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).
Just when we thought that when it comes to nonsensical announcements Europe is second to none, here comes the White House and takes the cake:
- WHITE HOUSE SAYS RISE IN GASOLINE PRICES CAUSED BY VARIETY OF GLOBAL FACTORS, INCLUDING UNREST IN SOME PARTS OF WORLD, FAST GROWTH IN OTHERS - RTRS
Uhm, would the "unrestful" parts of the world be those that have an above average US drone presence. At least we know that said price surges have nothing to do with the following chart:
Guest Post: Scale Invariant Behaviour In Avalanches, Forest Fires, And Default Cascades: Lessons For Public PolicySubmitted by Tyler Durden on 02/21/2012 13:14 -0400
We have lived through a long period of financial management, in which failing financial institutions have been propped up by emergency intervention (applied somewhat selectively). Defaults have not been permitted. The result has been a tremendous build-up of paper ripe for burning. Had the fires of default been allowed to burn freely in the past we may well have healthier financial institutions. Instead we find our banks loaded up with all kinds of flammable paper products; their basements stuffed with barrels of black powder. Trails of black powder run from bank to bank, and it's raining matches.
- Spiegel: Stop the 130-billion bank transfer! (Spiegel)
- Greece Wins Bailout as Europe Chooses Aid Over Default (Bloomberg)
- Greek pro-bailout parties at all-time low, poll shows (Reuters)
- Eurozone agrees €130bn Greek bail-out (FT)
- Top Banks in EU Rush for Safety (WSJ)
- Medvedev Adviser Says Kudrin Would Be Better Prime Minister (Bloomberg)
- US and Mexico in landmark oil deal (FT)
- McCain calls for US to support Syria rebels (FT)
- Coal Shipments to India Overtaking China on Fuel Shortage (Bloomberg)
- Gillard Shrugs Off Ousting Threat (WSJ)
Ken Rogoff: Greece Should Be Given A "Sabbatical From The Euro" As Kicking The PIIGS Can Will Just Drag Germany DownSubmitted by Tyler Durden on 02/20/2012 12:03 -0400
There is nothing new in this interview of Spiegel magazine with Ken Rogoff, but it is refreshing to listen to a person who has at least some standing in the arena of grand self-delusion (i.e., economics and capital markets), telling it like it is. While he rehashes all the old points, these bear reminding as the key one is what happens to Germany as the can kicking becomes a new default exercise in preserving bank "solvency" at the expense of the last stable economy: when asked if in 2015 the Eurozone will be the same, his response: "It may well be the case that all current members remain in the euro zone, and that Germany keeps on shouldering the ever-increasing debts of other countries. But the price of such a scenario is very high for all involved: southern Europe would become embroiled in permanent stagnation and the German economy would eventually be dragged down to a slower growth trajectory." So even though everyone knows that Europe is doomed in its current configuration, let's all just pretend things shall be well, and keep the even more doomed banks alive for a few more quarters? Is the loss of a banker bonus truly such a great catastrophe to society that countries have to remain in a state of perpetual misery until it all finally unwinds? Judging by today's market action the answer is yes.
A lesson to be learnt from the individuals who continue to buy European Debt
It was one short week ago that both Australia surprised with hotter than expected inflation (and no rate cut), and a Chinese CPI print that was far above expectations. Yet in confirmation of Dylan Grice's point that when it comes to "inflation targeting" central planners are merely the biggest "fools", this morning we woke to find that the PBOC has cut the Required Reserve Ratio (RRR) by another largely theatrical 50 bps. As a reminder, RRR cuts have very little if any impact, compared to the brute force adjustment that is the interest rate itself. As to what may have precipitated this, the answer is obvious - a collapsing housing market (which fell for the fourth month in a row) as the below chart from Michael McDonough shows, and a Shanghai Composite that just refuses to do anything (see China M1 Hits Bottom, Digs). What will this action do? Hardly much if anything, as this is purely a demonstrative attempt to rekindle animal spirits. However as was noted previously, "The last time they stimulated their CPI was close to 2%. It's 4.5% now, and blipping up." As such, expect the latent pockets of inflation where the fast money still has not even withdrawn from to bubble up promptly. That these "pockets" happen to be food and gold is not unexpected. And speaking of the latter, it is about time China got back into the gold trade prim and proper. At least China has stopped beating around the bush and has now joined the rest of the world in creating the world's biggest shadow liquidity tsunami.
The drums of war are beating louder and louder ... What's really going on?
