Fall Of The House Of Money: Artemis Capital On How €entral Banking Took Over Capital Markets... And The World

One of the long-term recurring themes both here and in other more objective media, has been the encroaching domination of the central planning regime, or monetary authorities, read central banks, in the domain of capital markets and overall broad sovereignty, to the point where there is neither technical nor fundamental analysis left, but merely the question of where is the next batch of excess liquidity going to come from. Welcome to the death throes of the fiat system. Artemis Capital has released an extended must read presentation that summarizes just how global changes in trade, currency exchange, global monetary excess liquidity in recent decades, and especially in the coming future, will increasingly determine and define risk, and more troubling, the centuries old anarchism of state sovereignty. Anarchism, because as Europe has demonstrated so very well, in the current world the only real actors are the central banks. And with each passing day they become ever more powerful players in the global capital markets arena, as confirmed by correlations that rise every higher, approaching 1.000 across all asset classes. Anyone wondering why the only fulcrum variable for the future of risk will be FX exchange rates, and why any and all wars in the future will be primarily in binary "currency" format, we urge a careful reading of the attached slideshow by Artemis Capital titled "Fall of the House Of Money: Changes in Global Trade and Currency Exchange."

 

 

The True Value Of Money (Literally)

As a follow up bonus from the Artemis presentation earlier, we present this chart which answers the age old question: what is the true value of money? It does so in quite a literal fashion, and explains why Kyle Bass is such a fan of nickels...

Wall Street Knee-Jerk Response To Favorable Greek Vote Of Confidence

Is Wall Street confused by this latest act of political treachery by G-Pap who had promised to collaborate with the New Democracy opposition only to back out in the last minute (just as he backed out of his promise for a referendum) and end up in a coalition government with the socialists and the far right? You betcha. Courtesy of Reuters, here is the knee jerk reaction by so called experts who see this as either bullish or bearish. The bottom line is that until G-Pap actually does something he has previously promised to do, he will continue to lie and cheat in order to simply remain in power and soak up Europe's funding (which is of course used merely to repay Europe).

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G-Pap Wins Vote Of Confidence 153-145

And so G-Pap manages to fool everyone once again, and will now usurp power either directly or via his puppet Venizelos.

G-Pap To Begin Formation Of New Government Tomorrow

Update: Greek Parliament Begins Voting on Papandreou Confidence Motion
The latest out of the Greek parliament, where G-Pap is proving he is not a man of few words, is that he will commence with the formation of a new government tomorrow, and in which he hopes to have a leadership position.

• PAPANDREOU TO BEGIN TALKS TOMORROW WITH PARTIES ON GOVERNMENT
• PAPANDREOU SAYS NEEDS TO AGREE TARGETS, TIMETABLE FOR ACTIONS
• PAPANDREOU TO DICSUSS POSTS, PEOPLE, EVEN HEAD OF NEW GOVT
• PAPANDREOU TO PROCEED WITH NATIONAL UNITY GOVERNMENT
• GREEK NEW GOVERNMENT MUST PURSUE OCT. 26 PACT, PAPANDREOU SAYS
• PAPANDREOU SAYS NEEDS TO AGREE TARGETS, TIMETABLE FOR ACTIONS
• PAPANDREOU WILL SEE PRESIDENT TOMORROW

And more such can kicking. In essence the prime minister, whose family has ruled Greece for generations will do anything to pass the vote of confidence, and then will most certainly usurp power once again, saying that it is for the country's stability that he be in charge at least until the 7th bailout tranche is paid, then 8th, then 9th, and so forth.

Credit Unconvinced As Stocks Close Near Highs Of Day

Credit markets were far less sanguine into the close than equity markets as ES managed to get back to day session highs (and beyond). IG and HY credit markets closed much nearer their lows of the day and while broad-based risk assets rallied off the morning lows, the late day surge in stocks was entirely idiosyncratic! HYG outperformed HY while HY secondary bonds were much more balanced (net buying to selling) today than in recent days. It certainly appeared credit market participants were much less comfortable holding into the Greek vote and uncertainty of the weekend than equity players. The USD was noisy all day but rallied into the close (as the EUR drifted back under 1.38) and Gold trod water as oil managed a modest rally while silver and copper lost more ground on the week. TSYs rallied only modestly today with the belly outperforming as we saw major duration reduction in corporate bond trading on the day as the long-end was net sold. VIX rose modestly into the close, disconnecting from stocks - like every other asset class.

