Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people, explains why.
Turkey’s trade balance may turn on whether President Barack Obama vetoes more stringent sanctions against Iran after the U.S. Senate passed a measure targeting loopholes in gold exports to the Islamic Republic. Turkey’s gold trade with neighbouring Iran has helped shrink its trade deficit over the past year according to Bloomberg. Incredibly, precious metals accounted for about half of the almost $21 billion decline. That’s calmed investor concern over its current-account gap, and helped persuade Fitch Ratings to give Turkey its first investment-grade rating since 1994. The U.S. Senate voted 94-0 on Nov. 30 to approve new sanctions against Iran, closing gaps from previous measures, including trade in precious metals. Obama, who opposes the move on the grounds it may undercut existing efforts to rein in the nation’s nuclear ambitions, signed an executive order in July restricting gold payments to Iranian state institutions. Turkey exported $11.9 billion of gold in the first 10 months of the year, according to the Ankara-based statistics agency’s website. A very large 85% of the shipments went to Iran and the United Arab Emirates. Iran is buying the gold with payments Turkey makes for natural gas it purchases in liras, Turkish Deputy Prime Minister Ali Babacan told a parliamentary committee in Ankara on Nov. 23.
The upcoming week is comparatively less loaded with policy events, though the ongoing fiscal cliff negotiations in the US remain one of the key developments to follow. Important is also the FOMC meeting on Wednesday, where Goldman and everyone else now expect the Fed to increase their monthly asset purchase target under the QE3 program to $85bn per month, up from $45bn per month; this will keep the pace of asset purchases constant after the Operation Twist expires at the end of December, as Zero Hedge predicted the day QE3 was announced. There are is a handful of other central bank meetings in emerging economies (Russia, Indonesia, South-Korea, Philippines, Chile) although consensus expects no change to the base-rate in most cases. On the data front industrial production numbers for October will be released around the world including in the Euro-area, US and China. We also get the US retail sales number and December flash PMIs for the Euro-area and China.
Your comprehensive yet concise, one-stop summary of all the bullish and bearish events of the past week.
Just yesterday, Goldman Sachs suggested its clients should sell their gold (to them?) as the precious metal cycle had turned. It seems Morgan Stanley disagrees; the firm's preferred fundamental metal exposure for 20913 is Gold. Expecting Silver to outperform also (given its 'cheaper' store of value), MS believes nothing has changed on the fundamental thesis for owning gold as the adoption of QE 3 (and 4...) and the ECB's commitments (and BoJ) remain the most important factors for a continuation of weakness in the TWI trend for the US Dollar. They also add that low nominal and negative real interest rates, ongoing geopolitical risk in the Middle East and continued mine supply issues are also supportive. From India and ETF demand to central bank buying and USD weakness - MS seems to be buying what GS is selling (or is less about muppet-mauling).
Yesterday we noted that India was preparing to send its Navy into the South China Sea - defending its mineral rights from China's increasingly vociferous presence. The Philippines also expressed concern. Today, it's Vietnam's turn as Reuters reports the nation is condemning China's "serious violation of sovereignty" as Chinese boats sabotaged Vietnamese State oil and gas company - PetroVietnam's operations (by severing a seismic cable). The actions stem from China's 'belief' that two Vietnamese-owned archipelagos (Spratly and Paracel Islands) are theirs. While China (who oppose unilateral oil and gas development in disputed waters) argued somewhat comically that "Chinese fishing boats were operating normally," the Vietnamese saw it as "blatant violation of Vietnamese waters," and are deploying marine police and a border force to stop foreign vessels. As one analyst noted, "It's going to lead to friction."
Although its interests in the continent are broadly similar, India’s engagement with Africa differs significantly from China. Will it prove sustainable? Close ties between India and Africa are not new. Trade has flourished between East Africa and India’s west coast for centuries. New Delhi’s interest in Africa waned in the 1990s, but rapid economic growth and soaring energy requirements, however, forced India at the turn of the new millennium to rethink its neglect of Africa. The domination of oil and natural resources in India’s imports from Africa and of manufactured goods in its exports to the continent has drawn criticism that India is indulging in a “neo-colonial grab” for Africa’s resources. "This is an uninformed view. Africa of today is not the same as during colonial times. When countries exploit the resources of Africa today, the terms are set by the African nations and not by outsiders. The deals are mutually beneficial." India hopes that its capacity building, people-centric approach and efforts to build a sustainable partnership with Africa will keep such allegations at bay.
