Archive - Sep 19, 2013

There is one good thing about money, apart from the fact that there is a race to grab it and keep in in our claws making it highly in demand, and that’s the fact that wealth attracts wealth. Money is a dirty little magnate that can only attract more money and it’s not a question of opposites attracting here.

But put your drinks down before you do...

BREAKING: Russian President Vladimir Putin says he may seek 4th presidential term in 2018.

— The Associated Press (@AP) September 19, 2013

Yesterday it was Goldman capitulating on their near-term gold, er, capitulation reco (expectedly so after gold ripped over $75 in the span of 24 hours). Now, it is Bank of America's turn to close their silver short. To wit: "The Wednesday Bullish Candlestick formations (Bullish Engulfing Candles) in gold and silver say that our bearish view on precious metals now incorrect. Indeed, this is supported by the US $ breakdown and the increasingly constructive environment for risk assets generally. As such, we are cutting our Silver Short and moving to the sidelines. Silver should see a test of long term resistance at 24.24/26.23, in the sessions and weeks ahead while gold should re-test its 1433, August highs. In both cases, watch trendlines at 23.20 & 1375. A close above confirms the bullish candles and upside trajectories." When was the trade put on? September 4.

Sounds like the 'negotiation' is going great...

• *BOEHNER SAYS HEALTH CARE LAW 'MUST GO,' IS COSTING JOBS
• *BOEHNER SAYS DEFICIT REDUCTION IN PAST TIED TO DEBT LIMIT DEALS

And while noting that Obama was willing to 'deal' with Russia's Putin, Boehner added that "not engaging" threatens the US economy.

"I sometimes feel I am in a parallel universe. Maybe I am... It?s like they're on a train which they know to be heading for a crash, but it is accelerating so rapidly they?'re scared to jump off." - Albert Edwards

The outlook for the economy, based on Bloomberg's Consumer Comfort index dropped to a 13-month low this morning. This must be great news for the bulls in the equity market of course and perhaps nowhere is that better indicated than the record high spread between the 'comfort' of the wealthy and the 'comfort' of the poor. Those with an income over $99,000 per year are the most comfortable they have been in 6 years while the lower incomes (below $40,000) have seen their comfort plunge to one-year lows. It seems, as Druck noted earlier, that the wealth redistribution is having a visceral effect on sentiment.

It is unknown whether the Philly Fed was using the BLS' pre-upgrade computers to calculate their diffusion index of broad manufacturing conditions, but the bottom line is that while the Fed is telling the market the economy is deteriorating and is adjusting its GDP forecast accordingly, the manufacturers in the Philadelphia region did not get the memo, and as a result the general business activity number soared from 9.3 to 22.3, more than double the expected 10.3. This was driven by a jump in both New Orders and Shipments, both printing at 21.2, a jump in Inventories to -1.8 from -11.3, as well as the Number of Employees and the Average Employee workweek, which soared from low single digits and negative, to over 10 each. The only negative in the report is that while Prices Paid jumped to 25.3, prices received barely budged. Then again, with the Fed micromanaging everything now, who needs profits when one can just go public and sell stock indefinitely.

The Federal Reserve decision to refrain from and put off indefinitely a QE taper is very bullish.

The Fed is struggling to keep interest rates low for as long as possible in a desperate attempt to prolong a very fragile U.S. recovery or non recovery in our opinion.

Money printing and debt monetisation on this scale has led to higher gold prices throughout history and will do so again.

The Federal Reserve is effectively insolvent and investors and savers should prepare for falls in the U.S. dollar, a dollar crisis and an international monetary crisis.

Reflecting on exactly what was said yesterday, Duquesne's Stanley Druckenmiller is initially perplexed as Bernanke explained 'financial conditions' - not interest rates - have prompted the decision to forestall any taper. His confusion is that financial conditions are actually slightly better than they were in June and "a stock market at an all-time high would suggest we don't have a problem with financial conditions." While he dismisses surveys, the big-money was betting that they were going to taper as is clear from the moves in gold, bonds, and stocks; and it appears the Fed "lost their nerve." In fact, Druck continues, the Fed "blew it... they had a freebie," they could have started the process to "get us off the dope." This action, or inaction, he warns "is going to make it so much harder for the next Chairman to start the process." In fact, he concludes, that from beginning to end - once markets adjust from these subsidized prices - that the wealth effect of QE will have been negative not positive.

"By late April 2012, JPMorgan senior management knew that the firm's Investment Banking unit used far more conservative prices when valuing the same kind of derivatives held in the CIO portfolio, and that applying the Investment Bank valuations would have led to approximately $750 million in additional losses for the CIO in the first quarter of 2012." Translated: Jamie Dimon lied to Congress.

Economic data may be completely meaningless now that the Fed is openly blowing a bubble without any qualms, but even the Fed at least pretends its policy is guided by said economic data. Which is a problem because for the second week in a row, Initial Claims data is absolute garbage, following an admission by the BLS that "two states" are still working through the claims backlog caused by the "computer-system changeover." Recall that last week's "computer upgrade" was the reason why claims plunged from 323K to 292K (on expectations of 330K). Today, the number was 309K, but instead of indicating any improvement in the economy, and hence a potential Taper catalyst (yes, we laughed too), it merely shows that at least two states have been slow to complete their computer upgrades. According to Bloomberg strategist the computer "issue" may be resolved in the next 2 weeks. Or it may not. If it wasn't such a farce, it would be funny.

"...the path of tapering is going to be tough because every time the market thinks they are going to taper, yields will likely rise and conditions will tighten" - Deutsche Bank

It has been a "Summer of Recovery" for the U.S. economy with GDP growth rising from 1.1% in the first quarter to 2.5% in the second and manufacturing surveys showed sharp jumps in new orders and outlooks.  The same occurred in the Eurozone with Markit's PMI reports showing sharp bounces higher and hopes that the recession that has plagued the region was finally coming to an end.  The question of sustainability remains. The recent uptick in the Eurozone has now ended which most likely suggests that the recent pop in domestic production is likely ephemeral.  The next couple of months of data should be telling in the regard and also suggests why employment reports have been much weaker than anticipated. With hopes once again running high that the economy is set to regain "escape velocity" in the coming year there is plenty of margin for disappointment.

"When Pravda.ru editor, Dmitry Sudakov, offered to publish my commentary, he referred to me as "an active anti-Russian politician for many years." I'm sure that isn't the first time Russians have heard me characterized as their antagonist. Since my purpose here is to dispel falsehoods used by Russia's rulers to perpetuate their power and excuse their corruption, let me begin with that untruth. I am not anti-Russian. I am pro-Russian, more pro-Russian than the regime that misrules you today. I make that claim because I respect your dignity and your right to self-determination. I believe you should live according to the dictates of your conscience, not your government. I believe you deserve the opportunity to improve your lives in an economy that is built to last and benefits the many, not just the powerful few. You should be governed by a rule of law that is clear, consistently and impartially enforced and just. I make that claim because I believe the Russian people, no less than Americans, are endowed by our Creator with inalienable rights to life, liberty and the pursuit of happiness..."