Bear Market

If China had hoped it would root out intervention by eliminating Citadel's rigging algos, and unleash a buying spree it was wrong: the Shanghai Composite opened negative, and never managed to cross into the green, despite the usual last hour push higher, ending down -1.1% and down for 6 of the past 7 days. The real action, however, was not in Asia but in Europe, and specifically Greece, where the stock market finally reopened after a 1+ month "capital control" hiatus. Despite the attempt to micro manage the reopening, the result was not pretty, with stocks crashing 23% at the open and staging barely a rebound trading -17% as of this moment, even as banks promptly traded down to the -30% limit as the realization that an equity-eviscerating recapitalization (or bail-in) is now inevitable.

It is absolutely normal for employers to completely miss the signs of impending doom. The 2007 extreme occurred just before the carnage of mass layoffs that was to begin a couple of months later. Employers were still clueless that the end of the housing bubble would have devastating effects. If they were clueless then, they are in an advanced state of delirium and delusion now. The devastating 1973-74 bear market, which cut the value of stocks by 50%, was in its early stages. This was an early example of employers being late to the funeral. Similar employer hoarding of workers has been associated with bubbles in the more recent past and has led to massive retrenchment, usually within 18 months or so.

Bubbles collapse, period; and government interventions don't stop them. Furthermore, we are beginning to see a crack widen in the foundations of China's capital markets that could end up undermining the whole economy. If Plan A fails, it is time for Plan B...

Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.

In an interview on Bloomberg’s “First Up” show, Treasurer for the Perth Mint, Nigel Moffatt, said “Our biggest restriction is the amount of unrefined gold we’re getting in from producers”, adding, “everything we get in is going straight out the door as soon as we refine it.”

Well that escalated quickly...

Religious imagery... peak condescension... everyone proclaiming "gold is dead"... In a nutshell, sentiment has plunged to negative levels not seen in years, if not more than a decade. Here are four mainstream media articles that provide some evidence we may be approaching a sentiment low. Some of them we're sure you’ve seen, others perhaps not. What amazes us is how they’ve all come out within the last two weeks.

With the major US equity markets within 1-2% of their record highs, Gavekal Capital notes that underneath the headline indices, stock markets are extremely tumultuous. Rather stunningly 21% of MSCI USA stocks are at least 20% off their recent highs, and 68% of Canadian stocks are in bear markets, but the real carnage is taking place in Emerging Markets.

Having detailed yesterday the manipulation in the precious metals markets that implies the bear market in bullion is an artificial creation, we thought the following 'rational' chart effort at 'valuing' gold may provide some frame of reference for the level of riggedness occurring...

Overnight, US energy major Chevron announced it will cut 1,500 jobs globally "as the company aims to reduce internal costs in multiple operating units and the corporate center." According to Rigzone, "the San Ramon, Calif.-based energy company will cut 950 positions in Houston, 500 positions in San Ramon and 50 positions internationally." But it's not just the US, because moments ago Italy's biggest oil and gas industry contractor Saipem announced that not only is it cutting its guidance, sending its stock plunging, but also reported that it plans to cut 8,800 workers by 2017.

This series reached an extremely skewed -462 yesterday (18 New Highs minus 480 New Lows). If this reading gets any worse, it will be one indication that the uptrend since 2009 is in jeopardy.

The bear market in bullion is an artificial creation. This artificial, indeed fraudulent, increase in the supply of paper bullion contracts drives down the price in the futures market despite high demand for bullion in the physical market and constrained supply. 

Why the big slowdown? Why is the world falling apart? Because you can’t fake an economic recovery... Instead of “stimulating” a recovery, the feds have “simulated” one.

For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw a coordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday's losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.