Archive - Nov 4, 2009 - Story

When two months ago we discussed the IMF's selling of one eighth of its gold reserves of which as most know by know half was recently acquired by India, we came to the conclusion that the IMF's proposed naive and subjective purpose for this disposition which was framed as "safeguarding against disruption in the gold market" would instead end up with "rioting in goldbugland." Based on gold price action over the past 3 days, we have been so far correct. And the concern for the IMF (and all Central Banks as well) is that India's example will be promptly followed by China, Russia and other sovereigns who are seeking to flee from their dollar holdings courtesy of continued madman-like behaviour out of the 3rd sub-basement at the Federal Reserve where all the Heidelberger Druckmaschinen are kept.

The Goldman 10-Q is out, providing numerous interesting datapoints for those willing to scour through them. The key one: Goldman lost money on just one trading day in Q3, making money on all the other 64. As a reminder, even in Q2 Goldman lost money on two trading days. The statistical probability distribution of 1 out of 65 is something that not the SEC, but Richard Feynman should be looking into, as Goldman Sachs, after rewriting the lass of risk/return, is now set to redefine normal distributions and other Statistics 101 concepts.

On October 24, this newsletter mapped out a case for a bearish resolution in the 30 year treasury that could flush the 30 year to the 105-107 handles by year end. I am not saying there will be such a flush into year end. However, it would be a disservice not to point out the possibility and to prepare for such a scenario. And if there is going to be a downside resolution and increase in volatility, the first week of November maybe starting it Here is why.

• ADP says US companies cut estimated 203,000 jobs in October, worse than 198,000 expectation (Bloomberg)
• Chinese CNOOC buys US oil assets for the first time (BBC)
• Profit "not Satanic" Barclays says, after Goldman invokes Jesus (Bloomberg)
• Endless Summers: Cohan on Summers (Vanity Fair)
• Republicans ride economic woes to wins in two states (Bloomberg)
• German unions begin walk-outs Thursday after GM decides to hang on to Opel (BBC)

Gold continues to lead the decoupling between equities/FX and commodities. This price action becomes almost more rational here while opposite to correlations observed since March. If commodities keep pushing higher without the supply/demand or the overall economy justifying it, it should be a negative. Also, since the government deficits are pretty much a worldwide phenomenon at this point, it would make sense to see commoditiy benchmarks appreciate against all currencies as a hedge against the fiat money system. Still bear in mind commodity prices diverging too much from the physical picture, while it can last for quit some time, will necessarily be met with a brutal experience of gravity and reality.

• Asian stocks rise for first day in three on profit optimism; Toyota gains.
• Bank of Ireland wrote off euro1.8 billion ($2.7 billion) in bad loans in its first half.
• Baker Hughes's Sept. net income fell from $429M last year to $55M this year.
• Comcast's Sept. net income rises from $771M last year to $944M this year.
• Devon Energy's Sept. net income declines from $2.6B last year to $499M this year.
• Crown Castle Intl reported a slightly narrower Q3 loss, but the loss was greater than expected.