The Long Anticipated Rock And Hard Place Is Here And Now

May 28, 2011, at 1:35 pm
by Jim Sinclair

Dear CIGAs,
Long speculated upon in our community, the rock and the hard place has finally become a reality. An economy not accelerating at an accelerating rate is declining at an accelerating rate. The mirage of a recovery is getting harder and harder to MOPE about. It simply is not there. We are entering a declining phase that will not end in any kind of a soft landing.
Stimulation monetarily, QE, and fiscal are like controlled substances in that the real high is on the first injection. After that, each additional stimulation of an economy must be multiples of the first stimulation in ever increasing size just in order to hold the line. QE3 is guaranteed unless the powers that be want to see a depression that will make the Great Depression look like kindergarten in the pain department.
This week we saw a European Bank forced to sell their US mortgage derivatives and the loss was a shocker. These pieces of crap are not worth the digital bits they are written on. Smart money has not let this event pass their view, and know now how broke the US financial system really is. This event broke the camouflage of FASB’s selling their souls out to politics by allowing the banks to value their mortgage derivatives at any price the bank wanted on the bank’s cartoon balance sheets. The western balance sheets of their financial institutions are raging misstatements. The system is broke. This is why there is no recovery of merit but rather a statistical aberration, which was until recently only holding the line.
Here we are at that place we have anticipated for the past 45 years knowing that all the games being played had to play out at that point where super stimulation had no effect and it became totally appreciated that even many trillions of printed money will only impact the currency and not business.
The rock and the hard place is a time when the Western World is simply screwed.
The risk of not stimulating is stagflation at a spiritual level. The risk of stimulating is stagflation at a spiritual level. The risk of doing nothing is both an economic and currency collapse of biblical proportions.
This is what the three illustrations of the skier teach. Should the Fed lose control of this, which is predictable, then currency induced cost push inflation would take gold to Martin Armstrong’s $12,500.

The odds are 70/30 right now that hyperinflation occurs. That takes gold over $1650. If the odds shift then gold starts a run to balance the International Balance Sheet of the USA and will secure Martin Armstrong’s target of $12,500.

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Guest Post: Bankrupt Nations Try To Stop The Future From Happening, Fail 

Debt is slavery… or at least indentured servitude of the worst kind. That looming mortgage, the high interest credit card debt, the short-term car loan– these are the forces that keep people from breaking free and taking action. Ironically, debt begets more debt. According to FinAid, the average US student loan debt for a four-year private university graduate is nearly $36,000, and $24,000 for public. Throw in that first car loan and maybe a mortgage, and suddenly you’re staring at hundreds of thousands of dollars in demoralizing claims on your future income. At this point, most people figure… ‘hey, I’m already in debt up to my nose, might as well get in up to my eyeballs and buy a new plasma screen on credit.’ Debt is an enormous psychological burden that influences life’s major decisions. It’s why so many people stay committed to jobs that are unfulfilling in cities they detest under conditions they find disheartening. Nobody wants to rock the boat too much… take too many risks and you could lose your job, and hence the ability to make those monthly payments. This familiar story has been playing out across the developed world for years. This is not an ill, however, that exclusively affects individuals and families. Even at the macro level, debt has the power to subjugate entire nations to the whims of their creditors. Enter the IMF. 

 

 

 

 

 

Spiegel Greek Hit Piece #2: Bailout Troika Finds "Greece Missed All Fiscal Targets" - Next Steps: Game Over? 

Submitted by Tyler Durden on 05/28/2011 14:04 -0400

Germany's Der Spiegel seems hell bent on getting sued to hell and back by Greece. After a few weeks ago it "broke" the news of a secret meeting that would consider the expulsion of the country from the Eurozone, it is once again stirring passions with an article claiming that Greece has missed all fiscal targets agreed under its bailout plan, according to a mission from an international inspection team, putting further funding for Athens at risk, Reuters summarizes. "The troika (aka the International Monetary Fund, the European Commission and the European Central Bank) asserts in its report to be presented next week that Greece had missed all its agreed fiscal targets," weekly Spiegel magazine reported in a prerelease. In other words, this could be the political game over for Greece, whose fate as has been disclosed recently, is intimately tied with the perception that it is following the troika's demands for fiscal change. If the three key bailout institutions are already leaking that Greece is done, next week could well be the beginning of the end for the €. In about 48 hours, even as America is enjoying a Monday off (or precisely because to that, to avoid a market panic), the European market could be digesting a very bitter pill of testing just how well pre-provisioned all those German, French and Dutch banks really are.

Mike Krieger Interviewed 

Submitted by Tyler Durden on 05/28/2011 13:31 -0400

You read his weekly articles on Zero Hedge, now here if your chance to listen to Mike Krieger interviewed by Future Money Trends. Among the now topical issues discussed are the debt ceiling, QE3, geopolitical instability, US and global economies, $100 silver (as well as the recenty take down of the metal), market manipulation and much more, as well s Krieger's several proposed scenarios for the future. 

 

 

 

 

 

 

 

More Political Capture: Goldman Hires Top Republican Fed Transparency Foe; Spends More Time With SEC Than Any Other Bank 

Submitted by Tyler Durden on 05/28/2011 12:55 -0400

The name Judd Gregg is not new to Zero Hedge readers. Back in the 2009-2010 battle for Fed transparency, which continues to be only fractionally on the way to being won, Gregg, who then served as the top Republican on the Budget Committee and a member of the Banking Committee, said that "opponents of Federal Reserve Chairman Ben Bernanke's second term are guilty of "pandering populism"." Odd that these populism panderers, of which Zero Hedge was a proud member, ultimately succeeded in not only getting a one time Fed audit, but also won the legal case initiated by Mark Pittman to expose the Fed's dirty laundry, without which we would not know that not only did the Fed bail out primarily foreign investment banks during the financial crisis, but also that the biggest user of the Fed's somewhat secret Short Term Open Market Operations facility, also known as a 0.01% subsidy, was none other than Goldman Sachs, contrary to the firm's sworn statements that it did not really need bailing out. Gregg continued: "There's a lot of populism going on in this country right now, and I'm tired of it." Gregg warned that the growing tide of populism would threaten some of the most central institutions to the economy's recovery. "What it's going to do is burn down some of the institutions which are critical to us as a nation and as an economy to recover and create jobs," he warned." It was therefore only a matter of time that Gregg, following the end of his political career, has decided to step down, and work for one of these "central institutions to the economy's recovery" - Goldman Sachs. As such we present the list of companies that courtesy of their "top contributor" status with the senator over the years, are about to get preferential treatment from Goldman's sell side analysts, and see a prompt upgrade to Buy and/or Conviction Buy list in the near term. After all there is no such thing as squid-pro-zero in a world controlled by Wall Street's institutions "central to the economy's recovery."

