Archive - Feb 2011 - Story

The two oil shocks of the 1970s saw gold prices rise by more than 24 fold (2,300%) in just 9 years - from $35/oz to $850/oz see chart above). To put that in perspective, today gold's rise has been far more gradual and it has risen some 5 fold (430%) in 11 years - from $250/oz to $1,330/oz. In this regard it resembles gold’s rise from $35/oz in 1971 to nearly $200/oz in late 1974 – a six fold increase. Given the significant macroeconomic, systemic, monetary and geopolitical risks of today gold is likely to perform again as it did in the 1970s. A 20 fold increase from trough in 1999 to peak sometime in the coming years would see gold rising to over $5000/oz. This may seem outlandish to those unaware of gold's fundamentals but the very small supply of gold internationally, increasing demand (particularly from investors and central banks), the sovereign debt crisis in the EU (soon to spread to the U.S.) and the debasement of the dollar, the euro and other currencies internationally makes this increasingly possible.

• Bernanke Misses Baseball in Battle for Euro Debt With Fed LISCC (Bloomberg)
• Egyptian army rules out force against protesters (FT)
• Federal Judge Rules That Health Law Violates Constitution (NYT)
• EU Said to Near Agreement on Bailout Fund Buying New Bonds (Bloomberg)
• Even a caveman could have fixed the system (NY Post)
• Whitney Municipal-Bond Apocalypse Is Short on Default Specifics (Bloomberg)
• U.S. Ambassador to China Plans Exit (WSJ)
• One in Five Mortgages Default Again After Modification (Bloomberg)
• Australia evacuates coastal cities in path of cyclone (Reuters)
• Bank of America Can Proceed With Nevada Foreclosures, Judge Says (Bloomberg)

Markets mostly positive again this AM following yesterday’s bullish performance. Economic data were supportive of expansion yesterday, though we note that the trend belief seems to be a strong December and a weaker January. Today’s ISM numbers will reinforce or negate that belief. Geopolitical risk has overtaken the Euro periphery story as the belief that the EFSF will be expanded has bolstered the Euro versus the USD – not good for global inflation worries. We believe it is important for investors to remember that USD is not the world’s reserve currency because of the power of the dollar or strength of the US economy. It is the world’s reserve currency because most every commodity in the world is priced in dollars.

The story: "the commencement of real political reforms." The truth: "we don't have enough private jets for every member of the upper class." Prime Minister Samir Rifai has been replaced with Marouf Al-Bakhit, "(born 1947) was the Prime Minister of Jordan from November 27, 2005 until 25 November 2007. and was previously the Jordanian ambassador to Israel and the national security chief." We fail to see the real political reform.

After Van Eck Global briefly suspended the EGPT ETF for trading, the broad synthetic market index resumed trading and closed about 8% higher on the day. That Kool Aided investors saw absolutely no problem with the fact that the ETF would not have access to creation units until the Egyptian market reopened. Which begs the question: after it was earlier announced by Arabiya that the Egypt bourses are likely to continue their closure until the end of the week, just how many more investors will risk with ramping up the ETF ever higher, even as it was trading at a 15% premium to FV yesterday. Lastly, if as some expect the Egyptian stock market does plunge once it finally reopens, those who loaded up on this latest mini bandwagon are about to be reaquainted with gravity. Alas, the Egypt stock market is not part of Bernanke's purview for wealth creation.

When we observed Stevie Cohen's odd and sudden purchase of 5% of OREX stock, announced in the last minutes of trading yesterday, we speculated that either this was another blatant attempt by the man with the golden touch to purchase shares in a company which would come up with the golden grail: a drug for obesity, or "we would not be surprised if this is the first, maybe of many, red herrings thrown by the legendary hedge fund manager to indicate that he does not have a 100% batting average when it comes to predicting FDA outcomes." Well, it was the latter. OREX just got the worst news possible and the stock is about to open 60-80% lower. This will be a ~$20 million loss for the Connecticut man. One wonders, more than ever, what is the quid pro quo?

ISM manufacturing, construction outlays, vehicle sales (snow will be blamed), and the weekly confidence survey…Very small POMO today as the Fed purchases just $1-2 billion in TIPS.

Update: Semi-automatic gunfire now heard in Alexandria.

For Egypt, it is now or never. With millions out on the streets in Cairo and other cities, the Egyptian population will likely not have another chance at such a massive showing of popular expression of anger against President Mubarak. For those who wish to follow today's million man march, can do so at the usual places: the Al Jazeera blog, the video feed below, the Guardian blog, real time mappable tweets, and of course, the video feed below.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.

This video is also available at www.nakedtrader.com