"Gold Is A 6,000 Year Old Bubble" - Citi's Dutch Strategist Throws Up All Over Gold, Days After Dutch Gold RepatriationSubmitted by Tyler Durden on 11/27/2014 17:40 -0500
"Gold is the world’s most persistent bubble: 6,000 years old and going strong" - Citigroup's Willem Buiter.
Dear Willem, thank you for that valiant effort. After reading a few thousands words of shallow propaganda we understand your "confusion": our advice, if you want to understand what gold really is, read the following from Kyle Bass: "Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple." Because if there is a bubble that is even bigger and longer than the "6000-year-old gold bubble" it is that of human corruption, greed, and idiocy. And that doesn't even include the stupidity of those who don't grasp this simple truth.
"The time to liquidate a given position is now seven times as long as in 2008, reflecting much smaller trade sizes in fixed income markets. In part the current liquidity illusion is a product of the risk asymmetries implied by the zero lower bound on interest rates, excess reserves in the system, and perceived central bank reaction functions. However, interest rates in advanced economies won’t remain this low forever. Once the process of normalization begins, or perhaps if market perceptions shift, and it is expected to begin, a re-pricing can be expected. The orderliness of that transition is an open question."
Is the price of oil today driven more by global growth and supply/demand factors or by monetary policy factors? We hope it doesn’t surprise anyone when we say that we think monetary policy dominates ALL markets today, including the global oil market. What’s the ratio? Our personal, entirely subjective view is that oil prices over the past 3+ months have been driven by 3 parts monetary policy to 1 part fundamentals. How do we come up with this ratio? For the past 3+ months the oil Narrative has been dominated by public statements from influential answer-suppliers talking up the oil price dynamic of a rising dollar and monetary policy divergence. That’s the source of our subjective view of a 3:1 dominance for monetary policy-driven factors over fundamental-driven factors. However – and this is the adaptive part where we play close attention to Narrative development and dissemination – the noise level surrounding this Thursday’s OPEC meeting is absolutely deafening.
Old hands will know that it is virtually impossible to forecast the oil price. The anomalous recent price stability of $110+/- 10 we believe reflects great skill on the part of Saudi Arabia balancing the market at a price high enough to keep Saudi Arabia solvent and low enough to keep the world economy afloat. While it may not be possible to predict the actions of the main players, it is easier to predict what the outcome may be of certain actions may be. A drop in demand for oil of only 1 million barrels per day can account for the fall in price from $110 to below $80 per barrel. The future price will be determined by demand, production capacity and OPEC production constraint. A further fall in demand of the order 1 Mbpd may see the price fall below $60. Conversely, at current demand, an OPEC production cut of the order 1 Mbpd may send the oil price back up towards $100. It seems that volatility has returned to the oil market.
Never in the history of US equity markets has the S&P 500 closed above its 5-day moving average for 28 days in a row... until today. While most indices tracked sideways in a very narrow range today, Trannies outperformed (helped by weaker oil, but even when oil rallied intraday Trannies rallied too). VIX tracked back below 12.5 with an inverted term structure for the 5th day in a row. The USD lost ground for the 2nd day in a row, driven by EUR strength (with notable AUD weakness extending). Silver rallied as gold flatlined and copper tumbled after US GDP beat. However, the two big themes today were the collapse in oil prices (as rumors/news ahead of OPEC sent volatility soaring) to a $73 handle - the lowest close since 2010; and the plunge in Treasury yields (with a very stroing 5Y auction and big block trade in TLT suggesting short-covering). Finally, AAPL broke above a $700 billion market cap briefly today but was unable to hold it.
