It’s time to think like a contrarian. Why? Because capital markets seem as bulletproof as one of those up-armored military personnel carriers you see in war zones. So what could really rattle stock, bond and commodity markets over the next 3-6 months? The go-to answer, steeped in history, is geopolitical crisis, where the logical hedges are precious metals, volatility plays, and possibly crude oil. Look deeper, however, and other answers emerge.
The person in charge of navigating the "transition" from the old fixing mechanism, of which he was part as recently as April, was a person who was, drumroll, supervising said transition. Surely, his "consulting" was fair and impartial. Naturally, Mr. Spall is no longer at gold-rigging Barclays, a bank which is for all intents and purposes, falling apart but at GCubed Consultants: enjoy perusing the company at the following link.Said another way, one of the Barclays guys who was accountable in the Gold Market Fixing Company for the price manipulation of his trader (the infamous Daniel Plunkett) is then rewarded by the LBMA to conduct an independent review of the applicants to run the Silver fix!
This clown parade of clueless opinions (did we mention Goldman had BES at a buy until this morning?), stretched all the way to the very top with Bank of Portugal itself issuing the following pearl:
- BANK OF PORTUGAL SAYS BES DEPOSITORS CAN STAY CALM
Uhhh, what else would the Portugal central bank say? Panic and withdraw your deposits from a bank whose exposures to insolvent entities have been largely unknown until today (and even now).
The current repo fails problem “directly rebukes” the idea that the Fed has “all possible scenarios covered.” The FOMC wants, actually needs, to instill confidence that it can transform itself from its QE legacy (however much tarnished it has grown). This only heightens the idea that stability is a paperlike illusion that may be undone with only the slightest “shock” or disruption – the hidden asymmetry that is the hallmark of fragility. This severely, in my opinion, undermines the credibility of even the idea of the rate floor.
The PSI20 - Portugal's "Dow" - is down 22% from its exuberant early-year highs (when Europe was fixed). Who could have guessed that under the surface, nothing was fixed? We are sure the next few days will be full of reassurances from asset-gatherers and TV anchors proclaiming that "Portugal is a small country", "BES is contained", "Draghi's put will protect from any contagion." Now where have we heard that before.. and remember as Juncker told us, "when it gets serious, you have to lie."
But... but... the VIX said everything is ok, and European rates were the lowest they have been in centuries... How can something possibly go wrong?
It just did.
Remember when everyone ignored this story about Espirito Santo in May: "Portugal's Largest Bank "In Serious Financial Condition" Auditor Warns." Good times. Alas, one can only kick the can of Europe's banking sector insolvency so far before everything blows up in everyone''s face all over again and Draghi has to come out of his crypt and spook everyone that he will do "whatever it takes" to ignore reality and just pretend stuff is fixed which carries Europe over for a few more months before the whole charade has to be repeated.
- Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
- Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
- Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
- French Stocks Seen Extending Losses on Economy Concern (BBG)
- Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
- U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn
- It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
- Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
- Chinese hackers pursue key data on U.S. workers (NYT)
- Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)
The overpowering and incessant statist economic management of the American economy, as reflected in the Ex-Im extension mobilization now underway, is causing the engines of capitalist prosperity to shutdown. The main culprit, of course, is our monetary central planners in the Eccles Building. But they are only the leading edge - the exemplar that tells Washington day in and day out that without constant ministrations by agencies of the state, our capitalist economy would continuously under-preform and tumble into the ditch. So what is at stake in the Ex-Im battle is the future of market capitalism itself. If Washington lacks the capacity to say no to the shareholders of a few big US corporations that can be counted on one hand, then the statist predicate will triumph finally and for ever more.
As long as the majority of the cost of college education is not born directly by students but rather by Government loans and grants, our institutions of higher learning will not be forced to adapt and find innovative ways of delivering quality education to more students at a decent price. They will go on keeping supply low, tuition higher and expenses growing. The kindest thing our government might do for our kids is to stop throwing money at inefficient Universities in their name, or at least demanding more from those institution in return for that money - in such a world the school’s focus would then shift to keeping prices down while offering good value.
While the situation between Israel and Gaza continues to escalate, pulling the markets' attention away from the recent developments in Iraq (as for the Ukraine civil war, forget it), the big news overnight came out of Chine which reported another contraction in consumer prices, which both declined to 2.3% and missed expectations of a 2.4% print (down from 2.5%). Producer Prices had another negative print, the 28th in a row, and have remained negative since 2012. This led to the Hang Seng Index falling at the fastest rate since late June to erase all YTD gains. However, as has now become the norm, macro news hardly impacted US equity futures, which are driven exclusively by the Yen carry trade, which unlike yesterday's pounding, has traded rangebound between 101.6-101.7 keeping US equity futures just barely in the green. We expect the momentum ignition algo to kick in at some point, for absolute no fundamental reason beside the NY Fed trading desk issuing a green light, sending the USDJPY surging, taking the Spoos with them, and helping stocks forget all about the weak Asian session.
Gold Rigged “To Benefit Banks, At Expense Of Producers, Traders, Investors, Jewellers And Other Market Participants”?Submitted by GoldCore on 07/09/2014 04:40 -0400
We believe that a more transparent and reliable fixing could lead to higher gold prices as we suspect that prices are artificially low at this time and do not reflect the delicate supply demand balance in the physical gold market ... Nor do they capture the degree of systemic and geopolitical risk in the world today."
Many seem to believe that if we worked our way out of debt problems in the past, we can do the same thing again. The same assets may have new owners, but everything will work together in the long run. Businesses will continue operating, and people will continue to have jobs. We may have to adjust monetary policy, or perhaps regulation of financial institutions, but that is about all. I think this is where the story goes wrong. The situation we have now is very different, and far worse, than what happened in the past. We live in a much more tightly networked economy. This time, our problems are tied to the need for cheap, high quality energy products. The comfort we get from everything eventually working out in the past is false comfort.
"People who take short cuts, are political, prioritize themselves above others, take excessive risks for personal gain, don’t value capital, or are unethical are outright cancers. These types of people will not only flourish in the next crisis, but most probably they will cause it."
Now that even that bedrock of the Keynesian voodoo religion, the Gross Domestic Product calculation, has become a ridiculous farce, with everyone in Europe suddenly adding the uncalculable "contribution" from drug dealers and hookers all in a mad dash to make debt/GDP ratios appear better than they are, it is truly time to unleash the clowns as none other than the country which has taken fabricating economic data to an artform, no not the US for those confused but China, is preparing to change the way its calculates its GDP, with the biggest contribution coming from, hold on to your hats, R&D. One wonders if "reverse engineering" of pirated products and services is covered in this "non-GAAP GDP" category. The end result? GDP for the country which cumulatively will be several percentage points higher once the entire fudging/recasting exercise is completed. Here are the details.