Add The Middle East To China And India As Another Source Of Surging Gold Demand, Says Jim O'Neill 

Submitted by Tyler Durden on 05/28/2011 12:22 -0400

The latest observations the spread of gold's popularity comes from none other than BRIC expert, Goldman's Jim O'Neill, who advises clients in his latest letter that it may be prudent that in addition to China and India as a source of ever increasing demand for gold, it may be time to also add the Middle East to the ever increasing list of investors (typically quite wealthy) who believe in the yellow metal. "Not because of this particular anecdote, but the Middle East being what it is, my meetings involved more discussion about Gold prices than is usually the case in other parts of the world. While the gold bar machine anecdote adds to all the other colourful stories I pick up, the recent remarkable resilience of gold, despite what has happened to silver and other commodities, is rather impressive. This gold price strength may perhaps be just a simple function of both the extremely low level of G7 real interest rates and the prospect that they might not rise anytime soon. I got the impression that there a quite a few bulls of Gold in the Middle East."

Fireworks!!!

Harvey Organ, Saturday, May 28, 2011

Fireworks!!!

 

Guest Post: How “Social Proof” Helps Smart Investors 

Submitted by Tyler Durden on 05/28/2011 11:51 -0400

The mechanics of social proof, while somewhat complex, are pretty easy to understand. Simplistically, we humans have a strong tendency to glance over at other members of the herd in an attempt to gauge the correct action or reaction to take in any given circumstance. While this tendency can be useful in identifying the right bread plate to use at a fancy dinner party, it can also have devastating consequences. In one of the most notorious examples of the downside of social proof, in 1964 Kitty Genovese was slowly murdered on a New York sidewalk over the course of about 30 minutes, despite 40 or so witnesses, none of whom took action. They figured someone else would. In any event, understanding the concept of social proof – and its close cousin “social convention” – seems to me to be of fundamental importance to us as members of the human race, and as investors. As far as the former is concerned, if you ever find yourself doing the same thing as everyone else, it should concern you. Stop and ask whether you are doing the thing because you want to or because you think it is the right thing to do – or are you doing it just because it’s what everyone else does? As for the latter, if you rely on the cues coming from the mainstream financial media and officialdom, you would likely believe the country has exited the latest economic crisis and will now steadily make progress towards a return to normalcy. The seeming disconnect between the true state of the world’s economy and the public reaction is actually not a particularly bad thing for those who have their eyes open. After all, anyone who can see what’s coming, while the masses do not, has the opportunity to get positioned in investments that will do well when the truth of the situation becomes evident to all. But there are matters much more important in this life than money-making. 

 

 

 

 

 

Things That Make You Go Hmmm - Such As Mass "Dumbing Down" Courtesy Of 24 Non-Stop "News" (And The Emergence Of Captain Obvious) 

Submitted by Tyler Durden on 05/28/2011 11:25 -040

Two days ago, we presented Dylan Grice's latest thoughts on the substantial futility of trading the news cycle. Yet as Grice readily pointed out, and as even Taleb would glumly admit, what humans lose in the noise factor by avoiding the constant blasting of news, they make up for in entertainment value. And therein lies the rub: more than anything, people (or at least the vast majority)want to be entertained, ostensibly even more than the desire to make money on actionable, and properly filtered, ideas. The human brain has gotten accustomed to an information barrage of 140 letter updates, often times on a second by second basis, which in turn has crippled the ability to filter out the important from the irrelevant. Grant Williams of "Things that make you go hmmm" takes the idea one step further, and makes the claim that ever since the emergence of the 24 Hour newscycle, from its inception by CNN (also known as the CNN Effect), and currently peaking with each and every major news network having its own business new channel, accompanied by dramatic "breaking news" music, the net effect has been the substantial stupefaction of the broader global population: "Somewhere between the early 1990s and today, however, the 24-hour news cycle has, in your humble scribe’s opinion at least, become largely responsible for the ‘dumbing-down’ of the masses." Elsewhere this is also known as the "keep your eyes off the ball" effect, so well manipulated by those in control to mask what is really important with the repeated blasting of that which is truly irrelevant. Yet in another example of self-referential, deprecating and allegoric prose fit for TS Eliot (who pushed the premise of contextual and voluntary hyperlinking 70 years before the invention of the Internet), Williams makes his piece "entertaining" by presenting that number one construct of modern media: Captain Obvious. "In the investment world, this tear in the headspace/time continuum has meant that investors are unable to focus on all the issues brought to their attention and consequently they tend to suffer bouts of panic or euphoria over a certain subject before being distracted by the next piece of  news and moving on (remember Fukushima? It’s still not completely under control in case you were wondering). This strange situation in turn led to the spectacular resurgence in recent years of a Superhero – a man who, for years, has been omniscient in playgrounds the world over but has now become a fixture in more adult environs. Ladies and gentlemen, I give you Captain Obvious." In case it is not obvious where this is headed, read on...

Goldman Explains Why It Lowered Its S&P Forecast From 1,500 To 1,450 

Submitted by Tyler Durden on 05/28/2011 10:47 -0400

It only took Goldman less than 5 months to roundtrip on its latest S&P 500 forecast (from January 7, "We are raising both our 2011 and 2012 S&P 500 earnings estimates by $2 per share to $96 and $106...we are raising our year-end 2011 price-target to 1500") - much better than the 3 weeks it took the firm to flip flop on oil. Just out from Goldman's David Kostin, who has finally started his retreat, which we believe will end at 1,250 before QE3 is formally announced: "We have reduced our S&P 500 2012 EPS estimate to $104 from $106 and lowered our 2011 year-end price target to 1450 from 1500. We now expect S&P margins to peak in 2011 and decline slightly in 2012. Those changes reflect forecast revisions for lower global GDP growth, higher oil prices and more inflation. At the sector level we recommend overweight positions in Energy and Consumer Staples and underweight in Consumer Discretionary and Utilities. We expect stocks with strong revenue growth to outperform those relying on margin expansion to grow earnings and recommend buying our High Revenue Growth basket."

 

Guest Post: America Will Not Survive Without Alternative Markets 

Submitted by Tyler Durden on 05/27/2011 18:05 -0400

Commerce is the lifeblood of a nation. Without the free flow of trade, without financial adaptability, without intuitive markets driven by the natural currents of supply, demand, and innovation, cultures stagnate, countries whither, and one generation after the next finds itself deeper in the somber doldrums of economic disintegration. In an environment of transparency, honesty, and the absence of monopoly (government or corporate), on the rare occasions in history that these conditions are actually present in one place at one time, we often see an explosion of prosperity and true wealth creation. When local, decentralized markets are given precedence over subversive elitist leviathans like mercantilism or globalism, a wellspring of abundance bursts forward. Free people, building true free markets that serve the specific needs of individual communities and insulating the overall economy from systemic collapse; this has always been the wave of the future. Not “integration”, “harmonization”, or some fantastical nonsensical “global village” administrated by a faceless unaccountable transnational entity like the IMF, infested with sociopathic maid raping euro-trolls. Unfortunately, average Americans today have grown far too accustomed to having their commerce, and thus their livelihoods, micromanaged for them. The bottom line is, if the daily fiscal life of the average American were to deviate from today’s norm even slightly, the results would be devastating. There is no flexibility in our current system. All is rigid and fragile. There is no backup plan.

