Morgan Stanley Sees QE3 Rally Lasting Hours Not Weeks

We have quite vehemently reminded readers of the dismal drop in US (and global) macro data over the past few months. These disappointing economic surprises and the ensuing global growth weakness will, Morgan Stanley believes, lead to a global policy response (rate cuts where rates can be cut and QE where they can't) and while they expect this monetary policy to work in many important emerging economies, they are doubtful as to whether it will make a material difference to growth in developed economies. Certainly, there are obvious risks to growth (Euro rupture and US fiscal cliff) that could counteract any QE effect but they rather critically note that unconventional policy is effective when the issue is systemic stress; it is less so when growth is the concern. The QE2 rally was largely due to better macro data, which coincidentally started right after Bernanke hinted at QE2. If macro data stays weak, they expect any 'Pavlovian' QE3 rally to last hours or days, not weeks or months. The bull case for a tradable rally is one of simple observation that prior central bank action has coincided with important market turning points but the more skeptical MS strategists suspect this more correlation than causation as they point to the muted effect monetary policy has in an extended deleveraging to stimulate activity.

From Worst To First - S&P Has Best Day Of 2012 Shortly After Worst

Three days after posting its biggest single-day loss in seven months, it makes perfect sense in this nonsensical market for the S&P 500 e-mini futures to post their best gain in six months (a 4-sigma drop to a 3-sigma gain). Volume was heavy (and we note came in size at the end). Financials went berserk with MS and BofA ripping around 8% higher along with Energy and Industrials all up near 3% today. The biggest jumps was pre-European close, but the very late day surge which just seemed ridonculous (and did disconnect stocks from other asset classes) dragged everything to close at the highs (with ES +2.25% and Dow +280pts). Just remind us why again? No meat from Draghi, but more pavlovian-bell-based hope for tomorrow's Bernanke speech? If that's the case, then why did the Beige Book's much-more positive tone than expected drive gold (QE-hope-fading) significantly lower and leave stocks and treasury yields, at their highs and the USD at its lows. Bonds are 18-22bps higher in yield this week now (with 5Y outperforming only 10bps wider as maybe the 5Y is now the new cash). Gold underperformed its commodity peers as Silver outperformed and Oil and Copper leaked higher with the weaker USD (now down 0.74% on the week). IG and HY credit underperformed as stocks (and HYG) took off into the close and CONTEXT (a proxy for broad risk assets) disconnected lower from equity's ebullience at the end of the day after being dragged higher for much of the day.

Gold Daily and Silver Weekly Charts - The Fear

SP 500 and NDX Futures Daily Charts - Hogarth's The Cockpit

The American Political Process In One Picture

San Diego And San Jose Approve Pension Cuts In A Landslide Vote

Eric De Groot at Eric De Groot - 2 hours ago

Public workers be warned/damned this trend will spread across an increasingly polarized nation. Scott Walker's reelect win in Wisconsin last night galvanized this trend. Headline: San Diego And San Jose Approve Pension Cuts In A Landslide Vote SAN DIEGO (AP) — Voters in two major California cities overwhelmingly approved cuts to retirement benefits for city workers in what supporters... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]



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The US Labor Market Is In A Full-Blown Depression
Now that stocks are back to reflecting nothing more than expectations of how many times the Chairsatan dilutes the existing monetary base in a carbon copy replica of not only 2011 but also 2010... and 2009 (because contrary to what purists may believe, the only way to inflate away unsustainable debt in a growth-free economy is by destroying the currency), and manic pattern chasers have crawled out of their holes proclaiming the death of the bear market after a two day bounce, what is happening in the actual economy, no longer reflected by the market, has once again been pulled back to the backburner. Which is sad, because while ever fewer people reap the benefits of artificial, centrally-planned S&P rallies, the rest of the population suffers, and what is worse: hope for a quiet, middle-class life is now an endangered species. Nowhere is this more evident than in the following list from David Rosenberg which summarizes how, quietly, the US labor force slipped back into a full-blown depression.
 

