Saturday, June 30, 2012

The real reason why the Germans have been forcing sovereigns to foot the bank bailout bills

It's generally a good idea to assume that everything the media tells you is a lie.

1. Most people in the media are clowns drawn out of the mouth-breathing masses themselves, so you shouldn't expect them to have any insight;
2. The people truly in power often have something to hide, and will encourage the media to look in another direction.


But at the same time, of course, just because you've read about some secret conspiracy on some nutbar right-wing site like ZeroHedge doesn't mean it's true.

Anyway, in the case of the recent brou-ha-ha in Europe, there were a lot of alarm bells going off that suggested to me that the media was reporting the entirely wrong story. Here are some examples.

1. Appeal to racist thinking: the Latins are profligate socialists who are terrible with their money, while Teutonics and Scandinavians are conservative and dependable.
2. Free market capitalist ideology applied very selectively: oh, countries need balanced budgets, however bailing out a bank should be done by forcing a distressed sovereign in a depression to take a 10% (Spain) or more (Ireland) hit on their yearly deficit by % of GDP, ultimately paid for by the taxpayers (i.e. socialism!!1!) instead of forcing shareholders and bondholders to bear the pain - or worse, forcing bankruptcy and restructuring.
3. People having very selective attention spans: too much talk about the Spanish banks being insolvent, while even a reader of ZeroHedge knows that the big elephant in this hunt is the utterly insolvent, teetering on bankruptcy Deutschebank. (And sure, ING too, and other "good" Aryan banks.)

When you see racist thinking, selective application of ideology, and failure to get outraged at B when you're already outraged at A - and B is exactly like A -, then you know that people are failing to see the true story through their own tribal mud-hut cognitive errors and are instead falling victim to the secret plans of the plutocrats.

(And by the way, that's how you know ZeroHedge is a pack of lies; they fall into these exact same traps all the time. Yes, seriously, when you're selective with your ideology and spouting off racist claptrap, you are 100% certain to be wrong, Zerohedgers.)

Well, here's an article that finally explains what was really going on.

Spanish bailout saves German pain (International Financing Review)

What's really happening in Europe is this: the peripheral banks have to be bailed out because they're counterparties to Deutschebank, who will go under if they fail; Deutschebank, by the way, is the single most over-leveraged bank in Europe; you can't bail-in the bondholders because that will also tank Deutschebank; so Merkel's been trying to put the problem in the laps of the local (non-German) taxpayers.

Now, perhaps, Hollande is enough of an educated socialist to not only have figured out the real game, but also to be ideologically opposed to taxpayers bailing out rich German (and let's be fair, probably also British) bankers. While Sarkozy was as much a right-wing plutocrat as any, so he would naturally go along with Merkel's original plan.

That would explain how the French election shifted the axis of power, putting Hollande in the same camp as Monti and Rajoy. And that will explain why Merkel's such a cunt - she wants to bail out her own banks above all else, and make the other nations foot the tab, because if Deutschebank collapses, all of a sudden Berlin goes back to being a smoking ruin to the left of Potsdam.

But now she's without a leg to stand on. Oh, and also, the enhanced banking leverage guidelines were going to be coming into effect in July, so the chips were indeed down and her back was definitely producing a sweaty patch against the wall.

So now with Merkel's isolation we get some reason, finally.

You don't force a country in recession, who's already trying to put through austerity measures that will even further shrink their economy and stunt their revenues, to take a 10% of GDP hit on their balance sheet to bail out banks. Especially when that country has no power to print its own money. Do you understand? Austerity during recession and economic contraction already shoots up your bond yields, forcing more austerity; now, on top of this, you want to boost their debt by 10%? When they have no authority to print money? How are they supposed to get out of the debt spiral?

Also. This next bit is to keep in mind for the future.

