International Monetary Fund
Overnight the emerging market rout continued, with the India Sensex down another 3.18%, the Philippines tumbling 4%, Jakarta down 3.7% and Dubai crashing 7%. A driving factor continues to be the fear over an imminent air campaign launched at Syria, leading both WTI and Brent higher by 1%, and gold finally breaking out above the $1400 tractor beam, and printing at $1412 at last check, a hair away from a 20% bull market from the lows. In other news, the market is once again "surprised" to learn that Summers, who as we have been showing for over three weeks is the frontrunner for the Fed chair, is the frontrunner for the Fed chair according to CNBC. Of course, there is nothing preventing this from being the latest trial balloon (and nothing that suggest Summers will actually be hawkish as conventional wisdom seems to think: the guy basically works for the financial sector) but futures aren't waiting to find out, and US traders are walking in this morning to a red screen with ES down just over 10 point and sliding. Any minute now the great unrotation from stocks into bonds (10 Year was 2.77% at last check) is about to be unleashed. And if Obama actually goes to war (without talking to Congress of course), watch the bottom fall from the market.
"The latest numbers that we have received, in particular from Germany, are encouraging, whether it's manufacturing, whether it's service activity, whether it's exports. That is heading in the right direction, but it needs to be sustained over time. And I'm crossing fingers for the eurozone..."
Schaeuble and Merkel have very recently confirmed what was leaked a month ago - that Greece will likely get yet another 'helping hand' aid program. Some have noted that this may be financed using EU funds instead of additional loans from EU-area countries (or the IMF) yet Merkel's comments (perhaps playing to her electioneering needs) appeared to dismiss this - prompting talk of a 'bail-in' based on the new normal 'template' applied to Cyprus. Greece has so far received two bailout packages totaling EUR240 billion (with about EUR22 billion still to be released) which is 130% of Greece's GDP (which stands at EUR186.2 billion) and while the thord package appears smaller (for now) at EUR10.9 billion (based on IMF funding gap forecasts), this covers only the period through 2015 (and we know how accurate the IMF has been in the past with its hockey-sticks). Greece remains mired in the sixth year of a recession with more than 6 out of 10 young people unemployed.
Even after seven years of writing macroeconomic analysis and bearing witness to astonishing displays of financial and political stupidity by more “skeptics” than we can count, it never ceases to amaze us the amount of blind faith average Americans place in the strength of the U.S. dollar. One could explain in vast categorical detail the history of fiat currencies, the inevitable destruction caused by inflationary printing and the conundrum caused when any country decides to monetize its own debt just to stay afloat - often, to no avail. The dollar is no more invincible than any other fiat currency in history. In some ways, it is actually far weaker than any that came before. The dollar is entirely reliant on its own world reserve status in order to hold its value on the global market.
The truth behind the saying "never let a crisis go to waste" transcends both time and space, and it most certainly has no problem crossing the border into India, which over the past weeks has found itself in full monetary crisis, and whose currency is plunging to fresh record lows on a daily basis forcing its central bank to scramble with both tightening and QE at the same time. And if the influential Hindu Business Line, is correct, India's crisis is about to become someone's opportunity. Potentially for that someone which over the past two months has found themselves in a huge physical gold shortage as the now constantly negative GOFO rates confirm. Because according to Royal Bank of India sources cited by the HBL, India is now considering leasing out the 200 tonnes of gold it bought from the International Monetary Fund in 2009.
India has no proposal to lease gold bought from the IMF according to India’s Economic Affairs Secretary, Arvind Mayaram. His comments came in a text message.
The influential in India, Hindu Business Line newspaper, had reported earlier that the government will consider leasing out 200 tons of gold bought from IMF in 2009, citing finance ministry officials it didn’t identify.
With strains in the LBMA gold market, further pressure may be being applied to India to now help with supply after their recent draconian attempted measures to restrict demand.
If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others. The number that we are talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system. When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up. When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in.
