Morning Gold Fixing: Bernanke: “Catastrophic” Implications for U.S. Economy If $14.3 Trillion Debt Ceiling Not RaisedSubmitted by Tyler Durden on 02/04/2011 08:59 -0400
Gold and silver have given up a small bit of yesterday’s strong gains in all currencies (especially the euro – see chart below) but are up more than 1% and 3% respectively on the week. Asian equity indices were higher overnight and are higher for the week, except for India where there are growing concerns about surging inflation and interest rates. European indices are higher today and most are up by some 1.5% to 2% on the week – as are US indices...Gold’s price surge yesterday was likely a combination of short covering, the very bullish demand figures out of China, accommodative monetary policy sounds from Trichet and Bernanke. The geopolitical situation in Egypt and the Middle East likely also led to buying.
Peak Theories Research shares their latest technical observations on the gold price chart: "after gold’s trading action over the last week or so, I have come to believe that what we’ve witnessed in gold over the last four months is that complex Head and Shoulders pattern rather than the Diamond Top or any topping pattern as I had pronounced was the case for much of January. Putting such pronouncements aside, if you’re long gold, you may be happy to hear that this pattern fulfilled itself perfectly last Thursday as I show and discuss below. More importantly, however, now that gold has held that fulfillment in what appears to be a strong crux of support for nearly a week now, I am also coming to believe that the volatile trading action of the last four months in gold is more likely than not to produce an uptrend in gold in both the near-term and in the intermediate-term. This last point is in complete contrast to what I thought gold’s technical aspects were telling us in the month of January and this is a significant change of view for me. Put most clearly, I think gold appears as though it is likely to head up in the near-, intermediate- and long-term and all such trading action is consistent with the primary bull market in gold that began in the early part of the last decade."
Markets modestly positive in the early AM. Yesterday’s claims numbers were roughly in line with expectations and expectations for today’s Payrolls data have been modestly upgraded from the pre-ADP expectations. ISM showed progress as did Nonfarm Productivity, while Unit Labor Costs indicated the divergence between commodity price inflation and labor price inflation (or lack thereof). Bernanke’s speech yesterday provided a few great tidbits, including the dovish outlook predicated on the Fed’s expectation of low inflation and high unemployment. After emphasizing that expectation, the Chairman stated, “Under such conditions, the Federal Reserve would typically ease monetary policy,” via the Fed Funds rate. Though the statement was seemingly later couched in the context of asset purchases, it does seem like strong language. For the inflationary hawks – especially those abroad who are concerned with the US ‘exporting inflation’ – the Chairman offered that higher “visible” prices (notably for gas) were results of “very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.” Inflation is apparently someone else’s problem.
Every now and then, Standard Chartered has a knack for coming up with that one report that is miles ahead of the competition and promptly becomes the definitive guidebook for the industry. Its most recent one: "Inflation: illusionary, inflammatory" is arguably one of the most detailed and comprehensive reports to come out from an institutional entity in a long time, dealing with the ever so sensitive topic of, you guessed it, inflation. And while it is guaranteed that the Fed will read neither this report, nor today's earlier announcement that food prices hit another all time high in January, we urge all readers to at least familiarize themselves with the contents herein. In addition to providing a case by case geographic atlas of which the next riskiest Tunisia-like countries are, the report includes a unifying thematic overview that explains not only why the global liquidity glut is long overdue to be pulled back, but what the next (and last) steps available to central bankers are before a wave of global unrest undoes 100 years of failed Federal Reserve policies. An absolute must read.
Goldman's Andrew Tilton dissects today's NFP number, explaining why if it is weaker than expected (+146k) it is due to snow, and why if it stronger than expected, it is entirely due to the "economic recovery" (and not Bernanke's hyperinflationary mandate). Bottom line: win-win, while North African (and soon Middle East) regimes: lose-lose.
It's all about jobs: Employment report for Jan…weather versus the fundamentals. Estimating the change in payrolls in January is an exercise in weighing the positive trend in fundamental factors against the depressing effects of unusually cold and snowy weather. Goldman has an original estimate of +175k predicated on the view that the weather effects would not be large, but further analysis helped by classification of the storm that passed through during the survey reference week as a major storm suggests the potential for a larger effect. At the same time, the labor market data themselves, including claims, ISM employment indexes, and online help-wanted indexes, suggest further improvement. Goldman decided, on balance, that these trends were offsetting, but there is clearly a lot of uncertainty surrounding this number. To aggravate the situation, this report will incorporate a benchmark revision to the March 2010 level of payrolls that the Labor Department estimated last fall at -366k; this often has the effect of reducing estimated net changes in the months following the benchmark.
