Update: Brent just passed $125
Asia-Pacific Tapis Crude Oil tends to be the benchmark grade for oil and gasoline pricing throughout AsiaPac. As WTI cracks $109, the Tapis crude spot price has just seen the largest 3-week rise since last February and is back to July 2008 highs - over $134. In dollars. This seems like perfectly bad timing for China's RRR cut last week, just as real inflation starts to flare in the real economy, and perhaps helps explains Gold's surge as China unapologetically unleashes inflationary pressures.
Anyone Who Thinks that War Is Good For the Economy Has One Eye Covered ... And Is Only Looking At Half the Picture ...
The last six months' market behavior is somewhat breath-takingly similar to the same period a year ago. With global central banks pumping (RoW replacing Fed for now), energy prices soaring, and since the market is the economy - hope is rising that we are doing better; the drivers of the asset price reflation are similar too. While Treasury yields appear to be bucking this sentiment-euphoria, perhaps it is the because the US is the hottest market and all the world's money comes here that we are 'decoupling'. It seems the stakes are higher and scale of known unknowns even larger this time as the can that we are kicking is gathering a lot of trash as it rolls down the road.
We have been saying it for weeks, and today even the WSJ jumped on the bandwagon: the sole reason why crude prices are surging (RIP European profit margins: with EUR Brent at a record, we can only assume the ECB will pull a 2011 and hike rates in 3-4 months even as it pumps trillions in PIIGS, banks bailout liquidity) - is because global liquidity has risen by $2 trillion in a few short months, on the most epic shadow liquidity tsunami launched in history in lieu of QE3 (discussed extensively here in our words, but here are JPM's). Luckily, the market is finally waking up to this, and just as world central banks were preparing to offset deflation, they will instead have to deal with spiking inflation, because the market may have a short memory, it can remember what happened just about this time in 2011. And the problem is that when it comes to the inflation trade, the market, unlike in most other instances, can be fast - blazing fast, at anticipating what the central planning collective's next step will be, after all there is only one. And if Bank of America is correct, that next step could well lead to the same unprecedented economic catastrophe that we saw back in 2008, only worse: $200 oil. Note - this is completely independent of what happens in Iran, and is 100% dependent on what happens in the 3rd subbasement of the Marriner Eccles building. Throw in an Iran war and all bets are off. Needless to say, an epic deflationary shock will need to follow immediately, just as in 2008, which means that, in keeping with the tradition of being 6-9 months ahead of the market, our question today is - which bank will be 2012's sacrificial Lehman to set off the latest and greatest deflationary collapse and send crude plunging to $30 just after it hits $200.
The better tone in risk markets is largely being driven by encouraging economic data from the US and Europe, which as a result saw Bunds trade in negative territory. Of note, ECB’s Liikanen has said that inflation is not a particular concern in Europe, adding that the ECB has never said that there is an interest rate floor. On the other hand, Gilts are being supported by comments from BoE’s Fisher, as well as less than impressive GDP report. Nevertheless, EUR/USD took out touted barrier at the 1.3400 level earlier in the session, while USD/JPY is trading in close proximity to an intraday option expiry at 80.60.
'Gold Bullion or Cash' Shows Buffett, Roubini, Krugman Mistaken; Faber, Rogers, Bass, Einhorn, Gross CorrectSubmitted by Tyler Durden on 02/24/2012 08:33 -0400
Currency debasement of all major currencies is happening today on a scale never before seen in history. Yet there continues to be a complete lack of awareness amongst the majority in the western world as to the risks posed by our currency monetary and financial system. There continues to be a lack of knowledge and indeed often wilful ignorance regarding gold. Indeed, some comments on gold are so ignorant of the historical and academic record that they have all the hallmarks of crude anti-gold propaganda – and will be seen as such in time. Gold is a proven safe haven asset and currency. Despite much recent academic evidence and the historical record showing this and despite voluminous articles, research and evidence, (evidence succinctly summarised in the video 'Gold Bullion or Cash'), there continue to be frequent anti gold outbursts by some of the most respected and trusted people in the western financial and economic world. Such attacks on gold have come from men such as Paul Krugman, Nouriel Roubini and more recently Warren Buffett. Alan Greenspan correctly wrote in 1966 that "an almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions”. Today, an almost hysterical antagonism towards gold bullion as a diversification and as a store of wealth alternative to fiat currencies unites beneficiaries of the current status quo – both intellectual beneficiaries and material beneficiaries. That status quo is a massively leveraged and insolvent monetary, financial and economic system.
