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Remember Silver?

Because the stealthy take over of Libya by its rebel forces is matched only by the stealth soaring of silver in the last two days. We wonder how long until the perfectly normal and completely SEC-uninvestigated May 1 silver sledgehammer formation repeats again, and when will we see another 5 silver margin hikes in the san of a few days?



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The Battle For Libya Is Almost Over... As Is The Battle For Its 144 Tons Of Gold

Following a 6 month stalemate in which neither side had attained any advantage, it suddenly took just a few days for the Libyan rebel forces to steamroll unopposed into Tripoli. While we are confident that the political aftermath of this outcome will be very much comparable to what is happening in Egypt right now, many wonder why it is that the Libyan situation has progressed with such speed. Perhaps the answer can be found in the 143.8 tons of gold held by the Libyan Central Bank. Granted it is nowhere near close the 366 tons of gold that Venezuela supposedly has per the WGC, most of it likely held offshore and not being repatriated, the question of where the global gold cartel may find some of the much needed physical to satisfy Chavez' demands has been now answered. Of course we assume that said gold has not already departed Libya in direction Caracas over the past 6 months. Which, in retrospect, we probably should, as it would explain why gold is now at $1875 and rapidly rising.



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Watch Live Coverage Of The Fall Of Gadaffi's Regime Via Sky News

With local American stations too busy to cover what appears to be the end of the Gadaffi regime, here is a live feed form Sky News which inexplicably has a penchant for covering live breaking critical news. Since everyone is blatantly lying, on both sides of the conflict, we leave it to readers to decide what is actually happening.



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With Libyan Rebels On The Verge Of Taking Over Tripoli, Is Gaddafi About To Scorch The Earth?

Following earlier reports from Reuters, that the Libyan rebels had closed in on Tripoli, Al Jazeera has now reported that the brigade in charge of Gaddafi's security has surrendered and laid down its arms (although it is sourced to the Rebel National Transitional Council so official confirmation may be required). And while according to an earlier TV appearance by Gaddafi, the soon to be deposed ruler of Libya has vowed he will remain in the country until the end, we can't help but wonder whether i) he is in the country, and ii) if, as ZH speculated back in February, he will employ a scorched earth tactic to destroy anything of value in his wake. Namely Libya's oil infrastructure.  "I am afraid if we don't act, they will burn Tripoli," Gaddafi said in an audio address broadcast on state television. "There will be no more water, food, electricity or freedom." Keep an eye on crude futures when they open shortly.



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Goldman's Jim O'Neill: "2008 All Over Again?"

Remember when Jim O'Neill was openly taunting the "bears"? Yeah, those days are long gone. In his latest weekend letter the BRICster proceeds to do what so many have already been doing for weeks and months, namely compare the current precarious global economic situation to 2008: "Another ugly week passes, and it is still only August 20th. What a particularly brutal August this is turning out to be so far, even when compared to many challenging ones in recent and distant years. Although there are many substantive reasons why things are very different, many cannot resist the temptation to make comparisons with 2008. So, I thought I would discuss the comparison this weekend." And like a true Keynesian, O'Neill proceeds to do not just that but to provide his solution to all the world's problems: more G7 intervention. Because they keep getting it so right time after time after time...



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Things That Make You Go Hmmm.... Such As A Venezuelan Dictator Bringing Down The Global Gold Cartel

A few days ago we penned "As Chavez Pulls Venezuela's Gold From JP Morgan, Is The Great Scramble For Physical Starting?" in which, logically, we wondered if the unwind of the great gold cartel, whose purported price manipulation has always resided in the domain of paper, or confidence-based, precious metals, may have started from the most unexpected source: Venezuelan "dictator" Hugo Chavez who just announced that he will not only nationalize the country's gold industry but reclaim his physical gold (however much of it may exist) from custodians such as JP Morgan and Bank of Nova Scotia. The practical implications of this move are substantial- since then gold has seen record high after record high. Whether one attributes these moves to Chavez, or to yet another global "risk-flaring" episode is unclear. Luckily, Grant Williams, author of the always entertaining "Things That Make you Go Hmmmm", provides some very fascinating observations on this very interesting topic...



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UBS' George Magnus On Marxist Existential Crises And The "Convulsions Of A Political Economy"

Well over two months ago we first reminded the Marxists of the world that something big may be coming over the horizon in "Attention Marxists: Labor's Share Of National Income Drops To Lowest In History" a theme, whose violent reprisals in the real world we have been observing since before the Arab Spring began (courtesy of the Fed of course).  Lo and behold, suddenly the coolest thing among the post-sophist punditry is to bring up the name of Marx for this and for that, because, guess what -  he was right all along or something. Where were these same pundits when Marxist postulates were becoming apparent not only across the past year, but past century, we wonder. That said, one analysis that does merit mention is that by UBS George Magnus, who several days ago does the most comprehensive summary of the modern world through the lens of Marxism. His conclusion is spot on: "We have had a gathering crisis of political economy this year, which is partly about economic growth and jobs, but also and importantly, about a malaise in politics and policymaking, in which governments are seen as unwilling, unable, divided or ineffective when it comes to economic management and stability. It’s this resistance or backlash against the political order that runs through the propagation of the political economy convulsions around the world, including, in extremis, the uprisings through North Africa and the Middle East." Granted this is not at all surprising, nor is it odd considering that all that central planning under the modern monetary system has done is to perpetually push off disasters, with each increasingly frequent subsequent one hitting with greater severity until not all the money printing in the world can save the modern broken socio-political (and economic) framework. But everything in due course. And yes, expect many more references to Marx by hollow econo-historians who bring nothing new to the table and merely stampede in where the herd has already boldly gone before.