According to Charlie Gasparino, the intifada between Meredith Whitney and the rest of the world just got uglier. According to the former CNBCer, the one-time Citi scourge has been called in to testify before the House TARP committee and explain her less than favorable position on munis.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/02/11
So much for quant trading being an innocent program that can never do any harm. After a year ago AXA Rosenberg disclosed that it had kept its clients in the dark about a massive error in the computer code of its "quantitative investment model", today the SEC fined the one time asset manager of over $70 billion with a record for its kind fine of $242 million. As a reminder the immediate effect of the error when first reported was the major underperformance of the fund compared to its peers: "A number of the funds managed wholly or partly by AXA Rosenberg performed poorly last year." Yet what supposedly did not alert the firm that anything was wrong was that the system was performing in line with other comparable models: ""It wasn't obvious if there were any problems or
any impact from this error on our fund because it followed a similar
trend to other quant managers," Vanguard spokeswoman Rebecca Katz told
Reuters on Saturday." In other words, it is safe to assume that other AXA peers have or had been operating with comparable system flaws, yet due to the SEC's preoccupation with porn, had never been caught, and as a result investors in such funds may have well been fleeced of millions due to comparable uncaught computer glitches. So much for robotic efficiency, especially when coupled with a human's eagerness to engage in willful securities fraud...
The recovery bugs are out again even after the GDP report for Q4 2010 showed significant structural weakness. Inflation is spreading quickly and has already impacted businesses and households. The Fed will not do anything about it because its models say it isn’t there. We show why those models are so confident (why you should be much less so), why inflation is a problem now, and why this latest bubble will not last six years like the last.
Just out from the NYT:
The Obama administration is discussing with Egyptian officials a
proposal for President Hosni Mubarak to resign immediately, turning over
power to a transitional government headed by Vice President Omar
Suleiman with the support of the Egyptian military, administration
officials and Arab diplomats said Thursday.
In other words, the formerly biggest spook of the Middle East, and quite possibly a former CIA asset, is about to become president, under the auspices of a US-endorsed "democratic" transition, which does nothing but replace one crony regime with another. It is disturbing that the US administration does not comprehend that the Egyptian people are sufficiently intelligent to see just how superficial this proposed "regime change" is.
As the Greater Depression continues along a parallel pathway with the Great Depression of the 1930s, Congress is about to commit the same blunder it made in 1930. The rocket scientists in the House of Representatives in September passed the Currency Reform for Fair Trade Act, which aims to crack down on Chinese currency manipulation by targeting imports from China and other countries with currencies that are perceived to be undervalued. The vote was 348 to 79, with more than 100 Republicans voting in favor of the bill. It died in the Senate before the mid-term elections, but Representative Sander Levin, Representative Tim Ryan and Representative Tim Murphy are expected to reintroduce the bill when the House returns in February from a congressional district work break. Senators Shumer and Casey are also planning legislation to punish the Chinese for unfair trade practices.
Five years ago, when I showed up on the doorstep of Nouriel Roubini’s RGE Monitor, I was in the minority of macro economists who saw a financial tidal wave coming. For the rest of the world, including Wall Street’s financial analysts, Fed bankers, Politicians, or even Moses himself, none of them could see how the contagion from subprime loans could cascade into a systemic crisis. A crisis that would then expose larger problems that would eventually lead to a complete financial meltdown. Similar to the subprime loans and the subsequent credit crisis, we face a new tsunami of what on the surface appears to be of minor financial relevance, but what will be the final straw that breaks the camel’s back if not politically achieved. What it is is ownership and accountability, from a political standpoint, for ALL of the politically fueled economic decisions being made as well as their side effects. For investors, it would be a catastrophic misjudgment to not escalate these macro political views into the analysis of economic work. (This is starkly different then a political debate, but rather a true non-partisan skyview of policies and rhetoric and their overall effects on the psyche of the economy.) For a financial system that is running on the fumes of confidence, we need to properly analyze this new dynamic.
Today, instead of the traditional, and sometimes boring, weekly balance sheet format (no surprises: another week, another record) we want to focus on one particular aspect of the Fed's balance sheet: namely the unprecedented differential between bank excess reserves and Fed asset purchases since the start of the latest round of quantitative easing (since the launch of QE Lite in August 2010). Since this cumulative number has now hit $170 billion, it can no longer be qualified as pocket change, even by the Chairman's standards.
If indeed as Credit Suisse speculated gold's move was predicated by concerns that the Muslim Brotherhood may end the peace treaty with Israel, then the relationship between Egypt and the country's largest Islamist movement, the Muslim Brotherhood, deserves a special focus. Below we publish a special report by Stratfor focusing precisely on this relationship, and what the future may hold for either. "With Egypt’s nearly 60-year-old order seemingly collapsing, many are asking whether the world’s single-largest Islamist movement, the Muslim Brotherhood (MB), is on the verge of benefiting from demands for democracy in Egypt, the most pivotal Arab state. Western fears to the contrary, the MB is probably incapable of dominating Egypt. At best, it can realistically hope to be the largest political force in a future government, one in which the military would have a huge say."