2012 is proving to be the 'Year of the Central Bank'. It is an exciting celebration of all the wonderful maneuvers central banks can employ to keep the system from falling apart. Western central banks have gone into complete overdrive since last November, convening, colluding and printing their way out of the mess that is the Eurozone. The scale and frequency of their maneuvering seems to increase with every passing week, and speaks to the desperate fragility that continues to define much of the financial system today.... All of this pervasive intervention most likely explains more than 90 percent of the market's positive performance this past January. Had the G6 NOT convened on swaps, had the ECB NOT launched the LTRO programs, and had Bernanke NOT expressed a continuation of zero interest rates, one wonders where the equity indices would trade today. One also wonders if the European banking system would have made it through December. Thank goodness for "coordinated action". It does work in the short-term.... But what about the long-term? What are the unintended consequences of repeatedly juicing the system? What are the repercussions of all this money printing? We can think of a few.
Yesterday, in our daily list of shocking discoveries of just how far forward Greece is willing to bend over, we realized that not only will Greece not receive a penny (or is that a drachma?) from Europe, but it itself will have to fund the European bank bailout via a Greek-funded Escrow account. In today's 'insult to rape' chronicles, we discover that before Greece is even given permission to bail out Europe's banks, its creditors first demand that the province of Bavaria Sachs, formerly known as Greece, satisfy a checklist of 38 specific conditions, which the now fully colonized nation will have to complete before the end of the month (so in about 5 days), before it is permitted to transfer taxpayer cash to French, German, Italian and Spanish banks. How anyone, even the world's most degraded debt slave, is willing to subject themselves to such humiliation is simply inconceivable.
Despite the release of better than expected German IFO survey, stocks in Europe remained on the back foot after the EU Commission slashed forecasts for 2012 Eurozone GDP to -0.3% vs. 0.5% previously, while EU's Rehn added that the Euroarea has entered a mild recession. As a result Bunds advanced back towards 139.00, whereas the spread between the Italian/German 10-year bond yields widened marginally on the back of touted selling by both domestic and foreign accounts ahead of the upcoming supply on Friday. Looking elsewhere, EUR/USD erased barriers at 1.3300 and 1.3325, while today’s strength in GBP/USD can be attributed to a weaker USD, as well as touted EUR/GBP selling by a UK clearer.
Goldman's David Greely is no Tom Stolper. In fact his recommendations have been correct more often than not. Which is why we believe that when the market learns that the Goldman commodities strategist just opened a long September WTI position at $107.55, it will merely provide that extra oomph to send WTI up, up and away. Or maybe not: this could be another one of the "fade Goldman" calls. Alas, with the real impact of the recent $2 trillion balance sheet expansion becomes truly felt we have a distinct feeling Goldman is quite right on this one. Evil, evil speculators.
Would You Support a War Against Iran If You Knew the True Facts?
A riddle, wrapped in a mystery, inside an enema.
There is a very clear relationship between economic growth and sufficient quantities of high quality energy. A crude measure of energy quality is its price. The lower the price for a unit of energy, the higher its quality (or net energy), but this is a very crude measure that can and often is heavily distorted by subsidies, market pressures, and other factors. As we squint at the world price for oil and note that Brent today is trading at $120 per barrel, it is clear that this high price is signaling that energy is now more expensive than it used to be. By adopting the belief that Peak Oil has been debunked, one runs the risk of missing the larger story that our current economic model is unsustainable. And that stocks and bonds and other traditional investments that derive a large portion of their current value from expectations of future growth simply may not perform anything like they have in the past. And worse, that recent and continuing efforts to revive the old economy by printing money risk the destruction of the money system itself. Given this all-too-human tendency to attempt to preserve the status quo, in this case by printing money, I must reiterate my advice to be sure that gold forms a significant portion of your core portfolio.
The softer PMI reports have weighed on risk markets, which as a result saw equities trade lower throughout the session. In addition to that, market participants continued to fret over the latest Greek debt swap proposals, which according to the Greek CAC bill will give bond holders at least 10 days to decide on new bond terms following the public invitation, and the majority required to change bond terms is set at 2/3 of represented bond holders. Looking elsewhere, EUR/USD spot is flat, while GBP/USD is trading sharply lower after the latest BoE minutes revealed that BoE's Posen and Miles voted for GBP 75bln increase in APF. Going forward, the second half of the session sees the release of the latest Housing data from the US, as well as the USD 35bln 5y note auction by the US Treasury.
Crude oil spiked to nine-month high primarily on investors fear of potential conflict over the escalating tensions between the US, Europe, Israel, and Iran. Right now, it seems Iran could be the one blinks first (war or peace).