Archive - Sep 9, 2013

The number 10. From time immemorial it has been a fascination for people around the world, in every culture and in every civilization.

The USD is getting pummeled once again today. Along with Friday's drop, this is the biggest plunge in the greenback in 2 months. This is not an exodus to JPY (for once JPY is very stable) but appears to be very much a European issue as EUR, SEK, and CHF are all surging against the USD. Treasuries are bid once again (with 5Y 16bps lower in yield from Friday's highs) and stocks are bid on negligible volume. The S&P just regained the mythical 50DMA (and the Dow 15,000) leaving stocks with the best 7-day run in 2 months (sure why not?).

Concerns about inflation and weakening currencies are leading the Chinese middle classes and wealthy to again use gold jewellery, coins and bars as a hedge and store of value.

Store of wealth buyers in China today were paying a $18 per ounce premium or 1.3% premium over COMEX gold (see table below). In recent weeks they have been willing to pay as much $30 per ounce extra for gold. 

The Chinese people are concerned that the same massive inflation that is affecting India, Indonesia, Brazil and other emerging markets may eventually reach China. 

"I state that the Syrian Arab Republic welcomes the Russian initiative, motivated by the Syrian leadership's concern for the lives of our citizens and the security of our country, and also motivated by our confidence in the wisdom of the Russian leadership, which is attempting to prevent American aggression against our people"- Syrian Foreign Minister Walid al-Moualem

The 2013 German federal elections may bring about pretty complicated results. With Merkel's junior coalition partner's (FDP) support dropping below the mandated 5% to enter parliament (according to polls), as Deutsche Bank notes, there is no point in working through the numerous possible coalition scenarios and options. In that case, the task of governing Germany and providing joint leadership in European affairs will become much more complicated than it used to be in normal times of a clear-cut victory for one camp. All inter-camp coalitions may well have a built-in tendency towards paralysis and require special political tricks that allow the partners to show their true colors in clearly circumscribed policy issues while not rocking the boat. A few years from now, September 22, 2013, might be remembered as the day when German politics finally became normally complicated, as in other countries, too. There are two major political narratives that appear dominant currently.

San Francisco Fed head John Williams - known for his extremely dovish views on monetary policy (and support of record accomodation)  - appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous "froth" discussions and "irrational exuberance" admissions, Williams explained:

• *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
• *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES 'ARE HERE TO STAY'
• *WILLIAMS: ASSET-PRICE BUBBLES ARE 'CONSEQUENCE OF HUMAN NATURE'

His words appear to reflect heavily on the Fed's Advisory Letter (from the banks) from 3 months ago - warning of exactly this "unintended consequence." This, on the heels of Plosser's recent admission that the Fed was responsible for the last housing bubble, suggests with the black-out period before September's FOMC about to begin, the Fed is sending us a message that Taper is coming - as we know they are cornered for four reasons (sentiment, deficits, technicals, and international resentment).

It's difficult to have a meaningful national debate about economic policy when "headline numbers" are juiced to make things appear rosier than reality. Since unemployment statistics are either suspect or blatantly bogus, we must look for other less manipulated statistics for some modicum of truth. Key statistics of employment, income and production are vital propaganda tools for the status quo, and the temptation to adjust them to manage perceptions is apparently irresistible. The con being played here is the assumption that more jobs means more wages which means things are getting better and better in every way, every day. If payroll withholding taxes are declining, and wages/salaries are flatlined, things are not getting better and better in terms of earned income flowing into household bank accounts, purses and wallets.

I guess this means we can quote him on it...

Update: Just as suspected, Syria promptly complies with the Russian check: SYRIA WELCOMES RUSSIA'S PROPOSAL FOR DAMASCUS TO PUT ITS CHEMICAL WEAPONS UNDER INTERNATIONAL CONTROL- FOREIGN MINISTER WALID AL-MOUALEM.

In a time when Obama is pitching his entire campaign around one core, if strawman, theme - preventing future chemical weapon attacks by the Assad regime, Putin once again shows why when playing geopolitical chess, it is safe to bet on the pesky Russian. Moments ago, Russia suggested that Syria skip straight to step 2 of the US military campaign, and hand over its chemical weapons to "international control" which would immediately obviate the US campaign completely, whose entire premise for public consumption is just that - to put Syrian chemical weapons under adult supervision and third party control.

• RUSSIA SAYS WILL URGE SYRIA TO PUT CHEMICAL WEAPONS UNDER INTERNATIONAL CONTROL IF THAT WILL AVERT MILITARY STRIKES
• SYRIA SHOULD GIVE UP WEAPONS IF IT WILL AVOID STRIKE: RUSSIA
• LAVROV SAYS SYRIA’S CHEMICAL WEAPONS COULD BE DESTROYED

And now the ball is in Obama and Kerry's court following this surprising move of appeasement by Russia, and implicitly by Syria.

The 77-year old billionaire twitterer extraordinaire, Carl Icahn, shows everyone just how it's done, making a levered profit in the process, but not before he lets a few sharp barbs out to tell everyone just how he feels.  To wit: "We jokingly ask, “What’s the difference between Dell and a dictatorship?” The answer: Most functioning dictatorships only need to postpone the vote once to win.... One of the great strengths of our country is that we abide by the rule of law.  However, state laws dealing with corporate governance often favor incumbent corporate boards and management and are weak in many areas.  While we must abide by these laws, we believe that they can and must be changed.  Among many other things, boards should not be able to treat elections as totalitarian dictatorships do; where if they lose, they simply ignore the results.
"

Another successful US opening - after probably the deadest overnight session in weeks - has lifted the all-important Dow back above 15,000 confirming that all is well in the world. 'They' must be pleased though it seems the earlier attempt to slam-down precious metals failed miserably this time. AAPL is back above $500, Gold under $1,400, and Dow above 15,000 - Mission Accomplished...

Ian Buruma: “The truth can be brutal, and makes life uncomfortable.  So one looks the other way.” 

The Secretary of State, his emotional appeal to populist empathy using hundreds of YouTube clips showing the alleged aftermath of a chemical attack but not one piece of evidence proving Assad launched said attack, falling on deaf ears and eyes, has revised his track for a Syrian intervention. The latest spin from John Kerry: the Syrian attack would be "unbelievably small" as he characterized it today at a London press conference. Or, in the parlance of our times, "just the tip." Bloomberg adds: "We’re not talking about war, we’re not going to war." He spoke of a “limited, very targeted, very short-term effort." This happened while Syria’s Foreign Minister Walid al-Muallem left for Moscow today, seeking a joint approach with Russia to defuse Western assertions that the Syrian regime is using chemical munitions against its own people." In other words: Gazpromia refuses to be denied the "most unfavoured nation" status when it comes to being the marginal supplier of natgas to Europe.

This shows us point blank that the economy has not recovered and that all talk of recovery is based on either phony data or outright fraud.

As we watch, night after night, the collapse in the Indian Rupee (and the nation's stock market); whether driven by an unwind of Fed liquidity slooshing around the world or Europe's austerity-driven surplus imbalances, it is easy to 'feel sorry' for the highly dispersed nation. However, we shouldn't feel too bad for the 'elites' since, as the chart below shows, in the last few years - as central bank largesse was in full swing, the number of household dollar millionaires surged by a stunning 21% in India (closely followed by China and Singapore). Whether by market forces, or government hand - as the G-20 agrees to share tax records in a crackdown on tax-fraud, the uber wealthy are about to see their inert wealth confiscated by the very same mechanisms that made them wealthier.