U.S. Manufacturing Index Plunges to 3 Year Low … While Manufacturing Rises in the BRICS
As if global geopolitics were not tempestuous enough, it seems China's increased military presence near Indian state-run explorer Oil and Natural Gas Corp's (ONGC) Nam Con Son basin operations near Vietnam are sparking India's navy into action. India's Navy Chief Joshi according to Reuters, said it was prepared to act, if necessary, to protect its maritime and economic interests in the region. He added that "When the requirement is there, for example, in situations where our country's interests are involved, for example ONGC... we will be required to go there and we are prepared for that." While the Straits of Hormuz seem to get most of the world's attention, the growing trouble in the South China Sea is troubling since it "is one of the most important international waterways and freedom of navigation there is an issue of utmost concern to India," because a large portion of India's trade is through the South China Sea. Noting that the modernization of China's Navy is "truly impressive", Joshi concluded: "...are we preparing for it? Are we having exercises of that nature? The short answer is yes!" The Chinese are not making any friends as The Phillippines also condemned China's actions.
November sales of U.S. American Eagle gold coins are on track to be the best in 14 years as uncertainty surrounding the U.S. fiscal cliff and the election of President Obama led to safe haven buying. Buyers timing the market also increased coin sales by buying during sharp price movements that occurred in the beginning and end of November, coin dealers noted. Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion. Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998, data from the U.S. Mint's website shows. In October, the U.S. Mint sold 59,000 vs 50,000 ounces the previous year, while November marked its 2nd successive monthly rise. Coin banks have come in to buy the stock as the mint usually ends 2012 coin production in early December so it can begin minting the 2013 coins.
- Union solidarity rubs up against slow economy in LA port strike (Reuters)
- Geithner predicts Republicans will allow higher tax rates (Reuters). And "no risk" of a US downgrade, "no risk"
- Geithner takes hard line on fiscal cliff (FT)
- Narrowing LDP lead points to Japan post-election confusion (Reuters) - not to mention, USDJPY plunges if LDP loses
- Vietnam Says China Must Avoid Trade Weapon in Maritime Spat (Bloomberg)... and real one, one hopes
- Greece unveils bond buyback plan (FT)
- ECB Can’t Deliver Spain Spread Rajoy Wants, Wellink Says (Bloomberg)
- UK’s euro trade supremacy under attack (FT)
- Merkel Signals Debt Write-Off Possible as Buyback Begins (Bloomberg)
- ECB's Noyer Says Bond-Buying Plan 'Is Bearing Fruit' (WSJ) - as long as just plan, and not execution.
After this year's presidential campaign, private equity and certainly Bain Capital, will likely be the last entity that those pandering to populist agendas will go to advice over the future of the business cycle in broad terms, and the future of US labor, most certainly including outsourcing, in narrow terms. And Goldman - that staunch defender of the superiority of capital over labor - will hardly be confused as ever taking the role of workers in any discussion. Which is why we read the following interview by Goldman's Hugo Scott-Gall with Bain Capital partners Michael Garstka and Alan Bird on such topics as corporate restructurings and the future of outsourcing with great interest, as it is very much unlikely that any of the conventional media sources would carry it. And while one may have ideological biases in whatever direction, the truth as presented previously, is that US private equity is a massive "behind the scenes" juggernaut, whose portfolio holding companies account for a whopping 8% of US GDP, and is directly and indirectly responsible for tens of millions of currently employed US workers! At the end of the day, it may well be that what private equity firms such as Bain think about the future of US labor prospects is the most important thing that matters for the future of the so very critical US unemployment rate. Which is why we present, for your reading pleasure, the somewhat unorthodox interview below...
As ever, it is very difficult to pinpoint exactly why gold and all precious metals fell in price. Interestingly, oil fell by even more - NYMEX crude was down by 1% and was down by more than 1.7% at one stage. The CME Group, which operates the U.S. COMEX gold futures market, said Wednesday's plunge in gold was not the consequence of a "fat finger" or a human error. The trading wasn’t even fast enough to trigger a pause on Globex, said CME. One thing that we can say for certain was that there was massive, concentrated selling as the New York stock markets opened with some 35,000 lots sold which is equivalent to 3.5 million ounces and saw the price fall from $1,735/oz to $1,711/oz between 0825 and 0830 EST. One sell order alone was believed to be 24 tonnes or 770,000 troy ounces. Incredibly there was 35% daily volume in just 60 seconds. The selling, like all peculiar, counter intuitive, sharp sell offs in recent months, was COMEX driven with COMEX contracts slammed leading to further stop loss selling. The selling may have been by speculative players on the COMEX. It may have been algo or computer trading driven or tech selling – although this is less likely. Informed commentators questioned the nature of the selling as a large institutional COMEX trading entity would normally gradually sell a position of this size in order to maximise profit.
Have you ever wondered what the typical Chinese gold investor thinks about our Western ideas of gold? We read month after month about demand hitting record after record in their country – how do they view our buying habits? Since 2007, China's demand for gold has risen 27% per year. Its share of global demand doubled in the same time frame, from 10% to 21%. And this occurred while prices were rising. Americans are buying precious metals, no doubt. But let's put the differences into perspective.