It's been one of the worst years for gold in a generation. A flood of outflows from gold ETFs, endless tax increases on gold imports in India, and the mirage (albeit a convincing one in the eyes of many) of a supposedly improving economy in the US have all contributed to the constant hammering gold took in 2013. Perhaps worse has been the onslaught of negative press our favorite metal has suffered. It's felt overwhelming at times and has pushed even some die-hard goldbugs to question their beliefs... not a bad thing, by the way. To us, a lot of it felt like piling on, especially as the negative rhetoric ratcheted up. This is why it's important to balance the one-sided message typically heard in the mainstream media with other views. Here are some of those contrarian voices, all of which have put their money where their mouth is...
If one listens to Goldman's chief economist Jan Hatzius these days, it is all roses for the global economy in 2014... much like it was for Goldman at the end of 2010, a case of optimism which went stupendously wrong. Goldman's Dominic Wilson admits as much in a brand new note in which he says, "Our economic and market views for 2014 are quite upbeat." However, unlike the blind faith Goldman had in a recovery that was promptly dashed, this time it is hedging, and as a result has just released the following not titled "Where we worry: Risks to our outlook", where Wilson notes: "After significant equity gains in 2013 and with more of a consensus that US growth will improve, it is important to think about the risks to that view. There are two main ways in which our market outlook could be wrong. The first is that our economic forecasts could be wrong. The second is that our economic forecasts could be right but our view of the market implications of those forecasts could be wrong. We highlight five key risks on each front here." In short: these are the ten things that keep Goldman up at night: the following five economic risks, and five market view risks.
- Here comes JPM's next multibillion legal reserve: Federal Probe Targets Banks Over Bonds (WSJ)
- Mulally Bows Out of Microsoft CEO Race, Staying at Ford (BBG)
- United States sending more troops and tanks to South Korea (Reuters)
- Eurozone unemployment sticks at record high (FT)
- China-Japan 'Voldemort' attacks up ante in propaganda war (Reuters)
- Alternative Lenders Peddle Pricey Commercial Loans (WSJ)
- John McAfee: glad Intel dropping name from security software (Reuters)
- Jobless Benefits Bill Stays Alive Amid Talks on Offsets (BBG)
- Chicago Colder Than South Pole as Frigid Air Clamps Down (BBG)
- Former Miss Venezuela shot dead in attempted robbery (Reuters)
"Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations."
2013 Was A Year Of Calm In The World Of Finance ... 2014 May Not Be So Calm ... Highlights Of Year - German Gold Repatriation, Record Highs In Yen, Huge Chinese Demand - Lowlights Of Year - Massive Paper Sell Offs in April/June and First Deposit Confiscation and Capital Controls ...
In a day that will be remembered for the first major snowstorm to hit New York in 2014 and test the clean up capabilities and resolve of the city's new populist mayor (not starting on a good note following reports that JFK airport will be closed at least until 8:30 am Eastern), it was only fitting that there was virtually no overnight news aside for the Chinese non-manufacturing PMI which dropped from 56.0 to 54.6, a new 4 month low. Still, following yesterday's ugly start to the new year, stocks in Europe traded higher this morning, in part driven by value related flows following the sell-off yesterday. Retailers led the move higher, with Next shares in London up as much as 11% which is the most since January 2009 and to its highest level since 1988 after the company lifted profit forecast after strong Christmas trading performance. Other UK based retailers with likes of AB Foods and M&S also advanced around 2%.
With tensions remaining high, the brouhaha over the 'probe' of government corruption daring to find actual corruption rolls on and now the military is complaining of bent judges in their own 'coup' trial:
*TURKISH ARMY SAYS EVIDENCE FABRICATED IN COUP TRIAL: HURRIYET
*TURKEY ARMED FORCES FILES CASE CITING PLOT AGAINST IT: HURRIYET
Add to this the hike in consumption taxes and fears over inflationary surges and the Lira has re-collapsed back to record lows against the USD and Istanbul stocks are re-tumbling.
Earlier this week, in "Why The Turkish Government May Be The Casualty Of A $119 Billion PetroDollar Loophole" we said "dare to mess with the Petrodollar and the wrath of the US government will hunt you down... sooner or later." Sure enough, after resulting in a Turkish government scandal, punishing its stock market and sending the Lira reeling, the blowback has reached Iran where billionaire Babak Zanjani was arrested yesterday on corruption charges, although in reality his chief transgression was allowing the Petrogold system to show that the Petrodollar is no longer irreplaceable.
