 2nd grade math and reading skills, and the desire to do a teeny-weeny bit of reporting.  Sadly they’ve wandered so far down the rabbit hole that the concept of “physical demand” (i.e. people actually wanting to take possession of the stuff) is puzzling to them because the vast majority of the world’s so-called “gold-trading” takes place in the realm of make believe (which is their natural habitat).  It’s all fun and games until somebody loses their metal and “somebody” has lost one hell of a lot of metal in the last 90 days... J P Morgan has fumbled ownership of 1,966,000 Troy ounces of gold since February 1.  That’s 74% more gold than the US mint delivered through the US mint’s American Eagle program in all of 2012.  I mention this because there’s little doubt in my mind that the US government is one of JPM’s gold “customers.”  So (if I am correct) the same US government who just let the Morgue dump its gold on the COMEX floor will once again be suspending gold sales to peasants.

How much is the 'promise' of a European Central Banker worth? As European macro data in the last month has plunged at its fastest rate in 6 years, equity markets have, of course soared back to near multi-year highs (EuroStoxx 600 up 5% in the last week alone). We only hope that the equity markets really do know something different this time - as opposed to the last two times we saw this kind of disconnect. The answer - Draghi's 'whatever it takes' promise is maintaining a 30% illusion of wealth in European equities over their macro reality.

Last week's collapse in precious metals prices reminded Santiago Capital's Brent Johnson of Rudyard Kipling's famous poem 'If' - "If you can keep your head when all those about you are losing theirs." This brief but complete summary of why one should hold gold, the theories about the drop, his view of the manipulation - "would it really surprise anyone?", and the ongoing and increasing realization among the mainstream that a rising gold price is the canary in the coalmine of economic distress and currency debasement is well worth the price of admission. His message is clear, buy physical gold - rather than futures - don't use margin and store it somewhere safe. The last three minutes of "Ifs" are a succinct list of the questions everyone should ask themselves about the status quo.

A lot of Americans know that the US government is out of control. Anyone who has cared enough to study the US Constitution even a little knows this. Still, very few of these people are taking any significant action, and largely because of one error: They are waiting for “the good guys” to show up and fix things. Some think that certain groups of politicians will pull it together and fix things, or that one magnificent politician will ride in to fix things. Others think that certain members of the military will step in and slap the politicians back into line. And, we're sure there are other variations. There are several problems with this. The sad truth: No one is going to ride in and save you. If you want things to get better, then YOU will have to make them better. YOU will have to stand up and take the arrows, yourself. Liberty, at this stage of human development, requires risk and pain.

Anyone waiting with bated breath for the moment when cell H25 in the daily Comex gold inventory update (the one showing JPM's total holdings of Eligible gold) shows 0.000 will have to wait at least one more day. According to today's update, as of Thursday (so excluding today's post-Europe close gold shenannigans) JPM's eligible for delivery gold inventory did not receive any new gold, which started the day at yesterday's record low (for the firm) level of 141,581.5 troy ounces, and would have ended flat, had it not been for the reclassification of 17.5k ounces of registered gold into eligible.

Succinctly summarizing the positive and negative news, data, and market events of the week...

It appears Chuck has finally met his match, and his name is Jamie...

For the fifth week in a row, US Macro data deteriorated markedly (not helped at all by today's GDP miss). The Q1 earnings picture is dismal, with beats far less than average and revenues hugely disappointing. But, in light of all that reality, where-ever you look, screens are green. Despite some softness today (oil, S&P, and Nasdaq down) the week showed impressive gains for equities amid the lowest volume week in three months (mostly driven by the epic short squeeze on Tuesday), modest gains for Treasuries (yields lower by 2-4bps), significant outperformance by precious metals (up over 3-4% on the week - having given some back in a post-Europe smackdown today), and WTI crude up over 5% on the week.  Perhaps the most notable fact about the week (apart from equity's inexorable bid in the face of nothing positive at all) was the surge in JPY. In an Abenomics-shattering print, last night's deflation data helped USDJPY rally its most in 11 months for the week. While all asunder will be celebrating another green week, it is perhaps worth noting that while the Russell gained 1.3% from Monday's close, the 'most-shorted' names of that index more than tripled that performance - gaining 4.4% on the week... squeeeeze.