Yesterday Reuters reported that a troubling, yet potentially inevitable development may be imminent: the default of the US, granted, a short-lived one (though we are not sure just how the world's "reserve" currency will be backed by a national that is technically insolvent). Luckily for the US, everyone else (except China) is just as bankrupt. Yet if there is one thing pushing Lehman into competitive bankruptcy just so that Goldman would have a monopoly in the US fixed income sales and trading market, it is that any such action will have massive downstream consequences, and in the pyramid of "unpredictable downstream effects", the insolvency of the US is at the very top. And just to make it clear, now that a default is becoming a palpable option, China announced that the United States is "playing with fire" if it opts to briefly default on its debt, which could undermine the dollar, Li Daokui, an adviser to China's central bank said on Wednesday. Yet the statement could very well backfire after Li, speaking on the sidelines of a forum, said China needs to dissuade the United States from defaulting on its debt, but he believed China may hang on to its investment in U.S. Treasuries in any case. This is precisely the case made by Stanley Druckenmiller: in fact, should there be a technical default, US bonds will become a true safe haven investment as America will for the first time take a step to indicate that it believes the relentless abuse of its fiscal situation is coming to an end.
The push for soft internet censorship, brought to you by your favorite oligarchs.
Commerce is the lifeblood of a nation. Without the free flow of trade, without financial adaptability, without intuitive markets driven by the natural currents of supply, demand, and innovation, cultures stagnate, countries whither, and one generation after the next finds itself deeper in the somber doldrums of economic disintegration. In an environment of transparency, honesty, and the absence of monopoly (government or corporate), on the rare occasions in history that these conditions are actually present in one place at one time, we often see an explosion of prosperity and true wealth creation. When local, decentralized markets are given precedence over subversive elitist leviathans like mercantilism or globalism, a wellspring of abundance bursts forward. Free people, building true free markets that serve the specific needs of individual communities and insulating the overall economy from systemic collapse; this has always been the wave of the future. Not “integration”, “harmonization”, or some fantastical nonsensical “global village” administrated by a faceless unaccountable transnational entity like the IMF, infested with sociopathic maid raping euro-trolls. Unfortunately, average Americans today have grown far too accustomed to having their commerce, and thus their livelihoods, micromanaged for them. The bottom line is, if the daily fiscal life of the average American were to deviate from today’s norm even slightly, the results would be devastating. There is no flexibility in our current system. All is rigid and fragile. There is no backup plan.
Without giving away trade secrets or getting too option wonky, we’ll just say a few things. How does Mr. Kass know it is a single buyer? This is a dangerous and sensationalist thing to say as if it were fact. It is a mistake to assume that unless you have empirical evidence or at least do some work to back up your statement. For our own part we are pretty sure it is a single buyer. How did we come to this conclusion? We did the math. We studied and saw the orders as they hit the markets. We noted how all other gold options behaved in their respective venues. We looked at how the order was placed, the volumes, the timing, the times of day, and the total volumes traded on the day. In short, we read the tape and gathered intel.. And still we are not 100% sure it is a single buyer. It may be a single executor for multiple buyers. How did Mr. Kass come to this conclusion, we don’t know. But like other things he says, we can cover them all with this quote, “You have eyes, plagiarize!”- Ed Young
U.K. unemployment claims rose in April at the fastest pace since January 2010, showing the very fragile nature of the recent tentative economic recovery. Government spending cuts, austerity measures and accelerating inflation are clearly beginning to impact embattled consumers. In the U.S., stagflation is also an increasing, if unacknowledged, threat as the classic symptoms of inflation - slow growth, high unemployment and inflation are present. Weak U.S. factory output and home building data yesterday suggests that the world's largest economy is slowing down again. Official inflation figures in the U.S. remain benign but hedonic adjustments and many adjustments to the methodology of calculating inflation in the last 20 years mean that that the Consumer Price Index is no longer an accurate measure of real inflation in the economy. This macroeconomic risk coupled with continuing geopolitical risk is supportive of gold continuing to receive safe haven demand. The launch of the new Hong Kong Commodity Exchange will result in Asia having an even bigger say in prices of commodities and precious metals. The exchange is backed by China’s biggest bank and a Russian tycoon and will challenge established markets and exchanges in Europe and the U.S.
Soros Sells Gold ETF While Paulson Buys - PIMCO Favour Gold As A “Protection Against What Can Go Wrong”Submitted by Tyler Durden on 05/17/2011 06:09 -0500
The confirmation of George Soros ETF gold sale has again garnered much media comment. Soros’ $28 billion fund decreased its holdings of the SPDR Gold Trust, the exchange traded fund. Soros had bought gold to protect against possible deflation, though his fund now believes there is a reduced chance of such a condition, the Wall Street Journal recently said, “citing people close to the matter”. Should Soros and his fund think that inflation is now a greater risk than deflation then it is curious that they would sell all their ETF holdings. It is also curious as Soros is on record regarding having serious concerns regarding the outlook for the euro and the dollar and the dollar as reserve currency of the world. There is of course the precedent of other hedge fund managers , such as David Einhorn, who have also sold their gold ETF holdings but bought physical bullion in allocated accounts due to a concern about counter party and systemic risk. This would allow Soros to discreetly accumulate bullion away from the public and media spotlight that result from SEC filings. Paulson & Co., the $36 billion hedge fund founded by John Paulson kept its largest holding - $4.41 billion in the SPDR Gold Trust. Paulson’s belief in gold is seen in the fact that those who buy his fund can have their stakes denominated in gold rather than in dollars, meaning the value of their investment rises and falls with the price of bullion – lessening exposure to the dollar. Paulson, unlike Soros, is on record as having purchased gold to protect against inflation. PIMCO, the largest bond fund in the world, are also increasingly allocating funds to gold in their global equities portfolio. “The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Anne Gudefin, PIMCO’s global equities portfolio manager, told Fortune magazine May 12.
