All you need to read and some more.
- Downgrades Loom for Banks (WSJ)
- China Loosens Grip on Yuan (WSJ)
- Sarkozy Embraces Growth Role for ECB (WSJ)
- A Top Euro Banker Calls for Boost to IMF (WSJ)
- Wolfgang Münchau - Spain has accepted mission impossible (FT)
- Hong Kong Takeovers Loom Large With Banks Lending Yuan: Real M&A (Bloomberg)
- Banks urge Fed retreat on credit exposure (FT)
- Drought in U.K. Adds to Inflation Fears (WSJ)
- France faces revival of radical left (FT)
- Euro Area Seeks Bigger IMF War Chest as Spanish Concerns Mount (Bloomberg)
How to Adapt to Any Climate Change – Global Warming or Cooling – and Save Money In the Process
Two months ago we explained very diligently, why courtesy of the strategic Russian Naval base in Tartus, Syria, the Russian regime will never, repeat never, let the Syrian government be replaced by various insurgent forces (very much like in other parts of MENA, which now are suffering from an absolute political vacuum and even greater corruption in the aftermath of the Arabian Spring). Subsequently there were various reports of Russian troops arriving in Tartus, both confirmed and denied by Russia, which were promptly forgotten: after all distractions from other, far greater problems can not become too repetitive or else the general audience will habituate. But all that was a month ago, and attention spans these days are short, so it is time to once again escalate, and sure enough yesterday the AP reported that Obama has approved an aid package to the Syrian rebels. Naturally, since this whole theater is all about severing strategic Russian national interests in the Mediterranean, and thus, into the Suez, Arabian Gulf, and ultimately Persian Gulf, German Spiegel reports of the immediate tat to America's tit (not to be confused with the Colombian legal prostitution tit, where it now appears whoregate is about to become a national pastime courtesy of upcoming congressional hearings involving the 12 men from Obama's staff who were Secretly Serviced on taxpayer dimes), as apparently yet another Russian-chartered, German ship has been intercepted carrying military equipment and munitions into Syria.
Gold bullion remains supported, mostly due to a pickup in physical Indian and Chinese gold demand this week. There are expectations of sustained Indian consumption next week in the lead up to the Akshaya Tritiya festival later this month. Western physical buying remains unusually anaemic - for now. In recent years, April and May have been positive months for gold in terms of returns (see table above). April has returned 1.4% per annum in the course of the current bull market since 2000. May has returned 1.75% per annum in the course of the current bull market since 2000. Interestingly, the last month of Q1 and Q2, March and June, have been negative in terms of returns. March in particular has seen the poorest returns for any month in the last 11 years with average falls of 0.6%. Therefore the very poor performance of gold in March 2012 (-6.4%) may represent another buying opportunity as it did last year (see chart below) and in previous years.
- ECB Seen Favoring Bond Buying Over Bank Loans (Bloomberg)
- Italians Rally Against Monti’s Pension-Overhaul Limbo (Bloomberg)
- Spain Cracks Down on Fraud as Rajoy Says Aid Impossible (Bloomberg)
- Europe’s Capital Flight Betrays Currency’s Fragility (Bloomberg)
- China’s Less-Than-Forecast 8.1% Growth May Signal Easing (Bloomberg)
- China Banks Moving to Lower Mortgage Interest Rates (China Daily)
- Fed Officials Differ on Need to Keep Rates Low to 2014 (Bloomberg)
- North Korea Confirms Rocket Failure (Reuters)
- Yuan Lending Set to Cross New Border in Pilot Plan (China Daily)
Further confirmation of gold’s continuing but gradual renaissance as a safe haven asset was given by the IMF yesterday who warned that a “growing shortage of safe assets” poses a threat to “global financial stability.” The IMF identified $74.4 trillion of potentially safe assets today, including gold, investment grade government and corporate debt, and covered bonds. Sovereign debt crises are reducing the number of governments that investors trust to issue "risk-free" bonds just as new financial regulations are increasing demand for safe securities from banks. Importantly, the IMF’s latest Global Financial Stability Report’s introduction finds that "In the future there will be rising demand for safe assets, but fewer of them will be available, increasing the price for safety in global markets.” “Both the lack of political will to reshape fiscal policies at times of rising concern over debt sustainability and an overly rapid reduction of fiscal deficits limit governments’ capacity to produce assets with low credit risk.” The IMF has warned regarding illiquidity in “safe haven” markets. Gold remains one of the most liquid markets in the world and the illiquidity in bond markets would see increased safe haven demand for gold. The IMF is warning regarding deteriorating public finances. As many governments see themselves being downgraded - safe haven bonds may become less safe.
All eyes were on Europe again today, where Italy sold debt for the second day in a row, only this time instead of 1 year and lower Bills, the Tesoro came to market with On and Off the run issuance maturing in 3 through 11 years. And as was to be expected, with a substantial portion of the debt maturing after the LTRO 3 year window, the auction was mixed, far weaker than yesterday's LTRO-covered Bill issuance, and the maximum target of €5 billion was not met, instead a total of €4.884 billion was sold. Furthermore yields surged compared to previous auctions. "The funding environment is getting tougher for the periphery. Overall we believe the spreads are biased towards further widening although we still prefer Italian debt over Spanish," said Michael Leister, a strategist at DZ Bank.What is most worrying is that the funding picture is again deteriorating rapidly, although not as fast as in Spain, even as LTRO cash is still sloshing around European banks. What happens when it runs out?
