Archive - May 20, 2013

The IRS routinely obtains information about how we earn a living, what investments we make, what we spend on ourselves and our families, and even what charitable and religious organizations we support. Starting next year, the IRS will be collecting personally identifiable health insurance information in order to ensure we are complying with Obamacare’s mandates. The current tax laws even give the IRS power to marginalize any educational, political, or even religious organizations whose goals, beliefs, and values are not favored by the current regime by denying those organizations “tax-free” status. This is the root of the latest scandal involving the IRS....  Considering the type of power the IRS excises over the American people, and the propensity of those who hold power to violate liberty, it is surprising we do not hear about more cases of politically-motivated IRS harassment. As the first US Supreme Court Chief Justice John Marshall said, “The power to tax is the power to destroy” — and who better to destroy than one’s political enemies? The very purpose of the IRS is to transfer wealth from one group to another while violating our liberties in the process, thus the only way Congress can protect our freedoms is to repeal the income tax and shutter the doors of the IRS once and for all.

While we have become used to the almost daily trading-halts in Japanese government bonds, when the CME reports that Silver trading was halted four times overnight, it is increasingly clear that this market is anything but 'normal':

• *SILVER TRADING WAS HALTED FOUR TIMES OVERNIGHT, CME GROUP SAYS
• *SILVER TRADING WAS STOPPED FOUR TIMES IN 20-SECOND HALTS
• *SILVER TRADING WAS HALTED IN `STOP-LOGIC EVENTS', CME SAYS

Yet somehow, amid all this 'extreme' volatility in 'safe' collateral assets, we still do not hear of funds blowing up (yet). While central bankers would seem to disagree, there really is no stability without volatility and the more that vol is suppressed, the more extreme the inevitable 'event'.

If Japan’s bond market implodes, then global Central Bank efforts to hold the system together will have proven a failure.

While the overnight collapse in precious metals has been notably retraced, the media is unable to take its eyes off the ball that the status quo is shaking focusing on the demise and what that must mean for the future. Well, it seems, the Indian finance minister is very clear. Speaking in New Delhi P. Chidambaram explained his lack of surprise at the increase in gold imports in April (as physical demand exploded amid falling paper prices) adding:

• *CHIDAMBARAM APPEALS TO PEOPLE TO CONTAIN PASSION FOR GOLD, and
• *CHIDAMBARAM: MORE STEPS PLANNED TO CURB GOLD IMPORTS IF NEEDED

So China/Hong Kong is importing near record amounts of the precious metal into reserves and India is not only seeing demand but enough to warrant further government intervention... makes perfect sense that (paper) prices should be falling - or are the planners plans backfiring once again? As we noted here, as long as the price suppression of paper gold prices continues, don't expect any notable changes to these demand trends.

It is likely that the very aggressive selling in illiquid Asian markets overnight was by a large hedge fund or bank or a combination of hedge funds and banks with deep pockets. Reuters quoted an analyst at a Japanese bank who said that silver’s price falls were due to one “unidentified investor”.

While we are told day after day that not only is Europe 'fixed' but that Cyprus was not a template, it seems the bankers in the peripheral nations are a little less confident (never mind their record amount of reach-around-based domestic bond buying). European "leaders need to moderate their language," warned one bank CEO, and as the FT reports, another feared a "Cyprus virus," adding that "you can't keep playing with fire." The comments come in the wake of the depositor haircuts in Cyprus as a rush of clients wanted to move cash from deposit accounts to vaults: "most clients in Portugal don't trust deposit guarantees... they choose vaults instead." Fixed indeed... and why would these bankers worry about the 'precedent' if it were not a 'template' for future bail-ins?

It’s painfully clear for all to see that the majestic United States is now firmly caught in the rapacious stranglehold of financial elites which have completely captured it in a grotesque gamed monetary process.  Our country’s once idealistic and industrious free market economy has been hijacked and is undeniably being fraudulently and overtly financialized by the craven clutches and maniacal machinations of a contemptible self-seeking banking class. They have become nothing more than avaricious parasites disgustingly feeding from the grand trough of our treasured human ingenuity and self-respecting industry.

Do not panic, but it seems the flood of liquidity and central bank largesse can only do so much. The much-discussed issuance of 10 year Rwanda debt at a 7% yield earlier in the month made more than a few of even the most die-hard momo junkies look up from their 'Buy' keyboards for a brief second. In the past few days, something rather disturbing has occurred in this ultimate arbiter of risk-on demand... Rwanda bonds are selling off... now up 15bps in yield since issuance. Have no fear though as we are sure Abe, Bernanke, or Draghi will be along shortly with a plan to help SME lending in Rwanda... or will promise to do 'whatever it takes' to ensure Rwanda yields are not manipulated by speculators...

Behold the definition of a "revolving door" - Judd Gregg: from US Senator, to Goldman Sachs advisor, to SIFMA head, all in under two years.

We commented as it happened that last night's jawbone-inspired flash-smash in USDJPY which triggered what was evidently a major liquidation in gold and silver at the margin was a buying opportunity for the precious metals and sure enough, gold has recovered all of its losses and silver is close.

A major asset class is "topping" out.

"Preservation of Capital," has reached epic seriousness in a world with interest rates at unsustainable lows and underlying economic fundamentals that cannot support today's yields. The irrational game goes on based upon one thing and one thing only which is the creation of capital by all of the world's central banks. The money must go somewhere and so it does but the disconnect between the equity markets and bond yields from the real world is frightening. Nowhere on the planet is it scarier than in Europe.

As has been rumored for months, and known for days, the official purchase of Tumblr by Yahoo is now in the books. For $1.1 billion, Yahoo is the proud owner of a whole lot of user-generated porn sites if not that much (read any) revenue. We cant wait to see how it monetizes them. And in a press release, apparently aimed squarely at hipsters, Yahoo promises "not to screw it up." It's cool to be hip and edgy: surely it's worth at least 15% in stock premium. As for profits... ah, it's an Amazon world after all.

In the absence of major data releases, the focal point of the week for markets becomes the release of the minutes of the May FOMC meeting. The most notable change in the statement was the inclusion of the new language: “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” In the May meeting minutes, the market will be looking for any clarification of the motivation behind this change as well as any evidence that the committee members may be becoming less comfortable with the unemployment rate threshold or more specific about tapering timelines and dates.

QE Halt Would Be 'Too Violent' for Market: Fed's Fisher