In a world some thought we would never see, most Americans and much of Congress seem to agree with Ron Paul's foreign policy advice - at least on the question of a military strike against Syria...
Israel's richest person Beny Steinmetz, who amassed his $7.4 billion net worth beginning in the diamond trade, has seen his Geneva home raided by Swiss police following a request from the Government of Guinea. The West African country, as Bloomberg reports, approached Swiss prosecutors following an investigation into claims that bribes (shock, horror) were paid for mining licenses by Steinmetz's mining company BSG Resources. This follows raids of London-based Onyx Financial (run by a director of BSG) and the arrest of a BSG employee on charges he interfered with the U.S. grand jury probe (witness tampering, obstructing a criminal investigation and destruction of evidence in a federal investigation). He has pleaded not guilty. All sounds above board we are sure... just ask Eike Batista...
For the last few days we have been bombarded with words that appear 'peaceful' and problem-solving from Russia with love. Of course, 'no change' benefits mother Russia the most as his government's gas revenues (and political power) will continue to flow from Europe (a quarter of Russian government income comes from being Europe's gas supplier). So it will come as no surprise that amid the Mother Theresa acts, The Telegraph reports that Putin is readying delivery of more S-300 air-defense missile systems to Iran and will continue to discuss "working together in the nuclear energy spehere." Combine that with experts' views that Russia's plan to dismantle Syria's stockpiles of mustard gas, sarin, VX nerve agents is a long shot; initially "sounding attractive, but very quickly, operational problems could derail obtaining international control, much less actually destroying the arsenal." It would appear, despite all the chatter, that Putin is increasing his power-base in the region.
The week ahead will be relatively quiet with few major data releases. The main focus will be on the Flash PMIs in the Eurozone and China as well as the FOMC minutes and Jackson Hole. In the US the relatively new Preliminary PMI has been found useful by our US team in forecasting the ISM. Existing and new home sales are additional data points of interest in the US. The key focus this week will be on central bank action. Minutes from the FOMC and the RBA will be followed by rate decisions in Thailand and Turkey. Finally, on Thursday starts the annual Jackson Hole conference with lots of Fed speakers, including Yellen next weekend. Chairman Bernanke, whose term ends in January, will not attend.
With calls for a European renaissance and a general belief in stability through the German elections, it is perhaps worth a reminder of the structural problems that the supposedly bottoming union is facing. Nowhere is that single monetary policy-facing dilemma more evident than in the massive economic growth divergences across the EU nations and the current huge gap in unemployment rates from Greece to Austria and beyond. It seems the world is waiting for Merkel's re-election and fold on austerity (seemingly confirmed by the leaked BuBa report recently) but EU stress test transparency may remove the symbiotic safety net of bank bond buying sooner than many believe. With monetary policy somewhat euthanized across the EU, what's left for the fragmented transmission channels but more promises as pension funds and banks are stuffed to the gills with their own domestic bonds.
- U.S. Regulator Subpoenas Banks Over Long Warehouse Queues (BBG)
- Apple Said to Prepare Holiday Refresh of IPhones to IPads (BBG)
- Fed's Yellen Says Stance on Banks Hardened (WSJ)
- Mexico opens up its energy sector (FT)
- Spin: Greek GDP marks gradual deceleration of recession (FT) ... spin aside, it dropped 4.6%, and in reality, probably over 10%
- Made-in-Canada Solution For BlackBerry Avoids Nortel Fate (BBG)
- America's Farm-Labor Pool Is Graying (WSJ)
- Video of 'lame' cattle stirs new concern over growth drugs (Reuters)
- Paulson Bid for Steinway Trumps Kohlberg Offer (WSJ)
- Egyptian government yet to decide on pro-Mursi vigils (Reuters)
There was a time when wealthy foreigners would frequently travel all the way to these United States in order to receive top notch medical attention. Fast forward a decade or two, and all we hear about now is how it is us Americans being forced abroad in order to receive affordable care. From a hip and knee implant cartel of five companies, kickbacks to surgeons, salespeople in the operating room, massive bureaucratic red tape and rampant price gouging, in complete contrast to the Hippocratic Oath; it is perhaps no surprise that "the list price of a total hip implant increased nearly 300 percent from 1998 to 2011."
