Archive - 2010 - Story

As an element of nature, gold is what it is, no matter what form. The same cannot be said of the golden rule, however, for no matter how natural the social process out of which it evolved, the golden rule is a human construct and therefore its application can be decidedly different that of its elemental namesake. After all, it is one thing to say, “What you do not want done to yourself, do not do to others” and quite another to say, “What you want done to yourself, do to others.” For although both are reciprocal, the first rule merely requires restraint, while the second requires intervention. That is, the first says that if John doesn’t want Joe to hit him, then John must refrain from hitting Joe, while the second says that if John wants Joe to feed him, then John must feed Joe.

Simon Black, aka Sovereign Man, who recently has been a frequent guest on the pages of Zero Hedge, was interviewed by The Daily Crux, and explains why in a world of relentless printing of credit money, and thus a surge in global sovereign debt, sovereign risk is rapidly becoming the first and foremost risk factor for investors. Courtesy of his extended travel experience, Black, who visits 50 countries each year and actually performs due diligence, summarizes his thoughts on all those pundits who base their macro views on a tourism brochure: "I spend my life trying to put my boots on the ground in as many places as possible to really see with my own eyes what's going on in the world and what the opportunities are, rather than take some idiot's recommendation on Fox Business News who doesn't know his ass from his elbow." In addition to getting some more background on Black, who is oddly low-profile in a world filled with media whores, here is one chance to evaluate key risks vicariously courtesy of a man who actually has "been there, done that."

One of the Christmas day stories getting little attention was the explosion of the rocket carrying what would have been the largest Indian telecommunications satellite. As BBC explains: "An Indian space rocket carrying the country's largest communications satellite has exploded shortly after launch. Live television coverage showed the rocket vanishing in a plume of smoke moments after lift-off from Sriharikota near the city of Chennai (Madras). The Indian Space Reserach Organisation said it believed the explosion was caused by an electronic failure." The satellite that would have been launched is the GSAT-5P: "GSAT-5P was a 2,310-kilogram (5,100 lb) spacecraft, which was built by the Indian Space Research Organisation based around the I-2K satellite bus. It was equipped with 36 transponders operating in the G/H band of the NATO-defined spectrum, or the C band of the older IEEE spectrum. Twelve of the transponders operated on extended frequencies within the band. GSAT-5P was expected to operate for at least 12 years, and would have been placed at a longitude of 55 degrees east." A video of the explosion is attached below. There is no evidence of foul play or less than gross incompetence at this point. It is also unclear if AIG was the company insuring the satellite and/or rocket. Lastly, to the best of our knowledge, this is one satellite incident that has not cost Phil Falcone hundreds of millions.

Even as European retailers are bemoaning their fate, having their entire holiday shopping season destroyed due to inclement weather, shoppers across the US Eastern seaboard, which has so far experienced a mild winter, are about to see just how easy it is to proceed with inventory liquidations when nobody can get to your store. We can only hope that the bulk of sales have already taken place, although more than likely many consumers have left off they real bargain purchases until after Christmas when retailers bring out the hard-core, 80%+ off deals. Will snow be sufficient to keep the marauding masses away from that $199 46 inch LCD? Watch in real time below, as a webcam tracks the hexagonal water crystal accumulation in Midtown NY.

No summary of 2010, visual or otherwise, would be complete without an extensive overview of what pundits call Monetary Stimulus, quantitative easing or Large Scale Asset Purchases, and the peasantry calls, just as correctly (with a few footnotes), the printing of money. If there are two words that define what we had an absence and an abundance of in the past year, those would be jobs, and money. As some of the key jobs-related charts were presented yesterday, below, once again courtesy of BusinessWeek, are the main charts that among other things demonstrate the various currency manipulation playbooks, the price of gas in bacon and other products, the annotated strength of the dollar through time, and what is actually printed when the Fed does print money.

After a year of endless propaganda surrounding the imaginary jobs boom, which as we have been pointing out for months, is nothing more than the permanent transfer of full time jobs to part time, perhaps the one chart that captures the full effect of said "recovery" is the comparison of number of employees added by China's sweatshop behemoth FoxConn, which at 300,000 in 2010 was just under one third of all non-farm payrolls added by the entire United States in the same year! In other words, this year one company added nearly one third the total number of jobs as the entire world's greatest economy.

BusinessWeek has finally outdone itself: the recent Bloomberg acquisition has come up with what can be described as the definitive visual summary of the key themes and trends of the past year. What we certainly can appreciate is the magazine's attempt to be as focused, concise and cohesive as possible, which is why the punchline is as follows: "Normal, Jobs, Stuck, Currency, Spills and Gaga say all that needs to be said about 2010." From an economic perspective it is the jobs and the currency that are the all important variables. And unfortunately, both are moving in the wrong direction. But before we get into the meat of this series, with part one (jobs) and part two (currencies) here are two appetizer charts of what the biggest movers and shakers in 2010 were, together with a focal node chart that demonstrates the key strange attractors of the past year.

