The first signs are emerging that the cult-like status given to the world's central bankers is starting to wane, with significant market implications.
The conclusions I have come to are somewhat threatening in the short term, but even more disconcerting in the intermediate term, as the developing image is exposing a crystal clear picture of the ominous resource wars looming directly ahead. Equally dismaying, are the "honorable distinguished gentlemen" presiding over this Middle East mayhem, which are showing themselves to be either grossly incompetent cretins or dangerous duplicitous megalomaniacs
Equity futures stormed out of the gate on initial relief that a Syria attack may be avoided, which sent oil and the PM complex flash crashing lower. However, overnight, sentiment shifted that the Syrian escalation is at best delayed and as a result Brent regained all losses, with the precious metals also largely unchanged from Friday's close. Futures on the other hand, were perfectly happy to rise on the transitory Syrian risk moderation reduction, and then continue rising when Syria returned to the forefront, this time prodded higher by PMI exuberance out of China and Europe. How credible such manufacturing data remains to be seen. A surging USDJPY was also rather helpful, with the pair breaching 99.00 stops to the upside shortly after the European PMI data printed. And with the cash US market closed, and electronic equity trade halted at 10:30 Central, it is unlikely that concerns about all those "other" things that will define September, will seep in and it is likely the HFTs will push equities to session highs before reopening for the Tuesday trading.
Much data and events next week. Politics risks trumping economics.
— Steve Herman (@W7VOA) August 31, 2013
This week will see the end of August trading and September is, along with November, one of the strongest months to own gold. This is seen in the charts showing gold’s monthly performance over different time frames - 1975 to 2011, 2000 to 2011 and our Bloomberg Gold Seasonality table from 2003 to 2013 (10 years is the maximum that can be used).
Thackray's 2011 Investor's Guide notes that the optimal period to own gold bullion is from July 12 to October 9. During the past 25 periods, gold bullion has outperformed the S&P 500 Index by 4.7%.
There’s too much of a sameness about Japan and the USA today. The Land of the Rising Sun and good old Uncle Sam have been copying each other far too much and now it seems as if they are railroading on the same train to the Land of Debt.
Overnight, the market continued to digest news out of the UK that the formerly solid pro-war alliance has splintered following a historic vote by the House of Commons, leaving Obama to "go it alone." The result was a rather sizable slamdown in both crude and gold, accelerating as Europe opened for trading, and pushing gold back under $1400. This happened even as data out of Europe showed that European unemployment remained at a record high 12.1%, while inflation missed expectations and printed at 1.3%, or below 2% for the seventh month. Earlier in the session, headline data out of Japan showed that inflation had risen at the fastest pace since 2008. However, before the deflation monster is proclaimed dead, the core-core figure (excluding foods and energy) of the Tokyo CPI was down 0.4% yoy, unchanged since June for three months, suggesting that prices are still largely driven by energy-related costs. In other words cost-push inflation is rampant, which is the worst possible scenario and means the BOJ's QE is going to all the wrong place.
Will a US led war in Syria be the precursor to a multi year run in Gold?
It’s a big mistake. Maybe some might say that the Fed altogether is a mistake itself. But, it’s made some big, ugly mistakes that don’t bare thinking about and yet there’s no understanding why they took those decisions.
History is very clear: societies that organize themselves around a tiny elite who thinks they should control the entire system suffer a 100% failure rate, without exception. Today’s system shares similar fundamentals to nearly every other case of failed empire. And it’s foolish to think that this time will be any different.
The market is rallying today on August performance gaming. The talking heads will claim this move has something to do with fundamentals, but the reality is that the move up yesterday and today consists of fund managers doing whatever they can to end this month with their holdings as high as possible. Nothing else.
Forget Gross Domestic Product (GDP) as a measure of expansion ("growth") or recession - what really matters is the social recession, which continues to deepen in America. The term social recession has two distinct meanings: around 2000, the term was used to describe the erosion of social cohesion via the decline of institutions such as marriage and the rise of social problems such as teen pregnancy. We use the term social recession to describe a very different phenomenon, the social and cultural consequences of permanently recessionary economies such as Japan, and now Europe and the U.S.
The current external environment and consequence of past policies are limiting options for EM nations (most specifically Indonesia and India). Citi believes the best they can do now is to smooth the (inevitable) macro adjustment (weaker FX, higher risk premiums, slower growth) through improved policy credibility (to curb volatility and overshooting) and find offsets to portfolio flows to ease the pressure. The 4 choices of various rocks and hard places do not hold much hope for anything but further FX devaluation. As Citi's Matt King points out, what goes up (in terms of Emerging Market central bank FX reserves) risks coming back down with a thud... and in case you were wondering why India, Turkey, and Indonesia were the most-hammered...
If Syria is invaded by the West, then we should be getting ready for a hike in the price of Brent that some say may reach a much as $150 since it will escalate into a regional problem and affect supplies coming out of Iraq.