Hong Kong

It must be difficult for the BRICS countries today. On one hand, they continue to jockey for respect among the Western powers, insisting on participating in quasi-European bailout funds like the IMF. On the other hand, they are also clearly aware of the Western nations' continuing efforts to surreptitiously devalue their domestic currencies, and the pernicious effect that has had on them as exporters and as lenders of capital. In that vein, it was interesting to note that during the latest BRICS Summit held this past March in New Delhi, the main topic of discussion centered on the creation of the group's first official institution, a so-called "BRICS Bank" that would fund development projects and infrastructure in developing nations. Although not openly discussed, reports suggest what they were really talking about was creating a type of BRICS central bank - an institution that could facilitate their ability to "do more business with each other in their local currencies, to help insulate from U.S. dollar fluctuations…" Given the incredible scale of western central bank intervention over the past six months, the BRICS' increasing frustration with their printing efforts should be a given by now. The real question is what they're doing about it, and what assets they're accumulating to protect themselves from the inevitable, which brings us to gold.

The ECB has found its hands tied: if it continues to monetize aggressively, inflation will surge and Germany will either leave the Euro or at the very least make life very, very difficult for the ECB and those EU members asking for bailouts.

After all, doing this would score MAJOR political points for both Merkel and Weidmann who have both come under fire for revelations that the Bundesbank has in fact put Germany on the hook for over €2 trillion via various back-door deals.

• Merkel Pushes Back Against Hollande Call to End Austerity Drive (Bloomberg)
• ECB's Draghi throws crisis ball back to governments (Reuters)
• Greek Bank Chief Warns of a Possible Euro Exit (WSJ)
• China’s Wen Says Economy Will Maintain Robust Expansion (Bloomberg)
• North Korea's nuclear test ready "soon" (Reuters)
• Hong Kong Peg Architect Says Convertible Yuan `Long Way Off’ (Bloomberg)
• Hollande seeks wider EU fiscal pact (FT)
• Gavyn Davies: Why UK GDP continues to lag the G7 (FT)
• U.S. Lost AAA on Danger of Liquidity Crisis, S&P’s Kraemer Says (Bloomberg)

A multi-decade trend reversed.

The bailout gravy train is slowing and possibly even stopping right at the time when Spain (a REAL problem) is going to start looking for a bailout. So what do you think happens when the ECB chooses to print more and Germany threatens to pull out the Euro… OR the ECB tells Spain it can’t provide any additional funds?

As Europe approaches the halfway point of the week, equities are suffering losses on the day as North America comes to market, with underperformance observed in the CAC and peripheral bourses. Markets have been weighed down upon from the open with commentary from the Portuguese PM garnering attention in the press, saying that there are ‘no guarantees’ that Portugal will return to the financial markets as planned. A Bank of Spain release has shown the bad loan ratio for the country’s banks has increased to 8.16%, further weighing on sentiment. There was also market talk of stop-loss buying of German Bunds at the cash open, the security had sold off since then but safe haven flows have kept the Bund in positive territory.

I recently wrote an article that addresses the subject of sociopaths and how they insinuate themselves into society. Although the subject doesn't speak directly to what stock you should buy or sell to increase your wealth, I think it's critical to success in the markets. It goes a long way towards explaining what goes on in the heads of people like Bernie Madoff and therefore how you can avoid being hurt by them. But there's a lot more to the story. At this point, it seems as if society at large has been captured by Madoff clones. If that's true, the consequences can't be good. So what I want to do here is probe a little deeper into the realm of abnormal psychology and see how it relates to economics and where the world is heading. If I'm correct in my assessment, it would imply that the prospects are dim for conventional investments – most stocks, bonds and real estate. Those things tend to do well when society is growing in prosperity. And prosperity is fostered by peace, low taxes, minimal regulation and a sound currency. It's also fostered by a cultural atmosphere where sociopaths are precluded from positions of power and intellectual and moral ideas promoting free minds and free markets rule. Unfortunately, it seems that doesn't describe the trend that the world at large and the US in particular are embarked upon. In essence, we're headed towards economic and financial bankruptcy.

On a long enough timeline, all things come to an end. Even for such venerable venues as the London Metals Exchange, with its 130 year history, and its annual turnover of over $11 trillion in metal contracts, which also makes it the largest market for non-ferrous metals. As the English FT reminisces, "When the LME was established in 1877, Britain was one of the world’s most important manufacturing powerhouses, and the LME’s benchmark contracts for delivery in three months were designed to mirror the length of time needed to reach British ports for shipments of copper from Chile and tin from Malaysia." Furthermore, in the beginning, and all the way through 1993, the flagship copper contract was denominated in sterling, at which point it was switched to the USD following the "Black Wednesday" ERM sterling crisis, courtesy of George Soros who made about $1 billion by shorting the GBP, and formally ended the sterling's role as even an informal backup reserve currency. As of today, insult follows inury, as the LME has formally asked the members of the exchange to drop the sterling contract denomination (in addition to USD, EUR, and JPY contracts) and replace it with the Chinese renminbi. Why this sudden and dramatic, if gradual and tacit, admission that the CNY is the ascendent reserve currency? Because, as the FT reminds us, China has become the market for non-ferrous metals: it is "the dominant force in the market, accounting for more than 40 per cent of global demand for most metals and a rapidly increasing share of trading in LME futures." Add that to yesterday's news of a widening in the CNY band (which incidentally is much ado about nothing, at least for now: at best it will allow China to devalue its currency when and if it so desires much faster than before, much to Geithner's final humiliation), and to the previously reported extensive network of bilateral CNY-based trade agreements already kris-crossing Asia, and one can see why if America is not worried about the reserve status of the dollar, it damn well should be.