It doesn't fucking well matter one iota if Frenchmen are going to be retiring at 62 while Germans will have to work til 67. It doesn't matter that the French are illegal to fire while the Germans are a bunch of fucking vicious cunts you'd never want to work for in a million years. All that matters is, what's the nation's budgetary situation? If France can balance their budget by taxing the rich at 90%, let them do that. The Germans have no right to force their plutocratic ideology-based "structural reforms" on other countries. Ultimately, if French productivity is lower, they can still compensate over time to maintain a balanced budget.If the problem's the budget, then complain about the budget - don't disenfranchise a nation.

Letting the Germans march in and dictate policy to bring about balanced budgets is wrong. It's worse than wrong: it's misguided. It would let one political philosophy win and rule the Eurozone.

There are a lot of advocates for this, and again, they are being racist in thinking and selective in their ideology (oh, freedom is so important! but not freedom of the people to select the political philosophy that will guide their country for the next few years!)

Also, more importantly: don't forget, the Eurozone was meant to be a democracy of nations. Truly, the right way to work would be for the majority (including Spain, France, Italy, Ireland, and yes even Greece and Cyprus) to impose their political philosophy on Germany - force Germany to spend some of their money on stimulus measures. Yes, force the Germans to pay for the bailouts of the banks that they screwed up with their peripheral loans during the pre-2008 bubble.

Oh - and by the way - the reason the Eurozone has been letting in utter clusterfucks like Greece, Cyprus, Hungary and Romania is precisely because the rich bastards in the plutocracy could make a ton of money off of the property bubbles that always followed. Romania, for example, is just as corrupt as Greece; but they were invited into the Eurozone so that the (mostly German and Dutch) real estate speculators could swoop in, buy up all the real estate cheap, and then flip it after integration for a massive profit.

That was what was driving Eurozone integration. Okay? Real estate speculation by the plutocrats. That was the point of the Eurozone. Sorry, George Soros - you missed a big part of the story.

In other words, it's the rich who have benefitted by the bubble that ended up screwing up Europe.

For fuck's sake, make them now pay the bill.

Read this:

Spanish bailout saves German pain (International Financing Review)

And please pass that article on to everyone you know in Europe. Especially in Italy, Spain, Ireland and France.

Friday, June 29, 2012

Some interesting commodity charts this friday afternoon

Remember all, TSX is probably closed Monday or something like that, so if you want to stack up on your shares of Bear Creek Mining, you'd better do it before the end of today.

With that out of the way....

Coal looks sort of dead, but at leat now it's putting up a fight.




Steel looks slightly less dead, as if it wants to base or something. Keeps hitting the high bollinger, not the low bollinger.



Copper looks positively abfab. 3-sigma up, which is a bit bad cos you'd expect it to pull back, though that also might mean the start of a longer-term strong upward move... but also threatening its SMA(50) at the end of the week. That's gonna be one fucking stunning white candle on the weekly chart, staring people in the face, good sirs and lasses. Quite nearly a quadruple engulfing white candle, in fact.

Speaking of which, I don't pretend to understand the Andy Home missive linked to by IKN earlier this week. I especially don't understand that bit about some dude having sewn up 40-50% of all copper warrants or something. Sounds kinda Hunt Bros to me.



And, stunningly, people do prefer to eat meat after all. The moo-cow ETF is showing a higher low and higher high.

So where's your stupid little "worldwide infinite pukefest of doooom" now, mister self-published internet macro market analyst of dooooom? Hm?

Interesting article on Minera IRL

INTERVIEW-Peru miner IRL gives town stock, averts disputes

Published on June 28, 2012 ·   No Comments
* 600 families given 5 percent stake in Peru gold project
* IRL’s Corihuarmi mine produced 33,255 oz of gold in 2011
* Hundreds of protests over resource extraction plague Peru
By Terry Wade

LIMA, June 28 (Reuters) — At a time when community opposition has delayed the opening of new mines across Peru, gold miner IRL has sidestepped troubles plaguing its bigger peers by turning residents in a remote town into shareholders.