Tim Geithner Refuses To Brand China Currency Manipulator (Again), Says Yuan Rate Impairs China Inflation Curbing Ability 

Submitted by Tyler Durden on 05/27/2011 17:50 -0400

In a glowering example of humanist magnanimity, the tax expert, who also on occasion pens missives describing in detail the destruction that would ensue should dealers be hindered from perpetuating the US Treasury ponzy, known as Tim Geithner, just advised China that its low exchange rate impairs China's ability to curb inflation. This, coming from the man under whose watch the dollar has gotten pounded eight ways to Sunday. The announcement came as part of the semi-annual report issued to congress, which was due originally back in April, yet which as everyone knew was delayed for no other reason that more theatrics. And just to confirm how utterly toothless US game theory bluffs have become, Geithner, contrary to much bristling rhetoric to the contrary, decided not to name China a currency manipulator, a move that is sure to require the CME to promptly issued five margin hikes of Chuck Schumer's blood pressure. But lest someone accuse Tiny Tim of being not only a tax fraud, and a liar, but also a coward, he did add that the Yuan is "substantially undervalued." And so the USDCNY revaluation debate has been pushed back for at least one more year. And to those who experience a feeling of deja vu upon reading this, worry not: Geithner had exactly the same conclusion 3 months ago. Bottom line: China 2; US 0.

Hourly Action In Gold From Trader Dan

May 27, 2011, at 11:05 am
by Dan Norcini

Dear Friends;
Please note several aspects about the gold chart.
First of all, from a trend following perspective, it is trading above all the major moving averages once again. That tells us that the chart is bullish. Secondly, the 10 day moving average (blue line), which had been moving down until last Friday, has now turned up and is trending higher. It is also getting ready to make a bullish upside crossover of the 20 day moving average (red line). That will be bullish as well.
Also note that the market held above the 40 day moving average (dotted line) even on its setback in price, failing to close BELOW that level once. That means that the trend following funds were still active and were buying the dip or retracement in price.
The MACD, a good trend following indicator, is bullish.
Based on what I can see here, gold looks as if it wants to make a try at $1550, one of those even numbered levels that takes on a technical significance as price approaches it. It is important to note that this is occurring late in May, a time frame during which gold tends to show seasonal weakness. This seasonal weakness however can be attributed to factors, which while important, are not what are driving gold at this time. The festival seasons from Asia and India are over and the strong jewelry related demand is therefore missing. However, gold is not deriving the bulk of its strength from that source but rather from currency related matters.
By currency related matters I mean investor concerns over the stability of paper currencies due to the tremendous amount of debt being run up by so many nations. European sovereign debt woes remain a strong source of gold related buying, especially from investors on the Continent. This is reflected in the very strong gold price in terms of the Euro and of the British Pound. As you know, Euro priced gold set a new record high this week.
Here in the US, our total federal debt level is at 100% of GDP. We are looking at entitlement programs which will be bankrupt within less than a decade on the current trajectory. Many states are in precarious financial condition which large numbers of municipalities and counties facing their own set of problems. Much of this is tied to the collapse in real estate values and thus affects valuations which are a source of property tax revenues. News on the housing market continues to reflect a sector that is mired in a supply glut at a time when demand is feeble. That is not a recipe for improving valuations anytime in the immediate future.
Ever since Fed governor Bullard let the cat out of the bag and basically told the market that the Fed would not be withdrawing accommodative monetary policy until at least July 2012, the Dollar has been moving steadily lower. That keeps REAL INTEREST rate yields negative and has strengthened the conviction in many traders’ minds that such an environment is going to be the norm for at least another year. Gold LOVES those kinds of conditions and thus has moved steadily higher ever since Bullard’s comments.
While it may dip in price moving forward, as long as this negative real interest rate environment is present, it is going to attract strong buying on such occasions, particularly if Euro-priced and British Pound-priced gold continue their impressive chart action.
Also, an additional kicker for gold is that the CCI, the Continuous Commodity Index, is now trading above 650 as it puts a bit of distance between itself and that critical technical chart level of 640. The commodity markets are signaling that prices had fallen far enough and that this fall had been sufficient to scare the Fed out of any further hawkish talk. I would be surprised to see much in the way of comments coming out from the usual hawks on the FOMC. As long as these economic data numbers that we keep getting are coming out on the low side of expectations and disappointing investors, the doves at the FOMC are going to be getting the airtime.
Click chart to enlarge in PDF format with commentary from Trader Dan Norcini
For further market analysis and commentary, please see Trader Dan’s website at www.traderdan.net


 

The Economic Death Spiral Has Been Triggered 

For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended. It is now in the process of reversing and becoming a vicious downward economic spiral. One of the strategies is the Asian Mercantile Strategy. The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end. One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world. The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world... So what could possible stop this ideal symbiotic relationship from continuing to feed on itself? A number of factors, all of which are now coming together to end this Virtuous Cycle.

Revaluation vs. Remonetization of Gold

posted by Eric De Groot at Eric De Groot - 2 hours ago

John, Which came first the chicken or the egg? Evolution suggests the chicken, but that's another discussion. The re-monetization of gold will occur at higher price, so technically, it’s still nothing more...

 

 

 

 

The Chinese Domino Has Fallen... Or Has It? And Why No Power, May Really Mean No (Inflationary) Problem 

Submitted by Tyler Durden on 05/27/2011 15:32 -0400

Earlier today SocGen came out with a report that is a must read for everyone who has an even passing fancy in global monetary policy, as the currently rampant inflation in China, and the approaches ushered to deal with it, threatens to derail the global "recovery" (although not sure in what: printing of credit money - yes; economy - no) which according to Morgan Stanley is "too young to fail." To be sure, SocGen discusses the first of three dominoes that will or already have, fallen, as part of the increasingly popular domino theory of Chinese inflation. SocGen explains: "Quite simply, the domino theory of 2011 is that when China comes under the influence of inflation, the surrounding countries, those with the most immediate trade ties, would also fall to inflation. It will only be a matter of time till those economies with the greatest trade ties; indeed the entire world has succumbed to the great inflation cascade emanating from China." And the first domino, which SocGen claims to already  have fallen is the following: "The first domino is China creating  autonomous structural inflation: China’s domestic inflation accelerated at an unprecedented pace at the end of 2010 and policy makers remain well behind the curve. As China engineers its economy to a more domestically focused one, its demand curve is shifting outwards and the global supply curve has been inelastic in response. That domino has already fallen and is the focus of this paper." And while we respect SocGen's opinion on China, most recently referenced to debunk a BCG report on imminent US-Chinese worker wage parity, in this case we wonder if SocGen has simply gotten on the boat of conventional wisdom a little too fast. What we mean is that "structural" inflation may not be all that "structural"especially if one considers a flip to a traditional Stalin saying: "no man - no problem".... in this case "no electricity - no inflation." Bernstein's Michael Parker explains...