Droop On Groupon

An ugly close for the coupon company as GRPN is held at $26 - its low of the day.

Euro Shorts Cover Modestly Following Max Pain; Dollar Bullish Bets Tumble

As expected, following the maximum pain rip in the EURUSD late last week, which took the pair from 1.38 to just under 1.4250, all the weak hand shorts took their losses and run. And indeed, as the CFTC has just reported, bearish bets tightened substantially from -76,512 in non-commercial net contracts, to -60,060. At this point it is safe to say that if the ridiculous move higher in the EURUSD did not force the covering of these hands, then they surely have the balance sheet to withstand such epic rips and then some. We no longer expect major short covering in the EURUSD to take the market higher, as the residual shorts not only have the conviction, but the marginable capital to see the EUR, and with it the stock market, much lower. And while of lesser significance, USD net long contracts declined by 25% from 32,110 to 23,823, simply meaning that when the scramble in a risk off moment returns, there will be quite a few incremental buyers of the USD, and thus shorters of that other currency: the EUR, now that both the JPY and the CHF are effectively pegged courtesy of their central banks decisions.

Jefferies Releases Yet Another Set Of Numbers On Its European Exposure That Differ From 24 Hours Ago

Jefferies is out with its third consecutive promise it has done nothing wrong, issuing a press release in which it says "Jefferies has no meaningful credit risk in respect of the sovereign debt of these nations, and an insignificant risk related to interest rate movements" and hopes to slay the dragon of doubt once and for all. Furthermore as CEO Dick Handler adds, "Later today, after the markets are closed in Europe and we have completed our inventory control accounting, we will post on our web-site our day-end, CUSIP-level holdings in the securities of these countries. We care for our clients, shareholders, bondholders and employees and want to allay any concern that may have arisen. As was the case yesterday, the facts about our sovereign debt exposure and other matters are straightforward and easily understood. We encourage all market participants and interested parties to review our public filings that contain extensive disclosure of the nature, extent and financing of our assets. Our firm stands on a solid foundation of over $8.5 billion of long-term capital and we look forward to continued success." We congratulate this espousal of transparency and clairty. We are also 100% certain that Jefferies will be so kind to disclose not only the Cusips but the maturities and tenors of all synthetic products. It will of course also publicly highlight the dates of all transactions: the last thing the public will want to think is that Jefferies took advantage of the grace period of the past 2 days to neutralize its cash book sufficiently. Because one can't help but be curious what the reason for the material difference between the numbers posted as of yesterday and those posted today is, or rather, when the offsetting buys and sells took place.

Did Jamie Dimon Just Stop Jon Corzine From Going To Jail?

Update: JPMORGAN SAYS IT DOESN'T HAVE MF GLOBAL MISSING MONEY.  Ok, now we need to check with JT Marlin
Last week we heard of glitches which resulted in Germany finding $55.5 billion in missing "debt" and a €3.6 billion error in Irish debt. It was only a matter of time before MF Global also uncovered a "glitch"

• MF ACCOUNT WITH $658.8M IN CLIENT FUNDS SAID TO BE AT JPMORGAN
• MF GLOBAL'S MISSING CLIENT FUNDS SAID TO BE LOCATED AT JPMORGAN

Ignore the fact that MF admitted it had commingled and abused client funds. After all, the big boys take care of their own. And what is $660 million to JPM? Here's what - less than the taxpayer money profit the bank makes on one POMO.

Could MF Global Be The Lehman/AIG Event Trigger?