Diego Benavides, president of IRL , said that when the company set out to give equity to everyone in the town near its planned mine Ollachea, executives at other mining companies thought IRL’s generosity might establish a dangerous precedent for the sector.

As it turns out, the upstart may have had foresight, although its strategy of granting shares in its project to townspeople could be difficult for global players in Peru to replicate.

“This annoyed them, and I knew it would. But today, after this pot has boiled over, they call and say ‘Diego, what’s the formula?’” Benavides told Reuters in an interview.

Disputes over the spoils of natural resources in Peru, a leading global metals exporter, have provoked loud protests this year by communities who complain they have been left behind by the country’s decade-long economic boom. Two-thirds of people in rural areas, where most mines are built, live in poverty.

Townspeople in Cajamarca have delayed construction of Newmont Mining’s $5 billion Conga gold mine by raising concerns about water supplies and pollution, while residents in the municipality of Espinar, in the southern region of Cusco, have pressured Xstrata to contribute more cash to the town’s budget once its $1.5 billion Antapaccay copper mine opens.

“Five years ago there were problems with communities, but they weren’t so grave, so radicalized,” he said.
Peru’s human rights office says there are at least 250 conflicts over natural resources nationwide, with a range of causes, from oil drilling to the construction of dams and mines.

This month, as President Ollanta Humala struggled to calm conflicts over the Newmont and Xstrata projects, IRL said it had signed a 30-year agreement with residents of Ollachea – one that basically gives their community association a 5 percent stake in the mine and entitles each member to receive cash, gold or sell their shares. The form of payment will likely be decided collectively.

“It gives them the right to 5 percent of the project or its value,” he said. “This is the first time a company in Peru has done this and as far as I know this is the first time anybody has negotiated a community accord that lasts 30 years.”

The voluntary contribution by IRL also will not be filtered through the local government. Local and regional governments near mines in Peru receive cash from income taxes paid by mining companies, but the central government says the cash often does not benefit local residents because many local governments have weak bureaucracies or lack the capacity to spend money they receive.

“The money will go directly to each member of each family,” Benavides said.

‘COMMON SENSE’

Ollachea is projected to produce about 1.1 million ounces of gold over 10 years, though Benavides said it could eventually be expanded to recover 3 million ounces and have a 30-year life.

He said the accord was designed to be flexible and allow for changes in the size of the community of 600 families, but stressed that residents would not see their stakes diluted.

“Really, the basic formula is to have common sense,” he said.

IRL produced 33,255 ounces of gold in 2011 from its Corihuarmi mine, expects its Don Nicolas project in Argentina to come on line next year, and its Ollachea project in the southern region of Puno should start producing in late 2014 or early 2015.

The company said the new mines could turn it into a mid-tier producer, with overall annual output between 150,000 and 200,000 ounces a year.

The inspiration behind the Ollachea pact, to have a stable working relationship, is simple. But it is unclear if the model could be used elsewhere in Peru.

Even though the town of Ollachea is small, with only several hundred families, IRL spent five years negotiating the accord with the community.

In contrast, big mines have an impact on dozens of communities – which would make introducing a similar model on big projects exceedingly more complicated.

“The model we have is perfect for our project,” Benavides said when asked if the model was scalable. “Every community has its own particular issues and its own fingerprint.”

Reuters, 06/28/12 13:26

You won't believe it, but....

If S&P 500 can go over 1363.42, we will have a new intraday higher high. Which is bullish.

Around 1358 would be a higher daily close.

We're already at the higher weekly close level.

Eentelesteeng, no?


More search fun

The dude from Bank of Montreal is keeping silent.

Now CIBC is gobbling up Bear Creek shares.

More importantly, someone from Sofbank Bb Corp, Hanawadacho, Tochigi, Japan, just came to my blog in a search for "Brazilian panties".

That's one bank I'd be happy to do business with.

market comment, discontinuities edition

Emerging Markets threaten the SMA(50).




And yet US 10-yr bonds are staying where they are.



Risk-on for junk bonds.