Long Euro Speculator Exodus Continues As Dollar Short Covering Pushes USD To First Net Positive Level Since January 

Submitted by Tyler Durden on 05/27/2011 16:42 -0400

The most recent CFTC data is out and the results are in: momentum chasing FX speculators continue to retrench to exit positions, as the Euro long orgy, which as recently as May 3 hit a multi year record at 99.5k net long non-commercial contracts. Fast forward 4 weeks, and the recent plunge in the EURUSD has brought the exposure to just 19.1K contracts, the lowest since January 18, and a level prevalent in October and November of 2010. The 4 week drop is the biggest one month drop, as the momentum to the downside accelerates. Although it may still have a ways to go: the recent "support" is around -50k contracts. At this rate it will be hit in about 3 weeks. In the other camp we have the USD which saw short covering bring it to net non-spec exposure climb from -1,270 to 2,485, the first net positive exposure since January 2011. That said, with the EURUSD on the verge of breaching of 1.43, it seems that the great unwind is now over. A complete historical chart of non-commercial specs, and several other products, can be seen below. 

 

 

 

 

Step Aside "Too Big To Fail" - Morgan Stanley Comes Up With The New Catchphrase; Calls Recovery "Too Young To Die" 

Submitted by Tyler Durden on 05/27/2011 13:16 -0400

Asked about the fate of the economic "recovery", which incidentally is nothing more than a $2 trillion dollar dilution-funded blip on the depressionary downtrend commenced in December 2007, Greg Peters, the head of fixed income research, at Morgan Stanley, the firm whose other fixed income strategist Jim Caron will now have been proven wrong three years in a row following his annual broadly bullish call for a jump in rates (not based on bearish considerations such as those postulated by Bill Gross... bullish), tells Tom Keene that the recovery is "Too Young To Die." Yep. That's the justification. Alas there was no mention that the 98 year old ponzi scheme perpetrated by the Fed since 1913 is now "Too Obvious To All." And when that fails, many of the same people who get paid huge sums of recycled taxpayer money to come up with catchy four word slogans while spouting flawed economic projections will suddenly find themselves "Too Pitchforked To Fly Away (To Non Extradition Countries)"

Guest Post: Past Peak Oil - Why Time Is Now Short 

Submitted by Tyler Durden on 05/27/2011 12:59 -0400

The only thing that could prevent another oil shock from happening before the end of 2012 would be another major economic contraction. The emerging oil data continues to tell a tale of ever-tightening supplies that will soon be exceeded by rising global demand. This time, we will not be able to blame speculators for the steep prices we experience; instead, we will have nothing to blame but geology... With Brent crude oil having lofted over $100/bbl at the beginning of February and remained above that big, round number for four months now, we are already in the middle of a price shock. It may not be a perfect repeat of the circumstances of the 2008 oil shock, but it's close enough that the risk of an economic contraction, at least for the weaker economies, is not unthinkable here. Japan, now in recession and 100% dependent on oil imports, comes to mind. Looking at the new data and reading even minimally between the lines of recent International Energy Agency (IEA) statements, I am now ready to move my ‘Peak Oil is a statistically unavoidable fact’ event to sometime in 2012, which tightens my prediction from the prior range of 2012-2013. Upon this recognition, the next shock will drive oil to new heights that are currently unimaginable for most. First, $200/bbl will be breached, then $300, and then more. 

 

 

 

 

Jamon y Baton: Extended Photogallery From A Violent Barcelona 

Submitted by Tyler Durden on 05/27/2011 12:40 -0400

Looking at these pictures from Barcelona one would think this is Tunisia, Cairo, or at best, Athens. Instead, it is from the once incomparably wealthy capital of Catalunia (although they did have Olympics there: an event guaranteed to result in at least one municipal bankruptcy at some point in the future), and before the Barcelona-Man United game. One can only imagine what happens if Barcelona wins (or is that loses). 

 

 

 

 

 

Mike Krieger On Risk Redefined 

Submitted by Tyler Durden on 05/27/2011 11:41 -0400

I remember the first time I saw someone us the terms “risk on” and “risk off” as a way to describe the flow of capital into and out of certain baskets of assets that are supposedly “risky” or “safe.” The terms got under my skin back then and they continue to do so until this day. Wall Street and the media just love coming up with trite and untruthful statements as a way to condition investor behavior and ultimately separate you from your money. First of all, the world and the successful deployment of capital is much more complicated over any serious investment horizon than the simplification of everything into “risk on” and “risk off.” This way of thinking is even more dangerous when conventional wisdom allocates to the “risky” category many items that are in reality the true safe havens and to the “safe” category those that are guaranteed to destroy your financial well being... As long as the central planners have some degree of control of the markets, which they still do at the moment, if you are playing the game and managing money in this world of investment horizons of weeks if not days you have no choice but to trade the market you are given. Nevertheless, as I have said countless times before, in the final equation there will be no other asset that will lose investors more money that U.S. government bonds and nothing that will protect wealth more than gold. Moreover, when the central planners do lose control of the markets (and they most certainly will) the fact that they have spent so much time manipulating them as well as pushing investors into the worst types of capital allocation decisions they could make, guarantees the total wreckage of the life’s savings of most of this nation. 

 

 

 

 

 

 

Gold's Equilibrium Price Is Rising

posted by Eric De Groot at Eric De Groot - 1 hour ago

Gold's equilibrium price is rising. The movement of capital suggests that 'smart money' knows why. Gold equilibrium without Mainland China Adjustment is $16,679 Federal Debt Held by Foreign & International...

 

 

 

 

Greek Opposition Leader Samaras Says Will Not Agree To Austerity Measures 

Submitted by Tyler Durden on 05/27/2011 11:17 -0400

My big fat Greek.. oh whatever.

• GREECE'S SAMARAS SAYS EU BAILOUT MUST BE RENEGOTIATED
• GREECE'S SAMARAS SAYS GOVERNMENT PLAN IS WRONG
• GREECE'S SAMARAS SAYS WON'T ACCEPT BEING BLACKMAILED
• GREECE'S SAMARAS SAYS NEED TAX RATE REDUCTION FOR GROWTH

Next up: Linda Green signs the Greek agreement to hand over all its assets to the world banker cartel.