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Guest Post: Need for Economic Crimes’ Nuremberg-Type Trials

Those of us who are history buffs, specifically World War II, including events that preceded and postdated that war (1937-1947), tend to look at the Nuremberg Trials (1945-6) with different degrees of criticism.  One does not need to be a legal scholar to realize that much of the Nuremberg proceedings simulated more a lynching party, or a guillotine exhibition, than a trial conducted according to universal precepts of common law.  The defendants, prisoners of war, were not allowed to challenge the fairness of the judges, nor were they given the right to appeal.  Many of the crimes for which they were charged, and convicted of, had been and were being committed by the accusers, or their governments; at times such crimes falling under retrospective law.  And, to top it all, the trials were conducted under their own, and unchallengeable, rules of evidence. Yet, even if History ultimately renders the Nuremberg Trials as illusory justice, or even a mockery of justice, the argument will remain strong that an important purpose was served by these trials: placating the demands for justice of a bleeding continent which had shed 40 million lives and experienced ruinous destruction; even if in reality it was a victors’ justice, it was by most accounts a remarkable improvement over past historical situations where post-war resolution usually amounted to no more than vengeance over an entire nation or people.



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Intrade Now Pricing Greater Than 50% Chance Obama Will Not Be Reelected; And Observations On The Political Costs Of War

It appears that in the aftermath of the recent update of Obama's job approval polls which as we reported just hit an all time low, the market has formally priced in a 50%+ probability that the president will be limited to just one-term. According to the latest InTrade odds, Obama's chance of being reelected in 2012 is now at its all time low, or 48.5% after soaring to a high of 70% back in May in the aftermath of the Bin Laden death at sea. This result however is far from conclusive: InTrade 2012 presidential odds for Rick Perry have risen, but only to 18.5%, Palin is at 5.5%, and Ron Paul's chances are at 3.2% (Bachmann is at 2.5%). So there certainly is some arbitrage to be made there.



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Geopolitical Risk Is Back As Libya And Israel Make Headlines

As if the global liquidity crunch was not bad enough (as we enter a vacation sleepy week, the key report on Monday will be the ECB's bond purchase update for last week - we estimate another E30 billion in secondary market monetizations, in addition to how many banks pulled dollars from the ECB in the 7 day liquidity providing operation on Wednesday as occurred first last week), geopolitical risk is back after headlines from both Libya and Israel indicate that the Levant region is on the verge of systemic instability once again. The first two stories put Israel smack in the middle of the Middle East action. First is Egypt, which earlier "said Saturday it would withdraw its ambassador from Israel, insisting the killing of five Egyptian security personnel while Israeli forces pursued gunmen across the border was a breach of its 1979 peace treaty with the Jewish state." Complicating matters is the announcement out of Iran, via AP, that "two American men arrested more than two years ago while hiking along the Iraq-Iran border have been sentenced to eight years in prison on charges that include espionage, state TV reported Saturday, a sharp blow to hopes their release was imminent. The announcement seemed to send a hard-line message from Iran's judiciary — which answers directly to the ruling clerics — weeks after the country's foreign minister suggested that the trial of Shane Bauer and Josh Fattal could clear the way for their freedom. It also was likely to raise speculation about Iran using the Americans as political bargaining chips and could bring added tensions to Iranian President Mahmoud Ahmadinejad's expected visit to New York next month." The cherry on top is late news out of Libya that the local rebel movement may be making headway (since denied by the government) in taking over Tripoli. Net result will be even more instability in the crude market which has been expected to drop courtesy of the recent spike in deflationary expectations. Alas, when geopolitics enters the equation, the only certain thing is a surge in uncertainty. That this will likely not benefit global equity markets goes without question.



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Guest Post: Three Paths To Near-Term Human Extinction

About a decade ago I realized we were putting the finishing touches on our own extinction party, with the party probably over by 2030. During the intervening period I’ve seen nothing to sway this belief, and much evidence to reinforce it. Yet the protests, ridicule, and hate mail reach a fervent pitch when I speak or write about the potential for near-term extinction of Homo sapiens.

“We’re different.”
“We’re special.”
“We’re too intelligent.”
“We’ll find a way out. We always do.”

We’re humans, and therefore animals. Like all life, we’re special. Like all organisms, we’re susceptible to overshoot. Like all organisms, we will experience population decline after overshoot. Let’s take stock of our current predicaments, beginning with one of several ongoing processes likely to cause our extinction. Then I’ll point out the good not quite so bad news.