$USD suffers a major discontinuity - maybe just cos of the Euro's spike this morning? Still in a range and within its bollingers.



Silver still sucks, though I bet the guy who bought DSLV a couple days ago is hurtin' today.

It's one heck of a big discontinuity in the short-term, but might just be a little countertrend spike in the longer trend. We'll see.

Friday videos - Still Corners

Another of those "young folks of today" groups, here's an English band, Still Corners.



Sorta like a slow-moving collision between Mazzy Star and Portishead. Very nice, and this despite being on one of the shittiest fucking worthless overhyped chickenshit self-important labels in the history of mankind (SubPop).




Thursday, June 28, 2012

Why is BMO huffing BCM?

Here's the last trades for Bear Creek Mining today:


House 9 was sitting there picking up everything that got dumped in its lap, all day. At $2.60. Maybe got $100K worth today.

Now BMO Nibblet Blerns could have got a load of shares at $2.35. This was a dry-heaving pukefest of a day, and silver's losing critical support, and BCM is silver, and the miners are diving, and... and... I don't get it. Why pay $2.60 for a stock that could easily have collapsed to $2.00 by noon if you'd let it?

Is there some news on the horizon? Is BMO clever or something? Or did they just send out another internal buy reccie? But it couldn't have been a buy reccie, all the ask-hits were other houses. BMO was only on the bid side.

I was going to dump my shares this week, preferably above cost... but now I don't want to anymore.

UPDATE: funnily enough, back on March 9 2011, Lesley Marks, VP & Portfolio Damager at BMO, called Bear Creek her top pick.

Price then? $10.95 at the close.

That makes it even more interesting that even one person at BMO would be willing to buy BCM anymore. Or any other stock, of course.

Would my secret follower from BMO (I see you there, I know you're reading me) please let me know if she still works there, and have you heard what the heck is going on with BCM?

Four three-sigma-oversold stocks for you

BTO's heavily oversold by RSI and 3-sigma out. Also has a habit of gaining 20% from an oversold condition.


DPM's heavily oversold - and might just breach the previous low from May. Dunno if maybe there's bad news in Namibia right now about their smelter. Was it Namibia where they gots that dirty smelter? Anyway, this one tends to drop hard when GDXJ gets heavily sold off. Like today, I think.


FVI's collapsing, but there's a lot of snark coming out of San Jose del Progreso, and silver isn't doing so well today.



Of the four, this is the one I bought. Don't see why it should go below $2 by the chart, and Brent Cook does after all insist it's worth a lot more money in a buyout. So I'll put my faith in Brent.

Der Spargel lipsticks a pig named Merkel

Interesting article in der Spargel:

What Merkel Really Wants from Europe

It starts out:

The Thursday political cartoon in the Financial Times Deutschland couldn't be easier to decipher. It depicts the Grim Reaper standing over an aged, bed-ridden Angela Merkel saying: "It is time." Merkel responds: "For euro bonds, I know."

The drawing refers to the chancellor's comments made Tuesday afternoon during a meeting with parliamentarians belonging to her junior coalition partner, the Free Democrats. Euro bonds, she said according to meeting participants, would not be introduced in the euro zone "as long as I live." The statement was widely interpreted as Merkel finally losing patience with demands from southern European countries that euro-zone debt be communitized. Instead of bending to the political breeze, Merkel had finally turned into "Iron Angie."


But is that really what she meant? There are several indications that the answer could be no.

God, if the Germans are good at anything - beside Schadenfreude, self-loathing, bitchiness and utter lack of comprehension of any humour beyond the level of pie-throwing - it's speculative sophistry to turn a statement into its exact opposite. Land of bloody Hegel. Thesis antithesis synthesis, the nothing nothings, and so on.

Oh well... let's see if it all turns out well, eh?

Wednesday, June 27, 2012

Brent Cook interviewed yet again the Gold Report

Cookie gets interviewed again in The Gold Report. Really he does repeat himself one hell of a lot, but at least in this interview you get to hear about where he grew up, and verily it is a part of the world where people do still say "dadgum".