Of course, if only one had seen that there is absolutely nothing different or new about the gold "story" at all since March 2009, there would have been no need to strengthen positions. Otherwise, more or less as has been said here all along. Furthermore, below are some pretty charts from the latest World Gold Council demand trends letter, presented below.
Global Gold Demand in 2011 Rises 0.4% To $200 Billion - Central Banks, Asia and Europe Diversifying Into GoldSubmitted by Tyler Durden on 02/16/2012 09:25 -0400
Global demand for gold reached 4,067.1 tonnes last year, the highest tonnage since 1997, due in large part to a nearly 5% increase in investment demand, which hit a record 1,640.7 tonnes. Asian countries like China, India, Vietnam, Thailand and others see bullion as a store of value against the growing inflation and the ongoing debasement of their currencies. The fundamentals for gold in 2012 look good. Continuing low and often negative real interest rates will continue to support gold’s safe haven status. The Fed’s statement that it will continue to see rates remain very low until 2014 is very bullish for gold. Central banks were net buyers of gold and their demand surged nearly 6 fold (570%) to 439.7 tonnes in 2011 (compared with 77 tonnes in 2010), more metal than at any time since the end of the gold standard in 1971. The World Gold Council noted that, “The buyers are all ... in Latin America, Asia and the Far East and they are basically enjoying strong growth, fiscal surpluses and growing foreign exchange reserves."
Previously we presented some alternative thoughts to the mainstream misperception of the Iranian "isolation" by some of its biggest oil trading partners. Unlike others, we simply believe that the gulf nation, together with the new axis of anti-USD (as confirmed once again earlier today) is simply preparing itself for a barter based economy, or alternatively, one with commoditized intermediates. However, this ignores the likelihood of geopolitical instability caused by intervening US and Israeli interest in the region. Below are some thoughts from Doug Casey of Casey Research on the likelihood of another full blown shooting war erupting in the Persian Gulf, as well as his thoughts on how one may prepare for such a contingency.
Must ... Not ... Think ...
Crude Spikes To Two Weeks High Following Israel Embassy Bombings, Warning Of Iranian Naval KamikazesSubmitted by Tyler Durden on 02/13/2012 10:22 -0400
While today's market session has been broadly calm for the time being, that has not prevented Oil from falling back to its old norm of being impacted by the merest rumor of geopolitical tensions, of which we have had quite a few of already, following car explosion attacks targeting Israel embassy officials in India and Georgia. While Iran has yet to make any announcement on these events, which oddly enough resulted in no deaths, Israel has already blamed Iran for everything. From Reuters: "Prime Minister Benjamin Netanyahu said Israel's arch-foe Iran "stands behind" bombers who targeted Israeli embassy cars in India and Georgia on Monday. Netanyahu linked the incidents to reports of foiled attacks in Thailand and Azerbaijan last month for which, he said, Iran and its Lebanese guerrilla "proxy" Hezbollah were responsible."Iran, which stands behind these attacks, is the largest exporter of terror in the world," Netanyahu said, addressing his Likud party faction in parliament." It appears that when it comes to car bomb assassination plots, Iran still has to learn from those which targeted its own nuclear scientist successfully a few weeks ago. Yet this latest escalation in attempted provocations is not unexpected: it comes on the heels of the announcement of a US Naval Official who said that "Iran is building up its forces in the Persian Gulf and has prepared speedboats loaded with explosives." Whether it actually has or has not is irrelevant: all that matters is that the US navy 'says so.'
Last week, there were relatively few US data releases, but Initial Jobless Claims continued to surprise on the positive side, while U of Michigan Consumer Sentiment saw a small decline. This week, the FOMC minutes on Wednesday with guidance on the Fed's balance sheet will be the key event. Aside from the Fed, there will be many key releases in the US with IP, CPI, and the regional business surveys. The market expects an increase of 0.6%mom in IP, 0.3%mom in CPI, and small gains in the surveys. ?In Greece, negative headlines over the new austerity package on Friday caused some reversal of the rally in the first part of the week, and as a result, we were stopped out of our short $/CAD recommendation (for a small potential gain). However, the Greek cabinet agreed on the new austerity measures late on Friday, and parliament appears to be on track for a positive vote. The Eurogroup meeting scheduled this coming week will be important to watch as well, and Greek GDP will give a sense of the cyclical damage caused by austerity.
Members of the RIAA, Department of Homeland Security, Sony, Universal and Fox may have illegally downloaded files from BitTorrent ... And Lamar Smith – the Congressman sponsoring SOPA – used a pirated photograph on his official campaign website ...