When it comes to who controls Europe, the answer is simple - hint: it is not Goldman Sachs via its puppets Mario Monti or Mario Draghi. Nor is it Angela Merkel. No - the entity in charge of the continent of 300+ million is the nation-corporation known as Gazpromia, which also happens to be is the holding company of the new and somewhat improved USSR, aka Russia. Why? Because if Gazpromia decided to play the vengeful god role it is known to embrace now and then, it could simply shut down the gas pipeline to Europe and millions of people would realize that heating in deep subzero temperatures is far, far more important than having a (un)stable currency or wheelbarrows full of money. As such, it is always better to let sleeping gods lie. Oddly enough, Europe decided to not do that, and moments ago the WSJ and BBG reported that the EU has decided to bite the hand that warms it and has launched an antrust case against Gazprom.
Mr. Jenkins’ error rests on incomplete accounting and incorrect attribution analysis. In Frederic Bastiat’s terms, we have a confusion of what is seen and what is not seen.
Gold’s seasonality is seen in the above charts which show how March, June and October are gold’s weakest months with actual losses being incurred on average in these months. Buying gold during the so-called summer doldrums has been a winning trade for most of the last 34 years. This is especially the case in the last eight years as gold averaged a gain of nearly 14% in just six months after the summer low. We tend to advise a buy and hold strategy for the majority of clients. For those who have a bit more of a risk appetite, an interesting strategy would be to buy at the start of September, sell at end of September and then buy back in on October 31st.
Iron Ore inventories to the roof; steel production still ramping; food and energy prices soaring; economy deteriorating rapidly. So why no major stimulus from the PBoC? Too busy in-fighting or perhaps waiting on The Fed or The ECB to rescue us all; we suspect neither of the above. This chart, via Goldman Sachs, indicates the relative looseness of financial conditions (easing / tightening) compared to China's current activity. These two proprietary indicators provide a 'cleaner' view of the various aspects of China's monetary/fiscal policies (from fiscal stimulus to RRR hikes or reverse repos) and its 'real' level of economic growth (unbiased by political need). As is extremely evident, since the initial collapse and huge stimulus in 2008/09, the PBoC has become less and less capable of generating any additional economic activity. Whether this is due to the same shadow-banking effect Europe and the US suffer from in their transmission channels; or more simply that the Chinese may have also hit their bubble-created balance-sheet-recession debt-minimization limit (no matter how mandated from the top-down that spending is).
Yesterday, when the market was plunging (by less than a whopping 1%, yet magically defending the 13K "retirement off" threshold in the DJIA), we wondered: where is the Fed's favorite messageboard: WSJ "journalist" Jon Hilsenrath. We found out at 3 am, when instead of releasing another soon to be refuted rumor of more easing, we discovered that the scribe was busy doing something very different: discussing the pros and cons of the Chairsatan's legacy.
We destroyed the myth that the LTRO would not in fact stigmatize bank balance sheets when it was first introduced as the encumbrance was evident from the start - though took the market a while to comprehend and reprice (exuberant on the new-found liquidity optics). The expectations that the ECB will embark on a new scheme of sovereign debt purchases, implicitly funding governments - no matter how many times they tell us that it is to ensure transmission mechanisms flow, have three objectives or rationales, according to Goldman's Huw Pill: Easing private financing conditions through monetary expansion, Financing governments, and/or Reactivating private markets. However, there is one glaring unintended consequence of this 'aid' - the risk exists that well-intentioned sovereign debt purchases result in perverse incentives and a perpetuation of chronic fiscal and structural problems (much as Bernanke's band-aids have eased the fiscal pressure on our own government and led us further down the rabbit hole). The lack of political legitimacy and blunting of incentives for more fundamental consolidation and reform to take place can only turn the acute pain of the moment in Spain into a truly chronic problem for Europe as a whole - be careful what you wish for.
Unlike the last two weeks, overnight sentiment for once can not be simply described as zombified, as there has been a decidedly negative undertone to risk, first in Asia, then in Europe, and finally in the US, accompanying the stealthy climb in the VIX which from a 13 handle a few days ago has quietly crept to 17. Will the market, finally realizing Bernanke will not say anything groundbreaking tomorrow, sell off just in time for J-Hole, or will the mysterious buying force-cum-Knight Algo reappear at one or more inflection points and push stocks to unchanged or green on the day. Find out in 9 hours. As for the key events of the past several hours, here is Bloomberg's dealbook summary of all the news that's fit to copy and paste.
