Archive - Jun 17, 2013

There has been considerable throughput of gold in western capital markets, with substantial buying from all round the world following the April price crash. The supply can only have come from two sources: the general public, or one or more governments. It really is that simple. Two months later the gold price has only partially recovered, so physical supplies have continued to be made available. Physical demand cannot have been entirely satisfied by ETF liquidations, confirming governments are involved. This article looks at the dynamics of the gold market around this event and the implications.

It seems not only the entire developed world is sick and tired of Hilsenrath's "leaks" which have now become so grotesquely self-contradictory, not even Hilsenfollowers can make out the Hilsenfact from the Hilsenjoke. So it appears the Fed has now picked the FT as its interim pass through vehicle: "Ben Bernanke is likely to signal that the US Federal Reserve is close to tapering down its $85bn-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy."

We have removed the levels to protect the innocent but which of these equity (or bond) markets would you be adding to today?

Greek Prime Minister Samaras offers to allow the immediate restart of ERT broadcasting: government source #breaking

— Reuters World (@ReutersWorld) June 17, 2013

So much for that revolution, but don't worry about the oil companies losing money, price rises are assured. 

Why do the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter? They matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis--the "bail-in" confiscation of 60% of bank depositors' cash in an involuntary exchange for shares in the bank (which are unlikely to have any future value)--may provide a template for future official resolutions of other banking/debt crises. In other words, since the banking/debt crisis in Cyprus is hardly unique, we can anticipate the resolution (confiscation of deposits) may be applied elsewhere.

China! Honestly, it comes to something when China jumps on the accusatory band-wagon asking the US administration to provide some comments about its monitoring programs and answer up to the international community.

So let’s see what happens on Wednesday. The markets will likely rally until then on hopes of more juice from Bernanke. But if he should disappoint at all (read: not announce something more or at least strongly hint at doing so) then buckle up.

The Vietnamese Central Bank sold another 25,700 taels (37.5 grams, 1.2 troy ounces) at a gold bar auction on Friday in order to try and satiate the massive public demand for gold in Vietnam.

The Central Bank hopes that the sale of gold into the market will reduce the very high premiums paid by gold buyers in Vietnam, the largest buyer of gold in Southeast Asia after Thailand and one of the largest physical buyers of gold per capita in the world.

Vietnamese people hold gold as a store of wealth for protection against war, inflation and currency depreciation. In recent months, the bursting of bubbles in the stock market (see chart) and property market and the continuing devaluation of the dong has led to record demand in Vietnam and a surging premium over the spot price of gold.

Today, the premium was close to 5.5 million dong which is the equivalent of a very high premium of $217 per ounce over spot. 

Iran is a right old sorry state (of affairs).  Plunged into recession, inflationary pressure that Abenomics wouldn’t mind having a bit of and Bernanke might just be getting if he carries on printing the greenbacks at the rate they are churning out of the Federal Reserve faster than a Ford-T in 1908.

With the meaningless focus on such distracting noise as daily POMOs, will/won't the Fed taper, how many shorts will the Fed's Markets desk squeeze today, and how massive will the second Fed housing bubble be, it is easy to lose sight of the big picture, namely just where is the debt juggernaut that is the US, heading? Conveniently, the US debt clock has a "time machine" function that extrapolates, at current rates of change, what the key metrics behind the US economic facade will look like.

While we have been told vehemently that the Cypriot deposit confiscation was not a template, yet another European nation is embarking on an until-now-considered-safe asset class to recapitalize its banks. As The Telegraph reports, pensioners and other retail investors in the Co-operative Bank are facing massive losses under a GBP1.5 billion rescue plan for the ailing mutual as investors and the bank's parent would make "a joint contribution" to the bank's recapitalisation, without any help from taxpayers. It seems the days of 'hoping' for a bail-out are over and perhaps that is why European financial credit has been underperforming - as that reality has yet to strike equity holders. The realization that deposits (or their mutual equivalent) are nothing more than loans to highly levered institutions may begin to dawn on a European (or in fact global) depositor base.

Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion. But hold on a minute... The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year! The U.S. has been the family that spends more than it earns for many years now. In the short term, spending more than one takes in can work (especially if the Fed just prints new money and gives it to the government to pay its bills). But in the long term, if fundamental changes are not made to the government’s spending habits, financial chaos just starts all over again. Posting a budget deficit year after year is not sustainable. The debt-infested eurozone nations did very much the same; they borrowed to spend. Look where they are now.

Eager to take advantage of NSA-whistleblower Edward Snowden's current unincarcerated status and to ask him questions about his motives or thoughts? Here is your chance courtesy of the Guardian which is holding a live Q&A session with the famous leaker. As the Guardian notes: "He will be online today from 11am ET/4pm BST today. An important caveat: the live chat is subject to Snowden's security concerns and also his access to a secure internet connection. It is possible that he will appear and disappear intermittently, so if it takes him a while to get through the questions, please be patient." Some more from the Guardian:

• Edward Snowden is answering your questions about the NSA leaks live
• Post your questions in the comment section below and recommend your favorites
• We are posting Snowden's replies above the line
• You can also follow along on Twitter using the hashtag #AskSnowden

The live blog can be reached at the following link.

Is recent market behavior the beginning of a market turndown? No one knows, although it is easy to find people providing “answers.” The value of these predictions approach those of astrologers and fortune-tellers.