Dave in Denver at The Golden Truth - 5 hours ago

*Segregated reserve bank accounts under SEC Rule 15c3-3:* *The SEC Act of 1934 requires broker dealers to maintain "special reserve bank accounts" strictly for customers which are separated from the broker dealer's own accounts.* First off, I just want to say that if Jon Corzine does not see jail time over this then our system is seriously corrupt and fraudulent and we're all a bunch of lifeless serfs if we don't join the Occupy movement to protest the raping and pillaging our country by a select few. That's the bottom line. The brokerage accounts of MF are being moved to seve... more » 

 

 

 

 

APNewsBreak: Own party urges Greek PM to resign

Eric De Groot at Eric De Groot - 6 hours ago

There’s political chaos in Greece. History reminds us that real change comes after all hell breaks loose, not before. Expect most American to be surprised when history repeats since the History channel and books have no chance against drama created by Dancing with the Stars - the horror!. Headline: APNewsBreak: Own party urges Greek PM to resign ATHENS, Greece (AP) -- Greece's ruling Socialists... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

 

 

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Germany Is The Epicenter of Unfolding Crisis

Eric De Groot at Eric De Groot - 7 hours ago

As the economic leader of Europe, Germany is the epicenter of the debt crisis. Negative divergences with price and trend in the German stock market, similar to 2007, foreshadow problems ahead. The collective voice of concern, however, is easily drowned out by the parade of talking heads selling the plateau of prosperity provided by the miracle of perpetual bailouts, stimulus, and endless debt... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

In The News Today

November 4, 2011, at 2:38 pm
by Jim Sinclair 

Jim Sinclair’s Commentary

John Williams’ must have www.ShawdowStats.com helps you balance the MOPE.

- Monthly Payroll and Unemployment Changes Were Not Statistically Meaningful
 
- October Payroll Employment Not Only Was 6.5 Million Below the Pre-2007 Recession High, But Also Was 1.0 Million Below the Pre-2001 Recession High
 
- October Unemployment: 9.1% (U.3), 16.2% (U.6), 22.9% (SGS)
 
- Annual Growth in October Money Supply M3 Held at About 2.6%

www.ShadowStats.com

 

 

Market Commentary From Monty Guild

November 4, 2011, at 2:34 pm
by Monty Guild 

The Political Season Heats Up
U.S. presidential elections are a year away, while France and many other countries will be staging elections within the next twelve months. We can expect continued volatility as politicians around the globe say things to benefit their re-election chances which can have a negative impact on stock prices globally over the short run. This has made and will continue to make the tried and true method of buying and holding specific stocks for the long term a difficult road to travel anywhere in the world.
It is our opinion that, the best approach is to invest with long term performance as your major goal. We do not however agree that this means buy stocks and hold them through thick and thin. Global volatility does not allow this to be an effective method and it has not been effective since the year 2000 in the U.S. technology stock market, since 1990 for the Japanese markets and since 2007 for much of the rest of the developed and developing world.
Our view is that long term planning is best established and accomplished by avoiding major draw downs in values of portfolios during very difficult market environments that occur due to short term volatility. We believe in a plan to make money while it is easy to make money, and not lose money when it is easy to lose money. This is the best approach for protecting assets and building capital over the long term, and the approach that we at Guild strive to take for our clients.
We believe that at certain times the best investment vehicle for a client may be cash, even if it is earning modest interest; when the alternative is losing money as markets fall. We are not perfect, and accounts that Guild manages can fall in value, but the declines are historically less than the market’s declines during the same period.  In our opinion, having cash during declines gives us a better chance to outperform over the long term.  Making money in good markets and cutting losses quickly in bear markets is our historical approach and we recommend it to others.

A Bit Of Levity
The futures merchant MF Global failed this week.  The Commodities Futures Trading Commission (CFTC), the agency in charge of futures trading, had the regulatory responsibility.  As one wag put it, the regulators should have noticed and stopped MF Global from employing 40 to 1 leverage, but they were too busy in Washington creating new regulations to wreck the economy.  They had no time to enforce the regulations already on the books.
This is not far from the truth. Governmental incursion into the business world has been huge over the last few years with new regulations being promulgated by federal, state, and local governments all the time. The regulations are being put in place by people who are mostly lawyers and very unaware of the difficulties in starting or running a business. We have written about this before and we will write more about this in the future as we see this making it very hard to employ new people and very hard to compete in a world where many non-U.S. companies do not have to deal with such regulatory hurdles and expenses. If the U.S. is really serious about creating millions of new jobs and getting the economy back on track, regulatory burdens should be lessened.

