Archive - Jan 2014

Physical gold for delivery at the Comex is at record lows. Demand for delivery of the precious metal may just push the gold price manipulation scheme over the precipice.

Stocks and bonds disconnected today (again) with Treasuries pressing to lower yields - 30Y down 1bp to 3.73%, rallying 3 to 5bps off mid-Europe-session high yields to new 10-week lows. Stocks and VIX disconnected today as VIX trading higher all day - even as stocks opened energetically higher. Stocks and credit disconnected today (again) as the afternoon pump in stocks back from European-close turmoiling lows was not seen in credit at all. Equity indices were very mixed today with the Dow underperforming (after its exuberant run Friday) and the NASDAQ the big winner thanks to AAPL. Retailers continue to diverge from the market. The USD closed marginally lower from Friday's close (with AUD and GBP strength the drivers) and commodities diverged with oil and copper higher and gold and silver lower (though well off their smackdown lows by the close) - with their worst day of the year.

Said Dr. El-Erian: “I have been extremely honored and fortunate to work alongside Bill Gross, who is one of the very best investors in the world. His talents are truly exceptional, as is his dedication. I have also been amazingly privileged to work with the most talented group of professionals in the investment management industry. Their commitment and tireless work on behalf of our clients have been a consistent inspiration for me since I first joined PIMCO back in 1999.  I wish them continued great success.”

Some of us stopped believing in fairytales long ago and then there were those that never thought that Goldilocks ate anybody’s porridge. So, there are two types of believers.

"The latest review shows how the seeds of the current divergence were already sown in the early years of the euro, as unbalanced growth in some Member States, based on accumulating debt fuelled by low interest rates and strong capital inflows, was often associated with disappointing productivity developments and competitiveness issues. In the absence of the currency devaluation option, euro area countries attempting to regain cost competitiveness have to rely on internal devaluation (wage and price containment). This policy, however, has its limitations and downsides not least in terms of increased unemployment and social hardship, and its effectiveness depends on many factors such as the openness of the economy, the strength of external demand, and the presence of policies and investments enhancing non-cost competitiveness." - European Commission

"It looks like this year’s economic horse will pull up lame," warns Bloomberg's Richard Yamarone, adding that the Bloomberg Orange Book Sentiment Index – a proxy for the overall state of economic affairs in the U.S. – has been running below 50 for 49 consecutive weeks, which implies a stagnant growth rate in GDP in the 2-to-2.5% range. The driving theme behind this subpar, sluggish recovery, Yamarone points out, is the lack of desirable growth in real disposable personal incomes, which grew at just 0.6% during the 12 months ending in November.

"I am a former employee of Sears Holdings/K-Mart. I live in Streator, Illinois and our store was “liquidated” in early 2013. There are a lot of “ironies” affiliated with our particular store closure that I would like to make you aware of...

As for Eddie Lampert, I hope he enjoys his exclusive island mansion and all of the perks that he’s afforded off the backs of people like me. I just hope I can find another job soon because I’m clearly one of the “little people” in his world that would just like to know my light bill will get paid."

A number of readers have recently suggested there must be collusion between America and China over the transfer of physical gold from Western capital markets. They assume that governments know what they are doing, so there is a bigger game afoot of which we are unaware.

The truth is that China and Western capital markets view gold very differently and with very different philosophies about gold.

"Treasuries have turned medium term bullish," writes Macneil Curry in his latest reports, advising traders to "get ready to buy a dip," in bonds. At a minimum, he notes, BofAML expects yields to test the 2.691% area, but the most likely outcome is for a push to the multi-month range lows between 2.544% and 2.459%. Curry adds that he expected 5s30s to flatten to around 201bps and while they remain equity bulls he warns, "watchout" as seasonals turn much less constructive once February rolls around and the ratio of 3m-to-1m implied volatility is fast approaching the 1.20 level that traditionally coincides with complacency and market corrections.

Nobody Likes a Liar

The world may or may not have closure on the IRS' targeting of Conservative groups (it doesn't), but by the time the media is finished with Chris Christie, he will be too. Case in point: today's report from the Hill that as a result of Bridgegate, the New Jersey Govenor has seen his popularity plummet in a head-to-head match-up against Hillary Clinton, based on a new Quinnipiac poll. "Christie dropped 9 percentage points in the poll, and now trails Clinton 46 percent to 38 percent in a potential general election matchup. That reverses a December poll that showed Christie leading Clinton 42 percent to 41 percent."

All this boils down to one simple question: can the top 10% (roughly 11 million households) support the billions of square feet of retail space that were added in the 2000s? If the answer is no, as it clearly is, then the retail CRE sector is doomed to implode. Let's try a second simple question: what's holding the retail CRE sector up? Answer: leases that will soon expire or be voided by insolvency, bankruptcy, etc. as retailers close stores and shutter their businesses. One last question: who's holding all the immense debt that's piled on top of this soon-to-collapse sector? The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it, and that will topple the lenders who are bankrupted by the implosion of retail-CRE debt. And once that domino falls, it will take what's left of the nation's illusory financial stability down with it.

Fortune Magazine front page today: Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that "what I'm doing right now is a direct threat to fiat merchant banking."

An example of Microsoft legislating profits that is so simple to understand even most Americans should be able to get it.

Having been un-shunned and then re-shunned by the UN and US over the Syria peace conference, an Iranian news agency has confirmed that for the first time in history, Iran's navy has dispatched warships on a mission to the Atlantic Ocean. No specific military mission or targets were announced but previous statements had discussed the move to protect the country's cargo ships and oil tankers against pirate attacks. Iran's Rear Admiral had a message of peace and friendship for the rest of the world and said the nation only sought to display its defensive capabilities (just like China, then?).