Bernanke today testifies on monetary policy before the House Financial Services Committee (formerly the Humphrey-Hawkins). The testimony will be released at 8:30 am NY with Q&A after his testimony. Tomorrow he testifies before the Senate Banking Committee but the prepared remarks are the same for both days. Indeed it’s likely that the Q&A will be where all the fun starts. As DB says, he will likely try to pull off the trick of continuing to prepare the groundwork for tapering but try to give bond markets something to help them fight off the pressure of higher yields. With no post-meeting press conference planned for the July 30th/31st FOMC, and Bernanke not scheduled to speak publicly until he appears at the Global Education Forum event on August 7th, this week’s testimony may well be the only remarks we hear directly from the chairman for some weeks.
As far back as ancient times, whenever civilizations fell into great crisis, people in desperation have almost invariably turned to a single individual who promised them better times. Of course, history is full of examples of men who did not give up power willingly once the crisis passed. As an example, the 1920s economic crisis in the Weimar Republic had a huge impact in the rise of Adolf Hitler’s National Socialism. In the 1920s, there was one bankrupt country. And the consequences still define the world we live in. But Jim Rogers sees another "man on a white horse" that scares him even more today...
As we have exhaustively noted, given the various macro factors bringing influence to bear on the yellow metal, the bizarre price action of the last six months has run counter to most logical assumptions and has been a source of great frustration to many - including Grant Williams. Cyprus should have been a hugely positive tailwind for gold. But it wasn't. The ongoing money printing should have provided support for gold. But it hasn't. The talk of tapering should have had a minor but noticeable effect on gold, given its healthy recent correction. But it didn't. Sustained data suggesting a voracious appetite for the physical metal not only in Asia but in Western countries, too, should have led to a bounce on the COMEX. But it hasn't. The whole thing is as baffling as Kim Kardashian's fame. When the need to own gold jumps again - and it will; this is a long way from over - all the pieces of this jigsaw puzzle of the weird and wonderful forest of gold manipulation that we have dropped onto the table will slot neatly into place. What if, when that happens, there just isn't enough gold to go around?
Sunday's 'golidlocks' data dump from China was enough for many to herald the turn is in and it's all plain-sailing from here, but the reality is a little different (as always). As Bloomberg's Michael McDonough notes, there is little upside for the yuan given China's slowing economy and a strengthening US Dollar. The gloomier outlook may also weigh on domestic equity markets. The Shanghai Composite Index has underperformed global peers in the past year. The pace of expansion may fall below the government’s goal of 7.5 percent and that may prompt a rate cut and/or an accelerated pace of infrastructure project approvals. Policy makers need to prove they remain in control, meaning GDP growth must finish the year at or above the target (even if it means inflation and social unrest), but for now, the following four charts suggest all is not well with the 'soft-landing'...
Fed Chairman Ben Bernanke will deliver his final semi-annual monetary policy report to Congress tomorrow (July 17), followed by questions from lawmakers. Goldman expects him to strike a similar tone to his comments at last week's NBER conference - "moar of the same." The prepared testimony (released unprecedentedly early at 0830ET) is likely to be uneventful, but here are the five key questions which he would probably cover mostly during the more interesting Q&A part of the testimony.
"Perhaps the success that central bankers had in preventing the collapse of the financial system after the crisis secured them the public's trust to go further into the deeper waters of quantitative easing. Could success at rescuing the banks have also mislead some central bankers into thinking they had the Midas touch? So a combination of public confidence, tinged with central-banker hubris could explain the foray into quantitative easing. Yet this too seems only a partial explanation. For few amongst the lay public were happy that the bankers were rescued, and many on Main Street did not understand why the financial system had to be saved when their own employers were laying off workers or closing down." - Raghuram Rajan
At 27.4%, Greece's unemployment problem is the worst in the world according to Bloomberg's data, followed closely by Spain and South Africa (though of course youth unemployment is massivley worse). The US is a middle-of-the-road 34th worst if we use the standard BLS-inspired unemployment rate, though jumps to 6th (worse than Cyprus) were we to use the more appropriate U-6 under-employment rate. The good news is, there is hope... At less than 1% unemployment, Thailand offers a warm climate, pretty scenery, and a market for jobs that seems to know no bounds (though we suspect the 'quality' of those jobs will be less - but as we know in the US, that doesn't matter).
