Archive - Mar 2, 2013 - Story

When two weeks ago we exposed the heretofore secret location of JPM's London gold vault (located under the firm's massive L-shaped office complex at 60 Victoria Embankment) we thought: what about New York? After all, while London is the legacy financial capital of the "old world", it is in New York that the biggest private wealth of the past century is concentrated, and it is also in New York where the bulk of the hard assets backing the public money of the world's sovereigns are located, some 80 feet below ground level in the fifth sub-basement of the New York Fed, resting on the bedrock of Manhattan. That the topic of the gold "held'' by the New York Fed - historically considered the gold vault with the largest concentration of gold bars in the world - has become rather sensitive, in the aftermath of the Bundesbank's request to repatriate it (surely, but very, very slowly), is an understatement. Yet in the aftermath of some of the revelations presented here, we believe quite a few other countries will follow in Germany's footsteps for one very simple reason: suddenly the question of whether their gold is located at 33 Liberty, or just adjacent to it, in what we have learned is the de facto largest private gold vault in the world, located across the street 90 feet below 1 Chase Manhattan Plaza, doesn't appear to have a clear answer.

This is just the latest revelation in the stealth inflation and food fraud theme we have written about frequently in recent months.  The non-profit group Oceana took samples of 1,215 fish sold in the U.S. and genetic tests found that that 59% of those labeled tuna were mislabeled. It seems that “white tuna” should be avoided in particular as “84% of fish samples labeled “white tuna” were actually escolar, a fish that can cause prolonged, uncontrollable, oily anal leakage.”  Oh and if you live in New York City or Southern California, you should pay particular attention if you're heading to Sushi!!

The latest report on personal incomes and outlays showed the expected collapse in personal incomes post the pre-fiscal cliff surge. However, the reversion was more than expected. It is crucially important to understand the impact of low savings rates on economic growth. The reason, that despite all of the government's best attempts, that economic growth and employment remains weak can be directly attributed to still high leverage ratios for consumers and low savings rates. It is only when debt levels fall to sustainable levels, and savings rates rise, that the economy can begin to function normally again. So, while "QE to Infinity" will likely continue to push asset prices higher, at least until the next financial bubble pops, higher asset prices only benefit a small portion of the overall economy. For the rest of America the struggle to maintain their declining standard of living continues as the impact of ongoing weak economic growth and high levels of real unemployment take their toll.

The short-termist instant gratification society in which US consumers live in has seemingly - increasingly - permeated the supposedly more strategic CEO class. Building huge war-chests of cash - just in case - remain the status quo, seemingly more prescient now that real cash flow is slowing down. The subject of mis-allocation of corporate cash has been one we have often discussed. Thanks to Bernanke's ZIRP, investing corporate cash into improved RoC projects is outweighed by short-term reparations to a punishing investor class via special dividends or buybacks. Any use of cash for real business expansion is often frowned upon (as we noted here). Nowhere is it more evident than in this chart of post WWII business investment just how 'bad' our current 'recovery' is - CapEx spending rates are the lowest in 63 years.

Its been three long years for the 'net' speculative futures, options, and ETF holders of gold who have been reducing their exposure to the precious metal. Three long years of hearing day after day that "gold's day is done" or some other perspective that stands in the face of reckless government deficit expansion and morose monetization by all the world's central banks.Three long years and hedgies are the least exposed in years to GLD. Three long years because, as the chart below shows extremely clearly, they simply don't appear to count at the margin. The total disconnect as paper gold positioning - ETF holdings and net futures/options speculative positioning -  has had no correlation with the price of Gold since August 2010 when the world started anticipating QE2 (and beyond). With global central banks expanding their balance sheets and many governments still increasing their gold holdings, perhaps this is the clearest indication of a rotation from paper gold to physical we can see. Furthermore, it appears the current slowdown is similar to each of the past surges post major Fed action, and arguably, as central bank balance sheets remain bloated (though in the short-term thanks to LTRO repayment the gross USD-based balance is fading marginally) - the fact that the Fed has promised QE4EVA implies the ever-expanding growth of fiat will support gold prices implicitly.

Is "discretionary income" rapidly becoming a thing of the past for most American families?  Right now, there are a lot of signs that we are on the verge of a nightmarish consumer spending drought.  Incomes are down, taxes are up, many large retail chains are deeply struggling because of the lack of customers, and at this point nearly a quarter of all Americans have more credit card debt than money in the bank.  Considering the fact that consumer spending is such a large percentage of the U.S. economy, that is very bad news.  How will we ever have a sustained economic recovery if consumers don't have much money to spend?  Well, the truth is that we aren't ever going to have a sustained economic recovery.  In fact, this debt-fueled bubble of false hope that we are experiencing right now is as good as things are going to get.  Things are going to go downhill from here, and if you think that consumer spending is bad now, just wait until you see what happens over the next several years. The following are 16 signs that the middle class is rapidly running out of money...

A few days ago Bloomberg mag did all it could to aliante virtually all racial minorities residing in the US (which in three decades will be the majority) by insinuating that Bernanke's second housing bubble is the sole source of riches for those not of the Caucasian persuasion. Now it is The Economist's turn to provoke well over half of Italy, by alleging that in not voting for technocratic, Goldman-appointed oligarchs who promote solely the banker backer interests, Italy has made a horrible mistake and has ushered in the circus...

Just in case Lagarde (and everyone else except for the Germans, who have a very unpleasant habit of telling the truth), was lying about that whole "no currency war" thing, China is already one step ahead and is fully prepared to roll out its own FX army. According to China Times, "China is fully prepared for a looming currency war should it, though "avoidable," really happen, said China's central bank deputy governor Yi Gang late Friday." We look forward to the female head of the IMF explaining how China is obviously confused and that it is not currency war when one crushes their currency to promote "economic goals." Of course, that same organization may want to read "Zero Sum for Absolute Idiots" because in this globalized economy any attempt to promote demand (by an end consumer who has no incremental income and stagnant cash flow) through currency debasement has no impact when everyone does it. But then again, this is the IMF - the same organization that declared Europe fixed in 2009, 2010, 2011, 2012, 2013 and so on.