Traditionally, metals markets are supposed to be a solid fundamental signal of the physical and psychological health of our overall economy. Steady but uneventful commodities trade meant a generally healthy industrial base and consumption base. An extreme devaluation was a signal of deflation in consumer demand and a flight to currencies. Extreme price hikes meant a flight from normal assets and currencies in the wake of possible hyperinflation. This is how gold and silver markets were originally designed to function – however, welcome you to the wacky world of 2013, where bad financial news is met with the cheers of investors who believe stimulus will last forever, where foreign investors dump the U.S. dollar in bilateral trade while mainstream dupes argue that the Greenback is invincible, and where everyone and their uncle seems to be buying precious metals yet the official market value continues to plunge. The reason our entire fiscal system now operates in a backwards manner is due to one simple truth - every major indicator of our economy today is manipulated by our central bank...
There is literally no evidence that printing money creates jobs. Look at Japan, they have and continue to maintain QE efforts equal to 40+% of their GDP and unemployment hasn’t budged in 20 years. The UK has engaged in QE equal to over 20% of GDP with no success.
While there was little macro news to report overnight, the most notable development was yet another USDJPY-driven crash in the Nikkei 225 which plunged by a whopping 576 points, or 4%, to 13825, while the Yen soared to under 96.80 in the longest series of gains since mid-June before recouping some of the losses on pre-US open program trading. The reason attributed for the move were reports that Japan would adhere to pledge to cut its deficit which is the last thing the market wanted to hear, as it realizes that boundless QE is only possible in a context of near-infinite deficit spending. The index, which has now become a volatility joke and woe to anyone whose "wealth effect" is linked to its stability, pushed not only China's Shanghai composite lower by 0.7% but led to losses across the board and as of this moment is seen dragging US equity futures lower for the third day in a row.
The USA is veering into a psychological space not unlike the wilderness-of-mind that Germany found itself in back in the early 20th century: the deep woods of paranoia where our own failures will be projected onto the motives of others who mean to do us harm. The USA cannot come to terms with the salient facts staring us in the face: that we can’t run things as we’ve set them up to run. We refuse to take the obvious actions to set things up differently. That disorder has infected our currency and the infection is spreading to all currencies. The roar you hear in the distance this September will be the sound of banks crashing, followed by the silence of business-as-usual grinding to a halt. After that, the crackle of gunfire.
There are lot of similarities between the 1920s and today. In fact Livermore’s quote says it all: “There is never anything new on Wall Street, because speculation is as old as the hills.” 1924-1929 bull market was rigged by stock manipulators. Ninety-some years later the market is still (or at least is perceived to be) rigged by ...
Given that the demand for physical gold among private investors has remained strong throughout 2013, the significant price declines in recent months took many investors by surprise. Attempting to make sense out of this situation, speculation has arisen that the so-called 'bullion banks' (the mostly "Too Big to Fail" institutions that are known to work closely with the central banks) have lent out, or even sold, gold on a fractional basis, far in excess of what is supposedly held in their vaults. The result would have been to multiply greatly the amount of 'apparent' gold in the market and thereby depress prices. Such an action would provide needed cover for the embarrassment of currency depreciating central banks' policies.
There has been much discussion about fund flows into domestic mutual funds in the past few weeks for one simple reason: there have been inflows into domestic mutual funds (as tracked by ICI). For some reason, pundits correlate this inflow with the move higher in stocks. What remains unsaid is why there was little to no discussion of fund flows into domestic stock funds for about 90% of the time in the past three years. The reason is just as simple: there were no inflows, as can be seen on the chart below. There were, however, other "exogenous" events during this time: such as QE2, LTRO 1 + 2, Draghi's whatever it takes language and Operation Twist of course, and then QE3 which will likely continue indefinitely and be replace by QE4 the second it is fully "tapered." So what is relevant: inflows (or, gasp, outflows) or whatever central banks do? You decide.
