Gold fell $4.00 or 0.24% in New York yesterday and closed at $1,654.90/oz. Silver climbed to $31.30 in Asia before it eased off to $30.73 and finished with a loss of 1.09%.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
The Great Recession had one effect on Americans you don’t hear much about - regular illicit drug use increased by approximately 2.5 million users in 36 months, from 2007 to 2010. The year 2011 (the most recent data available) saw a slight decline to an estimated 8.7% (from 8.9%) of all Americans regularly using illegal drugs, but, as ConvergEx's Nick Colas notes, this is still 19.5 million people who would find it difficult to pass a pre-employment drug test. Drug use and testing does not (of course) explain the still high levels of national unemployment on their own. Issues of cyclical sluggishness and select structural issues still hold the reins here. But as policymakers struggle to keep the country’s unemployment rate on a downward trajectory, it does seem clear that national drug policy and state-level lawmaking are working at cross-purposes. With drug use among the unemployed at levels double their full-time employed peers (17% versus 8%), and marijuana use on a solid uptrend, national drug policy and macroeconomic priorities appear to be on different – and conflicting – tracks.
“Here we go again”
Initial jobless claims saw their biggest beat in almost 4 years to the lowest absolute (seasonally adjusted level) in almost 5 years. The market's initial reaction was a shrug (is good bad now that the Fed is pinned to jobs or is the market getting wise in the ways of seasonal-adjustment shenanigans?) but now it appears to be buying the new 'old' normal (+6 points). In the unadjusted data, things look very different - with a lag, New York (37,189), Georgia (15,354), and North Carolina (13,606) saw major rises in initial claims with only Michigan (-12,536) seeing a decent drop in claims - as we note that non-seasonally-adjusted claims rose notably less than in the prior 4 years, and assuming seasonal-adjustments are triggered from those, this will reflect very rosily on today's seasonal adjustment. With Claims back to 'normal', what will the Fed do?
- White House delays 2014 budget after "fiscal cliff" standoff (Reuters) - And Senate will pass this... never?
- Amari Signals Limits to Abe’s Campaign to Weaken Yen (BBG)
- Draghi’s Bond Rally Masks Debt Doom Loop Trapping Spain (BBG)
- Obama backs gun limits, concedes tough fight ahead (AP)
- Bernanke to Weigh QE Costs as Fed Assets Approach Record (BBG)
- Japan to Sell Debt Worth 7.8 Trillion Yen to Pay for Stimulus (BBG)
- France more than doubles forces in Mali (FT) and yet...
- Malian Rebels Take Town and Vow to Avenge French Attack (NYT)
- China’s Li Calls for Patience as Government Works to Reduce Smog (BBG)
- EU berates China over steel subsidies (BBG)
- Number of working poor families grows as wealth gap widens (Reuters)
Today at 4pm Eastern, Ben Bernanke, at the University of Michigan’s Ford School of Public Policy, will take live questions from Twitter for the first time as part of the Fed's new policy of openness. Of course, the policy won't be so open for him to answer if banks are actually using reserves as prop trading funding (as was the case with JP Morgan, and any other bank which realizes that when it comes to fungible cash, money is just 1s and 0s in a server somewhere). However, the filter may slip and at least one or two good questions may slip through. So please take this opportunity to submit any pressing questions you may have on the Fed's policy to pump the market to new stratospheric highs courtesy of $85 billion (for now) in monthly reserve injections into the Primary Dealers, by using the #fordschoolbernanke tag to your questions. For convenience, we have appended a twitter module below that captures all tweets with that querry.