While Abe and Kuroda-san would be jubilant, the powers that be in India are none too happy at the 44% devaluation in their currency in the last 2 years (and 17% collapse in the last 3 months) as capital floods out of the once potential growth-engine of the world economy. Accelerating in the last few days amid capital controls and gold importation bans, Taper-based carry unwinds appear to have exaggerated initial flows and driven the USD to over 63 Rupee (and all-time record low). India's Sensex stock market is down 11% in the last 3 weeks to 11 month-lows (as fast money exits in a hurry) and the beleaguered bond market has imploded from a 7.1% yield in May for the 10Y to 9.25% now (its highest since 2001). Food prices rose at 9.5% YoY (vegetable +47% YoY) and fuel at 11.3% YoY sparking grave concerns across the nation of social unrest and bringing back memories of the 1990s - when the government was forced to ask the IMF for a loan to rebuild foreign reserves. Current efforts at stemming the tide have done little to stall the liquidity withdrawal and look to squeeze growth to a lowly 4.8% YoY.
For the past five years Greece, stuck in its worst depression in history with two-thirds of work eligible youths unemployed, has been actively blaming all of its problems on "(f)auxterity" even as we said all along that the Greek problems have nothing to do with how much money its government spends and everything to do with corrupt, complicit and frequently criminal politicians. Today we got the latest confirmation that we were correct after the Greek finance minister Stournaras asked for the resignation of the Greek privatisation agency chief, Stavridis, following a newspaper report that he traveled on the private plane of a businessman who just bought a state company with Stavridis' blessings.
The housing market. It would be the done-thing normally to imagine that one might learn from mistakes that have been made in the past; and not only learn from them, but make sure that they don’t happen again.
With all the excitement over France and Germany's emergence from recession based on this morning's advance first-guess GDP data - a recovery-less recovery the likes of which the US has been languishing in for years - we thought it worth a reminder of the hopeful hockey-stick growth embedded in the IMF's forecast for the European Union. Assuming that Europe is still clinging together in 2016, we present the IMF's dreams of the future.. and most intriguingly the OECD's forecast that Germany will grow at a mere 1.1% for the next 50%.
“Is the gold market manipulated?” This is one of those extremely dodgy questions that has left both investors and economists very divided. By arguing whether or not gold manipulation exists, we may find that we are wasting our brain cells on the question. A better question, and one that we might choose to monitor on a regular basis, might be, “To what degree is successful manipulation taking place?” We might then use the on-going answer as a guide, to inform our reasoning going forward, as to what impact any perceived manipulation is likely to have with regard to our precious metals investment.
We hear day in and day out that the economy here is going down the tubes, that the banks there are tying up the markets and exploiting them and that China is contracting, that Greece will be the ruin of the already-ruined European Union and the so the list goes on
In the world these days the markets often believe the rhetoric. This would be political rhetoric, corporate rhetoric or the prayers and hopes of the talking heads. This is especially true in the equity markets. Critical advice in this environment is, "forget what they tell you; just look at the numbers." So what is the Fed doing? As of July 31, 2013 they have parked $1,157 billion in foreign banks as compared with $1,112 billion in U.S. banks. To us this is a telling sign. The European banks are in trouble and the Fed is propping them up. One of the consequences of tapering, when it comes, may well be less available cash for this task and then the cracks in the European banks may well blow into gaping holes... "There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time."
Despite an overnight surge in the Chinese markets, with the Shanghai Composite closing up 2.4% following reports that China will not only continue with its "liquidity tightening" operation by, paradoxically, cutting RRR for smaller banks, but launch a stimulus for several Chinese provinces and city governments "on the quiet" in the form of jumbo-sized bank loans, and GDP news in Japan that were so bad they were almost good (although not bad enough to close the Nikkei in the green) US futures continue to take on water following the second worst week of 2013 as the market now appears resigned to a Taper announcement in just over 5 weeks (as we have claimed since May). News in Europe continues to be bipolar, with the big picture confirming that only dark skies lie ahead following yesterday's news that a new Greek bailout is just around the corner, or rather just after the Merkel reelection (even though Kotthaus perpetuated the lies and said a second cut in Greek debt is not on the agenda - although maybe he is not lying: maybe only Greek deposits will be cut this time), offset by on the margin improvements in the economic headlines, even as credit creation remains not only non-existent but as the FT reports (one year after Zero Hedge), some €3.2 trillion in financial deleveraging is still on deck meaning an unprecedented contraction in all credit-driven aggregates (one of which of course is GDP).