As France Lowers Retirement Age, Germany Better Be Ready To Pay For Austerity's Unwind

As noted earlier, Europe has been so obviously crippled by years of brutal austerity (which, as we pointed out before never actually happened), that it has had to experience the supreme indignity - a miserable two years of plunging flat GDP growth. Because under the old normal, it appears that unless one is issuing massive debt, pardon "growing", society grinds to a halt. Well, it appears that France has finally had enough, and as of today, "the French government approved a measure Wednesday that will lower the retirement age to 60 from 62 for a narrow group of workers, partly reversing unpopular pension reforms made by former President Nicolas Sarkozy as he sought to improve France's public finances." Obviously, this means that more welfare funding will have to be sourced as all else equal, this means less money will be produced by the country's workforce, and more money will be consumed by its retirees. Who will do it? Why German of course. Because after Merkel caved first on Greece, and then on Spain, it is now game over for German "prudence" and everyone will line up at the trough. Congrats Berlin: we can only hope you have discovered those magical money-growing trees. You will need them.

In A Gold Standard, How Are Interest Rates Set?

Today, short-term interest rates are set by the diktats of the central bank. And long-term interest rates are set in a “market” in which the central bank is obliged to keep coming back to buy ever more bonds, and speculators front-run the central banks to buy ahead of them. The result has been that, for 30 years and counting, the bond price has been rising, which is the same as to say that the rate of interest has been spiraling into the black hole of zero. When it gets there (and probably sooner) the entire monetary system will collapse. This is the terminal stage of the disease of irredeemable paper currency. They have banished money (gold) from the monetary system, and the result is a positive-feedback-loop that destabilizes the rate of interest. The rate of interest has a propensity to fall, just like the value of the paper currency itself. This leads to the question of how interest rates are set by a free market under a gold standard. This is a non-trivial question, and the answer is profoundly important as we debate what sort of role gold ought to play and evaluate the various gold standards being proposed.

Is Gold In A Bubble, Part II

by Detlev Schlichter, Whiskey and Gunpowder:

Gold in the 1970s
We start in 1970 when the gold price was massively undervalued. The golden shackles had come off in the US domestically 37 years earlier when relentless paper money printing had commenced, albeit at first at a somewhat moderate pace.
However, in blatant disregard for economic reality, the official gold price was kept at $35 an ounce, which by 1970 had become a joke. Remember that the US state banned its own citizens from investing in physical gold (the currency that the country’s own constitution had decreed!), and that restrictions on private ownership of gold or on exporting and importing gold remained in place in many countries.
Still, many foreigners could exchange dollars for gold, not least the central banks, and they did, which began to put further upward pressure on the gold price. In the 1960s, Western governments formed the gold pool – first secretly, then openly – to manipulate the gold market and to keep a lid on gold.
Read More @ WhiskeyAndGunpowder.com

Gold Flag Flies At Half Mast

by Stewart Thomson, 321Gold.com:
In technical analysis, no price pattern implies a more violent move to the upside than a flag pattern.
There’s a flag pattern in play on this gold chart, and it implies that a 2nd near-vertical jump could occur very quickly.
Today, G7 politicians and central bankers are holding a key telephone conference call amongst themselves to battle the crisis in Europe. Public statements made after that phone call is completed could be the catalyst that activates this pattern.
Gold stocks look even more powerful than gold. Please click here now. You are looking at a weekly chart of gold versus GDX (gold stocks). Against the dollar, gold looks powerful. Against gold stocks, gold looks terrible.
Read More @ 321Gold.com

The DERIVATIVES PONZI BUBBLE TIME BOMB – Chris Duane

from Unconventional Finance:

In The News Today

June 6, 2012, at 11:11 am
by Jim Sinclair

Russian central bank won’t answer gold questions Submitted by cpowell on Wed, 2012-06-06 15:44. Section: Daily Dispatches
8:43a PT Wednesday, June 6, 2012
Dear Friend of GATA and Gold:
If you doubt that national gold reserves, far from being quaint antiques, are assets even more strategic than nuclear weapons, and if you doubt that the gold market, far from being just another commodity market like soybeans, is actually the primary battlefield of a world war, the currency war, consider the questions recently put to the Bank of Russia by our friend the German freelance journalist Lars Schall, and the Bank of Russia’s refusal to answer this week.
Schall’s questions well might be put to any central bank and probably would evoke the same refusals to answer. On any planet with actual financial journalism, a news story might be found in this secrecy and certain conclusions drawn from it. Instead when it comes to gold the financial news media settle for comment from supposed market analysts, taking for granted that the market’s biggest actors are not to be pressed for answers and not even mentioned if mentioning them can be avoided.
All this constitutes another proof of a heavily manipulated market, even as such manipulation is denied by market analysts whose next question to central banks will be their first.
Schall’s report is headlined "Central Bank of Russia Refuses to Comment on Gold Questions" and it’s posted at his Internet site here:
http://www.larsschall.com/2012/06/06/central-bank-of-russia-refuses-to-c…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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Jim Sinclair’s Commentary

MOPE and myth hyped by MSM is a lie.