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Who Is John Paulson, And Why Should The Globe And Mail Care?

They say that the simplest analysis is always the most powerful one. That appears to certainly have been the case with our presentation of global banks' Tangible Common Equity ("TCE") ratio to total assets from last Thursday, and specifically our observation of the glaringly obvious, namely that of the 30 most undercapitalized banks in the world, Canadian ones represented a whopping 33% of all. Note: this was not an attack on Canada, this was not some hedge-fund inspired start of a bear-raid on the Canadian banking system, this was nothing but an attempt to warn our readers of, again, what is out there for anyone (who is not blinded by cognitive bias) to see for themselves. Alas, the reaction to that post, particularly in the Canadian media, has been swift and severe, provoking such respected publications as The Globe And Mail to pen not one but two responses, one being the by now so-oft discredited attempt to ignore the message and target the messenger (Who is Zero Hedge, and why should we care?), followed by a more coherent attempt to debunk the claim that a painfully low TCE ratio is never a good thing (Is Zero Hedge looking at the wrong numbers?). The argument of G&M's Boyd Erman boils down to the statement that TCE is not a fair indicator of balance sheet stress and instead one should focus on a "Tier 1" approach of risk estimation, one that includes Risk Weighted Assets. Here we could provide the reference to Lehman's Tier 1 ratio, which was well in the double digits on the day when it filed for bankruptcy, even as the bank's true leverage was about 40x, a number which eventually brought on the biggest bankruptcy in history. We could but we won't, instead we will ask, rhetorically, who is John Paulson, and why should the Globe and Mail care?



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Charting The Upcoming Recession, And Is Goldman Really Predicting A 2012 Year End S&P Range Of 700 - 900?

In his weekly chart packet, Goldman's high frequency strategist, David Kostin, who now changes his year end S&P targets almost as frequently as the firm's economic team changes its GDP forecast, once again gets decidedly fatalistic (very much like Citigroup did yesterday, and Morgan Stanley last week), and is now openly contemplating downside cases to his EPS forecast. And with 2012 EPS numbers thrown around like $91 based on what is certainly an upcoming (but for now still hypothetical) margin contraction, $82 based on a 2% drop (almost guaranteed) in GDP Y/Y, and $75 based on historical earnings plunges in a recession, it may be time to listen up, because apply a traditional contractionary multiple of about 9-10x, and you have yourself a tidy little range of 700 - 910 on the S&P in about a year, absent yet another round of fiscal and/or monetary stimulus.



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Sprott Describes The Greatest Trade Of All Time

On its way to becoming the world’s greatest superpower, the United States pulled off some truly remarkable trades.  Two notable transactions come to mind and were both outstanding bargains: 1) The Louisiana Purchase (purchased from the French); 2) Alaska (purchased from the Russians). For a mere $15 million, America instantly doubled its size with the 1803 purchase of the Louisiana territory.1 Sixty-fouryears later, oil-and mineral-rich Alaska was obtained for a paltry $7.2 million.2  Even adjusting for inflation, the combined value of these deals in today’s dollars would be very small. However, these two transactions pale in comparison to the greatest trade of all time, one which remains ongoing. This particular trade has allowed the US to exchange more than $8 trillion worth of paper for an unbelievably enormous amount of real goods and services over 36 straight years. We’re referring, of course, to the United States trade deficit. As Chart 1 shows, imports have exceeded exports every year since 1975. For much of the past decade, America’s annual trade deficit has soared past the $600 billion mark, while the accumulated trade deficit has moved relentlessly higher.



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Goldman Cuts Q3 Growth Forecast In Half, Sees Q3, Q4 GDP At 1.0%, 1.5%, Presents Jackson Hole Event Walk Thru

Sorry Goldman, in the race to downgrade the US to 0.0001% above contraction, you are still well behind The Fonz in coolness. Frankly, following your December 2010 report you are not even cool enough to pass off for Richie Cunningham. But your third downgrade of US GDP in a month, this time slashing Q3 and Q4 GDP is surely a valiant attempt at regaining some of the Fonz pre-Jersey Shore panache. Keep at it. Another year of being just thiiiiis much behind the curve, and atoning for your shark jumping adventures, and you may be cool again. From a just released report by recent addition to the Goldman economics team (supposedly Jan was too busy elsewhere) Zach Pandl: "In light of the downshift in the data this week, we are cutting our second-half growth forecasts further. We now expect GDP growth of 1.0% in Q3 and 1.5% in Q4, both down from 2.0% previously. These changes reduce our forecasts for full-year 2011 GDP growth to 1.5% from 1.7%. Exhibit 1 shows the details." Now: who will join Zero Hedge in calling for negative GDP in Q3 and most likely Q4 (absent QE3; with QE3 the BEA will mysteriously find another 4-5 GDP percent hidden under the carpet). Far more importantly, Goldman once again explains what to expect at next week's Jackson Hole. We say importantly, because while Goldman is about as clueless at most at predicting the future, when it comes to monetary policy, Goldman determines it. So it is always useful to pay attention: after all Hatzius "predicted" the QE2 announcement roughly about a year ago to the dot.



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