Commodity Futures Trading Commission
Where does Larry Summers get off giving Americans advice on how to fix the continuing housing crisis? And where does this political opportunist find the unmitigated gall to instruct us not to “finger point” and thereby identify culprits in Washington who helped enable the housing mess?
Different views for next week....
Let's just say even if you were an Olympic skier, you would not want to ski on that slope...
With France's AAA credit rating looking shakier by the day and Spain being downgraded by two notches, gold should be supported by safe haven demand. Every day that goes by without resolving the issue of too much debt in the global financial system is a day closer to financial contagion. Gold looks very well supported between the 100 and 144 day moving average (simple) with the 144 day moving average providing strong support for nearly three years - since January 2009. Bullion dealers in Hong Kong say physical demand is robust at these levels with one dealer reporting “a wave of physical buying” once prices went below $1,630/oz. Newsletter writer, Dennis Gartman again made negative sounds about gold’s prospects. This is bullish in the short term as many of his short term calls in recent months have been inaccurate. Indeed, some traders use him as a good short term contrarian indicator. The Chart of the Day (‘Real Interest Rates and Gold – 1970-2011’) shows that gold prices rise during periods of negative real interest rates in the U.S. as was clearly seen in the 1970s and again since the early 2000s.
- CFTC approves new caps on speculators (FT)
- Europe Banks Vow $1 Trillion Shrinkage as Recapitalization Looms (Bloomberg)
- Banks’ Files Are Seized (WSJ)
- Major China Stimulus Is Not Needed as Growth Is ‘Sound,’ PBOC Adviser Says (Bloomberg)
- UK recovery off-track, says King (FT)
- Yen Erases Gain as Nikkei Says Japan to ‘Form Team’ on Currency (Bloomberg)
- Fed’s Plosser: No worries on inflation in short term (Reuters)
- French warning to euro summit (FT)
- Ireland May Seek to Transfer Allied Irish Rescue Cost to EU (Bloomberg)
Today at 8 pm is the latest installment in the Republican presidential debate drama this time, appropriately enough, straight out of Sin City. Here is what else to look forward to from DC.
Hong Kong, the world's third-largest gold trading centre, has become the world's first place to offer gold trading in yuan, further positioning the yuan or renminbi as a potential global reserve currency. Hong Kong’s Chinese Gold & Silver Exchange Society, a century old bullion bourse, has introduced gold trading quoted in Chinese yuan, making it more convenient for Chinese people and high net worth individuals (HNWs) holding yuan to invest in the precious metal and opening a new way to hedge. The move comes amid the continuing push by Chinese authorities for a more international role for its currency and as an alternate reserve currency to the embattled dollar and euro. With gold now traded in yuan, it is only a matter of time before oil is traded in yuan thereby positioning the yuan as ‘petro yuan’ and a rival to the petrodollar’s status as the global reserve currency. The move reinforces Hong Kong’s status as an offshore hub for the Chinese currency and as a rival to New York, London and other cities as a global financial capital. The Chinese Gold & Silver Exchange said that the service, dubbed "Renminbi Kilobar Gold," is targeting retail and institutional investors. The product is among the latest offerings designed to tap the fast-growing pool of yuan deposits within Hong Kong banking system. "By attracting both local and international investors, the Renminbi Kilobar Gold is a significant step towards internationalizing the renminbi," said Haywood Cheung, president of CGSE.
While the euro has been gloriously soaring higher over the past nine days, to much pomp and circumstance, with the move now 3.2% on the week - the biggest 5 day gain since the beginning of the year, and European bureaucrats overeager to point out that there is no way the currency could be on the verge of implosion if it is in fact soaring, a far more quiet and stealthy move has occurred in the spread between French and German bunds, which just hit an all time record. Why is this important? Because as the chart below shows, the correlation between the two had been for all intents and purposes 1.000... until 5 days ago when it bexome -1.000. Which is a clear signal that the move in the EUR is now purely technical and on last fumes from the ongoing short squeeze long discussed on Zero Hedge (watch for the CFTC COT update at 3pm today for the plunge in net EUR short exposure); it is also a loud signal for a compression trade between the France-German bund spread and the EUR, and as such we encourage readers with a capacity to enact said compression trade to boldly go where no weak EUR short covering hands have dared go in the past 5 days.