Noontime newsfeed

Here is your noontime newsfeed:

CITI: Everyone's Talking About A Huge European Catastrophe, But Nobody Is Willing To Bet On It

Guy must read my blog. "'You can’t walk into a bar without hitting a discussion of euro zone tail risk – and this includes bars in very out of the way places,' writes Steven Englander, Citi's currency guru. 'Yet the amount of tail risk that is actually priced in is astonishingly small.'"

Steinhardt says hysteria on Europe unwarranted

Money shot: "'There is a general sense that the economy is lousy and blah blah blah, and the markets are positioned as such,' Steinhardt added. 'I'm going the other way.'"

Wish I could ever be as rich as him.

Analysis: Maybe the biggest risk is it's all ok


"'Bear in mind that tail risk is a two-way concept and we focus only on the negative at our peril,' said JP Morgan Asset Management strategist David Shairp, flagging an increase in equity exposure relative to bonds in JPMAM's multi-asset funds and a shift to overweight European equity from underweight.

"The twists and turns of the euro crisis and fiscal debate surrounding the U.S. presidential election may be difficult to second guess. But, assuming worst-case scenarios are avoided, Shairp said there are other potential positives on the horizon.


"One was declining, but still positive inflation rates worldwide as a commodity price retreat and a 20 percent year-on-year drop in crude oil prices feeds in. Assuming this disinflation allows further monetary easing by central banks while putting more spending power in consumer pockets, the outcome could prove surprising for an unsuspecting market."

Remember that domestic vs. broad S&P chart I posted earlier today?

Oh, and speaking of which....

Oil supply surge could risk price collapse: Harvard analysis

"'Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption,' he wrote in his analysis, published as a policy brief by Harvard's Belfer Center for Science and International Affairs. 'This could lead to a glut of overproduction and a steep dip in prices.'"


Hey, good news for gold miners! Tye Burt, you can renew your subscription to Stupidly Expensive Cognac Weekly after all.

Three beaten down miners


Three beaten-down miners:


Argonaut is badly beaten down.  But why would you want to own it with Europe about to be doooomed?



B2Gold is really beaten down. But why would you want to own it in the midst of a China collapse?





Dundee Precious Metals is pretty badly beaten down. But to be fair, the problem here is they gots a dirty smelter to repair.

Would you be a buyer right now? With Europe doooomed and China about to collapse back into the stone age?



GDX and silver

I've become so enamoured with setting up stockcharts.com with my short-term EMAs that I've missed out on an interesting thing:


GDX is hugging the underside of the old standard SMA(50).

I don't know what it means. Maybe that the SMA(50) is hard resistance and we all gonna die.

But anyway, it seemed interesting to me.

UPDATE 10:01 AM: Jinxed it!

BTW check out the nasty premarket v-bottom in silver at kitco. Someone yesterday suggested short silver, and I've learned enough to be quite frightened of the prospect of shorting that crazy old loon of a metal.


UPDATE 10:01 AM: Jinxed it!

Chart proving the US domestic economy is fine, it's the rest of the world that's wrong

From a Business Insider article last night:


Blue line is domestic S&P companies. Red line is the broad S&P 500.

Seems the US domestic economy is fine.




Tuesday, June 26, 2012

Search fun - a stunner

I am the #1 result on google for the search [greeks swarthy]. Has nobody else ever noticed, in the history of mankind, that Greeks are swarthy?

Now, this next one is more scary:

I am also the #1 search result on google for [why recapitalization directly and not via the sovereign].


Ho. 


Lee. 


Fuuuuu.


Ck.


Are you fucking serious? The discussion of direct recap of the banks leads to my blog? Not to, say, FT or Felix Salmon or Ritholtz? Or even fucking ZeroHedge?


