If policymakers were gunfighters, they’d be out of bullets: They have run out of effective policy tools to improve the economy.
So the question is simple: If there is a recession in 2014, and policymakers are out of bullets, how will it play out across the American economy?
Once again the precious metals market is moving in a highly efficient EKG-like manner - this time to the downside. As the US markets awake, Gold has been hit with heavy selling, retracing all of yesterday's gains, and Silver the same after some overnight shenanigans as Europe opened. The fits and starts with which these markets trade is remarkable - yet we suspect tomorrow will bring even more. Notably this drop in the PMs is also accompanied by further weakness in Bitcoin, a sell-off in bonds and USD strength (the latter of which suggest taper concerns).
UPDATE: The earlier rumors have been confirmed: People’s Bank of China told more than 10 third-party payment service providers yesterday not to give clearing services to online Bitcoin exchanges, China Business News reports, citing a central bank meeting with the companies. This news is pressuring Bitcoin to $678 (on Mt.Gox) but more notably, BTC China rates imply a $588 equivalent price - down 57% from its highs. From a $100-plus premium, BTC China now trades $130 cheap to Mt.Gox as the 'arb' flips.
Talk from the PBOC (via Sina) that "the central bank directs: third party payment institutions shall not undertake business with Bitcoin hosted sites," appears to be responsible for the slump in the virtual currency once again. This expands the PBOC's earlier Bitcoin ban to other institutions. Bitcoin prices have dropped over 20% from their overnight highs - trading at around $715 now. Perhaps even more notable is the relationship between Bitcoin and the precious metals today with the early Bitcoin weakness corresponding almost perfectly to gold and silver strength (and again mid-morning in the US).
Despite numerous "13s", infamous technical analyst Tom DeMark tells Rick Santelli, the Fed's liquidity pump has negated every one of these 'potential sell' signals and stocks have "unusually" kept going. DeMark goes on to note several analogs and trendlines that look extremely familiar; warning that the convergence of all these signals is notable and suggest "something comparable to 1929". Unable to get a word in edgeways, Santelli is more intrigued by DeMark's call on precious metals as he notes with downside limited, there is "a big move coming" for gold to the upside in 2014. Precious metals prices started to accelerate as POMO started (and again when it ended) and are extending the gains post DeMark (Silver +4% from early lows).
2013 was a stellar year for stocks, but how will the markets evolve in 2014? Here is our sneak preview...
The key level on the $VIX to watch is at 14.64.
- BAD TRADE #1 For 2014: Ignoring Mean Reversion
- BAD TRADE #2 For 2014: Which-flation?
- BAD TRADE #3 For 2014: Forgetting Late Cycle Dynamics
- BAD TRADE #4 For 2014: Blind Faith In Policy
- BAD TRADE #5 For 2014: Reaching for Yield During Late Cycle
A month ago, regulators in Europe began their investigation into manipulation of the "London gold fixing" (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany's financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets. As The FT reports, BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
The small-cap-dominated Russell 2000 fell for the 2nd week in a row for its worst performance in 4 months (though bounced modestly off its 50DMA today). Stocks traded in a relatively tight range today - swinging around VWAP - following their only driver - JPY crosses, most of the day. NASDAQ 400 was rescued to ensure the headline-writers do not panic. Treasuries were flat to modestly better on the day but end the week mixed with 30Y -1bp and 5Y +5bps - collapsing the term structure to 6 week lows. Precious metals bounced to end the week +1%, which with the USD closing unchanged on the week, made them the outperformer across asset classes. VIX closed higher for the 4th day in a row (with the curve now its flattest in 28 months).
No new news as a catalyst this morning but it appears someone decided it was highly inappropriate for the precious metals to be holding their gains as stocks and bonds revert back to pre-payrolls 'taper' levels. Gold and Silver have been monkey-hammered lower this morning as heavy volume hit futures markets about 419ET and 645ET. Futures were not halted. Some speculation that gold's drop followed positive comments from Ukraine's foreign minister but that seems a stretch...
The reigning paper money system is at the center of the growing income inequality and expanding poverty rates we find in many countries today. Nevertheless, states continue to grow in power in the name of taming the market system that has supposedly caused the impoverishment actually caused by the state and its allies. If those who claim to speak for social justice do nothing to protest this, their silence can only have two possible reasons. They either don’t understand how our monetary system functions, in which case, they should do their research and learn about it; or they do understand it and are cynically ignoring a major source of poverty because they may in fact be benefiting from the paper money system themselves.
Japan is likely to launch even more QE in early 2014 and a much lower yen may result. That'll have dramatic consequences, perhaps greater than US tapering.
It wouldn't be a non-farm-payrolls (or for that matter any government report) without the ubiquitous "early" move in precious metals before the report is given to the general public. As Nanex shows, Gold's price moved in a 'correct' downward (taper-on) way on the "good" news that jobs are 'improving' 7 seconds before the report hit...
Below some leading economists and financial commentators give their perspective regarding the risks of bail-ins or deposit confiscation. If you manage money in any way, your own or others,it will be prudent to heed their warnings.
- HSBC 165K
- Goldman Sachs 175K
- Bank of America 175K
- JP Morgan 180K
- Citigroup 180K
- Deutsche Bank 185K
- UBS 190K
- Barclays 200K