President Obama

In the past it has been the bond market whose vigilantes had rampaged across the fields to keep policymakers honest - but something has changed with the Fed's boot on the bond market. As BofAML notes, when the Fed was too soft on inflation or the fiscal deficit was out of control, interest rates spiked higher. In our view, this has changed and today the stock market is the disciplining force for Washington. We have argued this perspective for a while - that nothing will be done until we get a stock market crash - but the press will continue to make molehills out of mountains it seems as BofAML adds, the most obvious lesson of the last week is that when Washington approaches a policy impasse, the financial press tends to signal a resolution of the crisis many times before it happens. Don’t believe it. After elections there is always conciliatory talk: no one wants to be seen as a sore loser or a gloating winner. The risk remains huge and the four hurdles to a grand bargain seem to be getting larger - no matter what the press wants us to think - investors should look past reassuring rhetoric and focus on the underlying reality.

Election Politics ... Or Precursor to Iran War?

The October Double Witch lit the match that precipitated the bulk of the 8.6% slide in the S&P 500 from its September highs.  Massive and unexplainable changes in open interest for the futures most of that week as well as an unusually large Market On Open imbalance for index expiration that morning hinted that the final days of the rally were artificial and susceptible for a sharp reversal. We have arrived at the third Friday in November licking our wounds after a precipitous drop in equities since the Election. Reminded of last month’s inflection point, traders, however, who have far better memories than given credit for, may expect something out of the ordinary especially with the curious drop in the VIX over the past several days albeit I chalk up this suppression of implied volatility to the selling of $6B in notional SPY puts centered on the 140-41 strikes.  On the other hand, one could easily argue that the critical 1350 level for S&P 500 options held up the market yesterday such that the removal of such a protective barrier could reengage the aggressive selling from the past two weeks.

In his farewell address to Congress yesterday, Ron Paul blasted the dangers of what he called 'Economic Ignorance'. He's dead right. Around the world, economic ignorance abounds. And perhaps nowhere is this more obvious today than in the senseless prattling over the US 'Fiscal Cliff'. US government spending falls into three categories: Discretionary, Mandatory, and Interest on Debt. The only thing Congress has a say over is Discretionary Spending. But here's the problem - the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest alone. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion. This is why the Fiscal Cliff is irrelevant. Increasing taxes won't increase their total tax revenue. Politicians have tried this for decades. It doesn't work. Bottom line-- the Fiscal Cliff doesn't matter. The US passed the point of no return a long time ago.

It appears that these days not even the Corzining of client money can happen without it being split across furiously polarized party lines. As it turns out hours ago, the Committee on House Financial Services released an advance glimpse into a report to be released in its entirety tomorrow, which puts the blame for the collapse of not only MF Global, but also the disappearance of millions in client money, right where it belongs: the firm's then CEO Jon Corzine. Yet that Corzine corzined millions, leaving clients scrambling in bankruptcy court in an attempt to recover what should have been segregated money from the very beginning, and also just happened to blow up one of the 21 Fed-anointed Primary Dealers, is not surprising: this has been long known by everyone. Those who need a refresher are urged to recall the Honorable's testimony before the House... or maybe not: after all it is not as if Corzine himself could recall a whole lot. Where it gets interesting is that the former Democratic governor, and senator, not to mention primary bundler for president Obama, is, in the eyes of the members of the committee, innocent: All the democrats on the Investigations Subcommittee refused to sign off on the findings, meaning that to them, Corzine is completely innocent. That this is purely a political move is glaringly obvious. It is also abhorrent, because as long as political ideology gets in the way of pursuing and imposing justice, the Banana States of America will remain just that.

China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today which was reported on by Bloomberg. China’s gold reserve is “too small”, Gao said and while gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao wrote. The People’s Bank of China is accumulating significant volumes of gold under the radar of many less informed market participants which is bullish. The Chinese government is secretive about its gold diversification and buying and does not disclose gold purchases to the IMF. Therefore, there has been no official update to their holdings since the barely reported upon announcement four years ago that Chinese gold reserves had risen from just over 500 tonnes to over 1,000 tonnes.

Silver remains the most under appreciated and under reported on asset in the world despite continuing positive fundamentals.

The Telegraph published an unusually bullish article on silver yesterday which suggests that silver might rise by over five times in the next few years. 

Emma Wall interviews fund manager Ian Williams who says that "silver is about to enter a sustained bull market that will take the price from the current level of $32 an ounce to $165 an ounce and we expect this price to be hit at the end of October 2015."

The questions of who are the 1% and what level of income demarcates the fat cats from the rest of Americans are likely to become more and more polarizing in the coming weeks. What is perhaps the most intriguing is the apparent dichotomy between the demographics (youth - who face considerably worse employment trends) and state-wealth who voted for Obama. As ConvergEx's Nick Colas notes, of all the U.S. states with an above-average incidence of their citizens earning over $200,000 (14 in total), all but one (Alaska) went for President Obama in last week’s election.  At the other end of the income spectrum, only 2 states in the bottom 10 for +$200K earners (Maine and Iowa) had a majority of voters who sided with the President. The central irony of this straightforward math is that any increase in income taxes on the “Wealthy” will be disproportionately borne by the states which secured the President’s reelection. Perhaps, just an intriguing is the fact that - if you look at the GINI Index – a measure of income inequality – Republican leaning states enjoy more equality on these terms than the citizens of traditionally Democratic areas of the country.