OK. Any readers of this blog from Canada, help me form my own fucking political party/anarchist armed insurrection movement right now, because holy fuck, if I'm the #1 search result on a topic like that, then I must be the fucking 200 IQ supergenius messiah who's fated to save the world from its own folly.


Give your fucking head a shake, world leaders.

Sentimenttrader - does SPY look good to you?


I dunno... does SPY look good to you here?


The Rydex Bull is contrary bullish. But then you look at Rydex Bear and... it's contrarian bearish. So the ratio says nothing.

Neato, eh? What this chart's saying to me is, nobody's willing any longer to make a bet either way.

Which also explains the $VIX being neither elevated nor non-elevated - neither flying over 40, or collapsing to 18. After all, it's based on puts and calls, also neither of which nobody must want to make right now.

Cos it's all down to policy.

Think about it.

It's really all down to policy.

My god, this is what has become of the market because of the plutocratic cunts you've elected.

I wonder what happens when we get the first whiff of finality in the Euro fuckup collapse thing. We could see VIX quadruple in an instant and S&P 500 lose 200 points in a day. Fuuuuck.

(Full disclosure: I'm a Pirate Party member, but think they're fucking sissies who'd do a lot better if they actually ran on a platform of piracy. Real piracy. Yarr.)


Yay, India has a good harvest

Rice Harvest in India Seen at Record blah de blah....

I mean, since we're talking about India and gold demand, and how the two are somehow linked.

SNL Celebrity Jeopardy

Since we're all in a bit of jeopardy, with the world ending and all, let's watch all the hilarious episodes of Celebrity Jeopardy from Saturday Night Live.


At this link please.


Whoops, forgot, it's OpEx today

It's silver and copper Comex OpEx today.

That explains a lot.

Probably should put Cafe Americain on my follow list.

Anatole Kaletsky on kicking out Germa...WHA?!?!?

I know it's wrong to repost, but this has gone viral (it's on Ritholtz and a bunch of other places), so why not let a dinky blog with 10 readers read it too?

If you're following the soap opera that is Europe, I'm sure you'll agree that Anatole Kaletsky puts forward an incredibly intriguing idea: kick out Germany. Nobody's thought of it, why not? When you've got an intransigent bully who's screwing up your stuff, you kick him out and forget about him, don't you?



Here's a link to the article on another blog, so I can't be accused of outright stealing.

Now here's the article:



IT MAY BE TIME TO SAY 'AUF WIEDERSEHEN'

Now that the Greek election is over, with the pro-bailout parties gaining enough seats for a slim majority, Europe can return to the regular cycle of panic, relief, disappointment and renewed panic, that we have observed for the past two years. This time, however, the relief rally may be even shorter than usual, since the market’s attention will soon shift from Athens to Madrid, Paris and, above all, Berlin. Since Greece has no chance of meeting its financial targets, the new government will soon need significant new concessions from the troika. Assuming that Germany resists such concessions, as well as the much larger ones that will soon be required by Spain, the fundamental contradiction of the euro project will again be brought into focus. A single currency can only be sustained within a fiscal and political union that can mutualise and monetize the debt— something that Germany refuses even to discuss.

If this situation persists, then one of two things could happen. The debtor countries could resign themselves to permanent depression and bankruptcy as they sink further into debt traps and Greek-style crises which will ultimately push them out of the euro one by one. Or they could turn the tables on Germany. Instead of letting Germany impose its economic and political philosophy on Greece, Ireland and Portugal—and in the near future on Spain, Italy and probably France—the Club Med countries could unite and impose their economic philosophy on Germany.

With every day that passes, and especially since the French election, it is becoming clearer that the problem country for the euro—the odd man out in terms of economic structure and the chief obstacle to any political resolution of the euro crisis—is not Greece, Spain or Italy. It is Germany. It is Germany that refuses even to talk about mutual debt and banking guarantees. It is Germany that insists on self-defeating fiscal austerity and intolerable political conditions for the debtor countries. It is Germany that vetoes quantitative easing by the ECB, which could cap bond yields and relieve deflationary debt traps. And it is Germany that makes the other euro countries uncompetitive, discourages devaluation of the euro against the dollar and refuses even to relax its own domestic fiscal policies to reduce its trade surplus and support growth.

