Beige Book

The Central Bank of Ireland continues to be queried about the status of the Irish gold reserves. It has been reluctant to release information and said that it is “not obliged” to release information due to certain “rules and regulations”.  Ireland's finance minister, Michael Noonan, has also been asked about the country's gold vaulted at the Bank of England, such as whether the gold is held in allocated form with a bar list available and whether the gold is leased out into international markets. Answers are as of yet not forthcoming. The Sunday Independent, Ireland’s best selling Sunday broadsheet covered the story yesterday in an article (see news) published yesterday which is being widely shared on the internet and commented upon: Bankrupt Ireland owns six tonnes of gold, the bulk of which is held at the Bank of England, it has been revealed. The Central Bank of Ireland said the value of its gold holdings was €235m last time it checked. This represents just over 1 per cent of its total investments. A spokeswoman said the Central Bank was a party to the Washington Agreement on Gold, which recognised gold as an important element of global monetary reserves. She said the Central Bank had not entered into any lease arrangements regarding any of its gold but would not provide specific details of its storage arrangements with the Bank of England.

Generally bullish, sitting back and enjoying the show while it lasts.

Looks like yesterday put into practice: Let’s thank everyone to turn around markets, when they sink. Nothing to break the barn stomp in Periphery bonds (but themselves). Italy brilliantly stuffed its primary dealer at a 2-year low. Core EGBs holding quite steady, given ROn in Risk and Periphery. Strong US GDP revision – but, as expected anyway. Given the actual level in Risk, good numbers are seen as given. Nothing weak, no more, never. Swimming in a Sea of (Risk) Love. Watch the Event / Headline risk on FC (& Greece. The math still seems quite odd…). Hard Periphery (especially Spain) slap-back in the afternoon, though.

"Sea Of Love" (Bunds 1,37% unch; Spain 5,32% +1; Stoxx 2579 +1,3%; EUR 1,298 +50)

It seems like it was only 24 hours ago that Europe bailed out Greece for the third time and everything was "fixed", with a resultant desperate attempt to validate this by pushing the EURUSD above 1.3000. Sadly, as always happens, Europe, and especially Greece, refuses to be fixed, because as we will not tire of saying: you can't fix debt with i) more debt, ii) hockeystick projections or iii) soothing words of platitude and an outright bankruptcy, just like that which Argentina is about to undergo, will be needed. If that means the end of the EUR and the delusion that the Eurozone is a viable monument to the egos of a few technocratic career politicians, so be it. As a result, this time around the halflife of the latest bailout was precisely zero, as was that of the latest Japanese QE episode, as the entire world is now habituated to the lies emanating from Europe, and demands details, which in turn are sorely lacking, especially as relates to the question of just where will Greece get the money desperately needed to fund the Greek bond buyback. But at least Kathimerini was kind enough to advise readers that said buyback must take place by December 7 in time for the euroarea finmins to approve the payment of the next Greek loan tranche at the December 13 meeting, something which will likely not happen, especially if Germany's SPD party delays the vote on the Greek bailout until the end of December as was reported yesterday. We can't wait to learn the details of the buyback package, which will come in the "next few days" per ANA, and especially where the buyback money will come from, especially with the FT reporting that various European countries will already lose money next year on the latest Greek bailout.

Ok. It’s not that the Greek deal is nothing. But then again, third strike. Eventually expected, or at least hoped for. Hence, lack of concrete follow-through. So, now it’s there. And now what? You Ain’t Seen Nothing Yet? What is there to see??? Pitch the markets some input, something concrete, something to feed off, something to see!

Reasons to be bullish.

Gold edged down on a Monday as speculators took their profits as prices rallied on thin volumes on Friday to their highest in a month on technical buying.  A strong fall in the greenback triggered rapid gains in commodities and options-related buying on Friday. Tonight US Congress will meet to attempt to devise a plan to avert the US fiscal cliff which will throw the US into a spiral of tax hikes and budgetary cuts that will lead the US economy deeper into a recession this January. Another short term ‘resolution’ will almost certainly be achieved which will allow the US to keep spending like a broke drunken sailor and which will again store up far greater fiscal and monetary problems. The scale of these deep rooted structural challenges is so great that they are likely to affect the US sooner rather than later. Global investment demand for gold remains robust with the amount in exchange-traded products backed by the metal rising 0.1% to 2,606.3 metric tons.

The S&P 500 achieved its anticipated 4-5% bounce off the recent 7-10% pullback, most of it accomplished in a very light holiday trading week.  Much of the gains were attributed to overly effusive optimism over the prospects of resolving the fiscal cliff.  Ironically, with Washington abandoned the past ten days for Thanksgiving, we have not heard anything substantive on the negotiations since Senator Reid and Speaker Boehner spoke jointly on the White House Lawn on November 16. The returns in equities that resulted from this perceived positive outlook has likely run its course as the blue chip index has regained the levels from the morning after the Election. Certainly, the mundane increases in open interest for the futures and the outperformance by the blue chips versus smaller capitalization names on a beta adjusted basis hint at such vacuous motivation for the upward move.

Another week begins which means all eyes turn to Europe which is getting increasingly problematic once more, even if the central banks have lulled all capital markets into total submission, and a state of complete decoupling with the underlying fundamentals. The primary event last night without doubt was Catalonia's definitive vote for independence. While some have spun this as a loss for firebrand Artur Mas, who lost 12 seats since the 2010 election to a total of 50, and who recently made an independence referendum as his primary election mission, the reality is that his loss has only occurred as as result of his shift from a more moderate platform. The reality is that his loss is the gain of ERC, which gained the seats Mas lost, with 21, compared to 10 previously, and is now the second biggest Catalan power. The only difference between Mas' CiU and the ERC is that the latter is not interested in a referendum, and demand outright independence for Catalonia as soon as possible, coupled with a reduction in austerity and a write off of the Catalan debt. As such while there will be some serious horse trading in the coming days and week, it is idiotic to attempt to spin last night's result as anything less than a slap in the face of European "cohesion." And Catalonia is merely the beginning. Recall: "The European Disunion: The Richest Increasingly Want To Fragment From The Poorest" - it is coming to an insolvent European country near you.

Greece? Sorry, what’s with Greece? French downgrade. Unexpected, but then again not that much. So what? Fiscal Cliff? As no one speaks about it, it can be ignored. Risk? If it doesn’t fall, it has to rise.

"Rise To The Occasion" (Bunds 1,43% +2; Spain 5,7% -9; Stoxx 2518 +0,4%; EUR 1,282 +10)