Zero Hedge Kindly Requests The Immediate Resignation Of Mary Schapiro For Gross Breach Of Professional ResponsibilitiesSubmitted by Tyler Durden on 10/04/2011 20:51 -0500
Ever wonder why the final SEC report on the flash crash doesn't match up to the forensic evidence found by Nanex? It seems the SEC/CFTC failed to disclose they didn't get around to interviewing the traders that actually executed the algorithm blamed for dumping 75,000 emini contracts on the market "without regard to price or time" until 2 weeks after publishing their final report on the flash crash! Apparently, they were making a lot of things up to fit a foregone conclusion. According to the media, it was Waddell & Reed who executed those trades right? Well, no. Barclays executed the contracts using their time tested algorithm called Participation. You simply can't crash a market with the Participation algorithm. This is an algorithm that in fact has sophisticated price and time components. This is an algorithm that would only sell at the offer -- and never at the bid. This was discovered and pointed out by Nanex after just one day reviewing the actual 6,438 eMini contract trades (75,000 contracts) which ZeroHedge helped obtain. But the media was happy to hang the guilt on an out of town mid-west Mutual Fund company, and besides all this stuff was getting way too complicated. After all, when it comes to such complexities, it is only economy PhDs who are fit to opine at will. Only the SEC/CFTC wasn't counting on anyone double checking their work..
While the drop in speculative interest in various currencies made news last week, it is the turn of precious metals to be the key focus in this week's summary of the CFTC's Commitment of Traders report. As the chart below demonstrates, as of Thursday September 27, both gold and silver saw a massive plunge in the net long non-commercial interest (the cleanest proxy of how speculators are positioned in gold and silver). This is not surprising, following last Friday's CME hike in gold and silver margins, and this week's follow through action by the Shanghai Gold Exchange. The drop of 22,278 and 7,113 contracts, in gold and silver, to 127,801 and 15,425 contracts, respectively, brings the net total exposure to the lowest it has been since the fear of deflation was the only thing on everyone's mind in March of 2009. What is perplexing is that the net spec interest in silver is about half where it was on December 31, 2010 even with silver unchanged on the year, while only 56% of the long spec gold contracts from the beginning of the year remain even as gold is still up 15% YTD!
Bullish Dollar Sentiment Surges By Most In Years, As CFTC-Based Rumors Of Euro Demise Are Not ExaggeratedSubmitted by Tyler Durden on 09/23/2011 15:12 -0500
For once the speculators got it right. In the week ended September 20, net USD futures and options exposure surged by the most in years, with net non-commercial contracts soaring by a whopping 22,577 contracts to the highest since April of 2010. The flip trade is a collapse in EUR sentiment, which saw net exposure plunge by 25,001 from -54,459 to -79,460, the most bearish sentiment in the European currency has been since June 2010. Net net: the euro is now massively oversold explaining why even the smallest of rumors initiates a furious short covering squeeze. And yes, the next bubble is now not in silver, not in gold, but in the dollar. The first sign of moderation of European stress, or a Hilsenrath piece on the next round of QE by the Chairsatan, and watch the DXY and the various USD pair collapse (and gold surge).
GATA's Chris Powell speaks: "The speaker following me, George Clooney, will be able to tell you what it's like to be handsome, talented, rich, and famous. I could tell you what it's like not to be. But instead the conference has asked me to talk about gold, which at least might make you rich, or help you preserve some of whatever you've got. This opportunity is full of risk, because the gold market long has been manipulated by Western central banks to restrain the gold price. The Western central banks are slowly losing control of the market but they are not giving up easily. Why do Western central banks manipulate the gold market? The gold market is manipulated because, despite Federal Reserve Chairman Ben Bernanke's insistence to Congress a few weeks ago that gold is not money, just "tradition," gold is indeed a currency that competes brutally with government-issued currencies and helps determine not only the value of those currencies but also interest rates and the value of government bonds...."