August is traditionally Europe’s holiday month, with many government officials taking several weeks off. In the process, important initiatives are put on hold until the “great return” at the beginning of September. This year, there is another reason why Europe has pressed the pause button for August. With a looming election in Germany, few wish to undermine Chancellor Angela Merkel’s likely victory. Some of the recent economic news has seemed to justify this approach. Yet no one should be fooled. This summer’s sense of normality is neither natural nor necessarily tenable in the long term. It is the result of temporary and – if Europe is not attentive – potentially reversible factors. If officials do not return quickly to addressing economic challenges in a more comprehensive manner, the current calm may give way to renewed turmoil. In essence, Europe (and the West more generally) owes its recent tranquility to a series of experimental measures by central banks; consequently, the resulting surface calm masks still-worrisome economic and financial fundamentals.
As the Fed gets ready to taper ‘QE’, UBS' Larry Hatheway warns investors to brace for a period of increased international policy tension. Previously harmonized - but not coordinated - monetary policy stances will give way to conflicting objectives and new strains as adverse ‘spillovers’ occur. As Hatheway notes, we are about to rediscover several inconvenient truths. First, the Fed is the US, not the world’s, central bank. Second, international policy coordination is desirable in an interdependent world but, third, it is no more likely to materialize now than in the past. The world, it seems, is destined for a less comfortable policy co-existence in the coming few years.
We do not inhabit a “normal” economy. We live in a financialised world in which our banks cannot be trusted, our politicians cannot be trusted, our money cannot be trusted, and – not least thanks to ongoing spasms of QE and expectations of much more of the same – our markets cannot be trusted. At some point (though the timing is impossible to predict), asset markets that cannot be pumped artificially any higher will start moving, under the forces of inevitable gravitation, lower.
A discussion of this week's key events and data within the context of the investment climate characterized by shifting Fed tapering expectations, evidence still pointing to a soft landing of the Chinese economy, a cyclical recovery in Europe and renewed capital outflows from Japan, while foreign investors slow their purchases of Japanese equities.
When one examines the impending disaster in Egypt, it is important to avoid using a narrow lens and take into account the bigger picture. An Egyptian civil war will not ultimately be about Egypt. Rather, it will be about catalyzing the whole of the Middle East towards breakdown and drawing in larger nations in the process, including the United States. It will also be about triggering energy price increases designed to give cover to the collapse of the dollar's world reserve status. If globalists within our government and within central banks allow the dollar to die today, THEY will be blamed for the collapse that follows. THEY will be painted as the villains. But, if they can create a crisis large enough, that crisis becomes the scapegoat for all other tragedies, including dollar debasement. Egypt is just one of many regions in the world where such a crisis can be fabricated. Right now, it seems to be the most opportune choice for the elites.
In an important diversion from a pure markets focus, Marc Faber outlines his concerns and hopes for the "economic battle between the US and China," noting that as the gap between the Western world and the US narrows so "through trading links, [China] has more and more influence," especially (he adds) in Africa. His biggest fear, and one stoked every day, is that if the Chinese economy slows down meaningfully, they will depreciate their currency, leaving the world's largest economies "in a mode of protectionism - not just through import quotas - but through currency manipulation." And for now Russia is happy just tp upset the US via diplomatic means, but, Faber warns, should we see commodity prices slide further, low growth in Russia may prompt further actions - especially given US interference in markets and politics.
The LBMA clearing statistics therefore essentially represent huge daily trading through unallocated accounts, most of which is classified as spot delivery, but which is backed by very small physical metal foundations. The clearing statistics while interesting, need to be made more transparent and granular beyond the headline data. Otherwise they tend to obscure rather than illuminate.
The bigger story is Japan, where the Central Bank dream of doing “enough” is crashing into the wall. Japan has announced a $1.4 trillion QE effort, an amount equal to 21% of its GDP. To put this into perspective, this is the single largest QE in history, the kind of QE Bernanke and his pals could only dream of announcing.