Archive - Jun 2010 - Story

The WGC has released its latest report of official gold holdings. The key buyers and sellers, well, seller, were Russia, +27.6 tonnes, Venezuela, +3.1 tonnes, and Philippines, +10.3 tonnes, while the IMF sold 38.5 tonnes. Yet most interesting was the surge in Saudi Arabia holdings which increased its official holdings from 143 to 323 tonnes. It appears, at least on the surface, that this was not incremental purchasing, or at least that is how the Saudi Arabian Monetary Authority is trying to spin it: “gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA’s gold accounts.” We wonder just how a country can "reclassify" 180 tonnes, or more than double existing holdings, in gold. Of course, if would not be good to see the country which lies on a sea of the world's biggest non-gold, yet $-denominated commodity to be in the market, diversifying its dollar holdings into hold. If SA had in fact purchased the gold, it would be equivalent to roughly $7.5 billion worth of purchases in the open market.

The BLS has released May unemployment data by state: nothing too notable - a slight decline in the overall unemployment rate: "Thirty-seven states and the District of Columbia recorded unemployment rate decreases over the month, 6 states had increases, and 7 states had no change." Nevada hit a new all time high rate of 14%, and surpassed Michigan at 13.6% as worst state in the continental US.Aside from that, the MoM change was not very material for other states. Where there is also no surprise is who the biggest source of state jobs was in May: out of 394 thousand jobs created in May (total at 130,197,600), 86% was courtesy of government hiring. This is not surprising as the bulk of the hiring was due to census, as was already reported. Losses were reported in Construction, Trade, Transportation, Financial Services, and Education and Health Services. Pick ups were seen in manufacturing, professional and leisure and hospitality services.

Risk bid up as investors buy stocks and hedge by bidding up the two biggest safe havens: gold and the Swissie. In other words, total insanity. At this point the check is most certainly to the CHF, which is now seeing an all time record low in the EURCHF. Absent intervention, the next stop is much lower.

One does not even need to look at daily record gold prices to grasp the accelerating dollar credibility loss. A better proxy might well be the plunging assets at money market funds: in the past week these saw a massive outflow of $37.9 billion, which represents a drop of 1.5% in total money market assets. Even scarier is that this is almost half a trillion, or $456 billion in YTD outflows. From the peak, current MM holdings have declined by 28%, or over a $1 trillion. Speaking of losing credibility, the "money on the sidelines" argument is promptly losing it as well. Yet ironically even as half a trillion in cash has been pushed "elsewhere", the dollar, on both a relative basis (FX), and due to ongoing deflation, has continued to gain strength. US consumers have once again listened to the propaganda media and lost: whether it is due to the slow and unchanged grind in all asset classes over the past 6 months, or the sudden, massive losses from the flash crash. Either way, with gold at an all time high, we now know where some or all of the $134 billion differential between MM outflows and all other fund inflows, has gone.

There is something seriously wrong in America. We all sense it, but few in the mainstream media are willing to touch it or can effectively articulate it within the public’s sound-bite oriented attention span. It isn’t just about the remnants of the financial crisis; it isn’t the protracted jobs recession and slow recovery; it isn’t the trillions of dollars in deficit spending; it isn’t the degree of rampant financial malfeasants. It is something deeper which reaches into the soul of who we are as a people and society. It will soon be the central theme to your investment strategy and financial security. On the surface it might appear we have lost our optimism about the future and our confidence that America is still the ‘beacon on the hill’ that countries around the world admire and look to for leadership. Though our children mouth the platitudes taught by older generations, they ring hollow in the hallways with video surveillance, motion sensors and metal detectors when recited by them. The high minded ideals seem misplaced in unemployment lines where they stand with freshly minted advanced degrees in hand, huge education debts and little hope other than the faint possibility of a non-paying internship position. It isn’t that the American people have changed. Our government has changed.

• Must read: Monsters in the market (The Atlantic)
• The "Volcker rule" provision of Wall Street reform legislation being
  finalized by Congress would put a lid on domestic mergers and
  acquisitions by the largest U.S. banks, analysts said on Thursday (Reuters)
• Yet nationalized Virkam as usual did not get the memo: Citigroup looking past Volcker, may seek $3 billion for funds (Bloomberg)
• Swaps plan seen staying in Wall Street reform bill (Reuters)
• Russian president says can not rule out collapse of euro (Bloomberg)
• A Democratic bill
  to extend jobless benefits and raise taxes on investment fund managers
  failed a key vote in the Senate on Thursday, dealing a blow to
  President Barack Obama's push to boost the economy (Reuters)
• Drywall's toxicity was known in 2006 but kept secret (Herald Tribune)

The EURJPY-ES decoupling comes in early today. Then again, it is quad-witching, so all sorts of feces will be flying today. To anyone desperate enough to gamble with the odds stacked against them, our advice is to set up whatever trade makes sense and do the opposite.In the meantime, the decoupling has not failed to close in 9 out of 9 days so far: likely one of the less insane trades for the day.

