There is that famous line from the movie Die Hard: "You ask me for
miracles, I give you the FBI." Well, to all the gold bulls out there, "I
give you the SNB." The Swiss central bank "unexpectedly" intervened to
curb the record appreciation of the Swiss Franc which is having Swiss
exporters seeing black and blue, by saying it would cut rates and by
increasing the supply of francs to money markets. Specifically it
lowered its target 3 month Libor to "as close to zero as possible" from
0.25%. The central bank also expanded banks' sight deposits to 80
billion Swiss Francs from 30 billion and said it will repurchase
outstanding SNB bills. So while it did not directly go ahead and buy
dollars it made it all too clear the SNB's appreciation days are over.
Which leaves those seeing a non-fiat based refuge from all the insanity
in Europe (which is currently raging at unseen before levels, and as a
result the EU announced it would issue a statement on the situation in
the markets this afternoon - expect nothing but more lies and BS) and
the rest of the world, with just one option. Gold.
Two words: default risk. And one more word: record. Below is the equivalent of another 1000 words.
The European Commission will issue a statement on the “situation in
the financial markets” later today, spokeswoman Karolina Kottova told
reporters in Brussels. We, for one, can't wait to hear how the
bureaucrats will convince the bond vigilantes that all is well. We
really can't.
As had been rumored over the past few weeks, the
WSJ reports that
Bank of America is actively pursuing a deal in which it would get
"broad release" from legal claims against the lender (which if
provisioned properly and in their full amount will destroy the bank) in
exchange for cutting the amounts owed by borrowers. The bank is
"discussing the proposal with state and federal officials who are
prodding the country's biggest banks toward a multibillion-dollar deal
to atone for foreclosure errors…As the discussions dragged on past the
mid-June target set by U.S. officials, Bank of America began pressing
officials for a speedy resolution,
and it put forward its principal reduction proposal in one-on-one talks with state and federal officials. Meanwhile,
negotiations continue with the banks as a group…Bank of America has
told officials it wants protection against future litigation relating to
mortgage servicing, said people familiar with the situation. In
exchange it is willing to agree to a program in which troubled borrowers
would have to prove financial distress to qualify for a writedown of
the principal owed on their mortgage…
The principal amount would
have to be $1 million or less in certain geographic areas, one of these
people said, and a reduction would apply to the bank's own mortgages
and those its services for private investors…The more
modifications the bank agrees to, the less it will pay in cash as part
of an eventual settlement, one of these people said." So in summary, in
order to protect itself from being destroyed in the courts, Bank of
America is happy to spread the Bernanke Put love on all of its deadbeat
clients, in the process further exacerbating the class warfare that is
emerging to be the most successful legacy of the Obama administration.
Those looking for an optimistic early look of this Friday's NFP
(nobody cares about the ADP any longer) should probably avoid the
Challenger
lay off data just released. As Bloomberg summarizes, U.S. planned
firings up 59% Y/y in July to 66,414, led by pharma, retail; largest
number in 16 months. The number includes Merck’s plan to cut ~13k jobs.
This 3rd consecutive increase; “seems to provide additional evidence”
recovery has stalled, according to CEO John A. Challenger. New Jersey
(where MRK is based) led states, with 13,330 cuts, followed by Michigan.
Employers also announced plans to hire 10,706 after prior month’s
15,498: this is just barely better than the lowest number this year
printed in May when just 10,248 businesses announced intention to hire,
and well off the 72,581 highs in February. Bottom line: subzero NFP
print coming?
China Joins Russia in Blasting U.S. Borrowing After Debt Ceiling Agreement (
Bloomberg)
Eurozone Moves to Prop Up Rescue Fund (
FT)
SNB Cuts Rate to Zero to Counter Franc Strength (
WSJ)
US Retreats from Brink of Debt Default (
FT)
Strains Ease on Short-Term Credit Markets (
Hilsenrath)
China’s Non-Manufacturing Industries Expanded in July, PMI Surveys Show (
Bloomberg)
Moody's, Fitch Maintain U.S. Triple-A Rating (
Reuters)
Britain’s ‘Weak’ Economy May Need Tax Cuts to Boost Demand, Institute Says (
Bloomberg)
Japan Keeps Up Warnings on Yen After U.S. Debt Deal (
Reuters)
No Double-Dip Seen in GDP (
Shanghai Daily)
For the 3 or so people and vacuum tubes who actually care about the
ADP employment report, whose NFP predictive fault rate is about 100%,
the July number was a wash, printing at 114K or above expectations of
100K, while the June number was revised from 157K to 145K, or in other
words a complete wash relative to expectations. On the other hand, the
NFP will do whatever the BLS decides it wants it to do, just like the
BEA will make the GDP number indicate whatever the US Department of
Truth wants it to indicate. From the report: "Employment in the
service-providing sector rose by 121,000 in July, marking 19
consecutive months of employment gains. Employment in the
goods-producing sector fell by 7,000 in July, the second decline in
three months. Manufacturing employment decreased 1,000 in July, which
has seen growth in seven of the past nine months. Employment in the
service-providing sector rose by 121,000 in July, marking 19
consecutive months of employment gains. Employment in the
goods-producing sector fell by 7,000 in July, the second decline in
three months. Manufacturing employment decreased 1,000 in July, which
has seen growth in seven of the past nine months." As for the two
critical occupations of construction and financials: there was nothing
good there: "Employment in the construction industry declined 11,000 in
July, the third consecutive monthly decline, bringing the total
decrease in construction employment since its peak in January 2007 to
2,135,000. Employment in the financial services sector decreased 1,000
in July, bringing the total employment decrease for that same period to
687,000."
