The technical picture for Euro gold looks near perfect now. Gold has been trending higher since May. The long term charts show a series of higher lows and higher highs and even in the correction of recent months there have been a series of higher lows and gold gradually consolidated between €1,200 and €1,400/oz. Gold is now comfortably above the 50, 100 and 200 day moving averages. In the last four years, there have been 3 periods of correction and consolidation which have lasted 12 to 13 months (see boxes in first chart) and we appear to be coming to the end of another such period. Break outs from such consolidations often lead to sharp moves higher and thus new record highs above €1,359/oz and possibly over €1,600/oz should be seen before the end of 2012. The fundamental back drop of the unresolved Eurozone debt crisis , deep divisions in the ECB and a high degree of uncertainty regarding the euros long term future strongly suggest that the euro will continue to fall against gold in the coming months. Further confirmation of robust demand for gold is seen in figures showing that exchange-traded products backed by the gold expanded to a record. Smart money from Paulson to Soros to PIMCO continues to diversify into gold. Gold ETFs holdings have now surpassed Italy to become the world’s third-largest gold holdings when compared with national gold reserves.
- Hurricane Isaac Whips Storm Surge on Path to New Orleans (Bloomberg)
- Republicans Vow to Transform Obama’s U.S. With Low Tax, Freedom (Bloomberg)
- Little-known Ryan to take center-stage at Republican convention (Reuters)
- An $800 billion stimulus tempest in a teapot: China State Researcher: Local Govt Investment Plans Largely Symbolic (WSJ)
- China Says Payment Delays, Defaults May Worsen (Dow Jones)
- G-7 Countries Call for Increased Oil Output to Meet Demand (Bloomberg)
- Creeping Socialism: Clegg calls for emergency tax on rich (FT)
- United Airlines computer problem delays 200 flights (Chicago Sun Times)
- Paulson, Investors Avoid Fireworks Despite Brutal Run (Bloomberg)
- Occupy Sets Wall Street Tie-Up as Protesters Face Burnout (Bloomberg)
- The nostalgic grass is always greener: Serbia Joblessness Swells as Milosevic-Era Leaders Return (Bloomberg)
A Round Up of today's articles. In audio summary!
It's a party in your mouth. Just don't choke.
Going nowhere fast was the theme today as equities managed to end practically unchanged (SPX/Dow down, NDX up) but intraday saw some very gappy behavior (though admittedly in a very small range). VIX is the story of the day in our view - realized volatility has dropped to near-record lows (which had, until a week ago, been a big driver of front-end implied vol compression) and yet VIX pushed higher (with implied vol now at almost a three-month high premium to realized). The point being - protection is bid, and a VIX of 16.5% is much more concerning given its premium than some would believe. Volume was above its very recent and dismal average but still around 15-20 percentage points below normal summer doldrums levels. Risk assets in general trod water today with modest outperformance by Treasuries (yields lower 1-2bps) and negligible moves in FX carry trades - even as the USD is down 0.35% since Friday (mirroring Silver's 0.35% gain). With Consumer confidence dismal, somewhat strangely both Consumer Staples and Discretionary outperformed on the day. Very low average trade size, a low high-low range, and a general inability to pull away from VWAP (+/-3pts only) suggested everyone is on hold (or buying protection as we noted above); but the small flush into the close was not very encouraging.
When Ben Bernanke launched QE 2 in 2010 he outlined a third mandate for the Federal Reserve - the boosting of consumer confidence. He stated that the goal of QE 2 was to boost asset prices in order to spur consumer confidence through the "wealth effect" which should translate into economic growth. In 2010 he was right, and QE 2 not only boosted asset prices sharply, but kept the economy from slipping into a recessionary spat. As Friday's speech from the economic summit in "Jackson Hole" draws near - Bernanke should be taking a clue from today's release of consumer confidence in considering his next move.
With inflation expectations soaring and jobs plentiful relative to hard-to-get falling slightly, Consumer Confidence plunged its most in 10 months to a level not seen since November of last year. It seems that despite all the hopes and prayers priced into US equity market valuations, the US Consumer remains unimpressed, unhappy, and unemployed. Of course, the 'good is bad, bad is better' market has interpreted this as a clear QE-on flag (for this millisecond anyway).
