Archive - Jul 2, 2013

Barry Ritholtz is convinced that once the current short-term bounce is over with, the recent cyclical bear market in gold will resume. The reality is of course that neither Mr. Ritholtz, nor anyone else actually knows the future. Therefore, he cannot know whether the bear market is or isn't over. However, judging from the remainder of his post, he actually seems to think that the secular bull market in gold is over. In our opinion there is no evidence for that, and we will explain below why we think that he and others in the  long term bear camp are wrong. Further below is the evidence marshaled by Mr. Ritholtz (actually, apart from the technical analysis he provides, it isn't really evidence at all – it reads like an unsupported opinion). Sure enough, gold has no yield, no conference calls, and no income statements (paraphrasing Jim Grant). That is actually the beauty of it. But that does not mean it 'has no fundamentals', nor does it means that it 'cannot be an investment'. We comment on his article (and its errors) further below.

WTI Crude futures just topped $102 per barrel (the highest price in 14 months) as Reuters reports 16 dead and Egypt's high command saying the army was ready to die to defend Egypt's people against terrorists and fools, in a response to Islamist President Mohamed Mursi. Their comment (via Facebook) read "We swear to God that we will sacrifice even our blood for Egypt and its people, to defend them against any terrorist, radical or fool," was issued 3 hours after Mursi's TV statement.

As already reported, the Dassault Falcon 900EX that is the Bolivian Air Force 1 was prohibited from flying over Italy, Portugal, Spain and France, due to suspicions it was harboring the "democratic world's enemy #1" Edward Snowden, trapping FAB1 above Austria, and forcing to land in Vienna. Watch the animation of the flight path below how effective the "democratic world" is in making a mockery of due process, diplomatic immunity and all those other highly valued qualities that make living in the "democratic world" such a joy. As for Europe: what can we say - the continent that over the weekend was furious at the NSA for spying on it, expressed its anger by blocking Snowden's airpace.

In the Oval Office on May 16, 1973, Mr. Buzhardt told Nixon about his discussions with the deputy director of the National Security Agency, Louis W. Tordella, about the Huston plan. The N.S.A. conducts international electronic eavesdropping, but like the C.I.A., it is not supposed to spy on Americans at home.

''Anything the N.S.A. did is totally defensible,'' Nixon said, referring to the Huston plan.

Mr. Buzhardt replied: ''They move into a broader category with respect to domestic affairs'' -- an illegal realm.

''What do you mean?'' Nixon asked. ''Electronic surveillance?''

Mr. Buzhardt replied, ''Yes, sir, targeting U.S. citizens' conversations.''

We have discussed the apples-to-unicorns comparisons of returns between stocks and treasuries in the past making the critical points that a) risky corporate equity returns should be compared to risk corporate equity yields/spreads (as opposed to Treasuries), and b) they must be adjusted for risk. However, as we also pointed out, and in no way suggesting one is better than the other, there is one other major real risk that is so often overlooked it is remarkable. That risk is 'drawdown'. As the following chart summarizes over the past 33 years, it's been quite a roller-coaster ride for those anchoring-biased human beings looking at their account statements. More interestingly, it is exactly this drawdown of recent days in bond markets that is supposedly setting off the great rotation - even though the order of magnitude relative to stocks is dramatically lower.

Following Mursi's TV and Twitter statement earlier, when WTI crude futures re-opened and immediately started to accelerate higher, breaking decisively through the Maginot Line of $100 (on their way to $4.00 gas at the pump in the US). The tensions are escalating between pro- and anti-Mursi protesters as Reuters reports 3 more dead and a further 90 wounded today.

Supply and demand matters. We need only look to an average schoolyard for proof. Central bankers should take heed.

With less than three months before the German elections take place, Chancellor Merkel's party is still, by a wide margin, the most popular with voters. However, based on the latest polls, Goldman Sachs notes that Chancellor Merkel would need a coalition partner to form a government. Her current coalition partner, the FDP, has weak support, making a so-called 'Grand Coalition' with the Social Democrats still the most likely outcome - if Europe can just hold itself together for a few more weeks that is.

Update: Italy and Spain have also been confirmed as a state that refused passage above its airspace to Bolivia's Morales.

Moments ago a rather surreal episode of international diplomacy, or rather lack thereof, took place when the airplane of Bolivian President Evo Morales was forced to land in Austria over suspicions that NSA whistleblower Edward Snowden was on board, a claim Bolivian authorities denied. The reason: France and Portugal reportedly refused to allow the flight to cross their airspace due to concerns that Snowden may have been aboard the plane. It is what international law allows countries to deny their airspace to presidents of sovereign countries, when the only transgression is unproven speculation of harboring a whistleblower. Of course, with both insolvent countries bent over and in dire need of some all too precious Uncle Sam liquidity, we can see how they would do anything and everything to gain some favor with Obama.

While there are many positives to declining energy consumption, the question is: does this reflect a better standard of living or a lesser standard of living? In terms of replacing the ownership model with the access model and replacing long commutes with remote work, the answer is "better." In terms of overall economic activity, these charts scream recession, i.e. a declining standard of living.

Or why we must delay it, to find what's in it...

In November 2009 the IMF decided it was an opportune time to authorize the sale of 403.3 metric tons of gold. Very quickly after announcing this China, India, Russia, and some EU central banks piled in snapping up the IMF's offer. The current price of gold is around CNY7,300 per ounce, exactly what it was when China last loaded the boat...

Portgual stuck with austerity even after the orthodoxy changed.  The finance minister resigned and was replaced by someone who promises continuity.  This led to the resignation of the head of the jr coalition partner leader.  Still, snap elections are not the most likely scenario.  

It should come as no surprise to most ZeroHedge readers but sometimes the facts and data need to be reiterated to ensure the message is not getting lost. As Michael Snyder rhetorically asks,  did you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us?  We were always told that the goal of quantitative easing was to "help the economy", but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system.  Instead, most of it is sitting at the Fed slowly earning interest for the bankers.  Our financial system is a house of cards built on a foundation of risk, leverage and debt.  When it all comes tumbling down, it should not be a surprise to any of us.