The Beat Goes On And Spreads To New States And Municipalities
Jerry Brown, the Democratic governor of California, is proposing raising the retirement age to 67 for new employees who are not public safety employees.  His proposal ends pension spiking, where employees bump up their retirement by working a lot of over time their last year before retirement so they can retire at a level well above their normal salary for the last three years’ work. Gaming the system like this is causing the fiscal deterioration of America’s public sector, and it must be reined in…unless of course we want to go Greek. To read the article about California’s Governor, Jerry Brown, click here.

The End Of Cheap Chinese Goods
We have mentioned this a few times over the past couple of years, but it looks to us like the great Chinese-led deflation in the price of manufactured goods has come to an end. 
For much of the past twenty years, low cost Chinese goods have helped keep inflation down in the developed world. Recent data shows that the prices of Chinese goods rose in the last year, especially in the last 6 months.  While labor costs in China have been rising for some time, it is now showing up in significantly higher prices of goods exported from China.

Demand For Commodities
Commodities in investment portfolios have been rising for a decade and regulators want to get a handle on it.  More and more regulatory agencies are establishing position limits on commodities for traders, speculators, and investors. 
The Dodd Frank legislation has many different rules and regulations that deal with derivative use, and in our opinion, it is a mess.  It is filled with complicated inconsistencies and has caused disagreements between the commissioners at the CFTC and the individual commodity exchanges, which used to regulate futures transactions.  Further, many commodities trade on European exchanges, and there is no assurance that they will go along with the Dodd Frank’s approaches.  In short, it will be a long time until regulations on futures contracts passes from the exchanges to the CFTC.  Nonetheless, government officials are trying to reign in commodity speculation.
Institutional and retail figures on commodities under management in second quarter of 2011, if you include exchange traded products, medium term notes and commodity index swaps exceeds over $440 billion dollars.  This is up from the less than $100 billion in 2005 according to Barclays Capital and Thompson from a Financial Times article on October 20, 2011 entitled "CFTC push on speculators faces legal threats."  The article’s author, Gregory Meyer, points out that agriculture makes up $103 billion, energy $132 billion, base metals $21 billion and precious metals $192 billion.  Does anyone wonder why gold prices have risen in the last five years? Click here to read the full article.




How Political ‘Good’ Intentions In 1990’s Came Back To Bite
On the front page of the November 1st edition of the Investor’s Business Daily is the article “Smoking-Gun Edict Shows Gov’t Behind Housing Meltdown.”  We have discussed several times in our letters that there is no shortage of culpability for the housing and banking crisis in the U.S.  Real estate professionals, appraisers, accountants, rating agencies, bankers and government all share responsibility for the bubble and collapse.  
While the politicians rev up for another election season, and banter about how they are going to fix the economy, let us not forget that their track record is poor. To read the article on the "Smoking-Gun Edict", please click here.

Why We Are Sanguine About US And Emerging Markets, Gold, Wheat, And Oil.
While many investors have been pessimistic about the European bailout (and continue to be negative because the details of the bail out and of the continued political negotiations continue to be messy), we think it is wise to buy when we encounter one of the panic filled decline days that we are periodically experiencing.
Europe has no choice but to pursue QE and print money to recapitalize European banks. In the final analysis, we do not see any other alternative to solve Europe’s problems than for Europe to engage in a lot of QE, and that is exactly what has been happening; from the UK, from Switzerland, and now from European Central Bank itself.
Whether it comes from the various European central banks, some institution/fund backed by European taxpayers, or if it comes from individual countries who have to nationalize their banking systems, it will be QE. Others may quibble about the individual events on a day to day basis; we liken this to focusing on the trees in the forest. We are focused on the forest itself and we are confident that in the name of self interest, Europe will act as we suggest.
In our view, there is no other alternative that any politician would find even remotely palatable.  Letting the banks fail is not an option.  Doing so would be the end of a prime minister’s political career, the end of their party’s influence, and possibly the end of their party’s role in government for years to come. Since it will be QE, we believe that the reaction of world markets will be much like the last time QE was introduced on a grand scale (by the U.S. in early 2009). At that time the U.S. did the QE; this time it will be Europe and European nations. After the U.S. QE in 2009, developed market stocks, emerging market stocks, commodities, commodity (Canadian, Australian, and Brazilian) currencies, and especially gold went up and stayed up for over a year.
We expect a similar outcome this time.
Gold (1 Year Chart)