Jim Sinclair’s Commentary

To our heartfelt bankers and politicians it does seem the effort to control medicare is by eliminating the clients anyway possible.

Why cure geezers when they are going to die soon anyway?

Fewer Medicare Patients Being ‘Admitted’ to Hospitals: Study
TUESDAY, June 5 (HealthDay News) — Federal government pressure has led to an increasing number of Medicare patients being held for observation instead of being admitted to hospitals, a new study suggests.
Although this push to get hospitals to be careful about admitting seniors as inpatients may reduce costs to Medicare, it can lead to higher out-of-pocket costs for the patients, according to the researchers from Brown University in Providence, R.I.
"The dual trends of increasing hospital observation services and declining inpatient admissions suggest that hospitals and physicians may be substituting observation services for inpatient admissions — perhaps to avoid unfavorable Medicare audits targeting hospital admissions," the study’s first author, Zhanlian Feng, assistant professor of health services, policy and practice at Brown, said in a university news release.
The researchers analyzed the records of 29 million Medicare beneficiaries aged 65 and older in 2007, 2008 and 2009, and found that the proportion of those being held for observation increased 34 percent over those three years.
Observation stays rose from less than 815,000 (2.3 per 1,000 beneficiaries) in 2007 to more than 1 million (2.9 per 1,000 beneficiaries) in 2009. Inpatient admissions fell from 23.9 per 1,000 in 2007 to 22.5 per 1,000 in 2009, the investigators noted.
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Jim Sinclair’s Commentary

The end is not near, it is here and now.

The Buzz Is Growing That World Leaders Will Fire Off A Globally Coordinated Bazooka Simone Foxman | Jun. 5, 2012, 11:59 AM
As we noted last week, analysts have been tittering over a new potential policy response to risks associated with a global slowdown—most particularly the crisis in Europe.
World leaders are worried, as evidenced by the conference call between G7 finance ministers and central bankers this morning. And with fears about bank runs in Spain escalating, some analysts expect some kind of coordinated central bank action similar to that which we saw announced last November to lower dollar swap rates between banking systems.
That program lowered the rate at which the Federal Reserve loans dollars out in exchange for foreign currency and gets them back at the same exchange rate plus interest. Central banks currently pay 50 basis points above the rate at which U.S. banks can hedge against currency risk, but lowering this premium could help struggling banks to meet dollar funding demands.
"I think [coordinated action] is a lock, so I would expect they will announce it at the next opportunity," Andrew Hofer, Head of Fixed Income at Brown Brothers Harriman told Business Insider Monday.
And it’s likely that an expansion of the dollar swap program—and not quantitative easing—would have a much more important effect on the global economy.
"We can deal with unemployment, but at this point we can’t have banks collapsing in Europe as Lehman Brothers did in 2008," said Larry McDonald, author of A Colossal Failure of Common Sense—The Inside Story of the Collapse At Lehman Brothers and Senior Director of Credit Sales and Trading at Newedge, in a phone interview.
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Jim Sinclair’s Commentary

The end is not near, it is here.

Collapse At Hand June 5, 2012
Ever since the beginning of the financial crisis and quantitative easing, the question has been before us: How can the Federal Reserve maintain zero interest rates for banks and negative real interest rates for savers and bond holders when the US government is adding $1.5 trillion to the national debt every year via its budget deficits? Not long ago the Fed announced that it was going to continue this policy for another 2 or 3 years. Indeed, the Fed is locked into the policy. Without the artificially low interest rates, the debt service on the national debt would be so large that it would raise questions about the US Treasury’s credit rating and the viability of the dollar, and the trillions of dollars in Interest Rate Swaps and other derivatives would come unglued.
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