Bear Market

According to a recent report in the FT, the former treasurer of Spain's ruling Popular Party, Luis Bárcenas, has claimed in an interview that the party has been in breach of Spain's campaign finance laws for a minimum of 20 years. Presumably he was moved to talk because he was the one who got caught and is expected to fall on his sword. Now that he is facing a lengthy prison sentence, he no longer has a reason to clam up. Incidentally, no-one in Spain was surprised to learn what he had to say. What we are seeing here is actually a strong parallel to Greece. The EU has been complaining about the Greek government's inability to collect taxes, without considering that Greek tax payers may have very good reason to pay as little as possible to the corrupt apparatus installed by the ruling class. As a Greek shipowner told a journalist when asked why he thought it was fine that rich shipowners are tax-exempt in Greece: “Would you want to pay money to Al Capone?” Pause. “Me neither.” Finally, as the bankruptcy of the Western welfare/warfare states becomes more glaringly evident, even stronger growth of the informal economy seems likely to ensue.

It can't happen... It can't happen...It can't happen...  It just happened.

Whether or not you believe PMs will serve as the ultimate store of wealth as the global fiat monetary system collapses should have absolutely no bearing on making the intelligent decision to remove your financial assets from under the domain and inevitable confiscation of global bankers and their State-run tyrannies.  Independence Day is a fine day to start the process of taking back our freedoms from the tyrants that rule over us.

Barry Ritholtz is convinced that once the current short-term bounce is over with, the recent cyclical bear market in gold will resume. The reality is of course that neither Mr. Ritholtz, nor anyone else actually knows the future. Therefore, he cannot know whether the bear market is or isn't over. However, judging from the remainder of his post, he actually seems to think that the secular bull market in gold is over. In our opinion there is no evidence for that, and we will explain below why we think that he and others in the  long term bear camp are wrong. Further below is the evidence marshaled by Mr. Ritholtz (actually, apart from the technical analysis he provides, it isn't really evidence at all – it reads like an unsupported opinion). Sure enough, gold has no yield, no conference calls, and no income statements (paraphrasing Jim Grant). That is actually the beauty of it. But that does not mean it 'has no fundamentals', nor does it means that it 'cannot be an investment'. We comment on his article (and its errors) further below.

With the Comex futures prices becoming increasingly irrelevant, a Physical Gold price datasource for buyers of physical Gold

Gold and Silver appear to be in the process of finding a bottom; however, the price action could continue to be choppy in the coming weeks. Ultimately Citi's FX Technicals group, as the following charts suggest, expect both precious metals to move much higher in the long term with the potential for Silver to be the outperformer, as was the case from 2008 to 2011.

What magic Chinese rabbit has been pulled out of the hat now?

• Here come the rolling blackouts: Obama takes on power plant emissions as part of climate plan (Reuters)
• Walking Back Bernanke Wished on Too Much Information (BBG)
• As previewed last week: Bridgewater "All Weather" is Mostly Cloudy, down 8% YTD (Reuters)
• U.S. Said to Explore Possible China Role in Snowden Leaks (BBG)
• Coeure Says No Doubt ECB Loose Monetary Policy Exit Distant (Bloomberg)... so a "recovery", but not at all
• U.S. steps up pressure on Russia as Snowden stays free (Reuters)
• Texas' Next Big Oil Rush: New Pipelines Ferrying Landlocked Crude Expected to Boost Gulf Coast Refiners (WSJ)
• Singapore Offsets Bankers as Vacancies Fall (BBG)
• Asian Stocks Fall as China Sinks Deeper Into Bear Market (BBG), European Stocks Rally With Bonds as Metals Advance (BBG)
• Qatar emir hands power to son, no word on prime minister (Reuters)

After imploding in its morning session by a whopping 5.8%, which would have brought the two day crash to a stunning 10%, the Shanghai Composite rebounded trimming its losses by more than half due to so far unfounded rumors there will be a PBOC press conference later today in the last hour of trading in which it may provide some impetus for a bounce (which oddly enough is boosting US equity futures far more effectively than those of China). The expectation is that at the Lujiazui Forum (link here), the PBOC will speak alongside the the CSRS, the CBRC, and CIRC at which the PBOC will wave a white flag to the Chinese "feral hogs." Don't hold your breath: considering the China Daily oped released earlier, this seems highly improbable but at this point global markets are clutching at any and all straws. Look for big market disappointment if the PBOC refuses to address any additional liquidity provision in a few minutes or over the next several days especially since unlike the US, the Chinese central bank is not willing to be held hostage by the stock market in its mission to rid the country of shady "shadow bank" lending conduits.

The narrow EuroStoxx 50 index is now at its lowest in over seven months (-5.4% year-to-date and -12.5% from its highs in May) and the broader EuroStoxx 600 is also flailing lower. The European bank stocks pushed down to their lowest in almost 10 months and are now in bear market territory - down 22.5% from their highs. Spain and Italy are now testing their lowest level in 9 months. While the sovereign bond market had been relatively quiet last week, it started to catch down to stocks today with Portugal, Spain, Italy, and Belgium all giving up significant parts of their Draghi-promise gains. Europe's VIX broke above 26% for the first time in almost 10 months. Think that there should be a flight-to-safety? Think again - Swiss 2Y rates spiked to 10.1bps (remember it was -44.5bps in August 2012) - their highest in 22 months. EURUSD smashed lower in the pre-open US and then oscillated higher in the most mechanically odd manner for the rest of the EU day...

Maybe, just maybe, those pesky plunging lumber prices were on to something after all...

• Stocks Fall With China in Bear Market as Bonds Decline (BBG)
• Russia defiant as U.S. raises pressure over Snowden (Reuters) ...
• and sure enough: Kerry Warns Hong Kong and Russia on Snowden  (WSJ)
• Slow-Motion U.S. Recovery Searches for Second Gear (WSJ)
• PBOC Sees ‘Reasonable’ Liquidity in China’s Financial System (BBG)
• Italy's Berlusconi faces verdict in underage sex trial (Reuters)
• Fed Monetary Course Difficult for a Bernanke Successor to Alter (BBG)
• Another China central bank worry; companies push into lending (Reuters)
• Gold Miner Writedowns at $17 Billion After Newcrest Fallout (BBG)
• Snowden Faces Often-Posed U.S. Fugitive Question: Where to Run? (BBG)

The mere mention that tapering was even possible, combined with the Chairman's fairly sunny disposition (perhaps caused by the realization that the real mess will likely be his successor's problem to clean up) was enough to convince the market that the post-QE world was at hand. This conclusion is wrong. Although many haven't yet realized it, the financial markets are stuck in a "Waiting for Godot" era in which the change in policy that all are straining to see, will never in fact arrive. Most fail to grasp the degree to which the "recovery" will stall without the $85 billion per month that the Fed is currently pumping into the economy.  Of course, when the Fed is forced to make this concession, it should be obvious to a critical mass that the recovery is a sham.

The Brazilian protests, which swept through the country with the raging bear market (and the pulled mega-IPO) over the past week, and which had the goal of reducing a recent bus-fare increase among other assorted protest goals, appear to have succeeded. At least when it comes to the fare increase. As for the other protester demands, listed below, it may take a little longer.

There has been considerable throughput of gold in western capital markets, with substantial buying from all round the world following the April price crash. The supply can only have come from two sources: the general public, or one or more governments. It really is that simple. Two months later the gold price has only partially recovered, so physical supplies have continued to be made available. Physical demand cannot have been entirely satisfied by ETF liquidations, confirming governments are involved. This article looks at the dynamics of the gold market around this event and the implications.