Archive - Aug 2013

The Chinese demand for gold essentially comes from three segments: (1) the People’s Bank of China; (2); the banking sector; and (3) Chinese citizens. We can count on the Chinese central bank to pursue the same steady course they have been pursuing for a while: buying additional gunpowder by increasing their gold reserves. More importantly, it is very likely that the current forced deleveraging will be accompanied by, for instance, a significant cut in interest rates or a lowering of the reserve requirements to offer the banking sector a helping hand (as the PBOC appears to be folding a little on its hard stance). This could have a major impact on gold. We’ll see why by observing that the bulk of Chinese gold demand comes from its third source: Chinese citizens. China has one of the world's highest saving rates, and the public faces few investment options. With negative real interest rates, in case the PBoC does lower rates to support the banking system, gold seems to be an opportune alternative.

Zen and the art of contamination...

It was only last week that yet another conspiracy theory became fact when we learned, for the first time after nearly three years of lies, that Tepco had been deceitful and wrong with its "all clear" message about Fukushima, and that instead some 300 tons of contaminated, irradiated water had been flowing into the Pacific ocean every day. So now that the opportunity cost of telling more lies is zero, and the radioactive cat is out of the bag, so to say, the news about the absolute, unmitigated disaster that Fukushima is, and will be for decades, are coming fast and furious. Sure enough, moments ago Tepco reported, and Kyodo confirmed, that radioactive water has risen above the protective barrier and is freely leaking into the surrounding environment.

Whether or not BitCoin actually wants to be regarded as an accepted currency, and thus subject to US government regulation, remains to be seen. However, one thing is certain: a currency is not a currency, until it gets its own Bloomberg ticker. Just recall the confusion that followed the appearance of XGD, or the GREEK DRACHMA (POST EURO), BBG currency ticker in June 2012 caused a panic tsunami across Europe when everyone started asking what does Bloomberg know that nobody else does.

Enter XBT Curncy <GO>

Two upcoming events could prove catalysts for a Japanese sovereign debt crisis.

   "Mr. Martin-Artajo thought that the market was irrational."   

  -  Permanent Subcommittee on Investigations, US Senate, Report on JPM Whale Trades: A Case History of Derivatives Risks and Abuses, p. 104  

Just like Breaking Bad, the most exciting trading drama of 2012 is coming to an end.

With all of the problems afflicting the world economy nowadays, inflation seems to be the least of our worries. In addressing the post-2008 economic malaise, which stems from over-indebtedness, policymakers are correct to focus on the threat of debt deflation, which can lead to depression. But dismissing inflation as “yesterday’s problem” could undermine central banks’ efforts to address today’s most pressing issues – and, ultimately, facilitate inflation’s resurgence. Understanding how the Great Inflation from the late 1960’s to the early 1980’s was tamed offers important lessons for addressing far-reaching economic problems, however different ours may be, and provides insight into the dangers that may lie ahead.

You're not going to believe this: gold is manipulated.  Also, Paul Craig Roberts debunks GDP and lifts the veil off our disinformational gov't

Short-term, dollar risks still appear on the downside, but this appears largely corrective in nature.  Medium-term, a higher dollar still appears to be the most likely scenario.  

Tyranny, even when discussing villains like Hitler, Mao and Stalin, does not have a single pedigree. Tyranny is a process, rarely gained via force until the defense mechanism of the host is destroyed.  Hitler took seed in the ideas of Otto von Bismarck which preceded him by more than half a century. The process is well underway in America.

A majority of Americans say they think gun crime has increased over the past 20 years, even though it has actually fallen dramatically, a recent Pew Research Center survey shows. The infographic below provides a closer look at some recent numbers.

How would America ever survive without the central planners in the Obama administration and at the Federal Reserve?  What in the world would we do if there was no income tax and no IRS?  Could the U.S. economy possibly keep from collapsing under such circumstances?  The mainstream media would have us believe that unless we have someone "to pull the levers" our economy would descend into utter chaos, but the truth is that the best period of economic growth in U.S. history occurred during a time when there was no income tax and no Federal Reserve. We never needed a central bank, we never needed the IRS and we never needed an income tax.  America would be doing just fine without any of them. But instead, America chose to go down the path of collectivization and central planning, and now we are heading toward the biggest economic disaster in the history of mankind.

Since Detroit’s Chapter 9 filing in late July, it has slipped off the front-pages to some extent. The Chapter 9 process is underway and Barclays provides a deep-dive look at the various liabilities involved in the bankruptcy. From the pension obligation certificates (POC), which they believe could be subject to the most volatility over the course of the bankruptcy process and will likely recover no more than 30 cents on the dollar, Barclays' muni team expands on the various aspects of the eligibility process, historical precedents (such as Stockton, CA), and the tough decisions that investors face in deciding between short-term goal of certainty of payment or a long-term goal of maximizing returns. The judge has set a mid-March 2014 deadline for the city to file its plan of adjustment.

Inflows into equity funds around the world have been presented as the driver of the next leg higher in this 'secular' bull market. As liquidity slooshes around the world (as David Stockman so eloquently described) there is nothing but hot money chasing what 'worked' not what will work... or, as investors have now been conditioned to do, BTFD. US asset gatherers' dissonance is high as they know the pillars of their 'just keep buying' thesis remain wobbly at best (and broken in all honesty) but flows (aside from the fact that retail appears to have just folded) are holding hope ransom for now (oh and the money-on-the-sidelines idiocy meme - buyer meet seller). So what nation saw the largest relative equity fund inflows in the world?