For
more than 3 years - since gold rose above its nominal high of $850/oz
in February 2008 - there has been much talk about gold being a bubble.
Nouriel Roubini, professor of economics at New York University's Stern
School of Business, is one of the more prominent financial and economic
experts who said gold was a bubble and many other experts
internationally echoed his sentiments. On December 10th, 2009, with gold
at $1,100 per ounce, Roubini, said, "all the gold bugs who say gold is
going to go to $1,500, $2,000, they're just speaking nonsense". Roubini
went on to say ,"I don't believe in gold." Gold has now risen 50% since
then and Roubini has been silent on the gold price. We believe that he
was wrong regarding gold as he, like many in the western world, is
simply not aware of the facts and the fundamentals driving the gold
market. He also is not aware of gold’s diversification benefits. The
fundamental drivers of the gold market are not appreciated by most and
rapidly get forgotten by many due to the daily barrage of noise and fear
emanating from the markets. The facts and charts below strongly suggest
gold is not a bubble. However, even if it were a bubble, those calling
gold a bubble should acknowledge the diversification benefits of owning
gold and urge diversification rather than vainly trying to predict the
future and the future movement of asset prices.
Italy and Spain, and now France, CDS hitting all time highs? Been a
few hours since Unicredit was last halted? Europe looking like it is
about to implode all over again (and nobody even remembers Greece any
more)? Have no fear. President (he was elected?) Barroso is here,
telling us all the imploding sovereign bond markets of Italy and Spain
are "unwarranted." All this and many more jokes in the full
just released statement which confirms that Europe is starting to freak out all over again.
Remember when way back at 3am EDT, the
SNB "intervened" to keep the "massively overvalued" franc lower? Yeah, that lasted about 7 hours.
Joining the Manufacturing ISM in the disappointment column is the
just released Non-Manufacturing ISM which printed at 52.7 below
consensus of 53.5, down from 53.3 previously. This is the lowest
reading since January 2010. The employment index dropped from 54.1 to
52.5, the New Orders index missed contractionary territory barely at
51.7 down from 53.6, and lastly, the Prices Paid was down from 60.9 to
56.6, potentially opening up the way for QE3, even more that is.
Elsewhere, June factory orders dropped by 0.8% in line with
expectations, down from 0.6%, meaning no dramatic revisions to the
already abysmal Q2 GDP, and Durable Goods was revised from -2.1% to
-1.9%. Altogether another ugly economic data set, with the bounce in
stocks most likely dictated by even higher QE3 expectations.
If there is one thing the Italian Bourse needs to stop the relentless
bleeding, it is the uber-credible Silvio Berlusconi addressing the
country and the various vacuum tubes that trade on the MIB and putting
an end to all this selling silliness. Lucky for them, this is precisely
what is happening, although not at the originally scheduled time of 3
PM Italian Bailout Time, but only after the market closes, or 5:30 pm.
We can't wait to see the limit down in everything tomorrow if indeed
someone is pricing in any good news to come out from ole' Silvio whose
days are now very much numbered. Reuters reports "
Prime
Minister Silvio Berlusconi will address parliament on Wednesday
seeking to calm escalating market fears that Italy may be dragged into a
Greek-style financial crisis that would threaten the euro zone. Italy's
Economy Minister Giulio Tremonti met the chairman of euro zone
finance ministers, Jean-Claude Juncker, for emergency talks as the
yields on Italian and Spanish 10-year bonds flirted with new 14-year
highs. Berlusconi, weakened by scandals and largely silent over the
past weeks, delayed his address to the lower house, originally
scheduled for 3.00 p.m. (1300 GMT), to 5.30 p.m. after the close of the
Milan bourse." And the kicker: "It is not clear, however, whether he
will have any major new structural reforms or one-off tax measures to
announce." In other words this will be merely a Ponzi pep talk...and
nothing else.
Claiming he wasn't afraid to let everyone in attendance know about
"the real mess we're in," Federal Reserve chairman Ben Bernanke
reportedly got drunk Tuesday and told everyone at Elwood's Corner
Tavern about how absolutely fucked the U.S. economy actually is.
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