Archive - Jul 6, 2013 - Story

"The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): "According to China's National Foreign Exchanges Administration China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

It is hard to square the economic circle of homebuilder/REIT-related equities falling (given concerns about the higher-rate environment) with a broad equity market rally as much predicated on the re-blowing of a real-estate bubble as any other real fundamental basis. The conundrum is perhaps even greater when we note that in spite of an unprecedented surge in mortgage rates, pending home sales surged in the most recent data. However, as the following chart makes all too clear, home sales lag mortgage rates with a very high level of correlation and it appears, we suspect, that this most recent surge in home sales (extrapolated by those of that bias to mean that the housing recovery is sustainable even with higher rates already crushing affordability) is merely a pulling forward of activity and will lead to a significant softening in coming months (especially relative to expectations) should the taper-tantrum in bonds remain.

Last week we defined the golden sentiment rule as "anything that isn't off the chart soon will be." This will happen in a "perfectly sustainable" fashion, where increasingly more paper gold is shorted to record levels even as actual physical holdings held by official Comex vaults continues to drop. For one particular reason why the price of paper gold may be at 3 year lows, we will provide some formerly classified perspective shortly in a post. But in the meantime, and while we await the weekly CFTC commitment of traders report (delayed until Monday due to the July 4 holiday), we are happy to report that the JPM disconnect between the epic delivery requests and its reported gold holdings (for which the "Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness") reconnected modestly, and as per the latest Comex update, another 6.8k ounces of gold was pulled from JPM's 1 CMP world's biggest gold vault, dropping its total gold inventory to a fresh record low.

Marc Faber noted recently, "markets will punish the interventionists one day," and while we are already seeing 'accidents' occurring in JGBs, Gold, EM debt, and now US Treasuries; US equities remain immune. However, given the current uncertainty of macro-economic data, high-leverage, fear of rising interest rates, and instability of currency markets, all of the same conditions that led to the 1987 crash are now present in financial markets. Does this mean the markets are going to crash? Certainly not; but the conditions may be right for another 'market accident' to happen.

While global equity markets (alone) celebrated what appeared to be a somewhat lackluster jobs data dump yesterday, it's not all rainbows and unicorns for the US employee. It is not just manufacturing jobs that are bleeding (as bartenders and waitresses surge), but the following 14 professions have been in decline for the last decade and are projected to drop even further going forward. From shipping clerks to sewing machine operators and typists, the new normal looks a little different from the old normal of the last century.

UPDATE: NBC Reporting 2 Dead, *SF GENERAL HAS '10 TO 12' CRITICALLY INJURED FROM JET CRASH

Just over an hour ago an Asiana plane inbound from Seoul, South Korea, crash landed at San Francisco airport. Given the images below, it is a miracle no one is reported dead (among the 291 passengers and 12 crew). An eyewitness noted:

*AIRLINER TAIL HIT NEAR END OF RUNWAY, EYEWITNESS TELLS CNN,
*AIRLINER SPUN COMPLETELY AROUND ON LANDING, WITNESS TELLS CNN

As far as they know, NBC reports, the pilot made no distress calls prior to landing and Federal officials indicate no indication of terrorism. The San Francisco airport will be holding a press conference shortly.

 Local NBC news is reporting that the plane appeared to power-up as it was landing short and its tail hit the seawall.

Charles Ponzi and Bernie Madoff had to lure marks into their scams. People joined them by choice. The Ponzi scheme operated by governments is mandatory. You are in it whether you want to be or not. You are in it whether you realize it or not. The only issue is to decide is what the best way is to play this Ponzi scheme. Gordon T. Long and John Rubino discuss some of the options...

Following the most recent shift 'away' from a USD-centric world (with the China-Australia direct currency convertibility), it seems the possibility of China's Yuan as the next global reserve currency is getting closer. The Brits, Germans, and now the Swiss (who just signed a free-trade-agreement with China) are all actively vying to become Europe's Yuan trading hub as it seems the long line of developments to internationalize the currency over the past two years. As Bundesbank board member Joachim Nagel noted in a speech entitled "Reniminbi as a potential reserve currency" this week, "the Chinese currency is well on its way to becoming one of the future global reserve currencies." He noted that, although the USD is still the most commonly-used currency for settling trade with China; from virtually zero in 2010, the Yuan is used to settle over 12% of trading transactions now - and is likley to increase further.

Broke nations are bailing out other broke nations with borrowed money.  Round and round we go - where we stop nobody knows.  As of April, 41 different countries had active financial "arrangements" with the IMF. Sometimes they are called "bailouts" and sometimes they are called other things, but in every single case they involve loans.  And most of the time, these loans come with very stringent conditions.  It is a form of "global governance" that most people don't even know about. For decades, the IMF has been able to use money as a way to force developing nations to do what it wants them to do.  But up until fairly recently, this had mostly only been done with poor nations.  But now an increasing number of wealthy nations are turning to the IMF for help... so what happens when the nations that primarily fund the IMF start failing themselves?

As the pro-Morsi Islamist coalition calls for widespread protests on Sunday against the military coup that just occurred in their nation, Al Jazeera is reporting that Mohamed ElBaradei (infamous for his strong stance against the US as UN nuclear watchdog amid the Iran WMD controversy) has accepted the role of interim Prime Minister. Following the last few days violence, where dozens have been killed post-coup, we suspect the Islamist coalition will be even more antagonized by this next step. Of course, realistically, until the US decides which side it wants to commit to, nothing will settle down in the re-couping nation.

After two decades of serial bubble-blowing, the world’s central bankers have maneuvered themselves into a corner. They created a monster in the form of an unbalanced global economy and a bloated financial system, laden with debt, addicted to cheap money, and in need of constantly rising asset prices. Now the monster is in charge and the central bankers dare not stop feeding it.

Yesterday, infamous whistleblower Edward Snowden, stuck nearly two weeks in the transit zone of Moscow's Sheremetyevo airport, finally got some good news: first Nicaragua, then Venezuela (and moments ago Bolivia) broke the rejection letter trend, and in bombastic and very political fashion, offered him asylum (although as with everything in politics nothing is concluded until he is actually on some Latin American beach). However, a question remains: just where is Snowden right now? After all, following his initial public appearance and video with the Guardian and WaPo, there have been virtually no public sightings of him, despite his current location in one of the most public venues in the world: the Moscow airport.

Benjamin Strong was near the end of a long stint as head of the New York Federal Reserve Bank (he passed away in October 1928), where he enjoyed the same immense power that Ben Bernanke has today. The economy had just begun to recover from a recession in December 1927, and there was much unemployment and spare capacity.... Agriculture was booming during and immediately after World War I, based on thriving exports to Europe. Overinvestment during the boom then gave way to stagnation in the 1920s. Europe was in a bad state in the late 1920s, just as it is now. What’s more, two of the world’s three largest economies are now in Asia, and these economies face similar challenges to those of 1920s Europe. While analogies are never perfect, the parallels with early 1928 are troubling. When the world slipped into depression in the late 1920s and early 1930s, it was on the back of imbalances and debt overhangs that are oddly similar to those that we face today.