Gold moved higher overnight, pushing past a close of $1248.70 to $1251.50, in striking distance of gold’s all time high (for the August contract). Investors remain jittery about the impending stress tests and while transparency can reassure the market not knowing the specific parameters of the test may actually be creating more nervousness. These stress tests will need to account for the possibility of sovereign default to be taken seriously and may need to be much more versatile than the ones Treasury Secretary Tim Geithner used 2 years ago. A bank failure would seriously undermine confidence but the perception of an inadequate test could be equally damaging. It’s beginning to look like the precious metals markets are getting the hint. If ETFs are filing new shelf offerings in anticipation of demand, and that announcement in and of itself creates the interest for demand, and gold will have to be bought when those secondary offerings are launched, then gold should go higher. ZeroHedge said it well yesterday, “In fact, if those who claim that ETF are among the primary sources of gold demand currently, such reindexing is now creating a positive feedback loop, whereby daily record gold prices are forcing the ETFs to purchase more and more gold to retain a mandated NAV, which in turn is leading to even higher prices on the margin.” Can Giffen Good qualities be far behind?

A few months ago we drew the ire of RBS for suggesting that Greek savers are pulling their deposits out of Greek banks and expatriating assets, in other, less polite words, consummating a bank run. Today we risk that anger again, by taking the very same logic we used logic to the next degree, namely that there could well be a capital flight out of the entire continent of Europe. Some pundits have already suggested this, by looking at March and April TIC data, which however is sufficiently delayed to be irrelevant as the real European festivities only started in May. A far better proxy is the surge in Swiss FX reserves, which took these from 28% to 43% of GDP in one month! Obviously, this was due to intervention actions meant to moderate the rate of increase in the CHF, due to conversion of Euros into Francs as foreigners were depositing tens of billions into the country's banking system. With the EURCHF now back to 1.3743, or a level below all previous interventions, either the SNB has thrown in the towel or, as we wrote yesterday, another round of EUR buying is due any minute. In either case, the underlying problem continues - the broader public is buying CHF and selling EUR in droves, threatening to push the EURCHF to fresh all time lows, certainly signifying a capital flow out of the so-called European core, and into the little country by the alps with lots of cheese, chocolates and bank vaults. Below are Goldman's relatively more moderately noted, but just as troubling, thoughts on the matter.

• Afghan president Karzai welcomes Japan investment in minerals.
• Asian stocks mixed, but losses limited as worries over Europe's debt crisis ease.
• Asia emerging-market stocks, currencies rise on growth; Gold near record.
• China shares fall as pricing worries for Agricultural Bank IPO linger.
• EU stress tests face questions over toughness of terms, Government backing.
• Japan aims to cut company tax toward 25% in strategy to stoke growth.
• Russia, in need of 'investment boom,' to scrap capital gains tax on foreign investment.
• U.S. consumer prices fell 0.2% last month, despite higher commodity prices.

On June 9, BP COO Doug Suttles, in response to complaints that the media was being prevented from talking to BP workers, issued a letter (link), in which he said "Recent media reports have suggested that individuals involved in the clean up operation have been prohibited from speaking to the media, and this is simply not true." Alas, as the following clip from WDSU, a New Orleans TV station taken several days later demonstrates, the BP public front is just for show, and the media blackout continues. While it is certainly understandable why BP would want to not show off its oil stained laundry, what is more troublesome is that the administration itself may have a finger in this ongoing attempt to prevent the general public from understanding just what is going on. In an AP article from the 16th, we learn that Michael Oreskes, an AP senior managing editor wrote to White House press secretary Robert Gibbs on Wednesday, “demanding that President Barack Obama’s administration improve media access.” "AP first contacted Obama on June 5, outlining its concerns in a letter from President and CEO Tom Curley. Gibbs followed up with a call to AP editors and a written response. If journalists have concerns, Gibbs said, they can call to report their experiences with a joint information center run by the federal government and BP in Houma, La." Further, we learn from the CJR that Oreskes called the number from his office in New York on Tuesday and left a message, but has not received a response. Is the media blackout campaign a collusive one between BP and our government? If so, the people probably have the right to demand why a member of the administration is not receiving the same idiotic treatment before Congress as CEO's BP had to undergo for 8 hours yesterday.

$1258.25. Is the previously mentioned breakout approaching?

You know that at this rate, pretty soon some collateral trigger will be sprung.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 18/06/10

The world's undisputed monetization grossmaster (Electronic Liability Outsourcing rating of around 1.8 trillion), representing Wall Street, the Federal Reserve, may be about to see some stiff championship title competition from the little Central Bank that could - the ECB, in a blitz (and very much blind) game of quantitative easing. In a speech, that not too surprisingly missed all the main wires earlier, Fitch head of sovereign ratings, Brian Coulton, warned a banking conference, in discussing the ECB's monetization activity to-date, that "there has been an unwillingness to follow through, and markets are going to want to see the ECB's money. It will require hundreds of billions in my opinion." Which means that Bob Pisani will report on many "extremely successful" Spanish bond auctions over the next year or so, as the ECB buys up every single primary issuance not just out of Madrid, but every single country in Europe, where the non-subsidized (i.e. private) capital markets are now officially dead. Courtesy of Greece, and the fatal decision to bail it out, the Eurozone will one day be described in textbooks as the greatest ponzi scheme ever created (or, at worst, joint in first place by the Fed).