Video From The Second "Egyptian Revolution" 

Submitted by Tyler Durden on 05/27/2011 10:50 -0400

A week ago we disclosed that the second Egyptian revolution (because the first one apparently was a dud) was scheduled for May 27. As expected, this is precisely what has happened: "Thousands of Egyptians packed Cairo's Tahrir Square on Friday in what organisers called a "second revolution" to push for faster reforms and a speedy trial for ousted President Hosni Mubarak and his former aides. Activists complain of delays in putting Mubarak, his family and members of his ousted regime on trial and that the army has not restored order quickly enough to the country of 80 million. Egyptians are also demanding an end to endemic graft, one of the main grievances that drove thousands of protesters onto the streets in the uprising that began on Jan. 25. "After some 1,000 martyrs ... people do not see any change," said Mustafa Ali Menshawi, a 38-year-old accountant, who was helping marshal crowds flooding into the square." Granted there has been some change: "The only change we see is that the Mubarak metro station has been changed to the Martyrs station," he said." This is happening even as deposed president Hosni Mubarak could face the death penalty as he prepares to face charges of "pre-meditated killing" of protesters during the uprising that ousted him on Feb. 11. Yet the revolution was not a failure for all: in continuation of the tried and true "economic hitman" practice, whereby MNCs land in a country and generously provide it credit, merely to extract its resources, take control of its infrastructure, and subjugate people with unmanageable credit card interest payments, the IMF just announced it will lend $35 billion to Arab countries to "stabilize their economies." Oddly there was no reference to "humanitarian" intervention or doing god's work. 

Greek Political Leaders Meet, Fail To Reach Consensus On Debt Crisis 

Submitted by Tyler Durden on 05/27/2011 09:24 -0400

Reuters reports that following the anticipated meeting of Greek political leaders, absolutely nothing has been achieved, and, dramatic pause, no consensus was reached on the debt crisis. Expect more protests, more violence, more boosts to GDP expectations following Keynesian logic that the greater the destruction the higher the bounce, etc. 

 

 

 

 

Spanish Police Brutality Multiple Choice Time 

Submitted by Tyler Durden on 05/27/2011 09:16 -0400

When is the best time to attack a woman if you are a Spanish policeman?

a) When she is non-threatening

b) When she is defenseless

c) When you are caught on tape

d) Anytime really

e) All of the above

This Spanish upholder of the law has just passed with flying colors: fast forward to 30 seconds in.

Savings Rate Remains At Lowest Since 2008 As Impact From "Squatters' Rent" Increasingly Negligible 

Submitted by Tyler Durden on 05/27/2011 08:53 -0400

Today's Personal Income and Outlays data confirmed that the plight of the US consumer is deteriorating: while Personal Income increased at a 0.4% M/M rate, in line with expectations and flat adjusted for inflation (under 0.1%), Spending missed consensus of 0.5%, instead rising at 0.4%, the same number as predicted by Goldman previously. What is notable is that the "rental income" which as was discussed previously is not remotely based on "rents" but to a big part comes from "squatters rent" or pseudo income as a result of not paying one's mortgage continues to have an increasingly mitigating impact, rising just $3.1 billion in April, following $8.4 billion in March. As expected, the economic "benefits" arising from those who don't pay their mortgage are starting to have an increasingly lesser impact. This is very bad news for the economy, as sooner or later those living rent and mortgage free (even in New York where the average foreclosure process takes 900 days, meaning  2.5 year of mortgage free living) will have to start paying for the roof over their head, which will have a massive impact on disposable income, and will result in a wipeout of one of the best performing sectors to date: consumer discretionary. Lastly, as expected, courtesy of a ramp in Spending in recent months, not offset by Income, the savings rate, which was at 4.9% in April, the same as March, is at the lowest level since October 2010. In other words, even as consumers continue to deleverage as presented in the latest Flow Of Funds report, they are still eating away at whatever savings they have.

The Pain In Spain Comes Mainly In The Form Of A Police Baton 

Submitted by Tyler Durden on 05/27/2011 08:31 -0400

A few weeks ago some rather disturbing scenes of police brutality were caught on tape following that particular day's austerity protest (now a daily occurrence). It now appears that Spain police has learned a thing or two from Greek Policemen especially when it comes to dispersing protesters. Expect these videos showing a violent smackdown of protesters on Barcelona's main Plaça Catalunya, to go viral shortly.

Continuing Equity Outflows Confirm Declining Risk Appetite 

Submitted by Tyler Durden on 05/27/2011 08:20 -0400

After peaking in Q1, retail investment in equity instruments courtesy of ongoing disenchanment with performance continues and as Lipper reports, "for the third week in a row equity fund investors were net redeemers from their accounts, taking out approximately $5.6 billion for the week ended May 25, 2011. The three-week total now stands at -$12.7 billion, the worst figure for this group since August 2010." This follows the latest ICI weekly report which saw a 4th consecutive outflow from domestic equity mutual funds. Which llikely means that as margin account cash continues to drop, margin debt has to offset it. As we disclosed recently, April margin debt grew to a fresh multi year high. Expect this number to grow even more in May, then June, and so forth until the levered beta chase ends in tears. More observations on what Goldman dubs "declining risk apetite" below.

 

Must Read Article...From The Golden Jackass...

Green Shoots, Exit Strategy, No QE3	Jim Willie CB

China Gold Imports to Surge: Report



China Drought Ignites New Concerns on Food Prices

Second Biggest Weekly Drop Ever In Treasurys Held In The Fed's Custodial Account As Foreigners Dump 

Submitted by Tyler Durden on 05/26/2011 20:55 -0400

There was one truly interesting observation in this week's Fed balance sheet update: not that the actual balance sheet hit a new all time record (which it did at $2.779 trillion), or that the Fed added another $24 billion in Treasurys to its balance sheet, or that total reserves hit a new all time record, increasing by $53 billion to $1.59 trillion. No. The biggest surprise was that in the just ended week, Treasury securities held in custodial accounts at the Fed, considered by some the best real-time representation of foreign holdings of US Treasurys considering that the TIC update is not only wildly inaccurate in its monthly update, but is also 3 months delayed, dropped by the largest amount in 4 years. From a total of $2.704 trillion, USTs held in custodial accounts declined by $18.7 billion to $2.685 billion. This is the second largest decline in history, only topped by the $22.1 billion in the week of August 15, 2007 which is the week that followed the great quant crash of 2007 that wiped out, among others, Goldman Alpha. This observation is in stark contrast to the recent record strength of bond issuance, after both the 5 and 7 Years auctions posted record Bid to Cover investor interest.

