It is worth remembering that Goldman, to much fanfare and media attention, “told clients” in November 2007, to sell gold. On November 29, 2007, Goldman recommended that investors sell gold in 2008 and it named the strategy as one of its ‘Top 10 Tips’ for the year.
As we have discussed previously, the "partial government shutdown" that we are experiencing right now is pretty much a non-event - especially with the un-furloughing of The Pentagon. Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world. In fact, only about 17% of the federal government is actually shut down at the moment. This "shutdown" could continue for many more weeks and it would not affect the global economy too much. On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous. A U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash that would make 2008 look like a Sunday picnic. If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.
Goldman, which is the hedge fund best known for originating prop order flow in the opposite direction of what its sellside "research" team tells its clients to do (see Tom Stolper), has never been clearer on gold: "Gold is slam dunk sell for next year because the U.S. economy will extend its recovery after lawmakers resolve stalemates over the nation’s budget and debt ceiling, Goldman Sachs Group Inc.’s Jeffrey Currie said." How the economy will expand, especially with the Fed supposedly tapering (even though everyone saw what happened to markets and the economy at the mere mention of "tapering" the last time around) and eventually ending QE - the only driver of upside market momentum in the past 5 years - was not discussed. What was, however, clear is that Goldman will continue buying all the gold its clients have to sell until the bailed out hedge fund's price target of $1,050/ounce is hit.
- Hilsenrath: Tense Negotiations Inside the Fed Produced Muddled Signals to Markets (WSJ)
- Biggest US Foreign Creditors Show Concern on Default Risk (BBG)
- Shutdown Costs at $1.6 Billion With $160 Million Each Day (BBG)
- What default? Republicans downplay impact of U.S. debt limit (Reuters)
- Top Bankers Warn on U.S. Debt Proposal (WSJ)
- India to stick with austerity despite looming election (Reuters)
- Japan's Current-Account Surplus Plunges (WSJ)
- Amazon Wins Ruling for $600 Million CIA Cloud Contract (BBG)
- German Factory Orders Unexpectedly Fall on Weak Recovery (BBG)
- Britain's Higgs, Belgium's Englert win 2013 physics Nobel prize (Reuters)
- Supreme Owner Made a Billionaire Feeding U.S. War Machine (BBG)
Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.
As the US government shutdown enters its 7th day today it looks as if we shouldn’t be holding our breath unless we want to go blue in the face in the hope that there might be a compromise or somebody might actually cave in.
His government has ramped up spending to ward off unrest, helping drive inflation to a 15-year high last year, and pushing Algerians into the currency and real estate markets as they seek to shield savings.
“To protect themselves against inflation, and therefore the devaluation of the dinar, Algerians are investing in property, gold and foreign currencies,” Abderrahmane Mebtoul, a professor of economics at the University of Algiers, said in an interview.
One of the most frequent questions related to the debt limit is whether the Treasury could prioritize payments in order to remain below the debt limit while continuing to make what it deems to be essential payments. As Goldman explains below, technical complexities and legal uncertainties might prevent a full prioritization of all payments, but they do believe (trillion-dollar-coin idiocy aside) that the Treasury could ensure that enough cash is available to make interest payments on Treasury securities.
Overnight trading over the past week has been a bipolar affair based on algo sentiment about what is coming out of D.C. But which the last session was optimistic for some inexplicable reason that a deal on both the government shutdown and the debt ceiling out of DC was imminent, today any optimism is gone in the aftermath of the latest comments by Boehner on ABC, in which he implied that a US default is not unavoidable and that it would be used as more political capital, as it would be once again blamed on Obama for not resuming negotiations. As a result both global equities and US futures are down sharpy in overnight trading. And since the government shutdown, better known as a retroactively paid vacation, for everyone but the Pentagon (whose 400,000 workers have been recalled from furlough) continues it means zero government economic statistics in today's session with the only macro data being the Fed-sourced consumer credit report at 3 pm. This week also marks the unofficial start of the Q3 reporting season in the US with Alcoa doing the usual opening honous after the US closing bell tomorrow. JPMorgan’s and Wells Fargo’s results on Friday are the other main ones to watch to see just how much in reserves are released to pretend that banks are still making money. As usual, expect disinformation leaks that send the market sharply higher throughout the day, which however will only make the final outcome that much more painful, because as during every US government crisis in the past, stocks have to plunge so they can soar again.
We last discussed the rise of the robot (as a a replacement for human labor) six months ago, pointing to the implicit (and large) deflationary bust that this entails and nowhere is this more evident today than in Australia's outback. As Bloomberg reports, the 400-plus workers employed by Rio Tinto in the remote Pilbara region (driving train-loads of mined minerals) are the highest-paid train-drivers in the world. The decade-long mining boom down-under has sucked up skilled workers, raising wages for engineers to drivers to an average $224,000 per year - as much as a surgeon in the US. This ridiculous situation has led, unsurprisingly, to the mining companies replacing them with robot locomotives.
The federal government has been partially shut down for 4 days, and it appears likely that the situation could continue for a while longer. As the shutdown continues, the political focus has begun to shift to the next deadline. If the debt limit is not raised before the Treasury depletes its cash balance, Goldman fears it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling. They estimate that the fiscal pullback would amount to as much as 4.2% of GDP (annualized). The effect on quarterly growth rates (rather than levels) could be even greater.
Given the post-crisis record pace of growth in the Federal Reserve's balance sheet (aka money-printing) it is perhaps surprising that year-to-date, Gold has underperformed its cross-asset-class peers. But considering the 2-and-20 that is flushed away by "sophisticated" investors year after year, the dismal performance of the average hedge fund remains a symbol of the only thing that has worked this year: buy-every-dip, dash-for-trash, always sell vol, and never (ever) sell...
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
"Work hard, play hard" is the adage often put forward to encourage that work-life balance so many find hard to come by. But judging from the time spent on daily activities, it would appear there is one message for the Japanese and North Americans... move to France!