Today may be the final snorefest before tomorrow Uncle Ben Chairsatan disappoints everyone (sending the market even higher on hopes and prayers he is really saving the super-duper nitrous turbo bazooka for the Sept 13 FOMC meeting) with nothing actionable coming through the J-Hole teleprompter, but that doesn't mean the day has to be boring. Luckily, Goldman has made sure of just that with a report on the surprising higher than expected rise in German unemployment, which coupled with yesterday's higher than expected inflation in Deutschland (they didn't build that inflation, someone else did it for them) is certain to get all ze Germans in a very bailouty moody. However, this being Goldman: the bank that runs the ECB, the Fed, the BOC, and soon, if all goes according to plan, the BOE, the base coverage is enough to make one's head spin. To wit: 'Unemployment edges higher, but employment continues to rise." In other words, add both German employment and unemployment to that other list of items that just goes up come hell or high water, such as stocks, bonds, VIX, crude, gold, blood pressure, coffee consumption, and so forth. Why, one may ask? Simple - "the new central-planned normal." Which of course is the same as the old central-planned normal from circa 1954 Stalingrad.
A couple of weeks ago we wrote about how the Portuguese citizenry was being forced to sell its gold in order to eat. It seems that the Italians have now joined this illustrious club. What do you expect when you allow Goldman Sachs to impose technocrat dictator Mario “Three Card” Monti as your political leader?
The pawnbrokers, ...can hardly keep up with business. They normally have the gold quickly melted down and sent abroad, making it one of Italy’s fastest growing exports. Official gold sales to Switzerland leaped 65 per cent last year to 120 tonnes, up from 73 tonnes in 2010 and 64 tonnes in 2009.
That’s not just gold being exported, that is wealth being exported. China says thanks. At least you protected your bankster class from taking a hit on their bond portfolios.
Jacques Wajsfelner of Weston, Massachusetts is a criminal mastermind. Big time. Like Lex Luthor. But rest easy, ladies and gentlemen, for this nefarious villain is about to face some serious jail time thanks to the courageous work of US government agents. 83-year-old Wajsfelner was finally caught and convicted of a most heinous crime: failing to disclose his foreign bank account to the US government and is now looking at FIVE YEARS behind bars in a Day-Glo orange jumpsuit. Sentencing guidelines suggest that he will get some combination of jail time and supervised release to the tune of several years. Then there's Eric Higgins of Port Huron, Michigan, who was recently busted for major possession of child pornography and engaging in sexually explicit conversations with juveniles online. He was given 20 months. Oh... and Mr. Higgins was a US Customs & Border Patrol agent. This is what justice means in the Land of the Free today. Have you hit your breaking point yet?
With Draghi stepping aside, the headliner can shine and while Goldman does not expect Chairman Bernanke's speech on Friday morning, entitled "Monetary Policy Since the Crisis", to shed much additional light on the near-term tactics of monetary policy beyond last week's FOMC minutes; their main question is whether he breaks new ground regarding the Fed's longer-term strategy. An aggressive approach would be to signal that the committee is moving closer to the "unconventional unconventional" easing options that Goldman has been ever-so-generously advocating for months, although even they have to admit that expectations are that any moves in this direction will be gingerly.
Next week will see a slew of key data releases across the Euro area. The week will kick off with the German Ifo for August due on Monday which Goldman expects to fall slightly, reflecting the softening in the August composite PMI. The business climate index has been signalling a further loss of momentum in the German economy, with both key dimensions - the assessment of current conditions and business expectations - deteriorating since May. The chart below shows how both components have evolved during the European debt crisis. The 'expectations' component appears to have been particularly affected by European developments. As far as the sectoral breakdown is concerned, the Ifo was still signalling rather robust domestic growth in construction, and in retail and wholesale goods, while the manufacturing sector seemed to have been adversely impacted by a weakening in external demand. The 'flash' reading of the August manufacturing PMI for Germany, however, seems to indicate that this could be changing. As the chart indicates, between the survey's mediocre perspective of the current situation and its negative expectations for the future - we have completed the circle and stand back at precarious Mid 2008 levels - and we know what came next.
Bernanke has all but admitted this recently, saying "I assume there is a theoretical limit on QE as the Fed can only buy TSYs and Agencies… If the Fed owned too much TSYs and Agencies it would hurt the market."
Here come the facts!!! Warning, if you get your feelings hurt over hearing the truth, simply move on. You may have a couple of quarters lefft.
Under widespread NIRP, pensions, annuities, insurers, banks and ultimately all savers will suffer a slow but steady decline in real wealth over time. Just as ZIRP has stuck around since the early 2000’s, NIRP may be here to stay for many years to come. Looking back at how much widespread damage ZIRP has caused since its introduction back in 2002, it’s hard not to expect that negative interest rates will cause even more harm, and at a faster clip. In our view, NIRP represents the death knell for the financial system as we know it today. There are simply too many working parts of the financial industry that are directly impacted by negative rates, and as long as NIRP persists, they will be helplessly stuck suffering from its ill-effects.