In 1919 the major London gold dealers decided to get together in the offices of N.M. Rothschild to “fix” the price of gold each day. While this was notionally to find the clearing price at which all buying interest and all selling interest balanced the possibility for market manipulation and self-dealing is inherently systemic in such a cozy arrangement. This quaint anti-competitive procedure continues to this day. In no other market in the world do the major players get together each day and decide on a price. Imagine if Intel, AMD and Samsung were to meet each day to “fix” the price of microchips, or if the major oil companies were to meet each day to “fix” the price of crude oil; wouldn’t there be a public outcry and a flurry of antitrust violation lawsuits? The “fix’ is not open to the public, there are no published transcripts of each fixing, and there is no way to know what the representatives of the bullion banks discuss between each other. The current London Gold Fix is conducted by the representatives of five bullion banks, namely HSBC, Deutsche Bank, Scotia Mocatta, Societe Generale, and Barclays. The “fix” is no longer conducted in an actual meeting but by conference call.

The week's notable moves in swaps, swaptions, yields, asset swaps and mortgages. Pay particular attention to the fireworks in the 6.0 swap, the 4.5/5.0 swap, and the 4.5 butterfly. Thank you Fed.

Now that QE Lite, or whatever one calls it, is here, the most appropriate market strategy reverts back to March of 2009, when life was very simple: "Buy what the Fed is buying." And with the benefit of QE1 in hindsight, namely the Fed's prior purchase of $700 billion in Treasurys in 2009, it is possible to determine precisely which bonds the Fed will focus on, and which are likely to be excluded, thus benefiting the least from the latest bout of monetization. Morgan Stanley has come up with a list of which bonds are likely to be targeted by the Fed in the upcoming 5 Open Market Operations beginning on August 17 and continuing through September 1. Those looking for a quick (and levered) return on investment will be wise to pick up the issues determined as most likely to be monetized, while potentially shorting those that are ineligible for buybacks.

Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead… and now it’s time to pay for it. Literally. - Eric Sprott

After a brief hiatus, Jim O'Neill is back, and this time is taking it easy on taunting the bears. In his weekly letter he has some rather lucid questions, the first one of them being the observation of the paradox of the surging Chinese trade deficit in light of the weakening renminbi. O'Neill states: "the GS trade weighted CNY has actually weakened by around 1.75pct since
they “ de-pegged”, by “undershooting” the rise of the Euro, Yen et al." Don't anyone tell Schumer that China's whole revaluation bluff was nothing but (and in fact a smokescreen for further devaluation) or there will be more theatrical demands for blood. O'Neill also looks at recent Chinese regulatory developments and notes that the push "to bring any off balance sheet vehicles for disguised lending, back on
the balance sheet, and to be prepared to raise fresh capital" is sensible but hopes that "if this is going to be implemented, if necessary, offsetting stimulatory measures would be introduced." Sure enough, China also has to pay for the Keynesian funeral for a long, long time. Not surprisingly, O'Neill looks at the one-time record pick up in the German economy courtesy of a massive EUR devaluation and extrapolates far into the millennia: "there seems to be a belief that Germany is on the verge of a jobs “ miracle” , and there is more and more talk of a period of stronger domestic demand." Sorry no. It is nothing like that and is purely a function of the ever more volatile seesawing in key FX crosses, on a trendline to global deleveraging contraction. Germany merely borrowed from the future courtesy of a plunge in EURUSD. It is already paying for this now and this quarter's data will be a major disappointment.

Gregory Simmons, the energetic force behind Scopelabs, is an unorthodox money manager whose legacy exposure, and subsequent disenchantment, with Wall Street forced him into self-enforced exile (Hawaii is sufficiently far from Wall and Broadway), where he now runs an iconoclast trading operation combining elements of quantitative, technical, fundamental and every other possible analysis. Simmons has been striving to expose the core truths, or flaws depending on perspective, about trading (first and foremost that there is no such thing, especially since the vast majority of market participants end up losing to a few select winners, as a sure thing) which many daytraders simply refuse to accept in their pursuit of gambling nirvana, all the while failing to recognize that perceived skill (especially in our current marketplace) has very little if anything to do with profit. The below video is a suitable introduction for Zero Hedge readers who may not be familiar with Scopelabs: appropriately titled "Buzzkill", in it Simmons debunks several of the key doctrines that dominate the numerous streams of Stocktwits momentum chasers, "theory fitters" and other Koolaid drinkers, all of whom, we have long claimed, have far better odds at success in a rigged casino (and not to mention the downside protection of at least getting comped expenses) than trading in the stock market, absent the "information arbitrage" capabilities of those who, to bastardize Sun Tzu, have made the profit before the initiating trade was ever printed.

Several weeks ago, a spoof xtranormal cartoon went viral, in which the purchasing sequence of an iPhone (as compared to an HTC Evo) was hyperbolized, and which ruthlessly mocked the brainwashing practices of the Apple Borg collective. It was only a matter of time, before the brain trust behind the lampoon decided to focus its attention on the next group that has been ridiculed since time immemorial: the long-suffering gold bugs. Sure enough, the sequel is now out, and the process of purchasing an iPhone is now downright boring compared to the purported thought process behind buying gold. Of course, the cartoon is quite hilarious, but for all the wrong reasons, as in trying to mock those who believe that on a short/medium enough timeline, the survival rate for paper drops to zero, the video, which is sure to go just as viral, in fact proves all the concerns not just of the faceless "goldbug" collective, but of all those others who believe gold is headed much, much higher, which also includes the richest and most prominent money managers, financiers, and politicians in the world.