Archive - Jul 10, 2013 - Story

Gold is little changed near a one-week high, and is marginally higher in dollars as the dollar has retreated from a three-year high, and higher in most currencies. The gold market continues to digest the ramifications of gold borrowing costs surging to the highest since the post-Lehman Brothers scramble for gold bullion. Gold Forward Offered Rates (GOFO) or the cost to borrow gold remains negative and overnight the 1 month GOFO has gone from -0.106% to -0.11167%. Other durations eased marginally. The lack of liquidity in the the interbank London Good Delivery gold market (400 ounce gold bars) has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only after the Lehman Brothers collapse and near the bottom of the gold market in 1999. The last time forwards were negative was in November 2008, when a scramble for physical gold led a sharp price rally of 46% from $682/oz to over $1,000/oz between October 2008 and February 2009.

Just as California is attempting to round up the financing for its miracle-on-rails high-speed train, so Spain is finding out the reality of the over-promised and under-funded phoenix-like expectations of their own high-speed rail project. From exaggerated passenger traffic expectations 40% higher than the current slower route's traffic to the massive billion-euro debts that have already been accumulated, nothing says epic fail like the City of Villena's 4,500 square meter gleaming new train station - the only access to this building-in-the-middle-of-nowhere is a dirt track used by local farmers. The reason - simple - while the central government financed  the building, the local Valencia regional government was responsible for funding the connection to the local city and freeways - it ran out of money, leaving the station high-and-dry. As Reuters adds, the disconnect says a lot about both Spain and its current finances, about a love affair with grand projects to showcase its modernity and a diminishing ability to pay for them.

With a ridiculous monetarist experiment that is doomed to fail, currently raging in Japan, where girl bands plaud the masculinity of deranged FX and stock traders, it is easy to forget that some two years ago the country suffered the worst nuclear disaster in history. And what is worse, the delayed consequences, all of them tragic, will stay with Japan for the years and decades to come. We got a very sad reminder of the true Japanese tragedy (because deflation is only "horrible" if you live outside your means) earlier when we read that Masao Yoshida, the plant manager who led the fight to bring Japan’s Fukushima atomic station under control during the 2011 nuclear disaster, has died from esophageal cancer. He was 58. He died on July 9 at a hospital in Tokyo, according to a statement from Tokyo Electric Power Co., the operator of the Fukushima Dai-Ichi nuclear plant.

• MSM discovers that soaring dollar hurts corporate profits: P&G to Apple Hurt by Strong Dollar Keep S&P 500 Profits in Check (BBG)
• China Posts Surprise Drop in Exports (WSJ) - lol: "surprise"
• Plan Reins In Biggest Banks (WSJ)
• European Commission Seeks Authority to Wind Down Banks (WSJ) - and Germany just says 9
• U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom (BBG)
• Brussels sets up clash with Berlin over banks (FT)
• EU to Toughen Creditor-Loss Rules at Failing Banks From August (BBG) - or September, or October, but definitely November... 2023
• China's crude, iron ore imports falter as demand cools (Reuters)
• Obama pushes economic case for immigration as House eyes next steps (Reuters)

If the worst Chinese trade data in years (and by that we mean unmanipulated, because what was released last night is merely China offsetting blatantly BS Q1 trade data), and yesterday's S&P downgrade of Italy (which has sent BTPs lower although the EURUSD drop was offset by buying pressure resulting from Stolper closing out his EURUSD long) doesn't send the Stalingrad & Poorski 451 to new all time highs, then all the Chairman's efforts to make a complete farce of the "market" will have been for naught. But while the Fed keeps pushing mom and pop into stocks, he may want to tell his friends at the CME to hike WTI margins, because this morning's latest surge in crude to over $105 will really start hurting refiner margins, and due to the overall energy complex roaring higher, gas prices too, which incidentally just crossed $3.50 in the wrong direction this morning.

Nobody could see this coming, nobody. Then again, by now Goldman's irreplaceable FX strategist, perhaps the most valuable one ever (remember in finance batting 0.000 is the same as batting 1.000), most certainly has a form "mea culpa" letter.