Soros Thinks The Unthinkable About Europe

In a lengthy, honest, and somewhat gloomy op-ed in The New York Review Of Books, George Soros follows a similar tack to our post yesterday with regard to the current crisis and its origins in and similarities to the 2007/8 subprime crisis in the US. He then steps into discussing possible resolutions and does what any and all Keynesian-clowns are unable to do - think the unthinkable in order to reach a tenable solution. In just four steps, he outlines how the unthinkable could be possible but critically (as we are well aware) explains the German-centric nature of any resolution (and the change of heart required to get there). A bona fide taxing-and-borrowing central treasury under a new treaty seems the approach-du-jour for Mr. Soros and while it may have merit as an 'unthinkable' idea, he ends with the threat that [his approach] "is the only way to forestall a possible financial meltdown and another Great Depression".

 

 

Trump fires dollar, takes gold bullion instead of cash for lease deposit

 

 

Banks rush to lend gold to get dollar funding

 

Shadow Banking Contagion Approaches As European Banks Sign Private Repo Agreements With US Counterparts In what is probably the riskiest escalation of the second credit crisis to date, IFR has released information that was until now speculated, but not confirmed, namely that European banks not only continue to make a mockery out of LiEbor by posting whatever rates they deem appropriate (for the simple reason they don't use interbank funding), while in the meantime going directly to US banks, using shadow, and hence completely unregulated conduits, in the form of private repo arrangements with "at least three of the five biggest US banks." Now where this is interesting is that as Zero Hedge disclosed three months ago, the bulk of the cash generated for the pendancy of QE2 went not to US banks, but to US-based branches of foreign banks. Which probably means that there is a roadblock to repatriating the US held cash (even in exchange for perfectly legitimate receivable debits). Because one would think that this is where the first source of cash for troubled banks would come from. Assuming it hasn't been repatriated already, or is not stuck in some IOER-GC carry trade that generates virtually no return (and when the Fed lowers IOER even more, absolutely no return). Alas this means that the 3M USD Libor which we update every day is substantially under-representing the true funding squeeze in Europe. Even worse, it means that US banks have lent us tens, if not hundreds of billions of cash, in exchange for collateral that could be virtually anything, and which collateral bypasses traditional Fed supervision. As a result, US banks can and will go hog wild in lending repo dollars (at big collateral haircuts but still) to European banks until everyone suddenly runs out of money, and the Fed realizes it has to not only fill traditional liquidity holes, but a massive shadow banking shortfall, precisely the stuff that none other than the Fed has been warning about over and over. Just like in 2008 when the big hit to the system came not from traditional sources of risk but perfectly innocuous and thus ignored money markets, so the same will happen this time, as the biggest crunch will come completely out of left field. It always does.

A Declassified Huntsman Clarifies China's Gold Ambition

While last night's quid-pro-quo from Chinese officials will likely be remembered as the start of escalating trade wars, Wikileaks has uncovered a declassified cable from John Huntsman indicating China's clear understanding of the growing tension and comprehension of the ability of the US to entirely destroy to economically with one swipe of the Presidential pen via a massive devaluation of the USD or repegging to gold. Choice quotes include: "The U.S. has almost used all deterring means, besides military means, against China. ", "United States is determined to beggar thy neighbor", "Chinese must be very clear what the key to victory is.  It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds.", and "[when] the new U.S. dollar is pegged to the gold - we will be dumbfounded."

 

 

