Archive - Feb 2015

Happy Chinese New Year!

From “24” to “Breaking Bad” to “The Walking Dead,” American minds are being saturated with propaganda selling the idea that crisis situations require a survivor to abandon conscience. What we see developing is an extremely dangerous philosophy that rests on the foundation that victory (or survival) is the paramount virtue and that it should be attained at any cost. Moral compass becomes a “luxury” that “true” apex survivors cannot afford, an obstacle that could eventually get one killed, believing that the “survival of the fittest” is more important than the survival of the principled. However, if we cast aside our principles in the name of victory, then, ironically, we have still lost everything. If there is such a thing as the “greater good,” truth and honor must be the apex of that vision.

With the world's oldest central bank - Sweden's Riksbank - taking the plunge into negative rates, there have been 19 'eases' by central banks this year, Morgan Stanley warns of "ghosts of the 1930s." With competitive 'easing' stoking fears of international currency wars, The Telegraph notes however that looser monetary policy is not the order of the day everywhere in the world, and herein lies potential danger for the world economy.

It will get much worse.

“In the coming year, I hope that all people in Hong Kong will take inspiration from the sheep’s character and pull together in an accommodating manner to work for Hong Kong’s future... Sheep are widely seen to be mild and gentle animals living peacefully in groups."

With historically low long-term interest rates, the opportunity cost of holding gold and silver are close to zero or even negative, in other words you would “lose” money if you buy bonds (the benchmark) instead of gold and silver. When people realize that their money is not “safe” with the banks they will start withdrawing cash from their accounts and buy physical gold and silver instead. Depending on circumstances this could possibly bring down the (fractional) banking system. Why keep money in an account that gives you a negative return? Swiss banks are already witnessing stronger than normal interest for physical gold.

Even with extended draconian measures created by India to prevent capital account outflows as a result of uncontrolled gold imports (which still take place only "under the table"), a whopping 1000 tons of gold ended up in the form of gold trinkets in 2014 mostly in India, and to a lesser extend in China. All of that is about to change: earlier today India's Economic Times reported that the RBI, surely facilitated by the drop in oil prices - a key import for India - has finally lifted its ban on imports of gold coins and medallions by banks and trading houses.  The RBI in a notification also said banks are permitted to import gold on consignment basis, anbd perhaps most impoytantly, "Banks are free to grant gold metal loans." This is key because as we wrote in January 2013 before the ban on gold imports took palce, the amount of gold loans being created in India was simply exponential.

Back in December, Socgen spread a rumor that Russia has begun selling its gold. Subsequent IMF data showed that not only was this not correct, Russia in fact added to its gold holdings. But there was one thing it was selling: some $22 billion in US Treasurys, a record 20% of its total holdings, bringing its US paper inventory to just $86 billion in December - the lowest since June 2008.

The flow-chart every Fed member carries with them at all times to ensure they know exactly how to react to the ever-changing macro-economic and geopolitical backdrop in global markets to ensure maximum employment and stable prices...

Scientists Suggested Melting the Arctic Ice Cap to Stop an Ice Age

"Suffice it to say that current equity markets are no place for long-term investors, and that even a resumption of risk-seeking investor preferences would demand a considerable safety net. For now, we believe the best interpretation of recent market action is as a hopeful, low-volume short-squeeze to marginal new highs, despite early deterioration in market internals following a period of extreme overvalued, overbought, overbullish conditions. This pattern is much like we observed in September 2000 and October 2007."

With seasonal adjustments wreaking havoc on the data, Japanese imports (collapsed 9% YoY) and exports (soared 17% YoY), leaving Japan with a trillion-yen deficit. This is the 31st month in a row... the longest stretch since 1954...

"2015 could the year when worldwide investors, traders and normal people lose a total faith in central bankers," Marc Faber tells Boom-Bust's Erin Ade, forcing investors to "re-evaluate their views on gold." Faber begins this brief interview with an excellent summary of the great rotation of money-printing around the world and how USD strength will excuse-wise lead, inevitably, to The Fed re-opening the spigot (something that today's FOMC Minutes show they are dovishly inching towards).

I assume that the overall costs (and risks) of Greece saying "Goodbye To All That" are considered too high by both the Eurogroup and the new Greek government. (In practice: a 5- day bank holiday, issuance of Drachmas, the conversion of euro assets into Drachmas and the announcement that 90% of outstanding debt will no longer be honoured.)  Eventually, there will be a compromise aimed primarily at gaining time. The Eurogroup will continue to allow the minimum financing of the Greek state ("extension") and say that they will need time to think how a "debt restructuring" could like like. Mr Tsipras and Mr Varoufakis will be content having secured "bridge funds" for another 6-9 months while still in possession of the trump card "Grexit".

For the 56th day of the last 58, The Baltic Dry Index dropped. At 509, this is now down over 65% from the dead cat bounce highs in November 2014 and - yet again - a new all-time record low for the cost of shipping freight. It is no surprise then that, as Lloydlist reports, bulker newbuilding orders slumped in January. When the Baltic Dry tumbled in 2012, the glut of ships then caused a 49% plunge in orders for shipbuilding - as JPMorgan said at the time, "you just have too many yards and too few orders," and given the artificial signals provided by credit-inflated commodities since, we can only imagine the overhang now.