All you need to read and some more.

• Downgrades Loom for Banks (WSJ)
• China Loosens Grip on Yuan (WSJ)
• Sarkozy Embraces Growth Role for ECB (WSJ)
• A Top Euro Banker Calls for Boost to IMF (WSJ)
• Wolfgang Münchau - Spain has accepted mission impossible (FT)
• Hong Kong Takeovers Loom Large With Banks Lending Yuan: Real M&A (Bloomberg)
• Banks urge Fed retreat on credit exposure (FT)
• Drought in U.K. Adds to Inflation Fears (WSJ)
• France faces revival of radical left (FT)
• Euro Area Seeks Bigger IMF War Chest as Spanish Concerns Mount (Bloomberg)

Earlier today, the Chinese Internet (yes, it is its own category) experienced a glitch in the matrix. Whether this is due to further potential confusion over the fate of Bo Xilai (and/or any rumors of a concurrent/past/future military coup), or just overall confusion as to what is actually happening in the country, or simply mere censorship gone uber-wild is unclear. As the WSJ explains it, "At around 11 a.m. local time Thursday, China’s Internet suddenly began behaving very strangely. People inside China reported being unable to access some Chinese web sites like Sina’s Corp’s portals as well as popular foreign web sites not normally blocked by China’s firewall. Simultaneously, Internet users outside China, including in Hong Kong, reported difficulties accessing key Chinese sites, like search engine Baidu and the website of the People’s Bank of China." And while we have no idea of what is going on behind the scenes, we are fairly confident what isn't. Such as the country growing at a 9% as has been wildly speculated all day in what some suggest is a leak of Chinese official data. For a glimpse of what is going on, we went to get some local color such as this message board posting at CND.org. Is this the full story? Of course not. But neither are the endless lies peddled by the PBOC and the CCP. Our advice: keep the below in mind while reading any economic data coming out of the country Ministry of Truth and Bureau of Propaganda in the coming weeks and months. Because if today's Internet glitch is any indication, things behind the scenes are truly starting to heat up.

Chinese gold demand remains very strong as seen in the importation of 40 metric tonnes or nearly 40,000 kilos of gold bullion from Hong Kong alone in February. Hong Kong’s gold exports to China in February were nearly 13 times higher than the 3,115 kilograms in the same month last year, the data shows.  Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago or nearly a seven fold increase from the record levels seen last year. China’s appetite for gold remains strong and Chinese demand alone is likely to put a floor under the gold market.

China reported strong copper and copper product imports in February. However, rather than a sign of strong end user demand, a lot of the stockpile copper will never get shipped out to end-users.

Six centuries ago, when London and Paris were irrelevant, plague-infested backwaters, and New York City wasn’t even on the map, the greatest city in the world was Nanjing– the capital of the Great Ming. At the time, Nanjing was not only the most populous city on the planet, it was also the pinnacle of civilization. Art, science, technology, and commerce flourished in the Ming Dynasty’s liberalized economy, which constituted a full 31% of global GDP at the time. (By comparison, the US economy is roughly 25% of global GDP today…) Taxes were low, the currency was strong, and overseas trade thrived. For a time, Nanjing truly was the center of the world. Over the next several hundred years, the tide shifted. The Ming Dynasty fell, and power was transferred further west to the Ottoman Empire, and eventually to Europe which had finally emerged from the Dark Ages as the most advanced civilization on Earth... This phenomenon has lasted for several hundred years now… but as history has shown repeatedly, power centers frequently shift. The world is now witnessing yet another transition of power, this time from west to east, as the US-led western hierarchy suffocates within its own debt-laden Keynesian fiat bubble.

• Mixed signals from China's factories in March (Reuters)
• EU wants G20 to boost IMF funds after Eurogroup move (Reuters)
• Euro Leaders Seek Global Help After Firewall Boosted (Bloomberg)
• Euro-Region Unemployment Surges to Highest in More Than 14 Years (Bloomberg)
• Big banks prepare to pay back LTRO loans (FT) ... don't hold your breath
• Coty Inc. Proposes to Acquire Avon Products, Inc. for $23.25 Per Share in Cash (PRnewswire)
• Spain Record Home Price Drop Seen With Bank Pressure (Bloomberg)
• Firm dropped by Visa says under 1.5 million card numbers stolen (Reuters)
• Japan Tankan Stagnates With Yen Seen as Threat (Bloomberg)
• Fed to buy $44 billion Treasuries in April, sell $43 billion (Reuters)