Marc Faber Is Shocked By How Many Ferraris And Bentleys He Sees In Newport Beach During His Smoke Break 

Submitted by Tyler Durden on 05/26/2011 19:27 -0400

Yesterday Marc Faber first made a guest appearance at the Ira Sohn conference, warning his audience to prepare for war, then promptly shifted to Bloomberg's offices where he discussed his outlook primarily on China, but also on the US, with Carol Massar, once again warning about war. As usual, he did not mince his words, warning of a "recession", and predicting that China is simply not growing fast enough in real terms. Nothing new. He did however branch out into the topic of class divergence in both emerging and developed economies: "in front of far too many luxury hotels there are far too many Ferraris, Maseratis, Bentleys... I see a boom everywhere, except for the working class, except for the lower, middle class. But among the well to do people the wealth that is floating around and the prices you pay for high end properties is incredible, and I think that will come to an end, and a lot of people will lose a lot of money... I was in La Jolla, Laguna Beach, Newport Beach, I was in front of a restaurant smoking and I've never seen so many Ferraris, Maseratis, Bentleys and fancy cars anywhere in the world, and this is in America. I am not saying this is wrong, but there is an opulence among a small group of people that is huge when there are lots of people that are struggling. This gives me a bad feeling because I've seen so many emerging economies when they were booming, that was the time to get out." As for the US economy, Faber agrees that the only thing that can help is a massive crisis (or "conflagration" as David Stockman calls it) that jars America out of its hypnotic state. And, sure enough, it will come.

Guest Post: If Greece Default Would Wreak Havoc On European Banks Then CEO’s Should Be Fired 

Submitted by Tyler Durden on 05/26/2011 18:13 -0400

Every day there is at least one headline about how catastrophic a Greek default would be. These headlines aren’t coming from the doom and gloom crowd, they are coming from senior government officials throughout Europe. There is great concern that a Greek default would hurt European banks. The potential domino effect to other countries scares these senior officials. If these fears are valid, then some senior bankers should be fired immediately because they have wasted the opportunity to reduce their exposures with reasonable losses. Banks have had ample opportunity to cut their exposure to Greece. The original bailout and the announcement of EFSF gave these banks an incredible chance to get out of their Greek debt with manageable losses...If banks didn’t massively reduce exposure when they had these windows of opportunity, and the EU is busy negotiating to save these same banks, someone needs to be fired. It is mind boggling that banks were either so afraid of taking a reasonable loss or so greedy that they thought they could do better that they kept these exposures. It had to have been clear to everyone at the banks how bad it could get, the only prudent, not even smart, just prudent, action was to cut exposures. Even if you missed the May rally which was the best opportunity to get out, how could you sit through the summer fear and not sell heavily into the October rally? Any explanation involves either stupidity, negligence, or complete faith in the government to bail you out. 

 

 

 

 

Guest Post: A Former Marine's Outlook On Inflation, Life Expectancy, And Future Returns 

Submitted by Tyler Durden on 05/26/2011 15:22 -0400

Recently, I have been thinking about a former marine I know that recently "retired" from the federal government after a couple of decades as an US postal inspector. During his entire career in government service, he carried a weapon, and spent most of his time conducting narcotics investigations. He has photos of himself beside giant mountains of cash and drugs that he had seized on raids. Several months ago, before he retired, he shared a little bit about his financial situation; specifically that he has several hundred thousand dollars in a federal retirement account invested in U.S. treasuries. He said it was essentially all that he and his wife had saved, and that he knew it was not going to be enough for him to truly retire, especially because they still have kids to put through college. Being a bit of an instigator, I asked this ex-marine/postal worker what his assumptions were regarding inflation, his life expectancy, and future returns... 

 

 

 

 

 

Ron Paul to address gold swaps and an audit of Fort Knox/ another raid on gold and silver

Harvey Organ, Thursday, May 26, 2011 

Ron Paul to address gold swaps and an audit of Fort Knox/ another raid on gold and silver

20 Questions To Ask Anyone Foolish Enough To Believe The Economic Crisis Is Over

Posted by: ilene

Post date: 05/26/2011 - 12:26

59 percent of all Americans now receive money from the federal government in one form or another... is there any hope?

 

 

 

 

 

Guest Post: If Greece Default Would Wreak Havoc On European Banks Then CEO’s Should Be Fired 

Submitted by Tyler Durden on 05/26/2011 18:13 -0400

Every day there is at least one headline about how catastrophic a Greek default would be. These headlines aren’t coming from the doom and gloom crowd, they are coming from senior government officials throughout Europe. There is great concern that a Greek default would hurt European banks. The potential domino effect to other countries scares these senior officials. If these fears are valid, then some senior bankers should be fired immediately because they have wasted the opportunity to reduce their exposures with reasonable losses. Banks have had ample opportunity to cut their exposure to Greece. The original bailout and the announcement of EFSF gave these banks an incredible chance to get out of their Greek debt with manageable losses...If banks didn’t massively reduce exposure when they had these windows of opportunity, and the EU is busy negotiating to save these same banks, someone needs to be fired. It is mind boggling that banks were either so afraid of taking a reasonable loss or so greedy that they thought they could do better that they kept these exposures. It had to have been clear to everyone at the banks how bad it could get, the only prudent, not even smart, just prudent, action was to cut exposures. Even if you missed the May rally which was the best opportunity to get out, how could you sit through the summer fear and not sell heavily into the October rally? Any explanation involves either stupidity, negligence, or complete faith in the government to bail you out. 

 

 

 

 

CME Changes Numerous Margin Requirements, Lowers Platinum, Palladium Outrights 

Submitted by Tyler Durden on 05/26/2011 17:21 -0400

Thursday market close brings another release out of the CME which has changed a plethora of outright margins, intra-commodity spreads and tiering modifications. Probably the most interesting changes to those burned by the exchange's scorched earth campaign against silver speculators, is the margin decrease in Platinum, Palladium and Hot Rolled Steel futures. Additionally, a variety of nat gas and petrochemical outright margins were increased, even as crude intra spreads were decreased across the board (no outright crude margins were affected). Neither gold nor silver margins were touched in the presentation of this latest margin adjustment.

Super Typhoon Songda Projected To Pass Over Fukushima Nuclear Power Plant 

Submitted by Tyler Durden on 05/26/2011 16:50 -0400

So far the only good news to accompany the Fukushima catastrophe has been that for all the fallout, the radiation has been mostly contained due to Northwesterly winds which have been blowing any radioactivity mostly out and into the Pacific (coupled with relatively little rainfall), as well as the dispersion of irradiated cooling water which promptly enters the Pacific after which it is never heard of or seen again (there is at least a several year period before 3 eyed tuna fish feature prominently in restaurants across the country). This may be changing soon now that Super Typhoon Songda, which according to Weather Underground will form shortly as a Category 5 storm with 156+ mph winds, will take a northeasterly direction and 2 days later will pass right above Fukushima. The good news: by the time it passes over Fukushima it will be merely a Tropical storm. The bad news: by the time it passes over Fukushima it will be a Tropical storm. As the latest dispersion projection from ZAMG shows, over the next two days the I-131 plume will be covering all of the mainland. Although judging by how prominent this whole topic is in the MSM lately, it seems that conventional wisdom now agrees with Ann Coulter that radioactivity is actually quite good for you. 

