Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last - and start looking at how high they’ll go and when they’ll get there. When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%... then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat. Given that we just completed a major bust cycle - and not just any bust cycle, but one of the harshest on record, according to many veteran insiders - the setup for a major rally in gold stocks is right in front of us.
Just in case the world did not have enough potential geopolitical flashpoints and near-crises, here comes old faithful - the simmering nationalist rivalry between China and Japan, which may have been pushed to the backburner in light of the grand return of Cold War 2.0, but is neither forgotten nor resolved. In fact, recent developments which have seen Japan fully back the US strategy in Ukraine while China has voiced its support for Russia, will probably only enflame the direct tension between the two Asian superpowers. Moments ago we got the latest manifestation of precisely this when Japan scrambled military jets on Sunday to counter three Chinese military planes that flew near Japanese airspace, defence officials said.
With 40% of the portfolio in cash and having returned $4 billion to clients at year-end, Seth Klarman's Baupost Group has "drawn the line in the sand" as they reflect on the diminished opportunities in the so-called "Truman Show" market we see today. In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, Klarman notes, the stock market, heading into 2014, resembles a Rorschach test - "what investors see in the inkblots says considerably more about them than it does about the market." From "born bulls" to "worry genes" and from Bitcoin to flash-mob-speculation, "there is a growing gap between the financial markets and the real economy...and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks... as every 'Truman' under Bernanke’s dome knows the environment is phony."
We have discussed the sword of Damocles that is hanging over the heads of the Ukrainian (and European for that matter) people for some time. The dominant role that Russia plays in providing energy is becoming critical, however, as Gazprom notes:
- *GAZPROM SAYS TODAY IS DEADLINE FOR NAFTOGAZ TO PAY FOR FEB. GAS
- *NAFTOGAZ OVERDUE PAYMENTS AT $1.89B FOR GAS SUPPLIES: GAZPROM
- *GAZPROM SAYS NAFTOGAZ ISN'T OBSERVING CONTRACT
- *GAZPROM: UKRAINE DEBTS CREATE 'RISK OF RETURN TO SITUATION AT BEGINNING OF 2009' (when Gazprom cut off Ukraine gas supplies)
Of course, the US agreed to $1b bailout yesterday - but that's not supposed to be used as a direct transfer payment to the Russians.
Today's nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.5 million "jobs" higher) will be a major beat to expectations, which will crash the "harsh weather" narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February... because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher - that much is given in a blow off top bubble market in which any news is an excuse to buy more. So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country's history - indicating a further shift toward responsibility and focus on moral hazard in China.
Is the U.S. economy steamrolling toward another recession? Will 2014 turn out to be a major "turning point" when we look back on it? Before we get to the evidence, it is important to note that there are many economists that believe that the United States never actually got out of the last recession. In fact, that would fit with the daily reality of tens of millions of Americans that are deeply suffering in this harsh economic environment. But no matter whether we are in a "recession" at the moment or not, there are an increasing number of indications that we are rapidly plunging into another major economic slowdown. The following are the top 12 signs that the U.S. economy is heading toward another recession...
Prepare for more...
Dismally drifting towards deflation as credit creation is a long and distant thing of the past in the European Union, this morning's decision to hold rates unchanged leaves a lot of "whatever it takes" hope left for the press conference. Whether he will ease lending standards, cut haircuts, enable more securitization, push direct lending (there's no demand!), or "promise" open-ended QE - it's all on the table but we suspect it will be more talk and "whatever" he is doing so far is working... stocks are near record highs and bond yields record lows - which must mean Europe is fixed...
Premier Li Keqiang delivered his first government work report at the opening of the National People’s Congress (NPC) meeting last night. The new government promises to speed up reform, manage debt risks, fight pollution, and yet maintain 7.5% economic growth all at the same time but as SocGen'sWei Yao warns, this is going to be nothing if not challenging. Maybe mindful of a potential miss, Yao points out that policymakers seem to give themselves a small degree of flexibility by using new phrases like “a reasonable range for the growth rate” and “the growth target is
flexible”. Mission intractible or mission impossible?
The Fed’s serial bubble machine has not only bestowed massive speculative windfalls on the 1%, but it has also fostered a noxious culture of plunder and entitlement in the gambling casinos of Wall Street. After each thundering sell-off during the bust phase, crony capitalist gamblers have been gifted with ill-gotten windfalls during the Fed’s subsequent maniacal money printing spree. In this context comes Bruce Berkowitz “scolding” and firing “salvos” at Washington from the front page of the Wall Street Journal.
With the world still on edge over developments in the Ukraine, overnight newsflow was far less dramatic than yesterday, with no "bombshell" uttered at today's Putin press conferences in which he said nothing new and simply reiterated the party line and yet the market saw it as a full abdication, he did have some soundbites saying Russia should keep economic issues separate from politics, and that Russia should cooperate with all partners on Ukraine. Elsewhere Gazprom kept the heat on, or rather off, saying Ukraine recently paid $10 million of its nat gas debt, but that for February alone Ukraine owes $440 million for gas, which Ukraine has informed Gazprom it can't pay in full. Adding the overdue amounts for prior months, means Ukraine's current payable on gas is nearly $2 billion. Which is why almost concurrently Barosso announced that Europe would offer €1.6 billion in loans as part of EU package, which however is condition on striking a deal with the IMF (thank you US taxpayers), and that total aid could be as large as $15 billion, once again offloading the bulk of the obligations to the IMF. And so one more country joins the Troika bailout routine, and this one isn't even in the Eurozone, or the EU.
While everyone was focusing on the threat of tumbling debt dominoes in China's shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers - the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate - as well as shadow banking - bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.
Jefferies, Deutsche Bank, and now Citi and JPMorgan are all facing a collapse in trading volumes as Bloomberg reports the two banks brace for a fourth straight drop in first-quarter trading revenues - a period of the year when the largest investment banks typically earn the most from that business. “It sounds like more bloodletting on Wall Street,” warns one analyst, as Citi expects trading revenue to drop by a “high mid-teens” percentage.
Scrape away the media sensationalism and geopolitical posturing and it boils down to a simple dynamic: follow the energy.
Earlier today we were surprised when none other than uber central-planning skeptic, not to mention bond fund manager, Bill Gross threw in the towel and in his latest letter advocated the purchase of risk assets - and Bill Gross is the last person needing reminding that in a day and age when the 10 Year yields just barely over 2.5%, this means not bonds but stocks. The surprise, however, promptly disappeared when we realized that PIMCO is merely the latest entrant in the scramble for yield game following, with a substantial delay to all of its other "alternative" asset management peers, right into ground zero: European toxic debt.