Archive - Sep 27, 2011 - Story

It appears rumors (there's that word again) of precious metals' demise have been greatly exaggerated yet again. After hitting a low of $26/ounce just shortly after 24 hours ago, the metal has since soared by a whopping 26% to $32.90 (thank you CME and Shanghai Gold Exchange). That's $6.90 in one day. The same with gold. It seems that the market has finally had its brain kicked in a little following the realization that an expansion in the EFSF from E440 billion to E3 trillion (which has about 0.01% probability of happening, and would likely see the mobilization of a certain army first) would mean an exponential decline in the credibility of that "other" currency, which while potentially retaining its value against the "first" currency, will have been devalued that much more against the real, undilutable currency. We expect the market to comprehend that Goldman, for once, was spot on in its evaluation that anyone who bought yesterday at the lows, will have already made their full year unlevered return in one short day.

While Europe continues to bask in the very transitory glow of a rumor driven respite from the now daily collapse, the funding costs rise. And the market is not happy, as confirmed by the just complete Spanish auction of E3.2 billion (E3.5 billion had been targetted) in 77 and 175 Day bills, which were, for all intents and purposes, failures.  Summarizing, E1.6b of 77-day bills were sold at an average yield of 1.692% compared to 1.357% on Aug. 23. The Bid-to-cover plunged to a paltry 2.47 compared to a solidly overbooked 7.62 at the last sale. The last six auction average was 1.41% for the interest and 6.46 for bid-to-cover.  Spain also sold E1.6 billion 175-day bills at an average yield of 2.665%, half a percent higher compared to the August 23 auction where the country could still raise debt at a cheap 2.187%.  Bid-to-cover 3.95 vs 3.60 at last sale. And since this paper has to roll constantly (or between 2 and 6 months), any transitory interest benefits have now been lost and the vicious circle of deteriorating funding will continue to impact short-term debt raises by Spain, which in turn will force primary interest rates to raise again and so ad inf.

While overnight markets are rocking based on continued speculation coming from some completely uncorroborated and unconfirmed source that Europe has just boldly gone where even Goldman's Abacus has not dared to go before courtesy of the ECB's acceptance of a CDO squared "Enron Special" SPV, Germany has once again made it very clear that not only will there not be any expansion in the EFSF in regular terms, but certainly not in structural ones. As Goldman's Dirk Schumacher makes it very clear, any attempts at imposing on Germany a fait accompli reality that has no bearing in actual reality (especially one that excludes the only relevant decision-maker in Europe) will be met with increasing protests from the entire German ruling class. According to Die Welt, the Free Democratic Party is threatening to vote against overhaul of EFSF if discussions about leveraging fund don’t stop. Goldman elaborates: "FDP and CSU not fond of further increase of EFSF. Leading figures from the FDP and the CSU, the Bavarian branch of the CDU, rejected any thoughts of a further increase of the EFSF (either directly or indirectly through leverage). FDP general secretary Lindner said that "the chancellor should make clear immediately that there is no change to the business model of the EFSF." So, yes, consider that an official denial of the Liesman rumor which as typical, has no confirmation anywhere else.

While Ben Bernanke may say his mentor has always been Stanley Fischer, here at IceCap we are able to see through this charade. Mr. Bernanke’s inspiration has always and will always be the 1978 cinema classic – Grease. Whether his inspiration is Olivia Newton-John- Travolta or in fact Mr. Fischer, we know that Helicopter Ben is belting out Grease show tunes while in his office, car or bath tub (if Warren can do it, why not Ben?). And although the Chairman of the US Federal Reserve will always claim he is hopelessly devoted to doing what is best, he is actually doing the only thing he knows how to do – print money. Exactly where he got this drive to be a money printer is undeniable – we’ll blame it squarely on the shoulders of the father of modern economics, John Maynard Keynes. Blasphemous you say? Well, step aside sonny, here’s the real story behind the money printing machines from the USA, Japan, Britain and Europe, and why they will continue with this unsuccessful strategy.