Iran

All you need to read and some more.

No wonder one third of Americans are obese. The crap we are shoveling into our bodies is on par with the misinformation, propaganda and lies that are being programmed into our minds by government bureaucrats, corrupt politicians, corporate media gurus, and central banker puppets. Chief Clinton propaganda mouthpiece, James Carville, famously remarked during the 1992 presidential campaign that, “It’s the economy, stupid”. Clinton was able to successfully convince the American voters that George Bush’s handling of the economy caused the 1991 recession. In retrospect, it was revealed the economy had been recovering for months prior to the election. No one could ever accuse the American people of being perceptive, realistic or critical thinking when it comes to economics, math, history or distinguishing between truth or lies. Our government controlled public school system has successfully dumbed down the populace to a level where they enjoy their slavery and prefer conscious ignorance to critical thought.

European stocks are trading lower as North America enters the market with participants coming to terms with the political events of the weekend. The collapse of the Dutch government has clouded the future for fiscal harmonisation in the Eurozone and the outperformance of the far-right in the French Presidential elections has highlighted the discontent of the populous with mainstream politics. As such, all European bourses are trading significantly lower, with the Bund seen trading higher by around 70 ticks. European government bond yield spreads against the German 10-yr reflect the caution, with the Dutch/German spread widening by over 10BPS and the Spanish yield holding above 6% for most of the session.

Two months ago, we warned that while the world had decided to blissfully move on from last year's topic #1, the MENA revolutions, and specifically the massive power vacuum left in their wake, things in the region were far from fixed. Quite the contrary, and as we added back then "it is very likely that the Mediterranean region, flanked on one side by the broke European countries of Greece, Italy, Spain (and implicitly Portugal), and on the other by the unstable powder keg of post-revolutionary Libya and Egypt, will likely become quite active yet again. Only this time, in addition to social and economic upheavals, a religious flavor may also be added to the mix". Yet nobody cared as after a year of daily videos showing Molotov Cocktails dropping like flies, people had simply gotten habituated and needed some other source of excitement. Nobody cared also when a week ago Art Cashin warned that the hidden geopolitcal risk is not Spain but Egypt. Today, Egypt just reminded at least one country why perhaps caution about the instability caused by having a military in charge of the most populous Arabic country and the one boasting "the Canal", should have been heeded after Egypt just announced that it is cutting off its natural gas supplies to Israel, which just so happens relies on Egypt for 40% of its energy needs.

Throughout the postwar period, banks have almost always lent out all the way up to the reserve requirement. So, does the accumulation of excess reserves lead to inflation? Only so much as the frequentation of brothels leads to chlamydia and syphilis. Excess reserves are only non-inflationary so long as the banks — the people holding the reserves — play along with the Fed-Treasury game of monetising debt and trying to hide the inflation . The banks don’t have to lend these reserves out, just as having sex with hookers doesn’t have to lead to an infection. But eventually — so long as you do it enough — the condom will break. As soon as banks start to lend beyond the economy’s inherent productivity (which lest we forget is around the same level as ten years ago) there will be inflation.

So far, 2012 has been a banner year for the stock market, which recently closed the books on its best first quarter in 14 years. But Casey Research Chairman Doug Casey insists that time is running out on the ticking time bombs. Next week when Casey Research's spring summit gets underway, Casey will open the first general session addressing the question of whether the inevitable is now imminent. In another exclusive interview with The Gold Report, Casey tells us that he foresees extreme volatility "as the titanic forces of inflation and deflation fight with each other" and a forced shift to speculation to either protect or build wealth.

On April 16, Argentine president Cristina Fernandez de Kirchner announced that her Argentine government would expropriate and re-nationalize YPF, an energy company operating mostly in Argentina founded by its government in the 1920s and de-nationalized in the 1990s. Repsol, a Spanish company that owns (owned) 57% of YPF called the act “illegal and unjustified” and vowed to sue. As Paul Brodsky and Lee Quaintance of QBAMCO note, in times past such expropriation would surely be an act of war. FdeK’s timing was brilliant, to re-nationalize the Spanish-controlled energy company when Spain’s economy and funding are teetering means the Spanish government and businesses domiciled there lack the clout to make demands of Euro confederates. The political calculus among leaders of sovereign governments reduces to short-term domestic political benefits vs. threats of economic or military retaliation but with regard to natural resources, the QBAMCO pair critically note, the bigger implication that it is sovereign vs sovereign as the paper bets representing global production and resources that we call “capital markets” is in jeopardy of becoming a sideshow. Baseless paper money, fractional banking, revenue shuffling, financial returns, ever-increasing debts, unwarranted confidence building, nominal output growth and politicians posing as policy makers cannot sustain the most basic needs of societies.

