Archive - Jan 18, 2014 - Story

While the topic of rehypothecation and the shortage of physical gold is well covered here at Zero Hedge (and the ever-changing COMEX gold vaults' inventories), it appears the concept of the exploding "leverage" or default risk of the COMEX has now hit the mainstream media. As BNN reports, veteran trader Tres Knippa, pointing to recent futures data, says "there may not be enough gold to go around if everyone with a futures contract insists on taking delivery of physical bullion." As he goes on to explain to a disquieted anchor, "the underlying story here is that the people acquiring physical gold continue to do that. And that’s what is important," noting large investors like hedge fund manager Kyle Bass are taking delivery of the gold they're buying. Knippa's parting advice, buy physical gold; avoid paper.

Bernanke may be printing the wealth effect to the benefit of the richest 1%, but that only serves to make the already wealthiest even wealthier. When it comes to the creation of new millionaire households, the epicenter of new wealth creation is about as far from Wall Street, West Putnam Avenue or Rodeo Drive as can be. In fact, the state that saw the fastest climb up in millionaire rankings in 2013 doesn't have a single Tiffany or Saks Fifth Avenue, and the closest BMW dealership is a six-hour drive from the capital (stats which are guaranteed to change by the end of the year). Presenting North Dakota: the state which jumped 14 spots in the latest ranking of millionaire households.

China’s ongoing colonization of Africa represents yet another sad development in the continent’s tragic history, as we noted previously Africa remains the great untapped credit creation cauldron of the world (and therefore Keynesian growth). Unfortunately, Erik Prince of Blackwater infamy is now coming to town, which can only mean more pain, suffering and servitude for Africa.

The end of 2013 saw bond yields at their highs and the US equity markets making higher highs. This came as the Federal Reserve started to finally slow down its asset purchases and, as Citi's Tom Fitzpatrick suggest, has now seemingly turned a corner in its so called “emergency” policy. That now leaves room for the market/economy to determine the proper rate of interest; and, he notes, given the patchy economic recovery, the fragile level of confidence and the low levels of inflation, Citi questions whether asset prices belong where they are today. As the Fed’s stimulus program appears to have “peaked” Citi warned investors yesterday to be cautious with the Equity markets; and recent price action across the Treasury curve suggests lower yields can be seen and US 10 year yields are in danger of retesting the 2.40% area.

Venezuela's (freely elected) President Nicolas Maduro (amid toilet-paper and food shortages nation-wide) pointed out this in a State of the Nation address - which Bloomberg's Peter Jeffrey notes was unnecessary as everyone who lives in Venezuela knows the State of the Nation and it is Excruciating - "I'm a socialist, and I know what I'm doing." As Jeffrey ascorbically notes in this wonderful Op-ed, the Venezuelan treasury is now free to issue notes bearing the motto E Non Sequitur Gloria, or "Out of that which makes no sense shall we stitch the fabric of our glorious destiny."

Five years after the 2008 crisis hit, economies are more financialised than ever. If the politicians and regulators ever had any balls they have been amputated by the casino managers, under the anaesthesis of perceived self-interest. They have become the casino eunuchs. An apparent early consensus on the systemic problems of over financialisation has melted away into a misconceived search for ‘business as usual’.

As Vladimir Putin proudly shows off his holiday vacation spot - Sochi - to the world and proclaims it clean, safe, and accepting of homosexuals ("just don't tell the kids"); there is a considerably darker side to Russia that he would very much like the outside world not to know about. As Bloomberg reports, hidden from the outside world and abetted by policies that critics say promote infections rather than curbing them, the HIV scourge plaguing Russia is one that even the poorest countries have begun to subdue. With an estimated 2.4 million users of injected drugs and 1.3 million of Putin's countrymen with the life-threatening virus that causes AIDS; among the top 20 global economies, only India, with a population almost nine times bigger than Russia’s 143 million, has more people living with HIV.

Most people on Wall Street know all about it: the junior banker hazing ritual. Fresh out of college, pulling all nighters after long hours of starting at an excel screen playing solitaire in the background, writing and re-writing pitch books for the sake of generating work which nobody will read, waiting for senior bankers to get back with their revisions, eating (expensed) meals after midnight, and so on. The justification is well-known: greater money and benefits than anyone can make in any other job. But is the trade off worth it? Increasingly more banks and their executives are asking that question, leading to various banks telling their young bankers to take one, even (gasp) two weekends off per month. So how are the young bankers themselves seeing these developments? “A cocktail of zero social life, coffee, propranolol (helps with stress and panic attacks) and modafinil (keeps you up all night),” wrote one UK-based banking employee. Another noted that the “emotional stress” had been reduced since “splitting from my partner”.

In his 712-page tour de force, The Great Deformation, David Stockman dissects America’s descent into the present era of “bubble finance.” it’s hard to refute Stockman’s perspective on the Fed’s role in the housing bubble. But that won’t stop some from trying, and especially the many academic economists beholden to the Fed. Research papers have stealthily danced around the Fed’s culpability for our crappy economy, as we discussed here. More importantly, if Stockman is right about bubble finance, there’s more mayhem to come. Consider that denying failure and persisting with the same strategy are two sides of the same coin. Just as investors avoid the pain of admitting mistakes by holding onto losing positions, Fed officials who claim to have done little wrong are also more committed than ever to propping up asset markets with cheap money. For those concerned about another policy failure, a key question is:  “As of today, where do we stand with respect to bubbles and bubble finance?”

Up until now, most terrorist provocations surrounding the Sochi winter olympics set to begin on February 7, had been in the surrounding cities (here is dramatic video footage of the recent suicide bombing in Sochi) while the actual venue has been largely left untouched. Perhaps this is due to the security gauntlet that has wrapped the city under the constant supervision of countless eyes in the sky and about 70,000 police and soldiers. This tenuous peace, however, was disturbed this morning when as Bloomberg reported, Russian police were searching for an alleged terrorist Razmena Ibragimova, according to a wanted poster on display at a security checkpoint in Sochi’s airport. Ibragimova, 22, is "currently located on Sochi territory" and may attempt a suicide bombing, according to the poster. According to information from BlogSochi she was spotted on the street outside the foreign ministry building in Sochi.

If you want to get an idea of where the rest of America is heading, just take a trip through the western half of West Virginia and the eastern half of Kentucky some time.  Once you leave the main highways, you will rapidly encounter poverty on a level that is absolutely staggering.  Overall, about 15 percent of the entire nation is under the poverty line, but in some areas of eastern Kentucky, more than 40 percent of the population is living in poverty.  After decades of decline, vast stretches of impoverished Appalachia look like they have been through a war.  Those living in the area know that things are not good, but they just try to do the best that they can with what they have.

"I happen to think that 2014 is a VERY different year than 2013 from a variety of viewpoints.  First, there appears to be a dispersion of opinion about markets, valuations, policy frameworks and more.  This is a healthy departure from YEARS of artificiality.  Artificiality in valuations, artificiality in market and policy mechanics and essentially artificiality in EVERY financial, and real, relationship on the planet based on central bank(s) balance sheet expansion and other measures intended to be a stop-gap resolution to  tightening financial conditions, adverse expectations of economic activity, and the great rollover" - Russ Certo, Brean Capital