Archive - Nov 2012 - Story

Yesterday, in what is an appetizer to the great 2013 convergence trade (that, between the now thoroughly dead Greek and the Spanish economy, which is rapidly getting there, of course), several thousand Spanish policemen took the streets of Madrid protesting the latest round of austerity, which included frozen pensions and the elimination of the Christmas bonus (they will have many more opportunities to protest not only the loss of any future upside, but the eventual cut of existing wages and entitlements). As RT reports, protesters blew whistles, shouted slogans, and carried anti-austerity banners as they marched through the city centre to the interior ministry. But perhaps the most telling message read on one of the slogans, was the following: "Citizens! Forgive us for not arresting those truly responsible for this crisis: bankers and politicians."

New intelligence indicates forces in Gaza may be manufacturing long-range rockets locally. If this is the case, a significant ground force offers the Israelis the best chance of finding and neutralizing the factories making these weapons. Meanwhile, Israel continues its airstrikes on Gaza, and Gaza continues its long-range rocket attacks on major Israeli population centers, though Israel claims its Iron Dome defense system has intercepted most of the rockets. While Hamas is preparing for an Israeli ground assault into Gaza, Hezbollah's movements on Israel's northern frontier bear close watching. Iranian Defense Minister Ahmad Vahidi on Nov. 17 called on the Muslim world to retaliate against Israeli actions in Gaza. Naturally, many are looking in the direction of Lebanon, where Hezbollah, Iran's most capable militant proxy, could open a second front against Israel.

Back in the 1960s, a clever but financially disadvantaged fellow placed a small ad in a national magazine that read something like: Money needed. Please send $1 to the address below. Do it today! No specific need was given, and nothing was promised in return, so that fraud could not later be charged. Yet within a few months, thousands of dollars arrived in his mailbox, a considerable sum in those days. Or so the urban legend goes. A half-century later, many things have changed, but one thing remains unchanged: People still need money, and they have not ceased to innovate ways in which to get it. Clearly there are a lot of new and imaginative ways of moving money around that vie for our attention. Many of them would be considered crowdfunding. Crowdfunding, if thought of merely as the pooling of resources for a common cause, is as old as human groupings. But that isn't the way it's thought of nowadays. The current king of the hill, Kickstarter, launched in April of 2009, has been a great success. So, is crowdfunding the future capital source for every new venture under the sun? Well, probably not... although we can't say for sure, because it does sometimes seem that way as new and imaginative ways of moving money around vie for our attention.

"This is a time of tremendous flux in the international order" is how Harvard's Niall Ferguson describes the world in which we live as he opines expertly on the change in China, Europe's pending 'lost decade', and the Middle East's post-Arab Spring disestablishment of the 1970s 'order' with GoldMoney's Alasdair Macleod. From China's need to begin privatizing SOEs and globalizing the RMB (with an interesting focus on the introduction of reliable property rights to 'enable' the middle class) to concerns about its large dollar holdings (and the top-down and bottom-up diversification into gold that continues); Ferguson notes that the ongoing attempt to diversify its wealth and revenues (stock and flow) is relatively limited by the ability to secure hard assets but adds that as the world's 'trade' center of gravity shifts east at a very fast pace so gold will flow from "the West to the rest" as Western power declines and the Asia bloc rises. A fascinating macro-economic and geo-political discussion that concludes with a shift through Russia's energy quagmire, Japan's debt problems, and the faulty design of the European Union.

The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.

Irony of ironies. While the world awaits the Spanish request for 'help' from its friends in Europe (which the market 'hopes' will escalate to EUR740bn very rapidly), it seems the King of Spain and his trusty Prime Minister have another cunning 'inverse-conquistador' plan. AP reports that "Spain receives Latin American investment with open arms," as Rajoy asks the former LatAm colonies to help. Falling back on the assured quid pro quo, Rajoy said Spain had invested heavily in Latin America during its crisis 10 years ago... so fair's fair right? Now that the roles were reversed, he called upon those nations to increase their participation in his struggling empire's economy. The perfect irony is complete as the Iberoamerican Summit at which he was begging speaking was held in Cadiz - the country's main gateway for importing Aztec and Inca treasure!

There are many questions on the minds of weary precious metals investors after enduring the volatile yet range-bound price action of gold and silver over the past year:

• Have the fundamentals for owning gold & silver changed over the past year? No
• What are they? currency devaluation/crisis, supply-chain risk, ore grade depletion
• How should retail investors own gold? Mostly physical metal, some quality mining majors (avoid the indices), and ETFs only for trading
• Is gold in a bubble? No
• Could gold get re-monetized? Quite possibly
• Where is gold flowing? From the West to the East. At some point, capital controls will be put in place

Jeff Clark and Chris Martenson believe everyone should have exposure to gold and silver as a defense for preserving the purchasing power of their weath. The key question is: how much exposure?

"Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation."

