BREAKING NEWS - SILVER SHORTAGE - PERTH MINT OUT OF SILVER??
Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.
By now it is no surprise that Bill Gross has not exactly "caught the inflection points" in the market in the past year. Of recent note, as Zero Hedge first reported three days ago, in September he massively extended the duration of his holdings in an attempt to catch up with Operation Twist just in time for the 30 Year to have its biggest drop in quite a while. Which may explain why he has released a letter to investors titled, simply enough, "Mea Culpa" in which he essentially apologizes for underperforming the market, when he says "I am having a bad year". That's fine, and so are your clients. But what is far more troubling Bill, is that your corporate parent, Germany's Allianz, as is now well known is the entity pursuing the conversion of the EFSF into a multi-trillion "insurance" fund to backstop even greater trillions of corporate and sovereign fixed income exposure. Please tell us Bill that this is not your doing: that it is not your "influence" that has been upstreamed to corporate, and is forcing Europe's taxpayers to foot the bill for your, and others', "bad year." Because while everyone can make a mistake, those of us who are not too big to fail, read manage $1.2 trillion fixed income portfolios, get punished for said mistake. It is far more reprehensible when you come crawling to the same taxpayer and engage in the same activity you so loudly complain about in every single letter (there is a reason why the broader population has grown to loathe Warren Buffett). Anyway, with that aside, here is what Gross sees as happening in the future: "So where do we go from here? Our internal growth forecast for developed economies is now 0% over the coming several quarters and the portfolio more accurately reflects this posture." Well, while Pimco may have been spot on 10 days ago with this assessment, the subsequent 10%+ short covering squeeze has forced a dramatic sell off in the 10 Year (the 10s30s has flatten substantially in recent days). And naturally, in this world in which effect implies cause, the moves in the market now are taken to represent an avoidance of the recession. Granted that makes absolutely no sense, but such is bizarro world. So our only question is - did Gross just jinx the recession out of existence?
When the currency system as we know it dies, some people will become very wealthy. In this special report from the Casey Research/Sprott Inc. Summit "When Money Dies," The Gold Report cornered Global Resource Investments Founder and Chairman Rick Rule, Casey Research Senior Editor Louis James and Casey Energy Opportunities Senior Editor Marin Katusa for a roundtable discussion on the best strategies for thriving during the coming economic transition.
Still unclear on what drove the policy vehicle known as the stock market straight up, which for some reason speculators still participate in despite relentless warnings that it is broken, manipulated, etc, for nine consecutive days, following the release of the FT rumor of a bank recapitalization on October 4, since refuted? Simple: look at the chart below. The Green is the Russell 3000, while the Red is the Goldman "highest short interest index." Beginning with September 4, and continuing through today, every time the market appeared poised to drop, market makers would mysteriously squeeze shorts, with the Red line consistently leading the overall market (Green). Said otherwise: shorts panic -> weak hands cover -> market follows. Naturally, for this to work, volume has to be well below average, which was indeed the case - the volume has been abysmally low for the duration of the entire melt up which means the second there are no incremental weak hands to short, and the movement flips, most likely on the fully priced in deus ex bail out of Europe which will not happen next week or ever, massive volume will return, and the market will do what it always does in such situations: soar inversely. Until then, and as always, it is best to play in other, less manipulated venues - buy some CDS, arbitrage some shiny rocks, blow some money on Blackjack, just stay away from the frontrunning algos whose only purpose is to sniff out weak shorts and sell stops. There is no market: we would say it is a casino, if only it was even 10% as fun.
As predicted earlier today, following one of the most epic moves higher in the EURUSD in the span of 9 short days, driven without a shadow of doubt by the multi-year bearish sentiment toward the European currency, which in turn courtesy of the massive leverage inherent in the FX market, has been used as the catalyst to drive the latest risk on rally across all asset classes, the net bearish exposure in the EUR has finally relented, and after 7 straight weeks of increases in bearishness, hitting a whopping -82,697 net non-commercial contracts in the week ended October 4, the subsequent week finally saw a significant unwind in shorts, up to -73,795. And since there are 3 trading days between the end of the compilation period and Friday EOD, we are confident that by now the actual net bearish count is in the -60k's if not lower. Notable, however, is that while Euro short bets were unwound, bullish bets on the dollar continued to risk, hitting 46,886, a 7th consecutive weekly increase. While the margin covering of the EUR is already priced in, the other question is when the USD megabullishness will relent. For now, it hasn't which will likely be used by market makers to squeeze out highly correlated accounts into even more short covering across equities.
What eventually became the Arab Spring is spreading and quickly becoming a Western Winter. Protests in Europe and America are growing in size and intensity. Awareness of the unfair and crony-capitalistic nature of our current political/financial system is spreading. Americans of all economic, geographic, philosophic and political stripes are questioning the very foundations upon which our “prosperity” has been based for decades. Slowly they are realizing that they were always playing a rigged game that they were never designed to win. As you’d imagine, this is not sitting so well with them and some are starting to stand up and make their voice heard. Don’t think for one second that this is going to stop. Americans by the millions are losing their homes, their jobs, their savings and their futures.
It is probably not too surprising that the negative news of the day, namely that the US has decided against expanding the IMF and thus leaving the European bailout to the Europeans (at least for now), was released quietly long after happy hour started on Friday. Yet that is precisely what happened after Reuters dropped a Friday night bomb that with hours before a communique is issued by the G20 in Paris, contrary to previous rumors and representation "U.S. Treasury Secretary Timothy Geithner and his Canadian and Australian counterparts poured cold water on the idea" of injecting $350 billion into the International Monetary Fund. As a reminder, the IMF expansion myth was one of the latest rumors floated today by none other than the tag team of Geithner and Liesman. It lasted less than24 hours but it served its purpose. The full on media onslaught of never ending lies has never been more acute, more relentless, and more blatant: with every central bank and trade surplussed nation all in, the very nature of the global ponzi is at risk.
A few weeks ago we discussed the growth of the "virtual" economy. The argument was that metal consumption (in particular copper and zinc) grew in accordance with global GDP until the mid '70's, after which metal consumption grew markedly more slowly than did global GDP. Our thesis was that global GDP (the "official" economy) has at least partially increased by management of perceptions and addition of a lot of economic "activity" which does not increase wealth. It has troubled me in the past that I could file lawsuits against present and past associates, who in turn might file suits against me. In the very best scenario all that would happen is a redistribution of existing wealth, yet all the legal fees would be additive to GDP. Yet no wealth would be created (except from the lawyers' perspective) and a great deal would be lost. It has always seemed to me that economic activity of this type forms a component of GDP the magnitude of which is unknown. A reader questioned whether the reduction in growth of consumption of these metals could be due to their replacement by less expensive alternatives. Although I believe that there may be a slight effect, as seen in relative increases in aluminum and stainless steel--I discount most of this because copper, for many of its applications, is very difficult to replace. It is why the price of Dr. Copper is thought to be such a good leading indicator for the economy.
Greece's Extortion Game