The mainstream media is claiming that "The aggregate amount of money in paychecks is increasing about twice as fast as GDP." Rising aggregate household income doesn't tell the real story, which is: 1. Most of the income gains flow to the top 10%; and 2. Thanks to rising taxes, healthcare and other costs, household net income for the bottom 90% is declining. The mainstream media's parroting of aggregate household income increases is used to suggest the economy is improving. But the truth is the economy is only improving for a thin slice of households.
The last six months have been tough for gold investors or as Santiago Capital's Brent Johnson self-reflectively jokes, "if adversity builds character, then we gold investors should build a new Disneyland." But as he explains in this excellent summary presentation, the critical factors requiring ownership of gold (or hard money) are still in place and in fact - in some cases - are even more prescient now than ever as we suffer through a surreality of the tale of two economic realities and the tale of two gold markets.
US AG Eric Holder, who it appears is not busy committing perjury before Congress, or failing to prosecute one single TBTF bank due to their systemic nature, or eavesdropping on the AP, or recording every American electronic communication, or selling weapons to Mexican drug cartels, or generally using the constitution as one-ply toilet paper, has found some time to peddle his thoughts on the Trayvon Martin shooting at an NAACP convention in Orlando. So what did the head of the US department of justice say? He proceeds to blast "Stand your ground" laws, because, you see, having the right to self-defense is dangerous and may lead to escalations. No really: "Separate and apart from the case that has drawn the nation's attention, it's time to question laws that senselessly expand the concept of self-defense and sow dangerous conflict in our neighborhoods." In other words, Holder is spreading a very christian message: when slapped, present the other cheek.
Following this morning's "if we hope it, they will buy" NAHB data, the venerable Goldman Sachs released their housing market Swirlogram (and it's something to behold). What we found most interesting was the massive inflection point that occurred just as the chart was collapsing back into the miasma of contraction... Cause or effect, QEternity?
Better volume than yesterday, but still below average, saw the S&P suffer its devastatingly worst day (and first down day) in the last 10 days. The sell-off appeared to start on some Esther 'hawkess' George comments and were stick-saved by rumors of a Hilsenrath article (which appeared and was full of nothing). The S&P futures 'miraculously' reverted perfectly to VWAP but still ended its 10-day-winning-streak. Bonds were very modestly bid but liquidity was thin and activity muted. Gold and Silver had a positive day (up 0.55% on the week) as the USD kept falling (down a matching 0.55% on the week). WTI limped a little lower holding at $105.75 as gas prices continue to surge. Builders remain worst on the week (despite the 'awesome' NAHB print today) and Utilities best. Since 6/19's FOMC meeting, QE-sensitive sectors Energy, Materials, and Homebuilders remain the biggest losers with the winners (Financials and Discretionary) giving some back today. VIX was relatively well bid today as hedgers dug in ahead of Ben's speech.
Is the "hip" Marissa Mayer's honeymoon with Wall Street finally over? After getting the vast benefit of the doubt from Wall Street for some 50%+ upside in the stock price without generating any actual results, moments ago the search engine that everyone used over a decade ago before the arrival of such better alternatives as GOOG, once again failed to deliver. Specifically, while the company beat the EPS estimate of $0.30 with eash and a print of $0.35, it was the top line that the firm posted a miss, revenue coming at $1.07 billion on expectations of $1.08 billion. But it was the outlook that really impacted the stock, which initially was trading higher only to turn lower as the company's guidance cut was released. To wit:
- YAHOO SEES 2013 ADJ OPER INCOME $900M-$1B, SAW $1.05B-$1.1B
- YAHOO SEES 3Q REVENUE EX TAC $1.06B-$1.10B, EST. $1.12B
- YAHOO SEES YR REV. EX-TAC $4.45B-$4.55B, EST. $4.54B
And while the traditional deus ex of a share buyback was used to confused the GETCO algos as usual, this time to the tune of $1.9 billion, it appears it was no longer sufficient to make the market forget that YHOO is the perpetual "promise" stock that just somehow never manages to deliver.