It has been a while since JP Morgan has been sued for silver manipulation. Well, that changed on September 12, after JPM was served with its most recent lawsuit alleging silver manipulation, which we have no doubt will promptly move from JPM's Inbox straight to the trash can. Since this is a class action, virtually everyone who has ever traded silver and lost on the trade appears to be on the list of plaintiffs (we jest, although the list of impaired parties a through x is rather, well, dillutive of the purpose). It is unfortunate that the John Doe defendants are not named as the general media will merely see this as just another lawsuit which serves simply to remind us that the CFTC still has to investigate any of the allegations against JPM and HSBC for silver manipulation. And while a lot of the content in the filing is regurgitated filler, it does provide some suggested details (with price/volume - probably a first in a legal filing) on JPM's specific manipulation techniques, which makes for some engaging reading. There is substantially more, which at time reads like a diary of a conspiracy nutjob, and unfortunately that is how the conflicted legal system will see it. Because after all it is the CFTC's dute to monitor its member firms, and as long as the regulator is one of the alleged manipulators, nothing will change. That said, we certainly wish the plaintiffs lots of luck to at least get their case heard. That said, and going beyond the purvey of this lawsuit, we ask ourselves: why all the endless sound and fury over this purported ongoing price manipulation. Surely, the plaintiffs are smart enough to realize that every market intervention (such as the alleged JPM silver manipulation) always ends with price discovery in the end, i.e., silver, gold, spam, what have you, reaching its fair value. As such, should the litigants not be thanking JPM for allowing them to buy silver at lower than fair value prices? We wonder...
When the dust settled on gold’s volatile week, despite much “noise” from uninformed commentators, it showed that gold fell 2.96% on the week. This must be put in context. The previous week alone gold had risen 6.2%. Despite the 3% sell off last week gold remains up 11.6% in dollar terms (and by similar amounts in other currencies) so far in August with just three trading days left in the month. Meanwhile, global stock markets are down by similar amounts in August, with the FTSE down 11.7%, the DAX down 21.6%, the S&P down 8.95% and the MSCI World down 10.95%. Thus, gold has again proven its hedging and safe haven status. The data shows that sentiment in the futures market towards both gold and silver remains muted with very little evidence of participants ‘piling in’ on the long side. Indeed, it shows that the sharp margin increases seen in silver and the margin increase seen in gold last week have had the desired effect of cooling sentiment thereby making the fundamentals in both markets sounder. The COT data in conjunction with very robust physical demand globally and especially in China (see news) means that any correction is likely to be shallow and short prior to the primary trend reasserting itself.
There was a time when being short was a bad idea. Not anymore. As David Kostin' summarizes in his latest weekly chart packet, the level of 3 month S&P and sector correlation is now at a 20 year high, an environment which never leads to good outcomes for long-only whales, and which has led to sizable outperformance for hedge funds due to their recent loading up on short positions. To wit: "S&P 500 three-month correlation is 0.73, the highest in at least the past 20 years, and up from just 0.44 at the start of August. Sector correlation is similarly high, with all major S&P sectors experiencing realized correlation above their 95th percentile since the late 1980s. While it is difficult to specify a cause for higher correlation, a spike in S&P futures and ETF trading volumes and parallel reduction in open interest held by institutional and levered funds as reported by the Commodities and Futures Trading Corporation (CFTC) indicate significant de-risking in August." What does that mean for recent performance? Nothing good if one is a mutual fund: "Elevated correlation is generally considered a poor environment for long-only fundamental investors. In highly correlated sell offs the market does not discriminate based on company fundamentals, reducing the value of stock picking. Recent performance trends support that case." As a result hedge fund LPs are doing ok: "The typical hedge fund has generated a 2011 YTD return of -1% through August 19 compared with a -10% decline for the S&P 500 and an -11% return for the average large-cap core mutual fund." Alas, if the hedge fund in question is Paulson & Co., this average statistic is very misleading.