One of the more persistent, and pernicious, misconceptions about the unshakable - at least to date - tower that is Japanese debt, all Y1 quadrillion of it, is that there is no need to worry (literally, see prior) because the bulk of it is held by retail, i.e., domestic household, investors and as long as that is the case, nothing can possibly go wrong: after all the Japanese population holds its own debt, and as such is a beneficial creditor to the world's largest sovereign debtor. Alas, as so often happens with conventional wisdom, it just happens to be completely wrong. And while one may be entitled to their own opinions, the facts in this case belong squarely to the Japanese Ministry of Finance. The Japan MOF chart below summarizes the true state of retail appetite for Japanese bonds. In the wise words of Dennis Gartman, the chart is unmistakably headed from the top left to the bottom right, in perfectly obvious terms.

Yesterday's TIC data held two important pieces of data. The first is that in September, the month that Bernanke launched QEternity, for the first time in 2012, foreigners were net sellers of US Treasurys, dumping a total of $17.3 billion in paper, with foreign official institutions selling $919 million and non-official "Other Foreigners" offloading a whopping $18.3 billion: a record amount for this data series! The combined outflow was a dramatic reversal from the August $42.9 billion in purchases, from the $341.8 billion in foreign purchases Year To Date, was the first outflow of 2012, the first since the $13.1 billion sold in December 2011, and finally was the biggest sale in US paper since May 2009, or the month Greece had its first (of many) bailouts... The second, and even more troubling observation, is that in September China "added" another token $300 million in US paper, keeping its total holdings at $1155.5 billion, or a number that has remained unchanged since December 2011, when the Chinese selloff of US Treasurys concluded, which in turn took down its total from a high of $1315 billion in July 2011. So who has taken China's place as America's best oriental friend? Why that supreme basket case of all debt monetization, both foreign and domestic, Japan, which added another $8 billion in US Treasurys in September, bringing its total to $1131 billion, and just $25 billion shy of overtaking China as the biggest holder of US paper.

Q. If Japan has a financial collapse, what will happen to its government bonds?

A. Please do not worry.

In what is becoming an increasingly more confusing conflict - is it truly an ideological war, or merely an extended attempt to generate empathy via social networking, together with a full-blown conflict on twitter - Israel continued its pinpoint strikes in Gaza overnight, taking out the house of a high-ranking Hamas operative, together with the release of commemorative video showing the explosion moments after the event. The clip is below. What is more curious is that the global hacker group Anonymous has already picked its side, and yesterday launched a massive attack named #OpIsrael, which has so far hacked 700 Israeli websites. From RT: "The hackers reportedly took down websites ranging from high-profile governmental structures such as the Foreign Ministry to local tourism companies’ pages. The biggest attack as of now has been the Israeli Foreign Ministry’s international development program, titled Mashav. Anonymous announced on Twitter they’ve hacked into the program’s database, with the website remaining inaccessible at the moment." And most notably, Anonymous also took down the primary nexus used by Israel's to boast about its military exploits: the blog of the Israel Defense Forces, which has been down for half a day now.

We already know that Ben Bernanke is a gold bug's best friend (here, here and here). And while technically Ben Bernanke is a republican, and was appointed to his post by a republican president, it is safe to say that when it comes to printing money political affiliation is irrelevant, especially since it was paradoxically a democrat Obama who was Bernanke's biggest backer during the last year for very obvious reasons - after all it was merely Bernanke's $2 trillion in excess reserves that pushed the stock market higher and gave the false impression that the economy is improving (even if a potential Romney administration would have hardly budged the status quo and likely replaced Bernanke with an even more pro-printing figurehead in the face of Bill Dudley). So a different question is: should gold bugs be more excited by a democrat or a republican president. The answer is self-evident: of the $4000 inflation-adjusted increase in gold price since gold was floated by Nixon, a solid $3000, or 75% of this rise, has taken place under Democratic administrations. So dear gold bugs: stock pile that physical and cheer on Obama and hopefully his democratic successors. At this rate, gold (and ostensibly all other precious metals) will outperform every single asset class known to man (sorry Buffett).

A ground invasion, and a reoccupation of Gaza by the IDF could be the first step toward engaging Iran. It would allow for Israel to dislodge Hamas, and create a buffer between Israel and Egypt, and the forces of the Muslim Brotherhood. The Morsi government in Egypt has pledged to support the Palestinians — but is this a bluff? Does Egypt have the capability or the desire to really oppose Israel? Does Iran really have the capability or the desire to oppose Israel in a more active way? Ultimately, Iran may have no choice, as Netanyahu is certain that they are on the nuclear threshold. The world is in motion. Israel is playing its cards. The intent? To create facts on the ground that cement Israel’s position as the dominant power in the middle east for the next century. Now, Iran’s move.

UPDATE: Greek Foreign Minister says "Greece was and remains a safe place... Isolated incidents of racist violence have been foreign to the Greeks, to our culture and its long tradition of Greek hospitality [and takes] a policy of zero tolerance to these events and take all necessary measures to prevent and suppress such behavior"

With over 10% of the Greek population polling in favor of the neo-nazi Golden Dawn party, it is hardly surprising but today's acknowledgement by the US Embassy in Athens of

"a rise in unprovoked harassment and violent attacks against persons who, because of their complexion, are perceived to be foreign migrants. U.S. citizens most at risk are those of African, Asian, Hispanic, or Middle Eastern descent in Athens and other major cities"

certainly makes it a little more real for us sitting across the pond from this inferno.