Archive - Aug 2015

"This feels like 2008 all over again," as NPR reports the latest Iowa Poll showed Sanders just 7 points behind Hillary Clinton, who leads 37 to 30 percent among likely Democratic caucus-goers. Why 2008? As NPR notes, that's when a heavily favored Clinton stumbled and lost to Barack Obama, then a young senator whose middle name, Hussein, was the same as a dictator the U.S. had just overthrown and whose last name rhymed with America's Public Enemy No. 1. And while the socialist septuagenarian continues to surge, Hillary faces yet another 'issue', as Yahoo Tech reports, 1 million (or one third) of her 'apparent' Twitter followers are fake.

What better way to mute demands for a return to sound money and the gold standard, than by making them equivalent to jihadist terrorism? Why, there are none, which may explain the hilarious appearance of the "Islamic State's" latest 55-minutes pro gold standard YouTube clip, which is nothing but a crash course in Austrian economics.

During the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed's bailout of the western financial system. If past is prologue, one should ask: what current or future event is driving the ongoing redemption of 246 tons of gold (and rising) from the NY Fed this time?

According to Einstein reality must comprise the physics of energy and matter. Match the physics of enterprise with the physics of gold and you cannot but get prosperity. It can be no other way! This is not philosophy. This is Physics!”

The week that passed has left many of the so-called “smart crowd” flummoxed, disheveled, dismayed, and disrobed from their expensive facades of “expert insightful analysis.” It seems all that “expert” as well as “insight” wasn’t all it was made out to be. In less than a week: historic records weren’t only broken – they were smashed to smithereens. And the one’s that were the most historic? They weren’t set for positive things.

"The first three months of 2015 only saw a marginal increase in SWF assets in the headwind of falling oil prices. TheCityUK expects that SWFs’ assets will increase by 4% in 2015 to $7.4 trillion, well below the 12% average annual growth seen over the previous five years. Flows into some funds could turn negative. Growth in SWFs’ assets is closely related to the price of oil, as around 60% of SWFs’ assets originate from commodity exports."

A Message From Tim Cook...

“I did not have financial relations with that dictator.”

We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work.  They haven’t. 

The stability of global capital markets, the ECB meeting and US employment data are highlights.   Risk seems to be greater than discounted that Sept rate hike is still a distinct possibility.

VAR (invented at J.P. Morgan well before both the global financial crisis and their entertaining London Whale drubbing) is an expression of the largest possible loss, contained within a specified confidence interval.  We can for example explore the history of worst weekly losses in the S&P, for each month starting more than 5 years ago in January 2010 (and through May 2015).  A total of 65 months.  We can set a probability tolerance of just over 6%, and state that the probability of seeing a loss greater than this VAR should be less than or equal to ~6% (or 1 in 16 months). 

Look out below... literally!

Luckily we didn't hear anything more about Vomiting Camel formations but there was certainly an ample amount of "it's priced in" blaring in the background.

Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn't want to throw free money at), we found it fascinating that no lessor purveyor of the status quo's view of the world - Citigroup's chief economist Willem Buiter - that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright "helicopter" money from the central banks will avert the deepening crisis. Faced with China's 'Quantitative Tightening', the economist who proclaimed "gold is a 6000-year old bubble" and cash should be banned, concludes ominously, "everybody will be adversely affected."