While various three letter economic schools of thought continue sprouting left and right, in an attempt to validate endless spending predicated on one simple thing: transitory reserve currency status, and we emphasize transitory, reality moves on, oblivious of what economic theoreticians believe it should be doing. As Yomiuri Shimbun reported last night, China and Japan are set to launch direct currency trading, bypassing the dollar, and the associated benefits and risks, entirely. "But how can that be?" dollar purists will scream. After all, when one bypasses the dollar, one commits blasphemy to a reserve currency. Somehow we think China gets that. From the AP: "Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports. With the planned step, exchange rates between the yen and the yuan will be determined by their transactions, departing from the current "cross rate" system that involves the dollar in setting yen-yuan rates, Kyodo News said on Saturday."
With US markets already checked out ahead of the holiday day weekend, and Europe acting abnormally stupid (PIIGS bond spreads plunging, then soaring right back), there is little newsflow to report overnight, except for a key report that China loan growth is plunging in what is a major risk flag proudly ignored by all algos (but not the SHCOMP which dropped 0.7%). Futures have followed the now traditional inverse pattern of selling off early in the Asian session, then ramping following the European opening on nothing but vapors of hope. All that needs to happen today is a drop early in regular trading, following by a major squeeze on the third consecutive baseless rumor for the week to be complete, and for stocks to actually post an increase even as the EUR crashes and burns. Unless of course we get a rumor that Europe will be open on Monday even as the US is not there to bail out risk assets.
Gold’s London AM fix this morning was USD 1,558.50, EUR 1,239.27, and GBP 993.62 per ounce. Yesterday's AM fix this morning was USD 1,555.00, EUR 1,229.44, and GBP 989.56 per ounce.
Gold fell $5.60 or 0.36% in New York yesterday and closed at $1,561.20/oz. Gold has been trading sideways in Asia and was slightly lower in Europe prior to buying which saw gold rise to about the close in New York yesterday.
With only new home sales (which we actually report as opposed to NAR goalseeked marketing materials) to hit the docket in the US, the only newsflow that matters again will be that coming out of Europe, which is holding an informal summit. As BofA reminds us, the summit was originally set up to discuss growth. Now, it is there for Grexit damage control. Today's discussions will focus on the use of existing tools for supporting short-term growth. Spain and Greece are likely to be on the agenda as well. On Greece, although discussions should focus on the pros and cons of a Greek exit, we believe there will be no communiqué other than to mention that Greece should stay in the euro area and implement the programme. On Spain, discussions will likely focus on the banking sector. The discussion will likely be around using the EFSF (or its successor ESM) directly to fund the banking sector, a step Germany opposed in the past. Overall, we do not expect many decisions from the summit. Rather, we expect a communiqué about what was officially discussed, and a date for a later rendezvous. In other words, "investors are likely to be let down by today's summit" (that was BofA's assessment). Also let down, were markets in the overnight session when the BOJ, contrary to some expectations, left its QE program unchanged. As usual keep an eye on headlines: record EUR interest means violent short covering squeezes if the algos sense a hint of optimism in any red flashing text (if only briefly, as the long-term outlook for the situation is quite hopeless).
Just when one thought it was safe to come out of hiding from under the school desk after the latest nuclear bomb drill (because Europe once again plans on recycling the Euro bond gambit - just like it did in 2011 - so all shall be well), here comes David Rosenberg carrying the launch codes, and setting off the mushroom cloud.
A panel of the Swiss parliament is discussing the introduction of the parallel ‘Gold franc’ currency. Bloomberg has picked up on the news which was reported by Neue Luzerner Zeitung. The Swiss parliament panel will discuss a proposal aimed at introducing a new currency, or a so-called gold franc. Under the proposal, which will be debated in the lower house’s economic panel in Bern today, one coin in gold would be worth about 5 Swiss francs ($5.30), the Swiss newspaper reported. The Swiss franc would remain the official currency, the paper said. The proposal may lead to a wider debate about the Swiss franc and the role gold might again play to protect the Swiss franc from currency debasement. The initiative is part of the “Healthy Currency” campaign which is being promoted by the country’s biggest party – the conservative Swiss People’s Party (SVP).
