How exchange-traded fund GLD lets you pretend to own gold

 

Swiss franc jumps as economy minister dismisses intervention

 

The Ever Diminishing Returns Of Central Bank Intervention, Or QE As The Godfather Trilogy

To anyone who is still confused about why the Fed is on the fence about QE 3, the chart below, inspired by David Rosenberg's daily note, should explain it all. While we have repeatedly shown that the intervention of central banks in the FX arena gets progressively weaker with each incremental incursion by central planning into formerly free and efficient markets, the same can be said for not only fiscal stimulus (today's bankruptcy of Solyndra being merely the ironic cherry on top of the house of cards), the same is most certainly true about monetary intervention as well, in the form of LSAP or any other form of duration extension. And while many have already explained extensively why QE was a flop, here is Rosie with an angle we had not considered before: movie trilogies: "it's not as if QE2 accomplished anything except a blip on the screen as far as the market was concerned, and it elicited no lasting benefit for the economy either. QE1 did work but that was when the system needed to be saved - the S&P rallied 74% on that program. QE2 was nothing more than a gimmick shrouded in deflation concerns [uhm, this coming from Rosie? we'll let it slide] that never materialized, and during this program the stock market ended up rising just 16%. And so what will QE3 bring except more in the way of diminishing returns and resource misallocation caused by central bankers attempting to play around with mother nature by manipulating asset prices? Call it the equivalent to the Godfather Triology: Godfather I was epic; Godfather II not quite as good but still fine; and Godfather III was a dud." And as for the appropriate visual...

Sorry QEasy Momentum Chasers: The Economy Still Matters (A Lot)

Watching as the market responds to every piece of bad economic news as if a brand new golden age had just been announced, can sure leave one dazed and confused with nauseating amazement at the success of central planning. Unfortunately for the central planners, and as demonstrated in the previous "Godfather" post, central planning can only do so much (as confirmed holistically by the empirical example of the USSR: no, Benny and the Inkjets are not the first to come up with the brilliant idea of having 13 people run $15 trillion out of a small room). As the following example from John Lohman vividly demonstrates, GDP does and always will impact stocks. Granted it may take them a little longer to respond, especially when prodded by the central printer, but ultimately what has to happen happens. And paritcularly when reaching key inflection points. Such as now. As Lohman notes, "As shown, the growth rate in S&P 500 earnings estimates, and hence expected earnings, has always peaked when the spread between estimates and GDP is more than 1 standard deviation from the mean.  In the most recent cycle the spread between profit expectations and economic reality has gone to all-time highs, but has now reversed.  As further empirical evidence of this phenomenon, the right side of the table at the bottom highlights the change to expectations in subsequent quarters.  Note that they are negative in every instance." Unfortunately, Bernanke can push stocks by promising the moon and the stars, but unless he succeeds in actually pushing GDP up, all his efforts to create a wealth effect will be very soon undone. And with fiscal stimulus still a kneeslapping joke (we won't dwell on the topic of the latest fiasco between Obama and Boehner, suffice to say that if the two can't come up with a decision on how to meet, how on earth will they agree on trillions in fiscal stimulus, especially at a time when America is under "austerity"), we remind readers that according to economists, when using monetary policy to boost GDP, every trillion in LSAPs is equivalent to 0.50% in GDP. Which means a whole lots of LSAPs are coming our way sooner or later.

Stock Mutual Fund Cash Levels Drop To New All Time Record Low

As John Hussman correctly highlighted many moons ago, there is just one problem with the whole "cash on the sidelines" statement - it is completely and utterly wrong. Yet while we agree with it in principle, what is also true is that if you don't have cash, you can't buy stuff, period. Or in this case, equities. Yes, one can sell existing holdings to raise cash, but in an environment such as ours, in which underperforming the levered beta tsunami (or, unlike in 2010, the modest wakeboarding wave) means immediate termination, and where margin debt barely moved off its all time highs even as the general market (and especially fixed income) crashed in a repeat of late 2008, it seems nobody is willing to sell anything, come hell, high water or pink slip. Which is why, semantics aside, the fact that the mutual fund space just saw its total Liquid Assets drop to a new all time record low of 3.3% (down from 3.4%), or about $150 billion on $4.54 trillion in stock assets, is not good, no matter how one defines cash or sidelines. And with so little cash to bid up stocks even as they plunged (i.e., contrary to the expectation cash did not go up), the very troubling question arises yet again: just where will the purchasing power come from (and no, it's not retail: retail is long gone).

Barclays On Brazil Rate Cut: "Unexpected...Unprecedented"

Feeling like one of the 62 sellside analysts tonight, all of whom had no idea Brazil would cut its overnight rate by 50 bps? Wondering what this "unexpected, unprecedented" move means for Brazil? Curious what the implications of this shocking announcement are? Here is Barclays which while still shellshocked, is the first to try to put lipstick on the pig that the BRIC economy suddenly has become.

Post QE2, Corporate Earnings Outlook Changes On A Decidedly Negative Path

US companies' outlooks have been taking a turn for the worst since the end of QE2 as management are guiding (still overly rosy sell-side) analyst expectations down in a hurry. Seems it's not just the banks that are hoping for salvation in September...

Some Observations On Bob Pisani's Visit To GLD's Vault

Earlier today, we were delighted to see that after years of ridicule and provocations, the SPDR GLD ETF finally cracked and decided to do a wholesale PR campaign to comfort the investing public it actually does own its gold, by inviting none other than Bob Pisani in its secret warehouse which allegedly contains 40 million ounces of gold, of which HSBC is custodian and the Bank of England (the same Bank of England which will soon be about 99 tons lighter in gold content once it satisfies Hugo Chavez' physical delivery request) and London Bullion Market Association (“LBMA”) are subcustodians. While the 4 minute PR campaign is enjoyable and we invite readers to watch it, what is amusing is that it is sure to set off another set of conspiracy theories. Here's the reason: amusingly the very gold bar that Pisani demonstrates so eagerly for the camera, Rand Refineries ZJ6752, is somehow, at last check, missing from the full barlist as posted daily by the GLD.Whose is it? Where did it go? When was this clip shot? Inquiring minds want to know...





Gold Isn’t Buying the QE 3 Hype

Posted by: Phoenix Capital...

Post date: 08/31/2011 - 21:51

  This is hardly what I’d call a bullish chart. Gold actually looks to have peaked in mid-August and is now correcting. Indeed, if it doesn’t rally hard now, this pattern could see prices down... 

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