Now that The Show is over, we are left with the equivalent of a Sunday morning hangover following a binge of promises and lies. After the Supreme Court upheld the PPACA, a spate of mergers rippled through the managed health care realm, to ostensibly cope with smaller profit margins and  ‘compliance costs.’  But really, it’s because each firm wants to corner as much as possible of the market, in as many states as it can, to garner more premiums and control more disbursements and prices at the upcoming insurance ‘exchanges.’ Meanwhile the more hospitals are viewed as profit centers, the more their Chairmen will cut costs to maximize returns, and not care quality. They will seeks ways to sell underperforming assets, programs or services and reduce the number of nonessential employees, burdening those that remain. And if insurance companies can manage doctors directly, they can control not just costs, but treatment – our treatment. It’s not an imaginary government takeover anyone should fear; but a very real, here-and-now insurance company takeover, to which no one in Washington is paying attention.

Farce #1: “Market value” and “free markets” have become a joke.

Farce #2: Private, self-assigned, fake value is being traded for public money at 100 cents on the dollar.

Farce #3: Printed money is backed by nothing.

Farce #4: We have a “free” enterprise system dominated by monopolies that force people to buy inferior goods and services at exorbitant rates.

Farce #5: High-level financial crimes, no matter how egregious or widespread, are not being prosecuted.

Farce #6: Risk is gone. Now there is only liability borne by citizens.

Farce #7: Productivity has been supplanted by parasitism.

We expect a return to a skittish environment in markets. We are confident in my prediction for the course of the economy by leveraging simple game theory in handling the upcoming crisis as Congress returns for its lame duck session. “Compromise” reflects a decision from either side that each find unpalatable. Both President Obama and Speaker Boehner would rather shove two sticks in their eyes than move from their hardened stance despite some of the recent rhetoric in favor of bargaining in good faith.  As long as the loss of utility from both sides’ digging in their heels is more favorable than conceding to the preferences from those across the aisle, then the game arrives at a Prisoner’s Dilemma. the above matrix concludes that the fiscal cliff virtually guarantees an aggressive selloff for equities until the stop loss for the Democrats and Republicans has been triggered.  For example, if the clock hits midnight on New Year’s Eve with the blue chip index at or near its September peak, each faction would feel comfortable standing up to the other well into January.

Just when the newsflow surrounding America's military-industrial complex couldn't get any more surreal, and on Veterans day on top of everything, here comes the WaPo with news that virtually assures all defense companies should open limit up tomorrow: "President Obama is considering asking Sen. John F. Kerry (D-Mass.) to serve as his next defense secretary, part of an extensive rearrangement of his national security team that will include a permanent replacement for former CIA director David H. Petraeus." That's right: John "Swiftboat" Kerry, the same John Kerry who accused Vietnam vets of committing war crimes; the same John Kerry of the whole military service controversy. More "Although Kerry is thought to covet the job of secretary of state, senior administration officials familiar with transition planning said that nomination will almost certainly go to Susan E. Rice, the U.S. ambassador to the United Nations." As to Petraeus, who may or may not testify over the Benghazi affair, but apparently is excused due to his familial infidelities, and whose sexual dalliances were (not) ironically captured best by The Onion, his replacement is also becoming clear: "John O. Brennan, Obama’s chief counterterrorism adviser, is a leading contender for the CIA job if he wants it, officials said. If Brennan goes ahead with his plan to leave government, Michael J. Morell, the agency’s acting director, is the prohibitive favorite to take over permanently. Officials cautioned that the White House discussions are still in the early phases and that no decisions have been made."

It’s a safe assumption to make that the reelection of Barack Hussein Obama to the office of the United States Presidency will be talked about for decades to come. Like Franklin Roosevelt, Abraham Lincoln, and other “transformative” presidents before him, Obama will be praised for keeping the country together in the midst of economic difficulty. The lavishing has already begun with prominent voices on the left like Paul Krugman declaring the “new America” has made Obama their champion. Like most of what passes for accepted history, this is downright propaganda. The country as a whole wasn’t frightened over sudden change by throwing out the incumbent. It wasn’t a declaration of a new, more diverse America. There is a rational explanation for the President’s reelection which doesn’t invoke a deep or complex meaning. The only way to explain the outcome is in the simplest and direct prose: the moochers prevailed.

With everyone convinced that it is only a matter of time before Larry Fink steps into the office about to be vacated by that walking 1040 disaster, Tim Geithner, thereby allowing the man who many say is the shadow king of Wall Street to define US policy for another 4 years (because Wall Street's complete dominance of US politics since JPMorgan's bailout of the US government is certainly not enough), there is still time to consider alternatives to a position that will make sure the only class to benefit from "four more years" are the uber wealthy (even as entitlement policies keep the uber poor at least content). Today, Bloomberg columnist William Cohan proposes his economic dream team, which far from perfect, will at least, superficially, assure that Wall Street won't come first and foremost when policy considerations are discussed. The names: Treasury Secretary: Erskine Bowles; SEC Chairman: Eliot Spitzer; National economic advisor: Carmen Reinhart.

Chairman of the LBMA David Gornall told the conference, “When comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction.  The country has only 2% of its reserves in the form of gold compared with the U.S. at 75%.” The People’s Bank of China hasn’t disclosed any changes to its gold holdings since 2009, when it said they had risen a whopping 76% to 1,054 metric tons. While the U.S., Germany, Italy and France keep more than 70% of reserves in gold, China’s share is less than 2%. “Prices have recently been supported by official sector buying,” Gornall said today, without listing any central bank. “Will the gap between the amount of gold held in reserve by the developing markets and that of the developed world close?” Brazil, South Korea and Russia have all added gold reserves this year data from the International Monetary Fund show. Nations bought 254.2 tons in the first six months and may increase to 500 tons this year, the World Gold Council said in August, exceeding the 456 tons added in 2011. China has the world’s largest foreign-exchange reserves, totaling $3.29 trillion in September, according to data by Bloomberg.