Suppose then that Angela Merkel refuses to make any compromise on debt mutualisation or ECB monetisation when a political or market crisis next strikes one of the debtor countries, as it surely will. The obvious answer would be for the Club Med governments to point out that Germany has become the obstacle to a resolution of the euro crisis. Mrs Merkel could then be asked, one last time, to abide by majority decisions that are necessary for the survival of the euro and in the interests of all its members. If she refused to do this, Germany could be politely asked to leave. And if Mrs Merkel refused to fall in line or voluntarily leave the euro, the other countries could easily call her bluff by creating conditions that would be unacceptable to the German public. The obvious way to do this would be to force a vote in the ECB for unlimited quantitative easing to monetise government debts.

German public opinion would surely oppose this, but they could not prevent it because Germany has just two votes on the Council of the ECB —and even assuming support from Austria, Finland, the Netherlands and Slovakia, the German faction would command only 6 votes out of 23. If the two German ECB representatives were forced to resign in protest (again!), it is easy to imagine German public opinion demanding immediate withdrawal. A new Deutschemarks could rapidly be issued by the Bundesbank and, while the German banks and insurance companies would suffer large losses because of a mismatch between their euro assets and their New D-Mark liabilities, they could be readily recapitalised by a government suddenly freed of the contingent liabilities imposed by the rest of the eurozone.

This kind of euro break-up triggered by German revaluation would be much less disruptive than a “break-down” caused by devaluation in Greece or Spain. In the case of a German revaluation, there would be no contagion or capital flight, as there would be if Greece, then Spain, then Italy and France were knocked out of the euro one by one. There would be no lawsuits by disgruntled creditors.

Best of all, from both the legal and the economic standpoint, the legacy euro created by a German withdrawal would survive as a more viable common currency for the remaining countries of the eurozone. With Germany outside the euro, France, Italy and Spain could rapidly devalue their way back to competitiveness within Europe—and also internationally, by encouraging the new euro to devalue rapidly against the dollar, yen and RMB. Without German opposition, the ECB could imitate the Fed and the Bank of England, buying bonds without limit so as to slash long-term interest rates. And if quantitative easing produced an even weaker euro or higher inflation, so much the better, since the Club Med countries have always relied on devaluation to promote export growth and inflation to eliminate debts.

A break-up of the euro caused by Germany’s departure would be very bullish for practically all global risk assets, with the obvious exception of German export and bank stocks. German bonds would also suffer huge losses, since the German government could decide to repay its bonds in legacy euros, rather than redenominating all its obligations into appreciating new Deutschemarks. For a government that had just spent hundreds of billions on recapitalising its banks for the losses they suffered in France, Spain and Italy, it would be tempting to burn foreign bondholders, rather than offering them a further currency windfall.



Monday, June 25, 2012

GLD:SLV went 3-sigma last week with RSI close to 80. Is today a reversal, or just GLD:SLV realizing it's been misbehaving and moving back into its slower uptrend? A 1-day mean-reversion in a scary uptrend?



Is SLV painting a bullish abandoned baby candle pattern, or is it again just trying to mean-revert back into its 2SD range? It also went oversold by RSI and outside of its 2SD bollinger band.
I personally think the dump in PMs last Thursday (along with the dump in GDXJ) was driven by some fund's position liquidation and not by anything worrying in the macro. Now the dumper is out of the room so the PMs trend back to where they were before the downward pressure.

But that could be wrong. And in any case we're way below the EMAs (and failed at the EMA(50) at the start of June, btw), so it's a downward trend by definition and I just gotta stay the fuck out.

A rant: what's all this about bank recapitalization through sovereign debt, anyway?

Out of curiosity, why would you recapitalize a bank through sovereign debt?

