Archive - 2013 - Story

Last week we reported that in the aftermath of the so far disastrous French campaign to eradicate "rebels" in the north of Mali, because of their implied threat fo Europe, that "US Drones, Boots Arrive In Mali." Turns out we were wrong, and as the case virtually always is, for some reason there was already a US presence of at least three US commandos in Mali in the summer of 2012. What they were doing there remains a mystery, as it is a mystery if the ever co-present flip flops on the ground were there inciting the perpetual scapegoat Al Qaeda to do this, or that. Or maybe it was not the CIA. Maybe it was the Army's "little-known and secretive" branch known as the Intelligence and Security Command. Regardless, what becomes obvious is that while the US was on the ground and engaged in secret missions, it needed an alibi to avoid "destabilizing" the local situation once its presence became conventional wisdom. It got just that, thank to one Francois Hollande just over a week ago.

Courtesy of Diapason's Sean Corrigan, here are some 22 charts taking us around the world's markets and back.

If you say…what is good science is prediction… and you can’t predict the most important event in 75 years, what good are you? In particular, it might be very nice you can talk about the likelihood of an one tenth increase in GDP growth rate…and you miss a major economic downturn….or worse, they said the things can’t happen… We all know the shock in this crisis…was a credit bubble and we have had those credit bubbles since the beginning of capitalism…So it was remarkable the intellectual bubble led people to believe there were no such thing as credit bubbles when there was 200 years of history of that…..How could people be so stupid? …The theory was with well functioning financial markets, spreading risk, diversifying risk, risk is contained. They came to believe the models and that’s always dangerous..

Silver is like gold in many ways; both are precious metals with long histories as currencies. They are malleable, lustrous, ductile, resilient, and rare. However, as Visual Capitalist illustrates in this spectacular infographic, silver investors should be aware of the three main differences between silver and gold. From silver's relative volatility and correlation to industrial demand, track record, diversification benefits, and the three ways to get exposure to silver, this colossal image provides everything you need to know in one place.

The market has been rallying over the last few weeks as the bulls have definitely taken charge in the New Year.  Most of the recent analysis has pointed to signs of an improving economy and stronger employment as the driving force behind the advance.  My view has clearly been that it has been the impact of the Fed's liquidity injections pushing asset prices higher. There is one caveat here.  Last winter was the warmest winter on record in 65 years which skewed much of the seasonal data by allowing work to continue when normally workers would have been shut in due to inclement weather.  We are seeing the exact same anomalies occur this year as the winter is currently the warmest in the last 55 years combined, and when combined with lower energy prices, is giving a temporary boost to incomes. As we witnessed in 2012 - when the seasonal adjustments come back into alignment in the spring the drop off in reported economic activity will be fairly severe.

Over the last decade, the economy (and implicitly the jobs of US citizens) have suffered significant swings. The chart below, however, clarifies exactly where the 'missing' jobs have gone (and with a slight silver-lining) where we have gained jobs. As is clear, the Oil & Gas industry has seen its total number of employees rise over 40% in the last ten years - while Manufacturing and Construction industries have each lost around 20% of the total employees. Of course, net net, given the precipitous drop in labor force participation, the US is losing the 'employed' dramatically over this period as the incentive (as we noted here) to work and demand for work (in a cost-cutting ZIRP environment) remain negligible.

Yesterday we broke the news of what is prima facie evidence, sourced by none other than the Federal Reserve's official August 16, 2007 conference call transcript, that then-NY Fed president and FOMC Vice Chairman Tim Geithner leaked material, non-public, and very much market moving information (the "Geithner Leak") to at least one banker, in this case then Bank of America CEO Ken Leiws, in advance of a formal Fed announcement - an act explicitly prohibited by virtually every capital markets law (and reading thereof). It was refreshing to see that at least several other mainstream outlets, including Reuters, The Hill and the NYT, carried this story which is far more significant than Season 1 of Lance Armstrong's produced theatrical confession and rating bonanza. What, however, the mainstream media has not touched upon, yet, is just how profound the market response to the Geithner Leak was, and by implication, how much money those who were aware of what the Fed was about to do, made. Perhaps, it should because as we show below, the implications were staggering. But perhaps what is even more relevant, is why the Fed's previously disclosed details of Mr. Geithner's daily actions at the time, have exactly no mention of any of this.

China now buys more gold than the Western world. Does that mean, as some commentators are suggesting, that future price growth for the gold price depends on China? That if the Chinese economy weakens and has a hard landing or a recession that gold will fall steeply? Of course, this is only one factor. With the global monetary system in a state of flux - with many nations creating bilateral and multilateral trade agreements to trade in non-dollar currencies, including gold - emerging market central banks see gold — the oldest existing form of money — as an insurance policy against unpredictable changes, and as a way to win global monetary influence.  As Zhang Jianhua of the People’s Bank of China said: "No asset is safe now. The only choice to hedge risks is to hold hard currency - gold."

