Archive - Aug 2013

Given that the demand for physical gold among private investors has remained strong throughout 2013, the significant price declines in recent months took many investors by surprise. Attempting to make sense out of this situation, speculation has arisen that the so-called 'bullion banks' (the mostly "Too Big to Fail" institutions that are known to work closely with the central banks) have lent out, or even sold, gold on a fractional basis, far in excess of what is supposedly held in their vaults. The result would have been to multiply greatly the amount of 'apparent' gold in the market and thereby depress prices. Such an action would provide needed cover for the embarrassment of currency depreciating central banks' policies.

Recent data releases have contained mixed messages. Bulls cling to anecdotal data points to support their 'recovery around the corner' green-shoots justification for equity valuations while bears remain mired in the reality of a slow and dismal recovery-less recovery. The following 13 charts (with 1 bright shining point of government sponsored exuberance) paint a different picture than the all-time high stock prices suggest.

A bearish take on U.S. stocks is about as fashionable as a beehive hairdo at the moment, which makes it a decent time to think like a contrarian.  Sell-side strategists with a sense of reality are few and far-between but as ConvergEx's Nick Colas warns, the most important reason for caution currently is, obviously, valuation and complacency.  U.S. stocks currently reflect, both in price level (16x current year earnings) and implied volatility (an 11 handle VIX), an economic acceleration which has yet to fully flower.  In addition, Colas adds, domestic equities look good in part simply because everything else – Europe, Japan, emerging markets, etc... - look so bad.  Wouldn't an accelerating U.S. economy spill over to other regions?  So what is lurking around the corner for the next lucky Fed head? And what about the three main memes for why the 'bull' can keep running?

According to the index the construction of the world’s tallest buildings have always coincided with the great slumps and recessions that we have gone through in history.

Nearly a year after the Benghazi embassy attack that left four Americans dead including ambassador Chris Stevens, it seems that the deaths of US citizens have "made a difference" after all in the eyes of the amusingly named US Department of Justice, which moments ago filed criminal charges related to the Libyan attack. Alas, that's all we know because as the WSJ reports, the charges were filed under seal. It probably means that is all that shall be known until one day, several years from now long after Eric Holder has left the building, the DOJ will unseal the charges and disclose it never had a case to begin with.

We're going to need a bigger camera...

It seems I arrived in New Zealand just in time to see the country implode over a bit of botulism and bad PR. Good thing I haven't converted all my dollars into kiwis just yet!

If the Fed drop the ball and move too quickly they could endanger the fragile economic recovery, on the other hand if they move too slowly they could stoke inflation in the near term. 

Another day, another Hindenburg Omen sighting as Fed speeches did little to provide moar exuberance as better-than-expected data keeps hinting at an early Taper and removal of the punchbowl. Stocks have seen two days in a row of 'redness' with a mind-numbing loss of around 0.7% for the S&P 500 (and more for the Trannies) that sparked a litany of 'off-the-lows' and 'moral victory for the bulls' comments as volume remained lack-luster at best (all compressed into the sell-off phase into the European close). The Taper picture remains a little unclear across asset-classes though; as gold, silver, and oil dropped (Taper on), Bonds unch (Taper hhmm), stocks down led by builders (Taper on), USD weakness (Taper not on) but JPY strength was the driver (carry unwind on Taper on). VIX pressed up towards 13% (its biggest rise in 7 weeks) and credit is underperforming.

Ready to unveil his cunning plan for getting the GSE monkey off his back, President Obama is in Phoenix, Arizona today to discuss "restoring security to homeownership." Ironic really that he is giving this speech in the epicenter of the new bubble in housing (Phoenix home prices +23% YoY) as he offers up a "better bargain for the middle class" which seems to mean a 'promise' that home prices will never fall again. Moar intervention, moar unintended consequences of capital mis-allocation, and moar un-affordability for the average middle-class person in Arizona now the bubble is reblown. Grab the popcorn, this will be good - as Obama explains the upside for private investors to take on that first loss piece of the mortgage market (in a rising rate environment with home prices bubbling).

From "buy low, sell high; 'fear', that's the other guy's problem" to "don't worry if the price goes up, just keep buying," Trading Places is, as Dan Aykroyd describes "the greatest business movie of all time." It's hard to disagree but in the brief 2 minute Bloomberg collage of clips and interview, Aykroyd explains the movie's epic 'orange juice pit' finale (which in some strange way reminds us of the unapologetically crowded one-sided nature of the current US equity market)...

The “smart” money is fleeing the market en masse (institutions, wealthy private investors, etc.).

Warren Buffett's recent investments in something as mundane as rail appear to have found big fans in an unexpected place: the Kremlin.

Information overload and cognitive dissonance often hide the facts from right under one's nose. Sometimes, as in the case of the following image, a picture paints a thousand words; and in this case, any doubt about where the world's 'most-bust-prone' nations are in the post-crisis new normal should be instantly (and visually) dismissed (as we noted here, here, and here).

With the Federal Reserve's bond-buying, liquidity-injecting, market-inflating, volatility-suppressing, confidence-inspiring, economic-supporting, media-headline-generating, program currently in full swing; one would assume that the daily pushes to new market highs are driven by massive inflows of cash into the equity markets.   Well, that assumption is only partially correct.