There was some hope that today's European summit would provide some more clarity for something else than just the local caterer's 2012 tax payment. It wont. Per Reuters: "Germany does not believe that jointly issued euro zone bonds offer a solution to the bloc's debt crisis and will not change its stance despite calls from France and other countries to consider such a step, a senior German official said on Tuesday. "That's a firm conviction which will not change in June," the official said at a German government briefing before an informal summit of EU leaders on Wednesday. A second summit will be held at the end of June. The official, requesting anonymity, also said he saw no need for leaders to discuss a loosening of deficit goals for struggling euro zone countries like Greece or Spain, nor to explore new ways for recapitalise vulnerable banks at Wednesday's meeting." In other words absolutely the same as in August 2011 when Europe came, saw, and did nothing. Yes, yes, deja vu. Bottom line: just as Citi predicted, until the bottom falls out of the market, nothing will change. They were right. As for the summit, just recycle the Einhorn chart from below. Elsewhere, the OECD slashed world growth forecasts and now officially sees Europe contracting, something everyone else has known for months. "In its twice-yearly economic outlook, the Paris-based Organisation for Economic Co-operation and Development forecast that global growth would ease to 3.4 percent this year from 3.6 percent in 2011, before accelerating to 4.2 percent in 2013, in line with its last estimates from late November... The OECD forecast that the 17-member euro zone economy would shrink 0.1 percent this year before posting growth of 0.9 percent in 2013, though regional powerhouse Germany would chalk up growth of 1.2 percent in 2012 and 2.0 percent in 2013." Concluding the overnight news was a meaningless auction of €2.5 billion in 3 and 6 month bills (recall, Bill issuance in LTRO Europe is completely meaningless) in which borrowing rates rose, and a very meaningful downgrade of Japan to A+ from AA, outlook negative, by Fitch which lowered Japan's long-term foreign currency rating to A plus from AA, the local currency rating to A plus from AA minus, and to the country ceiling rating to AA+ from AAA. Yes, Kyle Bass is right. Just a matter of time. Just like with subprime.
The dollar was a median step towards a newer and more corrupt ideal. Its time is nearly over. This is open, it is admitted, and it is being activated as you read this. The speed at which this disaster occurs is really dependent on the speed at which our government along with our central bank decides to expedite doubt. Doubt in a currency is a furious omen, costing not just investors, but an entire society. America is at the very edge of such a moment. The naysayers can scratch and bark all they like, but the financial life of a country serves no person’s emphatic hope. It burns like a fire. Left unwatched and unchecked, it grows uncontrollable and wild, until finally, there is nothing left to fuel its hunger, and it finally chokes in a haze of confusion and dread…
Fear & Panic are the Banking Cartel’s Weapons V. the Gold & Silver Bull. Patience and Logic are the Best Defense.Submitted by smartknowledgeu on 05/17/2012 09:11 -0400
Currently, there is massive negativity surrounding gold and silver and in particular, gold and silver mining stocks. At times like this, when gold and silver have taken a fairly brutal hit in a condensed period of time thanks to low daily trading volumes both in PM futures and PM stock markets that make it very easy for the banking cartel to manipulate them, it can be difficult not to sell out of everything and run for the hills if one allows emotions to dictate one’s decisions (always a bad move).
Here are some of the things that David Einhorn likes and does not like, having just started his speech at the Ira Sohn Conference:
- Martin Marietta - stock plunges 10% and triggers circuit breaker.
- France - "a french default is not out of the question" - France not limit down yet. He says that a return to the Franc is not out of the question.
- Einhorn likes GJF.NO - "Norway is the only country which can finance itself."
- Einhorn likes Cairn Energy as it trades at discount to assets in just Britain and India.
- Says China is misunderstood and is not an investment opportunity: not enough money to feed the economy and banks aare becoming illquid; money is leaving the country
- Also does not like Japan for all the usual Kyle Bass and Andy Xie reasons. The Yen will continue strengthening.
- Einhorn likes AMZN, calls it "elephant in the room", but questions profit growth.
- Einhorn likes Dena Co, and Gree Inc in Japan
- Einhorn is short DKS
- Einhorn, who is long about $870MM AAPL as per last night's 13F, likes AAPL. Stunner.
Explaining why and how the global monetary system is failing, why it is too late to stop, what will come next, and why the crisis is only financial – not commercial.
Someone has to take the other side of the JPM debate. I'll try.