The Central Bank of Ireland continues to be queried about the status of the Irish gold reserves. It has been reluctant to release information and said that it is “not obliged” to release information due to certain “rules and regulations”. Ireland's finance minister, Michael Noonan, has also been asked about the country's gold vaulted at the Bank of England, such as whether the gold is held in allocated form with a bar list available and whether the gold is leased out into international markets. Answers are as of yet not forthcoming. The Sunday Independent, Ireland’s best selling Sunday broadsheet covered the story yesterday in an article (see news) published yesterday which is being widely shared on the internet and commented upon: Bankrupt Ireland owns six tonnes of gold, the bulk of which is held at the Bank of England, it has been revealed. The Central Bank of Ireland said the value of its gold holdings was €235m last time it checked. This represents just over 1 per cent of its total investments. A spokeswoman said the Central Bank was a party to the Washington Agreement on Gold, which recognised gold as an important element of global monetary reserves. She said the Central Bank had not entered into any lease arrangements regarding any of its gold but would not provide specific details of its storage arrangements with the Bank of England.
The week ahead will deliver important data from the US and China. In the US, the focus will be on retail sales and housing starts, as well as on the Philadelphia Fed and U. Michigan Consumer Sentiment surveys. Turning to China, the consensus forecast for China Q4 GDP is 7.8%yoy, while secondary data will come from the country's IP and FAI data updates.
The underlying trends seen this year have continued, but after strong follow through in Asia, a more subdued tone has been seen in Europe. The US dollar is generally softer, except against the yen and sterling. Japanese markets were closed for holiday, but the MSCI Asia-Pacific Index rose almost 0.3%, lifted by more than a 3% rally in China on speculation that there may be a sharp increase in the cap on foreign investors' ability to invest in Chinese equities. In Europe, the Dow Jones Stoxx 600 is hp about 0.4%, led by a rise in financials. Spanish stock market is at its highest level in almost a year (Feb 2012) and Italy's market is at its best August 2011, though their bond markets are seeing some profit-taking today. With a light economic calendar in North America today, Bernanke's speech in Michigan after the markets close may be the highlight. We identify six key factors shaping the investment climate.
It would seem initial claims can be summed for 2012 in one word, 'average'. This last print of 2012 was almost perfectly at 2012's average of 372, the biggest miss since the first week of November and the Sandy disturbance. Notably, last week's print was revised higher (after 19 states failed to report and were 'guessed at) by 12k jobs to 362k having now risen for 3 weeks in a row (on a seasonally adjusted basis). When we scratch below the surface at non-seasonally-adjusted the numbers are much more concerning than a rampaging equity market would care to note, NSA initial claims rose 40,459 to 495,588 on the week. Ohio, Michigan, and Pennsylvania saw the biggest rises in claims while California dominated the drop in claims (by state) down 11,789. 73k Americans lost Extended Unemployment Benefits in the week ended December 15th.
The 'deal' is done and even the evening news seems somewhat perplexed by the market's excited reaction to three-quarters of the nation paying more taxes. Perhaps, as ABC News highlights below, it is the 'pork' that stuffed the bill... "The mix of tax perks covering the next year, with budget implications for the next two years, includes everything from incentives for employers to hire veterans to incentives for employers to invest in mine safety. But it also includes these:"
Mussolini Would Call It Fascism
For the fourth year in a row we continue our tradition of summarizing what you, our readers, found to be the most relevant, exciting, and actionable news of the year, determined simply by the number of page views. Those first eager for a brief stroll down memory lane of prior years can do so at their leisure, by going back in time to where the top articles of 2009, 2010 and 2011 are recapped. With that out of the way, here is what readers found to be the most popular posts of the past 365 days..
- U.S. Family of Mao’s General Assimilates, Votes for Obama (Bloomberg)
- Iron ore prices hit eight-month high (FT)... four months after plunging and crushing iron ore miners
- Obama seeks 60 Senate votes for cliff deal (MarketWatch)
- Need. Moar. InfinitQEeee: Japan PM adviser urges unlimited BOJ easing, higher price goal (Reuters)
- Yen Touches 16-Month Low Versus Euro Before Japan CPI (BBG)
- China consumers driving economic rebound (Reuters) - ot just year end window dressing to accompany the new Politburo
- Rajaratnam agrees to pay $1.5 million disgorgement in SEC case (Reuters)
- France should review 2013 deficit target with EU partners (Reuters)
- Monti-led poll alliance takes shape (FT)
- Bersani wants growth-oriented Europe (FT)