Archive - Jun 28, 2013

“We just want to make sure that all of those things are in a spot that we control, simply because of what they are," is the 'excuse' that the Canadian Mounties are using to seize a “substantial amount” of firearms from homes in the evacuated town of High River. That news didn't sit well with a crowd of frustrated residents, as The Calgary Herald reports, who found it "absolutely incredible that [the Mounties] have the right to go into a person’s belongings out of their home,” warning that "when people find out about this there’s going to be untold hell to pay." About 30 RCMP officers set up a blockade at the checkpoint, preventing 50 residents from walking into the town which sent the crowd of residents into a rage, "What’s next? Tear gas?” shouted one resident, "it’s just like Nazi Germany, just taking orders," shouted another, "this is the reason the U.S. has the right to bear arms."

All market collapses follow a particular pattern. We're passed #1, into #2... next up is #3.

The world is a big place, after all. And there’s a tremendous amount of freedom and opportunity ripe for pioneering, talented people. Snowden is now marred in a number of banal legal technicalities. The US government has cancelled his passport (another questionable legal move from Uncle Sam). So he appears stuck in the international transit area at Moscow’s Sheremetyevo airport. He’s not legally able to fly back to Hong Kong. Nor is he legally able to board a flight to Havana for onward travel to Ecuador, in order to apply for asylum. If Mr. Snowden had been able to procure a second passport prior to stepping into the limelight, he would likely not be in this predicament as he could have been traveling on his other passport. This is one of the hidden virtues of having a second passport. You might never ‘need’ one. But should such a need ever arise, it can really be a life saver.

Day after day we are force-fed the typical mumbo-jumbo jargon memes from strategists, analysts, and asset-gethering commission-takers. Today we get a breath of fresh air from, arguably, the man on the street - whose perspective seems very prescient. 'Pawn Star' show business owner Rick Harrison explains to CNBC - in words that we can all understand - why gold remains a crucial insurance for people because "governments can screw up the currency," how our economy is based purely on printing money, physical gold and paper gold disconnects - "I'm having a real difficult time right now getting physical metal. It is the crazy world of gold and silver; sometimes the paper market is going down, but you can't actually find the physical items," and the increasingly bubble-like reality of our housing market (especially in Las Vegas).

Amerikan Gulag...

How bad is the situation? Quite bad. As as of last night, courtesy of SMRA, we know that the amount of ten-year equivalents held by the Fed increased to $1.608 trillion from $1.606 trillion in the prior week, which reduces the amount available to the private sector to $3.603 trillion from $3.636 trillion in the prior week. There were $5.211 trillion ten-year equivalents outstanding, down from $5.242 trillion in the prior week. After the Treasury issuance, maturing securities, rising interest rates, and Fed operations during the week, the Fed owned about 30.86% of the total outstanding ten year equivalents. This is above the 30.63% from the prior week, and the percentage of ten-year equivalents available to the private sector decreased to 69.14% from 69.37% in the prior week.

A system that suppresses dissent is fault-intolerant, ignorant and fragile. Any event that does not respond to centralized, rationalized policy creates unintended consequences that throws the centralized mechanism into disarray. Lacking dissent and redundancy, the system piles on one haphazard, politically expedient "fix" after another, further destabilizing the system. The event that triggers crisis and collapse isn't important; the system, rendered unstable and fragile by centralization, is primed for crisis and collapse. The dry underbrush is piled high, and if the first lightning strike doesn't start the fire, the second one will. With dissent and the inefficiencies of redundancy and decentralized pathways of response gone, there is nothing left to stop a conflagration that consumes the entire forest.

The 'outing' of the Irish bankers for gaming the central bank and mocking zee Germans has infuriated an election-hungry (and purse-string-holding) Angela Merkel. Appealing to he populist roots, Reuters reports, Merkel exclaimed, "For people who go to work each day and earn an honest living, this kind of thing is very hard to take, it's impossible to stomach." Germany is concerned it will be asked to rescue more mismanaged banks (even with the template of bank resolution in place) as she adds - perhaps most prophetically, "this is really damaging to democracy, the social market economy and all that we work for." Of course, this show of disdain seems highly hypocritical since Merkel's main role is to keep Deutsche Bank alive (as we explained in words and pictures here).

Smyth: There seems to be an expectation that the end of QE will be bullish for the Dollar and therefore bearish for gold. My view is the end of QE will be bearish for all those asset classes which require QE for life support

The last few days in Europe have been marked by a bounce off the post-FOMC plunge lows (just as in the US) but today's weak close in all the highest-beta most-levered momo trades suggests things are not done with yet. As the following two charts show, once the 'taper' uncertainty began (and US Treasuries started to leak), Europe has been (almost) a one-way street worse...

On Tuesday the People’s Bank of China agreed to inject money to stop the shortage that was occurring and that was already a change of attitude.

UPDATE: POMO ends and... Dow drops 100 points

When conspiracy theory becomes conspiracy fact once again...

In case investors in the US were lulled into believing that since the Dow is limping higher, after a full-court-press open-mouth-operations week of jawboning from the Fed, that all is well again; we present, the Italian banking system. In the last week, stocks in this sector have had 8 swings of approximately 6% up or down. Still think all is well in the world of highly-levered high-beta risk bets? Mint Partners' Bill Blain explains why European banks are collapsing...

Given surging mortgage rates, fading macro data, a Fed that perhaps is not so prone to support people's 401(k)s, we wonder, just as we have seen in the prior two cycle, whether the gains in confidence (based on future hope and expectations more than current situations) may have peaked. With yet another lower low and lower high, it seems the easy-money path to creating animal spirits is suffering an epochal series of diminishing returns.