Courtesy of Bloomberg
Oil (1 Year Chart)

  Courtesy of Bloomberg
S&P (1Year Chart)

Courtesy of Bloomberg
EEM (1 Year Chart)

Courtesy of Bloomberg
Wheat (1 Year Chart)

Courtesy of Bloomberg

Thank You To Our Readers
It has been 40 years that we have been managing investment portfolios for clients.  We hope the newsletter serves to sharpen your investment perspectives and strategies.  Please feel free to forward our commentary to friends, family, colleagues. 


To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email us at guild@guildinvestment.com


Our Recommendations

	Date	Date	Appreciation/Depreciation
Investment	Recommended	Closed	in U.S. Dollars
Commodity Market Recommendations
Gold	6/25/2002	Open	+443.2%
Oil	10/24/2011	Open	+7.7%
Wheat	10/24/2011	Open	+0.6%
Corn	4/20/2011	8/3/201	-6.3%
Oil	2/11/2009	8/3/2011	+157.1%
Corn	12/31/2008	3/3/2011	+81.0%
Soybeans	12/31/2008	3/3/2011	+44.1%
Wheat	12/31/2008	3/3/2011	+35.0%
Currency Recommendations
Long
Canadian Dollar	10/24/2011	Open	-0.1%
Long
Singapore Dollar	10/24/2011	Open	+0.7%
Long
Canadian Dollar	9/13/2010	9/21/2011	+2.2%
Long
Chinese Yuan	9/13/2010	9/21/2011	+5.8%
Long
Swiss Franc	9/13/2010	9/21/2011	+12.1%
Long
Brazilian Real	9/13/2010	9/1/2011	+6.4%
Long
Singapore Dollar	9/13/2010	8/3/2011	+10.9%
Long
Australian Dollar	9/13/2010	6/29/2011	+14.1%
Long
Thai Baht	9/13/2010	6/22/2011	+6.5%
Short
Japanese Yen	4/6/2011	7/27/2011	-9.7%
Short
Japanese Yen	9/14/2010	10/20/2010	-3.3%
Equity Market Recommendations
I Shares MSCI Emerging Market Index	10/24/2011	Open	+6.7%
U.S.	10/24/2011	Open	+1.8%
U.S.	9/14/2011	9/21/2011	-2.3%
India	4/6/2011	9/21/2011	-21.6%
Malaysia	6/29/2011	8/3/2011	+0.1%
U.S.	6/29/2011	8/3/2011	-4.6%
Japan	2/15/2011	8/3/2011	-9.5%
Australia	2/15/2011	6/22/2011	-0.9%
Canada	3/24/2011	6/22/2011	-7.1%
Colombia	9/13/2010	6/22/2011	+2.6%
Malaysia	4/6/2011	6/22/2011	+0.8%
Canada	12/16/2010	3/11/2011	+7.9%
U.S.	9/9/2010	3/11/2011	+18.1%
South Korea	1/6/2011	3/3/2011	-2.9%
Colombia	9/13/2010	2/2/2011	+3.9%
China	9/13/2010	1/27/2011	+5.0%
India	9/13/2010	1/6/2011	+7.9%
Chile	9/13/2010	12/16/2010	+8.9%
Indonesia	9/13/2010	12/16/2010	+9.5%
Malaysia	9/13/2010	12/16/2010	+1.3%
Peru	9/13/2010	12/16/2010	+32.2%
Singapore	9/13/2010	12/16/2010	+4.8%
Thailand	9/13/2010	12/16/2010	+11.9%
Bond Market Recommendations
30 YR Long Term
U.S. Treasury Bond	8/27/2010	10/20/2010	0.0%

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