France

Face on or face off?

The dollar was a median step towards a newer and more corrupt ideal.  Its time is nearly over.  This is open, it is admitted, and it is being activated as you read this.  The speed at which this disaster occurs is really dependent on the speed at which our government along with our central bank decides to expedite doubt.  Doubt in a currency is a furious omen, costing not just investors, but an entire society.  America is at the very edge of such a moment.  The naysayers can scratch and bark all they like, but the financial life of a country serves no person’s emphatic hope.  It burns like a fire.  Left unwatched and unchecked, it grows uncontrollable and wild, until finally, there is nothing left to fuel its hunger, and it finally chokes in a haze of confusion and dread…

The World Gold Council has released the Q1 2012 Gold Demands Trend report. Gold demand grew 16% over the past 12 months to 1,098 tonnes. This had a US dollar value of just $59.7 billion spent on gold, globally, in Q1 2012. While global demand was down 5% from the record high of Q4 2011, it was significantly higher than demand in Q1 2011 suggesting that global demand may be consolidating at these higher levels.  Probably the most important aspect of demand and one of the most important fundamentals in the gold market is that of still very robust and increasing Chinese demand. In this the Chinese Year of the Dragon – China is becoming a fundamental driver of the gold market. Global demand was boosted by China posting a quarterly record of 98.6 tonnes of investment demand up 13% from Q1 2011. This increase was a result of investors’ continued move to preserve wealth amid ongoing concerns over inflation, volatility in equity markets and price falls in some property markets. Jewellery demand in China, much of which is also store of wealth demand, increased to 156.6 tonnes – 30% of the global appetite.  This increase places China as the largest jewellery market for the third consecutive quarter.

Just As I Warned Of JPM's Exposure, Those Other Warnings Will Come To Pass As Well. I pull stuff out of my analytical archives and low and behold, who do I find?

Well, my hat is off to the global central planners for averting the next stage of the unfolding financial crisis for as long as they have. I guess there’s some solace in having had a nice break between the events of 2008/09 and today, which afforded us all the opportunity to attend to our various preparations and enjoy our lives.

Alas, all good things come to an end, and a crisis rooted in ‘too much debt’ with a nice undercurrent of ‘persistently high and rising energy costs’ was never going to be solved by providing cheap liquidity to the largest and most reckless financial institutions. And it has not.

At various stages in the last two years everyone from China, to Germany, to the Fed to the IMF, to Martians, to the Imperial Death Star has been fingered as the latest saviour of the status quo. And so far — in spite of a few multi-billion-dollar half-hearted efforts like the €440 billion EFSF —  nobody has really shown up. Perhaps that’s because nobody thus far fancies funnelling the money down a black hole. After Greece comes Portugal, and Spain and Ireland and Italy, all of whom together have on the face of things at least €780 billion outstanding (which of course has been securitised and hypothecated up throughout the European financial system into a far larger amount of shadow liabilities, for a critical figure of at least €3 trillion) and no real viable route (other than perhaps fire sales of state property? Sell the Parthenon to Goldman Sachs?) to paying this back (austerity has just led to falling tax revenues, meaning even more money has had to be borrowed), not to mention the trillions owed by the now-jobless citizens of these countries, which is now also imperilled. What’s the incentive in throwing more time, effort, energy and resources into a solution that will likely ultimately prove as futile as the EFSF?

The trouble is that this is playing chicken with an eighteen-wheeler.

Here are some of the things that David Einhorn likes and does not like, having just started his speech at the Ira Sohn Conference:

• Martin Marietta - stock plunges 10% and triggers circuit breaker.
• France - "a french default is not out of the question" - France not limit down yet. He says that a return to the Franc is not out of the question.
• Einhorn likes GJF.NO - "Norway is the only country which can finance itself."
• Einhorn likes Cairn Energy as it trades at discount to assets in just Britain and India.
• Says China is misunderstood and is not an investment opportunity: not enough money to feed the economy and banks aare becoming illquid; money is leaving the country
• Also does not like Japan for all the usual Kyle Bass and Andy Xie reasons. The Yen will continue strengthening.
• Einhorn likes AMZN, calls it "elephant in the room", but questions profit growth.
• Einhorn likes Dena Co, and Gree Inc in Japan
• Einhorn is short DKS
• Einhorn, who is long about $870MM AAPL as per last night's 13F, likes AAPL. Stunner.