- Americans on Wrong Side of Income Gap Run Out of Means to Cope (BBG)
- Michael Schumacher battles for life after ski fall (Reuters)
- Professors for hire: Academics Who Defend Wall St. Reap Reward (NYT)
- Chinese police kill eight in Xinjiang 'terrorist attack' (Reuters)
- How to Prevent a War Between China and Japan (BBG)
- Unemployment Benefits Lapse Severs Lifeline for Longtime Jobless (BBG)
- Japan's homeless recruited for murky Fukushima clean-up (Reuters)
- China Local-Government Debt Surges to $3 Trillion (WSJ)
- How unexpected: Britons less inclined to pay down mortgage debt (Reuters)
Sir Halford Mackinder’s 1904 speach in which he outlined his “Heartland Theory” was a founding moment for geo-politics. He argued that control of the Eurasian landmass (Europe, Asia and the Middle East), which contained the bulk of the world’s population and natural resources, was the major geo-political prize. As time passed, energy (first crude oil then natural gas), became increasingly integral to this concept and its strategic significance cannot be overstated. Remarkably, Mackinder’s theory has remained equally valid, if not more so, in the modern era - although key “pivot areas” for exercising control have evolved. In addition to Central Asia and Trans-Caucasus in Mackinder’s day, the oil producing nations of the Middle East took on increasing importance in the “New Great Game”. We see a “New New Great Game” emerging.
It was in October 2012 when we explained how Iran evades the Western blockade (ostensibly with the implicit nod of none other than the US), and when we first defined the concept of PetroGold in the context of the Turkey-Dubai-Iran crude-for-gold triangle. One year later, following Iran's unperturbed ability to exist in a world without US dollars, the blockade of Iran is a thing of the past, and the west has engaged in a full-blown detente with the country, much to the fury of both Israel and Saudi Arabia, lowering and in many cases outright eliminating Iran sanctions, which proved futile. So a happy ending for Iran (if only briefly). However, one country that has seen better days, whose government may be on the edge of collapse due to an unprecedented corruption scandal precisely for enabling said PetroGold scheme, and which has been in the news on a daily basis recently, is Turkey. As Turkey's Today's Zaman explains in "Iran's Turkish Gold Rush", the political crisis Turkey finds itself in may be nothing but a consequence of the PetroGold scheme conceived over a year ago, and in which Turkey played a crucial role. Here is how the Turkey-Dubai-Iran PetroGold triangle, or as the Zaman calls it, "gas for gold", may soon result in the toppling of yet another government, simply because it showed that existence outside of the clutches of the 'Petrodollar' is perfectly possible...
With equity markets reacting enthusiastically to the Fed’s historic policy change announced last week, PIMCO's Mohamed El-Erian notes many have rushed to declare victory. Whether in asserting investor comfort with the policy regime shift or in declaring the definitive end of dependence on quantitative easing (“QE”), they believe that the markets’ short-term reaction can indeed be extrapolated into the longer-term. While most Fed officials will welcome the markets’ favourable reaction – and especially so after the May-June shock – El-Erian suspects that they are much more cautious. Indeed, in this FT Op-Ed, he lays out four reasons why such caution is understandable.
"There's no near-term resolution in sight," warns TCW Group's David Loevinger, as "Thailand has entered an extended period of political instability." This uncertainty has led to foreigners abandoning the nation's stock market in record size - and collapsing the Thai Baht at the same time. Why should US investors be worried? Thailand was the catalyst that started the 1997 Asian crisis, broke LTCM, and instigated the most epic experiments in central bank liquidity provision on record. With the Fed Tapering, both Indonesia and Thailand (and Turkey) are already seeing major currency collapses but of course, as long as US equities rise, no one cares (which is exactly what they said last time)...
As we noted earlier, political instability is spilling into social unrest:
*TURKISH POLICE SEEK TO BREAK UP PROTEST IN ISTANBUL: NTV TV
*TURKISH POLICE USE TEAR GAS, WATER CANNONS TO END PROTEST
The crowd was chanting "Thief Tayyip Erdogan" in reference to Turkey's graft-probe-implicated PM. And the nation's European cousins are "growing concerned" at events in Turkey, calling for "transparent, impartial justice."
Muammer Akkas, the prosecutor who complained his government corruotion investigation efforts were being blocked by the government - has been removed from the investigation. Prime Minister Erdogan's efforts to rein in "the final attack" on "new Turkey" are failing even after his cabinet reshuffle but this morning's rhetoric has sent asset prices tumbling once more:
*'THE NEW TURKEY IS UNDER SERIOUS ATTACK': ERDOGAN
*IN NEW TURKEY, SOVEREIGNTY CAN'T LIE WITH JUDICIARY: ERDOGAN
*LAWMAKERS SHOULD AVOID REMARKS HURTING ERDOGAN: ARINC
*ERDOGAN SAYS HE'S ISSUING LEGAL COMPLAINT AGAINST MEDIA LEAKS
As one analyst noted, "Erdogan continues to present the developments as a conspiracy despite having to shuffle his cabinet, which indicates that there may be some serious findings behind the probe."