Down on the Exchange the tape inches along

Brokers bargained and traded as they hummed an old song

The Fed struggled and struggled to make payrolls renew

They went back to their playbook and began QE2

The new airport pat downs put some folks in a funk

Prompting one fellow’s warning don’t dare “touch my junk”

A lady named Kagan has joined the Supremes

And Rahm left the White House with mayoral dreams

Following Friday's failed 3 Month Bill auction, things in China are once again getting interesting, just as the rest of the world has decided to sleep right into 2011. The PBoC, in a surprise move, hiked its lending and deposits rates by 0.25%, the second time the bank has done so since October 19, when its then-raise was the first in 3 years. And by all accounts the PBoC is not done: consensus is for three 25 bps moves by the end of 2011: that the PBoC is starting early may be an indication that the country is starting to seriously worry about its soft landing prospects. Yet one thing that is certain is this move cements the CNYUSD peg: despite all the rhetoric, China will keep the currency peg come hell or high water, as it eliminates any monetary trump card Bernanke may have (just as Germany loves being part of the EUR which has such insolvent countries as all PIIGS members backing up the rear). What is unclear is whether the PBoC has now decided to avoid the RRR hike path as the preferred approach to combating inflation. It is assumed that his action will have a soothing impact on the Chinese 7 and 30 Day Repo rates come Monday, as else more failed bond auctions are certain to be in store for Shanghai in 2011.

So often with managing wealth, it is too easy to focus on the really important issues that are making central bankers behave like drunken poker players. While we have (in our opinion) covered the big issues very well during 2010, we would be ashamed if we didn’t finish the year by expressing our unbridled love for the Good in the World – gold, commodities, and the commodity driven theme. In our opinion, the humongous demographic & sociographic wave slowly and surely pushing China and India into the 21st century is creating an enormous end market for commodities. Which commodities? Take your pick – oil, wheat, corn, copper, rare earths, we could go on and on. The fact is, there are millions of people on the verge of permanently entering the middle class - the very economic stage in life that many of us take for granted in the developed World. These new entrants will undoubtedly adopt better diets (read: agriculture), require transportation to work (read: energy) and demand a roof over their head (read: anything housing related). The simple question to ask is “who sells commodity related stuff?”

Posting on Zero Hedge over the next 24 hours will be sporadic and infrastructure contingent. Please use this forum for any urgent news, notifications, or pent up venting. Regular posting will resume shortly. Happy holidays to all.

Update [sacrilege]: I'd like to take a moment to thank the staff -- particularly boney -- at portlane. Their continued support has been phenomenal. Also: Merry Christmas.

Sovereign Man, Simon Black, writes in from Santiago Chile, shares his latest observations on gold and provides his two most recent recommendations for those who have decided to expatriate and are now just contemplating which country to call home. In summary: "I would recommend the country for pioneer expats who don't mind putting up with squalor and the lack of amenities... but Cuba makes up for it in other ways, like warm weather, gorgeous women, great salsa culture, and zero crime against foreigners." It will be the most supremely ironic end of the US empire if those disgruntled with the regime end up defecting to the one country which currently best exemplifies Regan's "evil empire. "

Calling for a "bank run" in public will possibly become a criminal offense. Ministers Opstelten of Security and De Jager of Finance are preparing a proposal for a new law. They want to be able to penalize people who are openly calling for a "bank run" a maximum of 4 years or a fine of 19.000 euro. According to the ministers a bank run can seriously endanger a bank.

Three weeks ago when we noted the 30th consecutive outflow from US-based equity mutual funds (now at 33 straight weeks), we said: "America's love affair with stocks is over, has bypassed the marriage stage and gone straight to the bitter divorce." Today, we are happy to see that the the NYT's Floyd Norris for repackaging our metaphor in a slightly more palatable fashion: "The love affair of American investors with the stock market appears to have ended." His piece in today's NYT "For U.S. investors, the glow is off domestic stocks" will not be news to anyone who follows our weekly report on ICI data: "The year now ending will be the fourth consecutive year in which mutual funds that invest primarily in American stocks experienced net outflows of funds, meaning that investors as a group withdrew more money than they put in." And yet stocks continue to ramp higher, in big part due to the rapid increase in NYSE margin interest which means the bulk of investors are buying stock increasingly on leverage, but still the question to just who continues to do the actual holding remains unanswered. Indeed, only a few people, Charles Biderman among them, have answered with the response that everyone knows is true, yet most are afraid to utter.

Promptly after those two cuddly bears explained how the JP Morgue is manipulating the silver market, and the xtranormal video went viral, forcing the FT to release an indemnification that "according to sources" JPM had covered a major portion of its silver short (only to subsequently end up with 90% control of other metals markets), here they are back, explaining in Part 2 of the series just what the next steps in the unwind of the biggest metal manipulation scheme will look like. The kicker: a JPM insider has told one of the bears that there is no commercial silver left, "it's all smoke and mirrors, and the CFTC can do nothing about it other than pray." Other topical items explained: silver backwardation, that there are two commissioners at the CFTC on the JP Morgue's payroll, the BIS' fractional gold system and the usage of side pockets for sovereign gold, and pretty much everything that ties the loose odds and ends in the PM manipulation story.