 

 

 

 

 

It's Greek Protest Time All Over Again - Follow The Latest From Athens Live 

Submitted by Tyler Durden on 05/26/2011 15:55 -0400

The past few days have not been good for Greek GDP, since every single day we have seen thousands of protesters occupy the Athens parliament square, the location of so much more of the same back in 2010, in what has so far been a series of peaceful protests. Today's, however, appears to be the biggest. Luckily, the market is about to close which means no restraining order on Waddell and Reed is necessary. Then again, ES does trades all the night... when liquidity is negligible to begin with. Hmm. Anyway, watch live developments from Athens at the link below. 

 

 

 

 

SocGen's Dylan Grice On The (F)utility Of Trading The News 

The 'other' of SocGen's strategist dynamic duo, Dylan Grice, chimes in with some off the beaten path observations on the (f)utility of following and trading the news. In experimenting with the impact of newsflow absence on one's trading record, reaches the Nassim Taleb conclusion that news "makes idiots of us because it gives us confidence, not insight." What Grice does find, however, is that living without news nonetheless is difficult as it removes the entertainment aspect of sub-stories spawned by any given news thread. His words: "Without the news, I was missing the joy of a good story." And for those who have not read "Fooled by Randomness", and find the topic interesting, we suggest going through Nassim Taleb's seminal book which does a far more in depth analysis on the topic. On the other hand, since the average Zero Hedge reader has the attention span of an HFT algorithm, here is Grice's abbreviated perspective. (Of course, since Grice is right, and news are fundamentally irrelevant, we sometimes wonder why we have any readers at all).

What Will Rally Bonds After QE2? Nothing Short Of A Double Dip, According To Jeff Gundlach 

Submitted by Tyler Durden on 05/26/2011 14:51 -0400

And continuing with the rates discussion from the prior post, next up we have that "other" bond manager, DoubleLine's Jeff Gundlach, chiming in on what would cause a treasury rally following QE2. His assessment: nothing short of a confirmed double dip, or "zero GDP growth." Dow Jones reports: "Over the past two months, government bond market participants have fiercely debated whether the end of the Fed's $600 billion in Treasury bond purchases in June will trigger a market sell-off or rally...the U.S. government bonds' rally in recent weeks shows investors have already bet the Fed's exit from the market will boost safe-harbor Treasurys because the economy will slow. So any gains will be limited.  "The 10-year Treasury yield has hit the moment of truth," Gundlach said in an interview with Dow Jones." Needless to say, 0% growth, which is already in the cards according to a simple correlation analysis between Y/Y GDP growth and initial jobless claims, will force the Fed, in the absence of another fiscal stimulus (which everyone knows is not coming from DC this year and possibly next year either), to step up double time and to launch far more easing to offset the economic weakness which we have been predicting for 6 months, and which the recent Japanese earthquake, and Chinese slowdown, merely accentuated. The only wildcard continues to be Japan, which many have expected would take up the monetary slack and issue tens of trillions in yen in QE, yet which has so far been slow to come, leaving the ball in either the US or European court. However, with the ECB in transition as JCT wishes to cement his hawkish legacy, the only real alternative continues to be the Fed. Oddly enough, stocks today appear to have started to already price in the start of QE3. When this sentiments shifts to precious metals and crude, our advice would be to hide you kids, and hide your wife...

Bill Gross: "Don't Cry For Pimco" And Yes, "We Are Certainly Underweight Treasurys" 

Submitted by Tyler Durden on 05/26/2011 14:10 -0400

Recently Bill Gross appeared on CNBC stating that contrary to what some "blog" had said, the firm was not short bonds. This provoked said "blog" to pen a response (actually two) to this somewhat misleading statement, which we equated to someone claiming they are long x million in cash exposure offset by y billion in synthetic. Today, when interviewed by Bloomberg TVs' Tom Keene, Gross declined to refuse he was short treasuries (in fact, ignored the topic entirely), merely saying the following: “We're not overweight Treasuries. We're certainly underweight Treasuries, but that does not mean we don't own lots of other bonds...It does not mean as well that we're not a little bit shy in terms of duration." And once again the bottom line, and what it is really all about: "We’re having a good year...so don't cry for Pimco." Simply said, Gross is concerned by what traditionally skittish fund investors will think about the fund manager being correct (yes, Gross is correct to be short bonds, especially in the long-run) but being late. That is understandable. But making statement such as Pimco is not short market, and especially duration equivalent exposure, that is both misleading and condescending. Far more from the Pimco boss in the full interview.

Gold's Revaluation Underway

posted by Eric De Groot at Eric De Groot - 30 minutes ago

Gold's great revaluation continues to progess without a hint of understanding from the public. Headline: Bid to Use Gold as Collateral Advances Investors are closer to being able to use gold as a trading ...

Cost to Insure U.S. “Ponzi Scheme” Against Default Rises Sharply 

Submitted by Tyler Durden on 05/26/2011 07:08 -0400

Gold and silver are lower today with profit taking, Chinese bond buying and increased risk appetite being cited for the price falls. Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis. While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt. The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt. Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in the Wall Street Journal that the Federal Reserve’s bond purchases are a fraud and a “Ponzi scheme”. He advocated a U.S. default or a technical default, saying “"technical default would be horrible, but I don't think it's going to be the end of the world. It's not going to be catastrophic."

Ted Butler: U.S. commodity regulation -- a failed mission?

 

 

Join GATA in supporting appeal of Liberty Dollar founder

 

 

GDP Second Revision At 1.8% On Expectations Of 2.2%, Sub 1% Ex-Inventory Build; Initial Claims Surge To 424K 

Submitted by Tyler Durden on 05/26/2011 08:32 -0400

Contrary to expectations by the endlessly wrong Wall Street crew, the second revision of Q1 GDP came not as expected at 2.2% (up from 1.8% in the first estimate), but far, far lower at 1.8%. And while the number is largely irrelevant for the future and even current economy, it shows that the contraction is far more pronounced. More troubling is the shift in various GDP components contributing to the number: the biggest delta was Personal Consumption Expenditures which missed by a whopping 21%, plunging from 2.7% to 2.2%, on expectations of a rise to 2.8%. As a result as the chart below shows, the "growth" in Q1 was based on even shakier grounds: the contribution from PCE plunged from 1.91% to 1.16%, with Fixed Investment plunging from 0.93% to 0.26%. The plug: why old faithful of course - Inventories, which "added" 1.19% to growth, up from 0.09% in the first revision. Ex the now traditional inventory build, Q1 GDP growth was sub 1%. Which means that once the inevitable liquidations commence, the US will go into all out contraction. And confirming the keyword of 2011 "stagflation" is now firmly entrenched, was the BLS advising us that initial claims surged from 404K to 424K. So much for no QE3. Next up, as we have said ever since January, Jan Hatzius and Bill Dudley start having tete-a-tetes. Everyone knows what follows...