Almost two years after the awful nuclear disaster occurred, a fish caught near Fukushima on Friday January 18th had a record-breaking level of radioactive contamination over 2500x the legal limit. TEPCO measured 'Mike the Murasoi' at 254,000 becquerels per kilogram (with the limit for edible seafood at 100 becquerels). As Le Monde reports, the previous record (caught on August 21st 2012) was a mere 25,800 becquerels/kg. As further precautions, TEPCO is installing new nets 20km around the Fukushima Daichi site to avoid highly contaminated fish gettig too far and being consumed by other species. While Mike's family are no doubt distraught (at him being caught and being so radioactive), it appears (somewhat disappointingly) that there is no apparent third eye, lazer fins, legs, or other 'expected' 'blinky' malformations.

We make more than we’ve ever made, we owe more than we’ve ever owed, and we have less than we've had in decades which is distributed to those that did not earn the money. This is a working definition of Trouble. The stock market is at an all-time high while the financial condition of the country has seriously deteriorated. The world is in a gigantic bubble and it is going to get pricked. You cannot keep printing money without consequences and when absolute and intrinsic valuations replace relative valuations then the game is afoot. When the survival of the State puts its people in dire straits then, eventually, the citizens will rebel as the nation has forgotten just who composes its constituents. The people and institutions that have the capital will only go along quietly for so long when nations try to take what they have earned and dispossess it for others. The rich will become poorer and the poor will become poorer and when those with the capital have been deprived of it so that everyone is worse off then the Lords of Chaos will be in control once again.

Fraudulent Chinese corporations are nothing new - we have been warning about them since late 2010, spurring the creation of a cottage industry focused exclusively on unmasking such public reverse merger companies (and generating trading profits along the way). One company, however, which apparently was completely unaware of the now pervasive and proven for the past two years Chinese corporate fraud, is US industrial titan Caterpillar. This was made clear when, after hours on Friday night naturally, the company revealed that it had been misled by "deliberate, multi-year, coordinated accounting misconduct" at a subsidiary of a Chinese company it acquired last summer, leading it to write off most of the value of the deal. In the process it would also take a $580 million, or $0.87 cent charge to earnings, which would wipe out more than half its expected earnings of $1.70 for the fourth quarter of 2012. One wonders, however, is there more to this story than just a case of a gentle, naive board duped by fraudulent, evil, cunning "Chinamen" which may have watched one too many episodes of Autonomy does Hewlett Packard?

The hyper-correlation of Japanese stocks (Bass - The people that buying Japanese stocks, are picking up a dime in front of a bulldozer) and the JPY have led many to believe that Abe's miracle promise will be just the ticket to bring the nation's two-decade slump to an end - a 2% inflation target is all you need. However, in a brief CNBC interview, Kyle Bass explains that not only are 99.9% of people wrong about the crisis (explaining the critical aspect of the abrupt turn of twenty years of the 'procylicality of thought' - that deflation is the norm), but Abe's actions have actually brought forward the date of the "detonation of Japan's Debt Time Bomb. Bass goes on to discuss the US Housing stabilization, European stress, and China's economic opacity (and tensions with Japan), but leaves us with the clear and present danger in Japan that the clock has started on the qualitative shift in participants' minds that the situation is untenable (signs are already among the elite with recent JPY-extricating M&A deals) and "All of the components for this [bomb] to go off 'all of a sudden' are in place." Must watch.

The Fiscal Cliff theater was great 'off Broadway' drama, but the real show for traders took center stage Sunday December 16th in Japan. The curtain went up for the newly elected Prime Minister of Japan as the star actor in the unfolding global fiat currency drama. In the last 90 days the US, EU and now Japan have announced "unlimited", "Uncapped" monetary policy with UK's soon to be bank of England Governor, Carney indicating he wants inflation & growth targeting also when he assumes the reins. The goal has been to get interest REAL interest rates as low as possible, and the expected duration to be as long as possible. Market have reacted to this strategic and obvious debasement by stampeding, relentlessly into the Bond Market and creating a disturbing potentially destabilizing bond bubble. However, remember, Financial Repression is at work here and US Bond Yields and Interest Rates must be further reduced. We presently expect the 10 Year US Treasury Bill to eventually break below 1% and Equities will fall on the re-pricing of credit and risk, earnings revenue and margin issues and slowing real global growth.

Following the recent fall of the Swiss franc against the euro, there were paradoxical comments on the opportunity on both moving the Swiss National Bank’s floor lower (say to 1.25 for example) or on abandoning it altogether (or moving it higher). We believe both options are very unlikely, at least in the coming months. Moving the floor lower would be a bad idea in our view. As we have seen, the extent of the franc’s overvaluation is quite debatable and the lower the floor, the quicker a monetary policy dilemma may emerge. Moreover, in the event renewed upward pressures on the franc occur once again, a lower floor may prove more costly in terms of FX interventions.