First Anti-Euro Protest In Front Of The ECB

Watching politicians and bankers bickering over a Euro rescue on the back of Eurozone taxpayers for more or less 2 years by now, a group of Germans has staged the first protest in front of the headquarters of the European Central Bank (ECB) on Tuesday. Some 100 protesters, organized by the fringe Partei der Vernunft (Party of Reason) held up banners with two key demands: "Raus aus dem Euro" (Out of the Euro) and "Stoppt die Schuldenunion" (Stop the debt union), according to a report by German daily FAZ. Recent surveys show that 77% of Germans resist the creation of the European Financial Stability Fund (EFSF) and its highly undemocratic successor ESM (Euro Stability Mechanism). The German parliament will vote on the ESM on September 26 and due to heavy losses of the small liberal coalition partner in latest regional elections chancellor Angela Merkel must be less than certain to get a successful vote on an instrument that would put Germany into the  top position to pay for the long profligacy of the weaker Euro members. The strategy of paying thy neighbours debt has never worked in history.  The growing bifurcation of opinions among Eurozone politicians and the general populations cannot be overlooked anymore. Europeans are taxed to the hilt, suffer from economic conditions where all the freshly digitized money reaches the financial industry but never the real economy and are fed up with an increasingly undemocratic EU apparatus where the few sane voices in the European Parliament (EP) like Nigel Farage are ignored by autocratic decisions in the unelected European Commission and the EU Council. While politicians have busied themselves in the last 2 years with a string of weekly emergency meetings in 5-star locations - ironically preaching austerity - debts have seen only one way: up.

 

 

More Similarities To 2007/8 Quant Crash

Our earlier post (see next article) regarding the harrowing quarter that our dear friends at GS Global Alpha are having brought back some memories of a bygone age when all one needed was a multi-factor risk model and access to a massive marketing/propaganda arm. Of course as we pointed out earlier, the reason for the demise of so many of these long/short or even long-only quant-managed funds was simple - everyone following the same signal as it pulled them further and further away from benchmark performance - until finally, one after the other, they disregarded their factor models as redemptions (from underperformance) and pure-and-simple psychological trauma hit them hard. The bottom line is that the factors that quant funds have tended to be over-/under-exposed to at times of maximum underperformance (and market chaos) appear to be front-and-center once again among quant fund holdings. Expect more chaos.

It's Not 2008, It Is 2007: Goldman Global Alpha Just Blew Up All Over Again

Those who have been around for more than one trading generation (which in the old days was 3-4 years, but in the current centrally-planned, vacuum tube-traded times, is more like 3-4 months), will distinctly recall that the first rumbling of the financial crisis started not with the bankruptcy of Lehman, or even the handoff of Bear (and its massive silver legacy short) to Jamie Dimon, but in August 2007, when days after the market hit its all time high, something went massively wrong in the quant market segment (nobody still knows what it was but many speculate that is was simply every algo being on the same side of the trade and trading out all at the same time following the blow up of the Bear Stearns hedge funds). What the first week of August 2007 was notable for, in addition to massive losses for such legendary quants as RenTec (very well described in Scott Patterson's book titled appropriately enough "The Quants"), was that for the first time ever, the infallible Goldman Sachs... fell. Specifically, its heretofore mythical Global Alpha quant fund, which had the mythical allure of a 33rd degree Freemason dinner, imploded, and crashed, forcing the end of a quant generation, and the beginning of the end of Goldman's aura of invincibility. As Bloomberg recalls those August 2007 days: "Goldman Sachs Group Inc.'s $8 billion Global Alpha hedge fund has fallen 26 percent so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund...On June 26, Goldman said Eric Schwartz, co-head of asset management since 2003, would step down in the next few months and leave Peter Kraus in charge of the fund unit. Global Alpha decreased 8 percent during the last full week of July and was down 16 percent from the beginning of January through Aug. 3. There is an Aug. 15 deadline for Global Alpha investors who want to redeem money on Sept. 30." Well, the reason we bring all of this up, is because unlike what everyone claims, it is not 2008.... it is 2007 all over again. To wit: Goldman Global Alpha just blew up, for the second and probably last time.

If you appreciate the 4+ hours a day... 7 days a week... it takes to run this blog... 

Please consider making a small donation, to help cover some of the labor and costs.

Thank You

I'm PayPal Verified
 

In The News Today

September 14, 2011, at 2:40 pm
by Jim Sinclair in the category In The News |  Print This Post |  Email This Post

Dear CIGAs,

From Tanzania I wish you all, my extended family, a good night. It has been a long but delightful day.
The following observation from Master Kenny is important:
"We are in the 17th day of corrective action, and near the end of our minimum expectation of time required (15 to 18 days) to exhaust this corrective action, (but with a maximum time factor still projected at not more than 36 to 40 days). Each failed attempt to close below 1770 widens out this accordion correction and weakens the possibility of for a return to the 1705.40 low."