Second Consecutive Record High Bid-To-Cover Auction Closes As Treasury Sells $29 Billion In 7 Year Bonds 

Submitted by Tyler Durden on 05/26/2011 13:23 -0400

This week's trifecta of bond issuance closes with a thud as today's $29 billion in 7 Year bonds (Cusip: QQ6) price at the second consecutive record high Bid To Cover (3.24) following yesterday's also record 5 Year Record high BTD, despite the high yield coming well lower compared to lost month's 7 Year of 2.71%, pricing at just 2.43% High Yield, the lowest since November 2010. It appears investors just can't get enough of the belly of the curve where the best risk/return profile appears to be concentrated. The Indirect take down was 39.35%, just short of the LTM average of 41.57%; Dealers were happy to step back and purchase just 39.35% of the issue, the lowest relative amount allotted to Dealers in 2011. The balance was made up by Directs, who took down 13%, or the highest since September 2010. Once again the key difference was the overall competitive bid tendered which surged from $76 billion to $94 billion, with increases across all three categories (Directs from $8.7 bn to $12.4 bn, Indirects from $12.8 to $19.2 billion, and Dealers from $54.7 to $62.3 billion) and a resultant drop in the hit rate across the board. And like yesterday, the bond came well inside the WI to the tune of almost 1.9 bps. As for the underlying reason for this bond strength, we refer readers to the must read analysis by Gleacher's Russ Certo, indicating that contrary to expectations, this bond strength is merely a confirmation of increasing economic and policy instability.

Guest Post: It’s “Heads You Win, Tails You Don’t Lose” With This Currency 

Submitted by Tyler Durden on 05/26/2011 12:23 -0400

One of the most interesting things going on here in Hong Kong at the moment is the gradual displacement of the US dollar, and even the local Hong Kong dollar, by the Chinese Yuan. Walking around town, the signs are obvious: from shops that gladly accept Chinese Yuan cash for the goods they sell, to the money changers which now ALL display the Hong Kong dollar / Chinese Yuan cross-rate much more prominently than the US dollar / Hong Kong dollar cross rate. In many ways, this is a live economic experiment. Hong Kong has long had one of the world’s freest, most sophisticated economies; residents are free to choose what currency to accept (and save), whether HK dollars, US dollars, Chinese Yuan, gold, or anything else...US monetary inflation makes it inevitable that the Hong Kong Monetary Authority will come up with some sort of a scheme to either peg the Hong Kong dollar to the Yuan (rather than the US dollar), or perhaps even replace the Hong Kong dollar with the Yuan altogether. This would be a HUGELY popular move. Hong Kong is one of the few places on Earth with a net savings rate; the loan to deposit ratio its banking system, for example, stood at 81.7% at the end of March, meaning there are only 81.7 cents on the dollar lent out in Hong Kong for every $1 on deposit in the banks. Consequently, savers would love to see the Hong Kong dollar revalued higher by pegging it to the Chinese Yuan at the current Yuan/dollar rate of 6.50, rather than the current HK dollar/US dollar peg of 7.80. Bottom line, the clock is ticking on a Hong Kong dollar revaluation. 

 

 

 

 

 

Gleacher On The 10 Year's 2% Handle, QE6, And How The US Treasury Wins Again And Everyone Else Loses 

Submitted by Tyler Durden on 05/26/2011 10:30 -0400

Gleacher's co-head of rates Russ Certo asks: "Who needed to buy $112 billion 5 years near new range break out low yield prints? And who would pay 1.7 bps through in order to do so? I think it is obvious that there is "official" demand in the form of central banks and official institutions, pensions, excess reserve banking entities recirculating monies and the like. I feel goosed. Seems like we are on QE6, they just didn't tell you that it started. And we have seen this before." He sadly concludes that this forced Fed intervention to keep rates low means the bottom is about to fall out: "Maybe, the severity of the litany of unintended consequences of this low rate coordinated policy which is penalizing savers, reducing income based consumption, creating more leverage and robbing economic fundamentals from the future and the like, are more beneficial than the alternative of stakeholders perceptions how bad banking balance sheets are. Maybe, if you don't have sound financial institutions (or the perceptions of such) or sovereignties, both of which need a function of time, lower rates, higher net interest margin, to work their way out of insolvency, then all this is worth it. Maybe, solvency conditions of banks explain this seemingly confusing relentless easings of policy. No sound banking system, nothing sound." 

 

 

 

 

 

 

John Hathaway: Welfare state democracy is sure to destroy the dollar

Submitted by cpowell on Thu, 2011-05-26 00:10. Section: Daily Dispatches

8:12p ET Wednesday, May 25, 2011
Dear Friend of GATA and Gold (and Silver):
Writing at the King World News blog, Tocqueville Gold Fund manager John Hathaway studies the age of the gold bull and concludes that the bull has longer to run because welfare state democracy has pushed the U.S. dollar past the tipping point. Hathaway writes:

GATA urges Paul to probe Fed's gold swaps; he tells CNBC he will

US Dollar running into some selling

  

posted by Trader Dan at Trader Dan's Market Views - 1 hour ago

The US Dollar has been able to keep its footing above the 50 day moving average on its daily price chart which is technically bullish but it does seem to be running into plenty of willing sellers between ...

 

 

 

 

Market manipulation is the very purpose of derivatives

 

 

Euro Surges On News Chinese White Knight To Make Repeat Appearance, Attempt To Bail Out Europe For Second Time (Just As Unsuccessfully) 

Submitted by Tyler Durden on 05/25/2011 21:12 -0400

Back in January we wrote with some amusement that China would be Portugal's knight in shining armor following a "Reuters report that Portugal is in the process of making a private placement of bonds, without announcing details on size or the buyer... The WSJ has just confirmed that China was indeed the buyer, and the amount purchased was €1.1 billion." Since then Portugese bonds have tumbled and China has taken at least a good 10% loss. Five months later, it is time to kick the can once more down the road, courtesy of the Chinese yet again, who not surprisingly don't want to experience a partial wipe out on their foolish investments across their soon to be European protectorate should Greece file tomorow. The FT reports: "Asian investors including the Chinese government are expected to represent a “strong proportion” of the buyers of Portuguese bail-out bonds when the eurozone’s €440bn rescue fund begins auctioning them next month, according to senior fund officials. Klaus Regling, chief executive of the European Financial Stability Facility, told reporters on Wednesday that Beijing was “clearly interested” in the Portuguese auctions and that he expected China to participate." And whoever said that stupidity follows an arithmetic progression was wrong. It's exponential: "He argued the intense interest from Asia and other international investors showed renewed confidence in the future of the euro as a currency." Uh, no. That was the bullshit excuse in January. Now it is merely an attempt to not get destroyed in the upcoming massive pan-continental "rights offering" which will see existing "investors" take haircuts of up to 50%. But since when does Europe even pretend to tell the truth.