Americans have been listening to the mainstream financial media’s song and dance for around four years now. Every year, the song tells a comforting tale of good ol’ fashioned down home economic recovery with biscuits and gravy. And, every year, more people are left to wonder where this fantastic smorgasbord turnaround is taking place? Two blocks down? The next city over? Or perhaps only the neighborhoods surrounding the offices of CNN, MSNBC, and FOX? Certainly, it’s not spreading like wildfire in our own neck of the woods…Many in the general public are at the very least asking “where is the root of the recovery?” However, what they should really be asking is “where is the trigger for collapse?” Since 2007/2008, I and many other independent economic analysts have outlined numerous possible fiscal weaknesses and warning signs that could bring disaster if allowed to fully develop. What we find to our dismay here in 2012, however, is not one or two of these triggers coming to fruition, but nearly EVERY SINGLE conceivable Achilles’ heel within the foundation of our system raw and ready to snap at a moment’s notice. We are trapped on a river rapid leading to multiple economic disasters, and the only thing left for any sincere analyst to do is to carefully anticipate where the first hits will come from. Four years seems like a long time for global banks and government entities to subdue or postpone a financial breakdown, and an overly optimistic person might suggest that there may never be a sharp downturn in the markets. Couldn’t we simply roll with the tide forever, buoyed by intermittent fiat injections, treasury swaps, and policy shifts? The answer……is no.
Chinese gold demand remains very strong as seen in the importation of 40 metric tonnes or nearly 40,000 kilos of gold bullion from Hong Kong alone in February. Hong Kong’s gold exports to China in February were nearly 13 times higher than the 3,115 kilograms in the same month last year, the data shows. Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago or nearly a seven fold increase from the record levels seen last year. China’s appetite for gold remains strong and Chinese demand alone is likely to put a floor under the gold market.
While luckily not as powerful as last year's Japanese earthquake, which in turn led to a catastrophic tsunami, this morning Indonesia has been battered by a series of magnitude 8+ quakes and aftershocks in the Banda Aceh and Sumatra regions of the country. Also unlike last year, the nature of the quake made it less likely a tsunami was generated because the earth moved horizontally, rather than vertically, and therefore had not displaced large volumes of water, Bruce Presgrave of the United States Geological Survey told the BBC. The geological map and update from the USGS below summarizes all the action we have seen to date.
- Subprime bubble is back: Lenders Again Dealing Credit to Risky Clients (NYT)
- Housing bubble is also back: AIG Is Planning a Return to U.S. Property Investing (WSJ)
- Spain and EU Reject Talk of Bailout (FT)
- Coeure Suggests ECB Could Restart Bond Purchases for Spain (Bloomberg)
- IMF Set to Recognise Shrinking Chinese Surplus (FT)
- Government to Propose New Mortgage Servicing Rules (AP)
- Japan Currency Chief Warns Against Delay Over Finances (Bloomberg)
- The 'Michael Corleone' of Libya (Reuters)
- North Korea Says Fuel Being Injected Into Rocket (Reuters)
- SNB Reaffirms Vow to Cap Swiss Franc (FT)
- With a 2 Year delay, both FT and WSJ start covering the shadow banking system. For our ongoing coverage for the past 2.5 years see here.
- Trouble in shipping turns ocean into scrapheap (Telegraph)
- First-Quarter Home Prices Down 20.7% in Capital (China Daily)
- Bernanke Says Banks Need Bigger Capital Buffer (Reuters)
- Monti’s Overhaul Can’t Stop Pain From Spain: Euro Credit (Bloomberg)
- Spain Confronts Crisis Threat as Rajoy Seeks Deficit Cuts (Bloomberg)
- Japan’s Noda Announces Anti-Deflation Talks as BOJ Sets Policy (Bloomberg)
- White House makes case for Buffett Rule (CNN)
- Cameron to Make Historic Myanmar Trip (FT)
- 'Time for Closer Ties' With India (China Daily)
- JPMorgan Trader Iksil Fuels Prop-Trading Debate With Bets (Bloomberg), but, but, he is just proividing liquidity, and serving JPM's clients
- Short on tools, central banks left with words (Reuters)
- And the mainstream media finally catches up: Investors braced for fall in US profits (FT)
- Iran rules out pre-conditions to talks: Salehi (Reuters)
- North Korea ‘planning third nuclear test’ (FT)
- Japan to Hold Talks With China on IMF Contributions (Reuters)
- American Universities Infected by Foreign Spies Detected by FBI (Bloomberg)
- Is the Fed Promoting Recovery or Desperation? (Hussman)
- In Europe, Unease Over Bank Debt (NYT)
- Banks test ‘CDOs’ for trade finance (FT)
Last week, when we commented on the amusing spread between the Chinese PMI as measured by HSBC on one hand (plunging) and the official number (soaring), we had one very simple explanation for this divergence: "the Schrödinger paradox - where the economy was doing better and worse at the same time - which was experienced for the past three months in the US (and is now finished with the economy rolling over), has shifted to Shanghai, where it is now the PBOC's turn to baffle all with bullshit. Why? One simple reason: despite what everyone believes, China still has residual and quite strong pockets of inflation. So while the world may be expecting an RRR, or even interest rate, cut any second now (just as China surprised everyone literally house before the November the global FX swap line expansion by the Fed in November 2011), the PBOC is just not sure it can afford the spike in inflation, or even perception thereof." It appears we were correct, following the just released Chinese CPI number, which in March printed at a far greater than expected 3.6%, on expectations of a 3.4% print, and well above the February 3.2%.