Archive - May 16, 2011 - Story

Many have been wondering why Bill Gross, with his atavistic aversion to holding US paper, has not yet branched out into precious metals which are the natural hedge to surging rates (not to mention sovereign default). Probably the primary reason for this is that the firm's flagship credit funds do not have the mandate, nor permission, to invest in such asset classes. As such, the firm's $200+ billion TRF flagship fund, at least, is limited to fixed income securities. However, the same limitation does not apply to the firm's other funds, especially the recently launched $1.2 billion equity fund, the Pimco EqS Pathfinder. The fund was launched in 2009 under the stewardship of Anne Gudefin and Charles Lahr, who jointly ran the $16 billion Mutual Global Discover mutual fund. So in an interview recently granted to Fortune by Gudefin, we were not very surprised to hear her response on what her largest investment position is in: "The largest position in the fund is gold, which we think is a very good form of protection against what can go wrong. We were encouraged by the fact that a lot of the central banks, especially in Asia, are big buyers. We think that's an underlying trend that's very favorable for gold." So to all those asking why Gross does not invest in the yellow metal, here is your answer.Should the EqS Pathfinder fund grow in AUM, one can assume that an increasingly bigger pro rata portion will be allocated to precious metals.

The Shanghai gold exchange demonstrates that unlike in the US, where margin hikes only go one way, following a surge in volatility which results in margins getting hiked, once said volatility declines, margins usually are cut. According to a press release from the exchange issued overnight, the Shanghai Gold Exchange said it will lower margin requirements for silver to 15% from 18% after the close of business Monday if there are no sharp price movements during the day. It will reduce upper and lower limits to 10% from 13%, effective Tuesday, if Monday's intraday trading doesn't hit either limit, the exchange said in a statement on its website. This is the second margin drop at the exchange following a comparable one last week when margins peaks at 19% only to see a 1% decline. For those not versed in math, this is a whopping 20% drop in silver margins over the span of two days. In the meantime, the crickets from the CME continue, and in fact we are hearing rumors of more margin hikes from the Chicago boys.

The Financial Times reported on Saturday that “the sharp drop in gold and silver prices has stimulated a surge in buying from India in a sign that consumers in the world’s largest gold-buying country retain faith in the decade-long bull story for precious metals.” Chhabil Jain, a Mumbai silver trader told the Financial Times that “demand for silver bars was going through the roof” and that “many vendors were starting to run low on stocks”. “People are booking incredible amounts of silver as they see the current drop in prices as a great opportunity to buy more ... most are buying for pure investment,” he added. Bloomberg reports this morning that silver was the most traded commodity in April.

Lots of data with Empire Index, Capital Flows and the Housing market index on deck, but the biggest news everyone will be waiting for is the predicted debt ceiling breach, which should be formalized at 4:00 pm today.

As expected, the world's most grotesquely disguised LBO in the form of the debt-financed acquisition of the NYSE by Nasdaq and ICE, has been pulled, formally on grounds of regulatory approval concerns, realistically but due to "market conditions" manifesting in the form of a market downtick. This could very well be the market top.

Yesterday we brought up the likelihood that more women would step up against DSK now that his supposed reign of terror is over, with revelations that journalist Tristan Banon, goddaughter to his second wife, may have been raped by the IMF head some time ago, a topic now picked up by the Guardian. Well according to BFMTV, as of this morning she has officially deposed a complaint in the police office of Neuilly-sur-Seine (92), France for rape and sequestration. As a result DSK is now technically under two rape investigations: one in the US and one in France. And this is just the beginning.

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