So nobody can say, "But no one could have seen this coming", I'm letting all know what's coming.

All you need to know.

Overnight: just more of the same, as markets collapsed, first in Asia, then in Europe, on ever more concerns what a Greek exit would do to Europe. The most important story of the night was a report in Dutch Dagblad claiming that ECB has turned off the tap for Greek bank liquidity: "At the end of January, Greek banks had received EUR73 billion in liquidity support from the ECB, but this amount has dropped by more than 50% now, according to the newspaper. The ECB is cutting back support because Greece has been holding off on recapitalizing its banking system, despite receiving EUR25 billion in funds for that purpose, the paper says." Whether this move is to force Greece to blink (even more) by making the previously reported bank run even more acute, or just general European stupidity, is unclear but it is certain to make the funding stresses across all of Europe far more acute. The news sent all peripheral bond yields soaring, and the EURUSD tumbling to under 1.27 briefly. 

Blew my mind!

No, this is not a joke:

• HOLLANDE'S PLANE TURNS BACK TO PARIS AFTER BEING HIT LIGHTNING EN ROUTE TO BERLIN - PRESIDENTIAL SOURCE

Greece lightning? Even Zeus demands deleveraging, pardon, austerity.

We suspect, when we look back on Europe some months from now, that we will see; a love affair gone badly due to conditions beyond anyone’s control and a separation that, while bound in great sadness, is what the Fates have determined for the actors in this grand drama. Extending the unreality, foillowing news that Greece will - as expected - hold new elections, today the new French President and the German Chancellor will meet for the first time. They will issue a statement promising cooperation, a brighter Europe, some vision of a grand alliance and an eternal pledge for the spirit of unity between the French and the German people. Believe none of it. The Germans are already targeting Vichy as the new place of government in France and there is an active search underway to find the decedents of Marshal Petain. There was an armistice between Germany and France in 1940 and there may be a new one announced today but the new one, like the old one, will be a short lived affair as the goals of France and the goals of Germany could not be further apart.

Germany's Bundesbank confirmed yesterday that the German gold reserves are held overseas by the Federal Reserve, the Bank of England and the Banque de France. The German parliament, the Bundestag, has been examining the accounting of German gold reserves at the Bundesbank. The parliament's Budget Committee, one of the most powerful committees in the German parliament, had requested a critical report by the Federal Audit Office. "The decision has been unanimous," the paper quoted the Christian Social Union budget expert Herbert Frankenhauser. The newspaper report alleged "account cheating" regarding the German gold reserves. According to a Bild report, the federal auditing office complained of "inadequate diligence of the accounting of the gold reserves, which are stored in some foreign countries. Repatriation of the gold reserves is encouraged.” The Bundesbank confirmed that it, like many central banks, keeps part of its reserves in vaults at foreign central banks and said some of its gold is held at the Federal Reserve Bank of New York, the Banque de France and the Bank of England. It declined to say how much gold in total is held overseas or how much gold is stored with the Federal Reserve, Bank of England and Banque de France. The Bundesbank statement said it had complete confidence in the integrity of the central banks where the gold is held. "From these central banks, the German Bundesbank annually gets confirmation of the gold holdings in troy ounces as a basis for its accounting," the Bundesbank’s statement said.

• JPMorgan Said to Weigh Bonus Clawbacks After Loss (Bloomberg)
• Obama Says JPMorgan Loss Shows Need for Tighter Rules (Bloomberg)
• Greeks Try New Tack, Seeking Technocrat Slate (WSJ)
• Euro zone finance ministers dismiss Greek exit "propaganda" (Reuters)
• Romney’s business record under fire (FT)
• Tide Turning in Japan Deflation Fight, BOJ’s Top Economist Says (BBG)
• Euro Chiefs May Offer Leniency to Greece (Bloomberg)
• Portugal's Progress Won't Guarantee Funding (WSJ)
• EU Bank-Liquidity Bill Proceeds; U.K. May Protest (WSJ)
• Cameron pressed to boost enterprise (FT)