Renaissance

SemGroup in 2008 and the London Whale in 2012 have given the people a blueprint to kill JP Morgan's alleged massive manipulative position in the silver market.

While LeBeau et. al. have sung the praises of a renaissance in Auto companies and their manufacturing recovery supporting what woeful growth we have seen, we have mournfully noted the ever-increasing builds of inventory (or 'channel stuffing') at auto-dealerships and most recently pointed to China's 'debilitating price cuts to come' three weeks ago here. Bloomberg this evening is reporting that the situation is getting worse, much worse, as Chinese dealership inventory levels have exploded from under 45 days to over 60 days supply as "dealers can't shoulder the burden anymore... Their backs are broken". This should come as no surprise to ZeroHedge readers but this is forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets. As GM just this week crowed of its 21% rise YoY in 'sales' in China, local analyst channel checks show two-month levels of inventory for foreign brands and even worse 60-80 days worth of inventory for domestic brands adding that this much inventory "is pretty dangerous for the industry". China's largest distributors of autos are canceling debt issues and their views are scarily summed up (by them not us): "The picture we have is very different from what the automakers are painting. The sales increases they’re reporting are achieved by loading dealers with stock."

• Merkel Prepares to Strike Back Against Hollande (Spiegel)
• China to subsidise vehicle buyers in rural areas (Reuters) - what could possibly go wrong
• Bankia’s Writedowns Cast Doubts on Spain’s Bank Estimates (Bloomberg) - unpossible, they never lie
• Shares in Spain's Bankia plunge on bailout plan (AP) - oh so that's what happens when a bank is bailed out.
• SNB’s Jordan Says Capital Controls Among Possible Moves (Bloomberg)
• Greeks Furious Over Harsh Words from IMF and Germany (Spiegel)
• Tehran defiant on nuclear programme (FT)
• Finally they are getting it: Greece needs to go to the brink (Breaking Views) - of course, Citi said it a week ago, but it is the MSM...
• OTC derivatives frontloading raises stability concerns (IFRE)
• Wall Street Titans Outearned by Media Czars (Bloomberg)

"We think the ramifications of a Greek exit are more serious than the market anticipates", is how Morgan Stanley starts their European strategy report this week. They have raised their probability of a Euro break-up to 35% but the most likely outcome they foresee is a Euro divorce with Greece's exit preceded by strong contagion via three main transmission channels: the sovereign, the banking sector, and the political situation. Italy, Spain, Ireland, and Portugal are unsurprisingly the most at risk of material contagion and they recommend investors stay positioned defensively across risky assets as we remain in the 'Crisis' stage of the so-called C.R.I.C. cycle - and they note that unlike so many knife-catching US equity and Italian bond buyers, it is not sensible to try to pre-empt the Response phase of C.R.I.C. cycle. There appears to be four scenarios (and evolutions) for the future of Europe (from Renaissance to Divorce with Staggering On and an awkward 'Italian Marriage' in between) and we drill into the four additional possibilities under the divorce scenario for insight into the effects various risky asset classes will feel in each case.

A rare moment of optimism from David Rosenberg: "I've said it once and I'll say it again. And believe me, this is no intent to wrap myself up in stars and stripes. But there is a strong possibility that I see a flicker of light come November. The U.S. has great demographics with over 80 million millennials that will power the next bull market in housing, likely three years from now. After an unprecedented two straight years of a decline in the stock of vehicles on the road, we do have pent-up demand for autos. I coined the term "manufacturing renaissance" back when I toiled for Mother Merrill and this is happening on the back of sharply improved cost competitiveness. Oil production and mining services are booming. Cheap natural gas is a boon to many industries. A boom in Chinese travel to the U.S. has triggered a secular growth phase in the tourism and leisure industry. The trend towards frugality has opened up doors for do-it-yourselfers, private labels and discounting stores.... Few folks saw it at the time. But it's worth remembering, especially now as we face this latest round of economic weakness and market turbulence. It is exactly in periods of distress that the best buying opportunities are borne...and believe it or not, when new disruptive technologies are formed to power the next sustainable bull market and economic expansion. Something tells me that we are just one recession and one last leg down in the market away from crossing over the other side of the mountain. And believe me, nobody is in a bigger hurry to get there, than yours truly. At the risk of perhaps getting too far ahead of myself, but you may end up calling me a perma-bull (at that stage, I must warn you, folks like Jim Paulsen will have thrown in the towel)."

"Sex" and "Money" are probably two of the most powerful words in the English language.  First, those two words got you to look at this article.  They also sell products, books and services from "How To Have Better Sex" to "How To Make More Money" — ostensibly so you can have more of the former. Unfortunately, they are also the two primary causes of divorce in the country today... The problem for American families today, despite media commentary to the contrary, is simply the inability to maintain their current standard of living.  When income remains stagnant or falls, due to job loss or reduction in pay, the impact on the budget at home is significant when there are already very low saving rates and the inability to access a tight credit market.  The recent surge in consumer debt, with little relative increase in overall personal consumption expenditures, shows this to be the case.  For Main Street the economy remains mired at sub-par growth rates three years into a post-recessionary environment. These financial strains are pervasive and continue to weigh on families and their relationships.  While it is true that "money can't buy happiness" try asking a couple who are living on food stamps and working two part-time jobs just to "get by" about how "happy" they are.  Even as the media trumpets that the Fed has saved the economy from a "depression," it might just be a statistical victory at best.  The government may say this is not the 1930's where bread lines formed outside the corner soup kitchen, however, for many American's the only difference is that they are found at the mailbox and online instead.