At one point, the music will stop, but for now, I agree with Britney Spears, you got to keep on dancing till the world ends. And despite what those bears on Zero Hedge think, the world isn't ending anytime soon...
Gold and silver have extended their recovery and may be headed for the fourth day of gains due to the continuing European sovereign debt crisis, Chinese inflation (+5.3%) and the real risk that rising oil and commodity prices are leading to an inflation spiral internationally and stagflation. German inflation data this morning was worse than expected jumping to 2.7% from 2.3% due to surging energy costs and despite recent strength in the euro. This has led to the euro falling against all currencies and especially against gold. The precious metals are likely to be supported later today when US trade deficit data is expected to be poor with still high oil prices leading to a very large expected deficit of $47.7 billion. This should see the dollar come under pressure and support gold. Stagflation or low economic growth, high unemployment and rising inflation is a clear and present danger to the UK, EU and U.S. economies and other economies internationally. This is especially the case in the UK where house prices have begun to fall again and may be set for sharp falls. Internationally, we are seeing significant debt deflation where the value of goods and assets bought with debt are falling (cars, property etc) while the value of finite, essential goods such as food and energy are rising. Safe haven and inflation hedging diversification into gold is likely to continue as inflation is deepening and there is a distinct whiff of stagflation in the air. It is too early to tell whether the recent sell off is over and a further correction is possible however global macroeconomic conditions suggest that gold and silver bull markets are very much intact. This is especially the case due to continuing Asian demand with gold again being bought on all dips in China, India and the rest of Asia.
Reuters Special Report On What Caused The "Causeless" Crude Crash; Other Hedge Fund Casualties IdentifiedSubmitted by Tyler Durden on 05/09/2011 09:31 -0500
A tremendous report by Reuters' Matthew Goldstein, Svea Herbst, Jennifer Ablan, Emma Farge, David Sheppard, Claire Milhench, Zaida Espana, Robert Campbell and Josh Schneyer, identifies that while the shaky macroeconomic conditions and an overbought market were among the key reasons for last week's history crude rout, the match that caused an unseen before plunge in commodities was, you guessed it, "computers." Naturally, this is not unexpected to Zero Hedge readers who have been warned about the massive instability of a market comprised almost entirely of unsupervised algos, since the spring of 2009 (a phenomenon which the CFTC and SEC will not "comprehend" and/or change, until it is too late). Additionally, in addition to the previously identified losses at Clive Capital and Andrew Hall's latest plaything, Reuters also identifies BlueGold, Winton Capital and FTC. Basically, throw out a name that has energy exposure (let's not forget Touradji or Centaurus) and you likely have a winner. Must read.
Is there value in hitting a brick wall? What about in losing money?
GoldCorp submits: "Gold and silver are tentatively higher after their 2% and 8% falls yesterday. In silver, speculators on the COMEX continue to liquidate en masse after margin was increased a massive 84% and various stop loss levels are hit, leading to further falls in the futures market. Absolutely nothing has changed regarding the fundamentals driving the gold and silver markets and this will likely be another correction in gold and another sharp correction in silver. Silver’s sell off has been vicious but value buyers continue to accumulate silver bullion. Jim Rogers, who arguably has a better track record than Soros in recent years, remains bullish on gold and silver and told CNBC, “if it goes down I hope I’m smart enough to buy more silver." Also, there are reports this morning from the Wall Street Journal and Mitsui that there was decent buying of silver from China at these price levels overnight."
Another sign of the increased appreciation of gold as an important asset came from Germany today where Angela Merkel’s budget speaker and his opposition counterpart have urged Portugal to consider selling their gold. Norbert Barthle, Germany’s governing coalition budget speaker and his counterpart Carsten Schneider from the Social Democrats, the biggest opposition party urged Portugal to consider selling some of its gold reserves to ease its debt problems. They called for a review of Portugal’s request for financial aid to include gold and other potential asset sales. The German lawmakers did not specify who should buy the gold from the Portuguese central bank but given the challenges facing Germany and the Eurozone it is likely that the Bundebank and the ECB would be willing buyers – if the gold is not already encumbered due to Portugal’s membership of the Eurozone. Meanwhile creditor nation central banks continue to accumulate gold reserves as seen with the breaking news from the Financial Times that the central bank of Mexico has been diversifying their currency reserves (largely in dollars) into gold with the purchase of 100 tonnes of gold bullion in February and March.
Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources — as long as the government doesn’t interfere. It is a formalized and mathematical theory, whose two main pillars are the efficient market hypothesis and the theory of rational expectations. This is usually called the Chicago School, and it dominates the teaching of economics in the United States. I call it market fundamentalism. I have an alternative interpretation — diametrically opposed to the efficient market hypothesis and rational expectations. It is built on the twin pillars of fallibility and reflexivity. I firmly believe these principles are in accordance with Hayek’s ideas. But we can’t both be right. If I am right, market fundamentalism is wrong. That means I must be able to show some inconsistency in Hayek’s ideas, which is what I propose to do.
Gallup Poll Shows that More Americans Believe the U.S. is in a Depression than is Growing … Are They Right?Submitted by George Washington on 04/29/2011 01:00 -0500
How can so many Americans believe that we’re in a depression, when the stock market and commodity prices have been booming?
Tuesday is my 40th birthday so please be kind as you read through my comment on life, health, work, markets and friendship. I'm also soliciting advice and donations for my blog...