The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:
- To protect against monetary recklessness
- As insulation against fiscal foolishness
- As insurance against the possibility of a major calamity in the banking/financial system
- For the embedded 'option value' that will pay out handsomely if gold is re-monetized
The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.
The risk that creditors, savers and bondholders, rather than taxpayers will bear the brunt of rescuing a bank in trouble form part of the first credit ratings given to 18 of Europe's biggest banks yesterday by new ratings agency, Scope.
A week ago we wrote: 'While it has been public for a long time that i) JPM is eager to sell its physical commodities business and ii) the most likely buyer was little known Swiss-based Mercuria, there was nothing definitive released by JPM. Until moments ago, when Jamie Dimon formally announced that JPM is officially parting ways with the physical commodities business. But while contrary to previous expectations, following the sale JPM will still provide commercial gold vaulting operations around the world, it almost certainly means farewell to Blythe Masters." Sure enough:
JP MORGAN COMMODITY CHIEF BLYTHE MASTERS LEAVING, WSJ SAYS
Farewell Blythe: we hope your replacement will be just as skilled in keeping the price of physical gold affordable for those of us who keep BTFD every single day.
After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.
While it is easy to blame western sanctions for the recent tribulations at the world's largest aluminum company, Oleg Deripaska's Rusal, the reality is that the industry specific issues plaguing aluminum makers, certainly including former Dow Jones Industrial Average member Alcoa, which involve a fair share of manipulation of physical inventories at assorted global warehouses are much more responsible than some theatrical rhetoric flaring up between the West and East in the past month. Regardless of the cause, as FT reports, Rusal just announced it is on the verge of insolvency after it warned of "material uncertainty" about its future, and that it has asked its creditors to delay repayment on a maturity from its $10 billion debt pile due next month.
- Crimea Resolution Backed by U.S. Barely Gets UN Majority (BBG)
- Russian Buildup Stokes Worries (WSJ)
- As reported here first: China’s Developers Face Shakeout as Easy Money Ends (BBG)
- U.S. House Poised to Clear Sanctions Called Putin Warning (BBG)
- Bitcoin Prices Plunge on Report PBOC Orders Accounts Shut (BBG)
- Search for lost Malaysian jet shifts significantly after new lead (Reuters)
- Russian fund taps China and Middle East (FT)
- Long battle looms between U.S. college, athletes seeking to unionize (Reuters)
- Official warns EU-US trade deal at risk over investor cases (FT)
- New iPhone likely out in September, Nikkei daily says (AFP)
Are you thinking of going to college? If so, please consider that decision very carefully. You probably have lots of people telling you that an "education" is the key to your future and that you will never be able to get a "good job" unless you go to college. And it is true that those that go to college do earn more on average than those that do not. However, there is also a downside.
Let the fun begin.
Two years ago, on April 2, 2012, long before it became abundantly clear to even the most clueless CNBC hacks, we said that there will be no capex boom as long as corporate management teams abuse ZIRP (and yes, it is all the Fed's fault as we further explained) to allocate capital, most of it courtesy of low-cost debt, by providing quick returns to activist investors through dividends and buybacks, instead of reallocating the funds to grow the company by investing in Capex (the latest proof of the unprecedented lack of capital spending growth increase came earlier today) and SG&A or at least M&A. Two years later after our post, whose conclusion has been proven empirically by what has happened in the US economy where CapEx still refuses to pick up despite endless lies of some recovery that refuses to materialize except in talking head year-end bonuses, none other than the head of the world's largest asset manager, BlackRock's Larry Fink admits we were right all along.
A dispassionate look at the main considerations for investors in the week ahead.
In the early hours of yesterday morning European Union politicians struck a deal on legislation to create a single agency to handle failing banks and bail-ins in the Eurozone. It is important to realise that not just the EU but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations all have plans for bail-ins. Prepare accordingly ...
Why Mainstream Economists Like Krugman Are So WRONG and So DANGEROUS
With The White House proclaiming Russian stocks a "sell" today (and in the meantime Russian stocks and the Ruble strengthening), it is clear, as Citi's Steven Englander notes, that the Russia/Ukraine crisis may be the first major political conflict that is played out in international financial markets. The difference, Englander points out, between this and standard imposition of sanctions is that both sides have some options that can inflict damage on the other side; and this has significant implications for investors in the short- and medium-term.
- Lost Jet’s Path Seen as Altered via Computer (NYT)
- Fed Links Low Rates to “Persistent Headwinds” in Economy (Hilsenrath)
- Top German Court Clears Euro-Zone Bailout Fund (WSJ)
- U.S., EU set sanctions as Putin recognizes Crimea "sovereignty" (Reuters)
- Indian wealth effect: Sensex, Nifty hit life highs as domestic-focused firms rally (Reuters)
- China bond default has positive effect on local government groups (FT) - unless it's negative
- Russia tensions risk higher gas prices (FT)
- China Home-Price Growth Slows in Big Cities on Tight Credit (BBG)
- ECB's Weidmann says German surpluses "here to stay" (Reuters)
- Microsoft Office for iPad (AAPL) to be introduced this month (The Verge)
A few days ago, copper prices and the Chinese stock market were roiled by speculation that another - the second in a row - Chinese bond default may be imminent, in the shape of Baoding Tianwei Baobian Electric (TBE) a maker of electrical equipment and solar panels, whose bonds and stock were suspended from trading a week ago after reporting massive losses. A few days later, TBE "promised" not to default when its next interest payment is due in July (although how the insolvent company can see that far into the future is just a little confusing). And yet the market shrugged and contrary to its recent idiotic euphoria to surge on even the tiniest of non-horrible news, barely saw a rise. Today we may know the reason: overnight Bloomberg reports that second Chinese corporate bond default may be imminent after the collapse and arrest of the largest shareholder of closely held Chinese real estate developer Zhejiang Xingrun Real Estate Co, which just happens to be saddled with 3.5 billion yuan ($566.6 million) of debt.