While Turkey has assured the U.S. government it will cut purchases of oil from Iran by 20% this year, its total trade with the Islamic Republic increased 47% to $4.8 billion in the first quarter from a year earlier. Sanctions aimed at isolating Iran because of its nuclear program, combined with revolutions in the Middle East, have spurred a tripling in the region’s purchases of Turkish precious metals and jewels to $942 million in the first three months, from $282 million in the same period last year. This 30% increase in demand is contributing to gold remaining above $1,600/oz in what has all the hallmarks of another period of consolidation prior to higher prices. “Turkey is exporting massive quantities of gold to Iran and Arab Spring countries as citizens in those countries switch to portable wealth,” Mert Yildiz, chief economist for Turkey at Renaissance Capital, told Bloomberg on April 30. The increase in trade with Iran comes as sanctions make it harder for trading partners such as Turkey, India and China to pay in dollars and euros. Iran said in February it would accept payment in any local currency or gold. Reuters report today that Iran is accepting payments in yuan for some of the crude oil it supplies to China, the Iranian ambassador to the United Arab Emirates said on Tuesday. "Yes, that is correct," Mohammed Reza Fayyaz told Reuters when asked to comment on an earlier report in The Financial Times.

Those hoping Goldman's NFP forecast of 125,000, well below consensus, is wrong, may have to reassess their thesis following the just released ADP number which came as a big disappointment to consensus of 170,000, instead printing at only +119,000, to 110,590. (The previous improvement was also downward revised from +209K to +201K). This was the lowest sequential change since September 2011, and confirms once again, the declining trends last seen in... 2011. It was also the biggest miss in 11 months. Luckily, as the scatterplot below shows, ADP is completely meaningless when predicting NFP so our gut reaction would be to expect a beat in NFP based on this print considering the whole Schrodinger economy and what not (see China). However, on an apples to apples basis, one thing is certain: record warm winter payback is a bitch. And finally, that whole Obama export renaissance is not doing all too hot: goods producing sector: -4,000 in April, while manufacturing jobs declined by -5,000. But, but, the soaring ISM..... oh forget it.

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.

Further confirmation of gold’s continuing but gradual renaissance as a safe haven asset was given by the IMF yesterday who warned that a “growing shortage of safe assets” poses a threat to “global financial stability.”  The IMF identified $74.4 trillion of potentially safe assets today, including gold, investment grade government and corporate debt, and covered bonds. Sovereign debt crises are reducing the number of governments that investors trust to issue "risk-free" bonds just as new financial regulations are increasing demand for safe securities from banks. Importantly, the IMF’s latest Global Financial Stability Report’s introduction finds that  "In the future there will be rising demand for safe assets, but fewer of them will be available, increasing the price for safety in global markets.” “Both the lack of political will to reshape fiscal policies at times of rising concern over debt sustainability and an overly rapid reduction of fiscal deficits limit governments’ capacity to produce assets with low credit risk.” The IMF has warned regarding illiquidity in “safe haven” markets. Gold remains one of the most liquid markets in the world and the illiquidity in bond markets would see increased safe haven demand for gold.  The IMF is warning regarding deteriorating public finances. As many governments see themselves being downgraded - safe haven bonds may become less safe.

All you need to read and more.

It will come as no surprise to many that the warm-weather-induced ebullience and renaissance in the US housing market is perhaps floundering as all that demand was dragged forward. Today's notable miss in the FHFA Home Price Index (at unch vs an expectation of +0.3%) is ugly but the huge downward revision from +0.7% to merely +0.1% in the previous month is now the ninth consecutive notable downward revision.Add to that the fact that FreddieMac just reported mortgage rate cracking over 4% (from 3.92% to 4.08%) and the ugly data on MBA applications and...well at least we're decoupling.

The global economy remains on shaky ground.  China’s manufacturing activity contracted for its 5th straight month, the US recovery is still very early to call, and the euro zone debt crisis may not be finished. Eurozone PMI data is due later today which will show how the economy is doing after Greece averted default earlier this month. Thomson Reuters GFMS have said that gold at $2,000/oz is possible - possibly in late 2012 or early 2013. Thomson Reuters GFMS Global Head of metals analytics, Philip Klapwijk, featured on Insider this morning and advised investors to "buy this gold dip”.  Gold should be bought on this correction especially if we go lower still as we may need a shake-out of "less-committed investors." Klapwijk suggested that a brief dip below $1,600 is on the cards but the global macro environment still favours investment, notably zero-to-negative real interest rates and he would not rule out further easing by either the ECB or the Fed before year end.

When it comes to the New Normal, there are just two precedents: complacent and doomed debt slaves, such as Greece, which continues to voluntarily hand over any and all of its real assets to the vampiric banking oligarchy in exchange for simply being the member of a doomed club, while trembling at constant threats of fire and brimstone if it dares to split away from its monetary parasites (and where unemployment rises by 3% in one quarter), or the rare success story such as Iceland, which showed the bankers a middle finger, took the red pill and disconnected from the globalization matrix. And while even Bloomberg recently extolled the virtues of the Iceland "case", which will likely be solitary until the entire ponzi scheme comes crashing down, we are heartened when we observe all incremental milestones of further economic and financial success by the one country that dared to call the banker bluff, and won. Such as this press release from the IMF.

All you need to read.