Just two months after the OECD cut its global growth outlook, overnight the Organisation for Economic Co-operation and Development cut it again, taking down its US, Chinese, Japanese but mostly, Eurozone forecasts. In the report it said: "The Economic Outlook draws attention to a global economy stuck in low gear, with growth in trade and investment under-performing historic averages and diverging demand patterns across countries and regions, both in advanced and emerging economies. “We are far from being on the road to a healthy recovery. There is a growing risk of stagnation in the euro zone that could have impacts worldwide, while Japan has fallen into a technical recession,” OECD Secretary-General Angel Gurria said. “Furthermore, diverging monetary policies could lead to greater financial volatility for emerging economies, many of which have accumulated high levels of debt.” And sure enough, the OECD's prescription: more Eurozone QE. As a result, futures in the US are in fresh all time high territory ignoring any potential spillover from last night's Ferguson protests, just 30 points from Goldman's latest 2015 S&P target, Stoxx is up 0.5%, while bond yields are lower as frontrunning of central bank bond purchases resumes. Oil is a fraction higher due to a note suggesting the Saudi's are preparing for a bigger supply cut than expected, although as the note says "it is unclear if the cut sticks."
A week after we reported that the head of the Ukraine central bank admitted in an unofficial, informal interview that Ukraine's gold is gone, all gone, moments ago the Central Bank revealed that, sure enough, the gold holdings in the civil war-torn country have tumbled, as a result of a decision in September to "increase the share of US dollars in a reserve basket", or in other words, to sell the gold. Just don't call it that: in fact, as of today we have a brand new buzzword for gold liquidations: "optimization of international reserves."
While reflecting on how many of 2014's "outrageous predictions" came true (and the still strong US equity markets), Saxobank CIO and Chief Economist Steen Jakobsen warns 2015 will see "deeper and deeper market corrections." If we continue to apply medicine to keep the patient alive, instead of dealing with the disease Jakobsen ominously warns, 2015 will see increased volatility and mean-reversion, "think in terms of October 1987 or 9/11."
OPEC faces numerous dilemmas this week as it meets to decide what, if anything, is to be done about falling oil prices. As Goldman notes, consensus expectations have shifted to only expecting a modest cut announcement on Nov 27th. Furthermore, any large cut that would lead to a large price rally would be self-negating as it would enable US producers to hedge 2015 production and sustain elevated production growth.
While technicals remain largely meaningless in the global centrally-planned "USSR market" (as penned by Russell Napier, who asked "Which World Has No Volume, No Volatility And Rising Prices?", his answer: the USSR), pattern-seeking carbon-based traders still find refuge in the comfort provided by technical analysis. So for all those who believe past performance is indicative of future results, here according to BofA's MacNeil Curry is how various asset classes perform during Thanksgiving week compared to all other weeks during the year.
"This last 1900 point Dow Jones push upwards - and the Ebola events leading into it - it was so orchestrated and heightened at critical points but the ascent and push straight up in price, and sideways nonreaction after was completely unlike anything I've seen before. After going up for a record-breaking amount of time the last five or so years, in a nonlinear exponential mania type of ascent, there should normally be tremendous volatility that follows... After this year and especially this last 1900 point Dow run up in October, and post non-reaction, that I am 100 percent confident that that one buyer is our own Federal Reserve or other central banks with a goal to "stimulate" our economy by directly buying stock index futures."
In the final part of Hugh Hendry's 3-part (part 1 and part 2 here) interview with MoneyWeek's Merryn Somerset the Sanguine Scot, perhaps surprisingly to some given his previous negativity - though fitting with his world view of fiat currency destruction - believes "to bet against China or Chinese equities, or the Chinese currency is to bet against the omnipotence of central banks. One day that will be the right trade, just not ready or sure that that is the right trade today."
Since 1987, all of the positive equity returns have accrued during these seven trading days, and the average returns during the rest of the month have been negative.
What follows is a top 10 list of challenges only people who have tied their personal fates to Wall Street will probably understand. And for those of you who’ve managed to avoid these pitfalls, read on to see what you’ve been missing. And pat yourself on the back.
There are things going on with the financial markets currently that seem just a bit "out of balance." For example, asset prices are rising against a backdrop of global weakness, deflationary pressures and rising valuations. More importantly, there is a rising divergence between sentiment and hard data. While weather can't be blamed yet, it will likely be the main "excuse" in the months ahead as early record snowfall is already impacting economic production. However, it isn't just the manufacturing data that seems "out of whack."