We are told that the Chinese do not have any money left, that the coffers are empty and that they will have to go the same way as the US and start printing presses rolling along so that the banks end up flush again and the economy rebounds.
As readers are well aware by now, at 8:30 am today we get to see the rewriting of US GDP history back to 1929 with the revisions from the BEA. It’s a big last day of July with the Fed meeting coming after the GDP release. For GDP, real growth is expected to be as low as 1.0% in Q2. Opinions vary widely on today’s GDP number with one major US investment bank’s estimate as low as 0.2%, a number of bulge bracket banks at 0.5% while there are also plenty of economists above 1.5%. It is not news to anyone that nominal GDP is very low at the moment - especially in a world of nosebleed high debts - and today could see this have a 1-handle YoY (and at best a 2-handle) - a level not even normally seen at the depths of most recessions.
Don't like how high debt-to-GDP figures are? Revise 'em. Unhappy at the post-'recovery' growth rates? Revise 'em. Disappointed at the pace of economic improvement in the last decade or two compared to the rest of the world? Revise 'em. This week "we are essentially rewriting economic history" as the BEA is set to revise GDP data from as far back as 1929. The 'adjustments' to account for intangibles (that best known of micro- accounting fudge factors) and as we noted previously in great detail, will increase GDP by around $500 billion. Of course, these changes are defended aggressively (just as the hedonic adjustments to inflation calculations 'make perfect sense') as GDP will now reflect spending on research, development, and copyrights as investment - and reflect pension deficits for the first time (think of all that potential future GDP from massive pension deficits now). With Q2 GDP growth estimates set for a dismal 1.1%, expectations are for the short-term economic data to be revised upwards (and with any luck the great recession never happened at all).
The recent decline in gold prices and the drain from physical ETFs have been interpreted by the media as signaling the end of the gold bull market. However, our analysis of the supply and demand dynamics underlying the gold market does not support this thesis. In our view, the bullion banks’ fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available. Demand from emerging markets, who do not settle for paper gold, has perturbed the status quo. Thus, our recommendation to investors is the following: empty unallocated gold accounts and redeem your gold in physical form (while you still can).
It has all gone belly up if we look at the EU and we are honest. Yes, they might be trying to paper of the cracks and yes they might be shoving some super strong glue in their to stop everyone pulling in different directions, but if they are really truthful about it, the EU28 (now that Croatia has become a member since July 1st 2013)
It is easy to get the impression that the naysayers are wrong on Europe. After all the predictions of Armageddon, ten-year government bond yields for Spain and Italy fell to the 4% level, France which is retreating into old-fashioned socialism was able to borrow at about 2%, and one of the best performing bond investments has been until recently – wait for it – Greek government bonds! Admittedly, bond yields have risen from those lows, but so have they everywhere. It is clear when one stands back from all the usual euro-rhetoric that as a threat to the global financial system it is a case of panic over. Well, no. Europe has not recapitalized its banking system the way the US has (at great taxpayer expense, of course). Therefore, it is much more vulnerable. Where European governments and regulators have failed to make their banks more secure it is because they tied their strategy to growth arising from an economic recovery that has failed to materialize. The reality is that the Eurozone GDP levels are only being supported at the moment by the consumption of savings; in orther words, the consumption of personal wealth. Wealth that is not infinite; and held by those not likely to tolerate footing the bill for much longer.
- Scalpel in Hand, Chinese Premier Li Stirs Reform Hopes (Reuters)
- Obama Sets Conditions for Keystone Pipeline Go-Ahead (FT)
- World’s Most Indebted Households Face Rate Pain (BBG)
- SAC Probers Weighing 'Willful Blindness' Tack (WSJ)
- Draghi Says ECB Ready to Act, Calls for Investment Over Tax (BBG)
- U.S. Tops China for Foreign Investment (WSJ)
- Basel Presses Ahead With Plans to Limit Bank Borrowing (FT)
- Gillard Ousted as Australia PM by Rival Rudd (FT)
- Japan Economic Strength Will Show in Stocks, Nishimura Says (BBG)
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...