- Ringing endorsement: Lithuania to Adopt Euro When Europe Is Ready, Kubilius Says (Bloomberg)
- Credit Agricole net plunges 67% on losses in Greece and a writedown of its stake in Intesa Sanpaolo SpA (Bloomberg)
- Europe finally starting to smell the coffee: ECB Urging Weaker Basel Liquidity Rule on Crisis Concerns (Bloomberg)
- Japan Cuts Economic Assessment (Reuters)
- France’s Leclerc Stores to Sell Fuel at Cost, Chairman Says (Bloomberg)
- China Eyes Ways to Broaden Yuan’s Use (WSJ)
- Berlin and Paris forge union over crisis (FT)
- Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion (Bloomberg)
- Republicans showcase Romney as storm clouds convention (Reuters)
- ECB official seeks to ease bond fears (FT)
- German at European Central Bank at Odds With Country’s Policy Makers (NYT)
Weidmann rejected suggestions that he was isolated on the ECB Governing Council in having such reservations. "I hardly believe that I am the only one to get a stomach ache over this," he said. Alexander Dobrindt, a senior German politician who has been the Executive Secretary of the Christian Social Union of Bavaria since 2009, was more direct, saying Draghi risked passing into the history books as the "currency forger of Europe". A conservative ally of Merkel, Dobrindt echoed Bundesbank’s Weidmann that Greece should leave the currency bloc by next year. The comments show the huge divisions in Germany over the debt crisis now in its 3rd year and the understandable concerns of inflation and even hyperinflation. The Bundebank and senior politicians and allies of Merkel may thwart Mario Draghi’s big plans to do “whatever it takes” to solve Europe’s financial collapse. One way or another, the euro is certain to fall in value in the long term.
As Jevons alludes to — and especially in a world where most of us live in an irrigated industrial society — it would seem that there are many other significant factors in determining both long and short term variations in food price — technology shocks, wars, energy shocks, social changes. Food prices are a complex and multi-dimensional equation with a lot of variables. But the impressive thing is that even in a modern agriculturally mechanised and industrialised economy there remains a discernable underlying association between food prices and the solar cycle.
FOMC Minutes Indicate No Shift In Fed's Views, Even As Many Members See More Easing Likely WarrantedSubmitted by Tyler Durden on 08/22/2012 13:02 -0500
The thoughts of the FOMC from a mere three weeks ago - before a 30bps rise in 10Y yields (40bps in 30Y), 5% rise in the NASDAQ, 8.5% rise in AAPL, and 85bps compression in Spanish bond spreads - are out. It appears little has changed in their muddle-through, always at-the-ready, wish-it-were-better view of the world. Via Bloomberg,
- *FOMC PARTICIPANTS SAW ECONOMY DECELERATING AFTER JUNE MEETING
- *MANY FOMC PARTICIPANTS SAID MANUFACTURING WAS SLOW OR FALLING
- *FOMC PARTICIPANTS DISCUSSED QE, EXTENDING 2014 FORECAST ON RATE
- *FED STAFF SAID MARKETS HAVE LARGE CAPACITY TO HANDLE MORE QE
- *MANY FOMC PARTICIPANTS SAW NEW QE AS BOLSTERING U.S. RECOVERY
- *MANY ON FOMC FAVORED EASING SOON IF NO SUSTAINED GROWTH PICKUP
Translation: "Many on FOMC want the S&P at all time highs without actually doing any QE, ever, because that will mean the Fed is officially out of bullets"
This month marks the 50th anniversary of Thomas Kuhn’s The Structure of Scientific Revolutions, one of the landmark philosophical texts of the last century. The central thesis of the book is that science advances in fits and starts, clustered around the advent of new 'Paradigms' - a term that Kuhn introduced in the book and much of academia subsequently coopted as their own. This was a novel thought for the times, since the conventional philosophy held that science advanced through the ages in plodding but rigorous steps. Kuhn’s observation about science is equally applicable to capital markets, for the range of 'Paradigm shifts' underway goes a long way to explaining everything from why companies refuse to invest to why earnings multiples on U.S. stocks remain so low. Today, in celebration of Kuhn's opus, ConvergEx's Nick Colas offers up a list of the 'Top 10 Paradigm Shifts' currently underway; and notes that new paradigms don't often have as much to them as the old ideas they replace. They are often actually inferior. Over time they get their bearings, yes. But the transition is rough.
Markets taking any negative news as additional must-have accelerators of a bail-out.
Time being of the essence.
But what if things just drag on?
University of Michigan Consumer Confidence came modestly higher than expected and limped higher off the lowest levels of the year. However, aside from this apparently positive event (accoding to some media pundits), there are two worrying things shifting rapidly. Consumer outlook for the economy (as opposed to current conditions) dropped to their lowest of the year with the largest 3-month drop in 11 months (so much for hope?); and inflation expectations soared by the most in 17 months.
Just when you thought it was safe to get back in the water of shark-infested algos; just as we hit multi-year equity index highs (with the entire interest rate complex devastatingly divergent still - despite very-recent weakness), we thought it might be at least a little instructive to remember what happened in the late 1970s as analog. These 3 simple charts of Consumer Confidence, Capacity Utilization, and Initial Jobless Claims show just what can happen when you think it's all over. While there are many 'goal-seeked' analogs, we find these extremely timely given the somewhat similar underlying conditions that the world faces; to wit, Citi notes: "A Middle East 'tinderbox' that is very susceptible to a food price shock and a likely cause of an Oil price shock (as we saw in 1973-1974 and again in 1978-1979)."