Wall Street Journal

George Soros more than doubled his shares in the SPDR gold trust ETF. He increased his position in SPDR Gold to $137.3 million in the second quarter from $52 million previously. SEC filing for the second quarter showed Soros Fund Management more than doubled its investment in the SPDR Gold Trust from 319,550 shares to 884,400 shares at the end of June. In September 2010 (see chart), Soros called gold "the ultimate bubble" and largely dumped his stake in the ETF before gold recorded annual gains in 2010 and 2011 and rose to a nominal high of $1,920.30 per ounce in September.  There was speculation at the time that he may have sold the SPDR trust in order to own far safer allocated gold bars. Another billionaire investor respected for his financial acumen is John Paulson and Paulson & Co increased its holdings by 26% by purchasing an additional 4.53 million shares of the SPDR Gold Trust to bring entire holding to 21.8 million shares.  It was the first time Paulson & Co had increased its position in the SPDR Gold Trust since the first quarter of 2009, when the investment firm initially acquired 31.5 million shares. It means that Paulson's $21 billion hedge fund now has more than 44% of the company's assets allocated to gold.

Last week was a scratch in terms of events, if not in terms of multiple expansion, as 2012 forward EPS continued contraction even as the market continued rising and is on the verge of taking out 2012 highs - surely an immediate catalyst for the New QE it is pricing in. This week promises to be just as boring with few events on the global docket as Europe continues to bask in mid-August vacation, and prepare for the September event crunch. Via DB, In Europe, apart from GDP tomorrow we will also get inflation data from the UK, Spain and France as well as the German ZEW survey. Greece will also auction EU3.125bn in 12-week T-bills to help repay a EU3.2bn bond due 20 August held by the ECB. Elsewhere will get Spanish trade balance and euroland inflation data on Thursday, German PPI and the Euroland trade balance on Friday. In the US we will get PPI, retail sales and business inventories tomorrow. On Wednesday we get US CPI, industrial production, NY Fed manufacturing, and the NAHB  housing index. Building permits/Housing starts and Philly Fed survey are the highlights for Thursday before the preliminary UofM consumer sentiment survey on Friday.

Yes, There's A NEW Bubble It's Near Guaranteed To Pop Bringing Consumer Discretionary and Durable Sector Stocks Along With It!

And suspicions arose immediately that the Troika was laying the publicity groundwork for something that bailout-leery Germans would oppose.

Will Germany leave the Euro? I believe so. The country is already  bordering on insolvency due to nearly €1 trillion in backdoor EU bailouts (pushing Germany’s Debt to GDP to 90%). Over 69% of Germans are worried about inflation. Angela Merkel is up for re-election next year (and has gained political points anytime she played hardball with Europe) and Germany has implemented steps to place a firewall around its financial system and passed legislation allowing it to leave the Euro if need be.

"At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained" - Ben Bernanke, March 28, 2007

"I don’t think student loans are a financial stability issue to the same extent that, say, mortgage debt was in the last crisis because most of it is held not by financial institutions but by the federal government" - Ben Bernanke, August 7, 2012

Please mark your calendars accordingly as yesterday the Chairman just guaranteed that student loans will be cause for the next "financial stability issue."

Emotion, while an important element in man’s array of mental tools, can unfortunately triumph over reason in crucial matters. In the context of simple economic reasoning, today’s intellectual establishment often disregards common sense in favor of emotional-tinged policy proposals that rely on feelings of jealously, envy, and blind patriotism for validation rather than logical deduction.  “Eat the rich” schemes such as progressive taxation and income redistribution are used by leftists who style themselves as champions of the poor.  Plucking on the emotional strings of envy makes it easier to arouse widespread support for economic intervention via the state. Printed money is not the same as accumulated savings which would otherwise fund sustainable lines of investment. The truth is that capital is always scarce; there is never enough of it. Krugman and Stiglitz believe, as most do, that Americans should be born with the opportunity to succeed. What they fail to see (or refuse to acknowledge) is that the free market provides the best opportunities for someone to make a decent living by providing goods and services.