Gold rose $1.50 or 0.09% in New York and closed at $1,640.80/oz yesterday. Gold traded sideways in a narrow spread in Asia and continued this in European trading climbing up around 0.16%. 

Gold rose quickly from $1,631/oz to nearly $1,650/oz in minutes on volume with some chunky 3000 lot plus batches of orders going through on the COMEX pushing gold up. A determined seller again appeared and gains were capped at that level.

Japanese Finance Minister said an IMF funding increase to USD 400bln is "coming into sight", and that he expects the BRIC nations to offer funds to the IMF at the appropriate time. The finance minister sees funding figures to be released as early as tomorrow. (Sources) The IMF looks set to reach or pass that target, with USD 320bln secured yesterday and many of the largest emerging economies still to contribute. ECB’s Knot and EU’s Rehn have said IMF commitments may have to be up to USD 500bln, and expects China to boost resources.  Brazil’s finance minister has said his country is still not ready to give numbers on their IMF contribution. The Indian finance minister has said he will take time to provide an answer to the funding question for the IMF. China also remains undecided on an increased IMF contribution.

According to the latest OPEC data, Saudi Arabia, which in its own view, is some endless pool of easily retrievable crude, yet which Phibro's Andy Hall, as well as leaked confidential docs, claim is nothing but one big lie, pumped a record 9.834 million barrels per day, an increase of just 24K barrels from February's total (based on secondary market data, not direct communication). While we salute Saudi's peak production, which has never crossed over the 10 MMBPD level, we wonder, just how and where will Saudi get the 25% extra spare crude capacity needed to fully replace Iran's embargoed oil, which however continues to flow. Or it does at least according to Iran - oil production rose in February and March, if just redirected: India and certainly China (which is currently adding to its strategic reserves as pointed out here some time ago) are delighted to buy excess Iran production. Based on secondary market sources, Iran production has declined from 3.46MM BPD to 3.35MM BPD: hardly much of an "embargo" impact.

The campaign of Barack Obama in 2008 was a perfect example of the propaganda pageant, complete with visceral slogans like “Hope” and “Change”.  After eight years of the clownish George Bush Jr., when our country spiraled down into a state of disturbed and vicious adolescence, people were looking for a renewal.  They were looking for a path away from the edge of the abyss.  Instead, they were given a better liar, with a brand new costume.  The American Dream has become harder to sustain since…to say the least. In 2012, what I see is like a lightning bolt in slow motion.  I can sense it branching out across the sky towards the ground and tearing through our surroundings, upending everything we know.  Both the President and Congress have some of the lowest approval ratings in history.  The question of whether anything can be accomplished through government has been answered for most people with a resounding “no”.  The citizenry is on the verge of total fury. I wish I could say that most have abandoned the fleeting hollow satisfaction of choosing the “lesser of two evils”, but that would not be accurate. 

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.

European markets are seen trading higher as North America comes to market, with some momentum seen following the release of the forecast-beating German ZEW Survey. An economist from the institution commented that downside risks have decreased significantly over the past month, prompting some risk-appetite in Europe during the morning. Participants were also looking towards the Spanish T-Bill auction with particular focus, but it did not confirm the nation’s worst fears as the auction passed with strong bid/covers, selling to the top of the indicative range. Yields, however, did increase over both lines. As such, the Spanish 10-yr yield has fallen below the key 6% mark and remained below that level for most of the session. Peripheral 10-yr spreads against the German Bund are seen tighter throughout the day, amid some market talk early in the session of domestic accounts buying the paper, however this remains unconfirmed.

All you need to read and more.

Based on supply, demand and even after taking into account the geopolitical factor, we believe oil could experience a correction later this year and in the next three years or so.