Jim Sinclair’s Commentary

John Williams’ comments for the day:

- Flat August Retail Sales Most Likely Were Down Net of Inflation
 
- Real Median Household Income Drops to 15-Year Low (Below 1969 Level, CPI-U Adjusted)
 
- Volatile PPI Reporting Flat for Month, Up 6.5% for Year

www.ShadowStats.com

 

 

Jim’s Mailbox

September 14, 2011, at 2:38 pm
by Jim Sinclair in the category Jim's Mailbox |  Print This Post |  Email This Post

Deposit Flight at European Banks Raises Risks  
CIGA Eric

Money is flowing from European deposits to gold and a lesser degree US Dollars. This is the reason why early US bond shorts must have deep pockets. Money always flees when confidence is shaken. If it’s shaken badly, and old-fashioned bank run will emerge without warning.
Headline: Deposit Flight at European Banks Raises Risks
European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for havens, a trend that could worsen economic and financial conditions.
Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks.
While the European Central Bank has picked up some of the slack, providing about 500 billion euros ($685 billion) of temporary financing, banks are cutting lending, which could slow growth in their home countries. They’re also paying more to keep and attract deposits — or, in the case of Italy, selling bonds to retail customers for five times the interest they offer on savings accounts — which will erode profitability.

Source: bloomberg.com

More…





Consolidation Within A Secular Trend Cannot Be Problem Solved  
CIGA Eric

Another consolidation within a secular down trend of the US Federal budget (i.e. Jim’s Formula) cannot be embraced as problem solved. Why do you think gold is rallying? It’s all about confidence. Confidence already weak and teetering on the edge will be tested again once the consolidation pattern breaks to the downside. The previous break in early 2008 foreshadowed the onset of the sovereign debt crisis.
US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:
Headline: U.S. posts $134.15 billion August budget deficit
(Reuters) – The United States racked up a $134.15 billion budget deficit in August, the U.S. Treasury said on Tuesday, marking a sharp increase from a year earlier that was due mainly to calendar shifts of payments and one-time adjustments in the August 2010 period.
The cumulative deficit for the first 11 months of fiscal 2011, which ends on September 30, came to $1.234 trillion, down slightly from $1.260 trillion in the same period of fiscal 2010.
The White House on September 1 forecast the federal deficit at $1.316 trillion for fiscal 2011, compared to an actual fiscal 2010 deficit of $1.293 trillion.

Source: reuters.com

More…






Silver’s Bearish Paper Setup Likely To Produce A Bullish Outcome  
CIGA Eric

When paper control of the trend falters, bearish setups can turn unexpectedly bullish. Look no further than gold as example of this inversion. Gold’s DI was turning bearish in July 2011. Then sovereign debt crisis intensified and the gold market rallied despite the negative paper setup.
Gold London P.M Fixed and Gold Diffusion Index (DI)
Could the loss of paper control in gold spill over to the silver market? If it does, a setup inversion or bearish setup produces a bullish outcome, is quite possible.
Silver London P.M Fixed and the Silver Diffusion Index (DI)
Open interest or participation in silver has been dramatically reduced since April 2011. These reductions are illustrated as toilet flushings in the chart below. Participation “Flushings” are bullish and have preceded all the major rallies since 2001.
Silver London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average

Eric,
I understand the long term technicals are favorable for silver but what about the short term technicals? How close are we to a set up like the gold difusion index you showed today which makes gold look like it is ready now ?
I sense more sideways till way into Nov…is that possible?

Thanks,
Denny

More…





Trump, Apmex, and Goldilocks

Posted by: Michael Victory

Post date: 09/14/2011 - 14:25

  The Donald takes delivery of 3 Kilos.  

We are going to be gifted with a Health Care plan we are forced to purchase, and fined if we do not, which purportedly covers at least ten million more people, without adding a single new doctor, but provides for 16,000 new IRS agents, written by a committee whose chairman says he does not understand it, passed by a Congress that did not read it but exempted themselves from it, and signed by a President who smokes, with funding administered by a Treasury chief who did not pay his taxes, for which we will be taxed for four years before any benefits take effect, by a government which has already bankrupted Social Security & Medicare, all to be overseen by a Surgeon General who is obese, and financed by a country that is broke!! What the hell could possibly go wrong?" ~ Donald Trump