Over the past month America's ever vigilant law enforcers have taken to task not one but two foreign (domestic bank lobbies are sufficiently large to make Congress muppets perfectly eager to look the other way as noted previously) banks: HSBC and now Standard Chartered, for money laundering. Yet, when it comes to the true elephant in the room, which is not foreign and is fully domestic, they continue to ignore events such as this one just described by the Wall Street Journal: "A Florida home that originally listed for $60 million has sold for $47 million, a record for a single-family house in Miami-Dade County. The home, in Indian Creek Village, had been on the market since early 2011, when construction was still being completed. The asking price was reduced to $52 million this year." And the punchline: "The identity of the buyer, a foreigner who purchased the home in the name of a U.S.-based limited-liability company, couldn't be learned." In other words a foreigner who may or may not have engaged in massive criminal activity and/or dealt with Iran, Afghanistan, or any other bogeyman du jour at some point in their past, and is using US real estate merely as a money-laundering front perhaps? Sadly, we will never know. Why? As explained before, it is all thanks to the National Association of Realtors - those wonderful people who bring you the existing home sales update every month (with a documented upward bias every single time) - which just so happens is the only organization that actively lobbied for and received an exemption from AML regulation compliance. In other words, unlike HSBC, the NAR is untouchable, even if it were to sell a triplex to Ahmedinejad on West 57th street.

Will the Peasants Go Medieval?

It’s Not Just The “London Whale”

Investors now look to the European Central Bank’s rate decision at 1145 GMT.  If “Super” Mario Draghi doesn’t come out with a loaded arsenal (bold intervention), then the markets will be disappointed.  Mario Draghi will be confronting his colleague and nemesis in the ECB Jens Weidmann. Weidmann is the Head of THE Bundesbank, a former Merkel economics advisor, and an ECB governing council member who has just 1 vote out of the 23 today at the ECB MEETING in Frankfurt. However Weidmann sees his role differently.  "I certainly would not say that we are just one of 17 central banks [in the Eurozone]," he said in an interview published on Wednesday. "We are the largest and most important central bank and we have a greater say than many other central banks in the Eurosystem. This means we have a different role." The disagreement here lies with the fact that the Germans are against the ECB becoming like a US Federal Reserve in Europe. Weidmann feels it would be wrong to give the ESM a banking license allowing it to tap large quantities of funds from the ECB. Can “Super” Mario make the jump happen? Time will tell.

The Hilsenrath-Haggle Federal Open Market Committee (FOMC) is likely to ease monetary policy at the July 31-August 1 meeting in response to the continued weakness of the economic data and the persistent downside risks from the crisis in Europe. While we expect nothing more exciting than an extension of the current “late 2014” interest rate guidance to "mid-2015", Goldman adds in their preview of the decision that although a new Fed asset purchase program is a possibility in the near term if the data continue to disappoint, their central expectation is for a return to QE in December or early 2013.

The financial press is far behind in what the public would like or needs as evidenced by the outflow of money from equities and equity funds and into bonds and bond funds. The financial TV press is still fixated on stocks, addressing day traders that are a much smaller group of people than in times past and many shows treat investments as if they were some kind of casino enterprise. In other words, there is a lot of coverage that is directed towards speculators and not nearly enough directed toward investors. The bond markets are multiples of the size of the equity markets and coverage here is close to nil as retail and institutions alike concentrate much more on investing in bonds rather than putting their core money in equities. There is an old saying on Wall Street that to be successful one must “follow the money” and it is quite statistically evident that the money has flowed into fixed-income investments and that the financial press has not followed it. The investment world has changed and we encourage the media to grasp it and to change as a result.

As usual, the stock market was vexatiously out of step with reality last week, soaring on word that the ECB plans to do “whatever it takes” to preserve the euro and the political union that it binds. For U.S. investors, especially those who believe in hope and change (and, presumably, the Easter Bunny), there was also the invaluable news that the U.S. economy is once again verging on recession – a development which is widely believed to portend yet more Fed easing.

Gold held steady above $1,620/oz on Monday, as investors wait for the central banks from Europe and the US to give definite signs on their plans for more QE. QE3 would be bullish for gold and increase the inflation outlook which would benefit gold as a hedge against the rising prices. The public is now interested in the yellow metal again, with investors adding to their physical positions. Market watchers will take their clues from the data out this week. More investors are trading euro gold than ever before and  using euro gold as the barometer of internal health of the gold market right now, says analyst Edel Tully of UBS.  Euro gold is up 9% this year versus US dollar gold's +3% performance. The markets await the Fed’s move.  Certainly some form of QE3 is inevitable whether it is announced this week or at the next FOMC meeting scheduled in early September