A few people are starting to ask this question, re: Spain (and by extension the rest of the Eurozone). I'm happy that they are. I'm disappointed that they have to.

Seriously. If the EFSF "gives" Spain E100B to recap its banks, but then forces Spain to show that amount on its balance sheet as a debt to be repaid, doesn't that seem fishy? I mean, essentially what is happening is the Euro bureaucracy is forcing Spanish taxpayers to give E100B to the banks. Give.

Why do bank recaps never seem to involve a forced bail-in? Why not make the banks dilute with new equity to raise their capital store? Why not make the shareholders and bondholders take the hit? Is that not what's happening? Why make a bunch of bondholders' and shareholders' positions stronger at the expense of the taxpayers? Does this not count as the state and the plutocrats stealing out of the taxpayers' pockets, and their childrens' pockets?

Ireland had a fantastic sovereign fiscal position before their real estate collapse. All the capitalists loved them. Then what? They had to take on a massive government debt to recap their own banks. Why?

Because Deutsche Bank would have been rendered insolvent if Ireland had instead forced a bail-in. Interesting, no? Does it all make sense to you now?

This is where the periphery fucked up. They're too nice to the Germans. They're letting the German plutocrats at Deutsche Bank get off the hook. They're letting German stock speculators off the hook.

I mean seriously... this isn't a "bailing out" of the banks - it is outright theft, taking taxpayer money and handing it over to a bunch of plutocrats. So they can fuck up more in the future. Moral hazard much? Hm? I mean seriously, what's going to stop the banksters in the core from blowing more insane bubbles in the periphery in the future? Their stock price won't suffer, they can still say they're performing nicely - while all the losses are dumped into the laps of the taxpayers.

Meanwhile countries like Spain end up destroying their own balance sheets - plus they end up having to pay a higher and higher coupon on their own government bonds, since they're blowing out their own balance sheets. That's the sovereign-bank feedback loop that a few people are starting to complain about.

I guarantee you that if some head of government on the periphery finally gets up the gumption to force a bail-in, making the shareholders and bondholders take the hit instead of the sovereign balance sheet, that the whole sovereign bond run will end. The contagion will get cured instantly. #1, the bond market will see that it's the equity market that's taking the balance sheet hit, breaking the sovereign-bank loop; and #2, all of a sudden, with Deutsche Bank's balance sheet under attack through bail-ins, the Germans will instantly feel the cold clammy hand of justice grabbing their balls tightly and forcefully. Germany will become very fucking pliable and amenable to change.

You do not give the fucking plutocrats what they want. Because they want the permanent enslavement of the masses. The last 400 fucking years of European history has been a slow march away from mediaeval plutocracy, toward government in the masses' best interest: and the plutocrats would like nothing more than to roll all the democratic reforms back.

And I'm damn sure that Jeff Berwick would agree with me 100%. An unelected "government" confiscating taxpayer wealth through enforced debt enslavement, in order to give free money to a bunch of plutocrats? Damn sure he'd see it the same way.

Well... with a bunch of Ayn Rand philosophizing thrown into the mix... but still he'd agree.

quick market comment

No, I'm not busy, I've just not been very interested in commenting recently.

FXI and EEM are collapsing today. Italian and Spanish 10-yr yields went up several percent, but nothing as bad as last week yet. European markets went down hard - I'm especially full of Schadenfreude to see the fucking Protestant Prussian market drop 2%. $VIX is elevated.

And yet silver shot up several percent after 11:30. Gold up too. What gives?

Who knows. UK announced a 50 billion pound?/dollar? stimulus. The eurozone has a hundred-billion stimulus - as they keep saying 1% of GDP. India is apparently going to try to make a few inconclusive moves to slightly improve their economy - opening up the retail market to foreigners, for example.

Anyway. The various letter-writers all were in agreement this weekend that silver, gold, the miners and so on, were on the precipice waiting to collapse into a blazing pit of everlasting hellfire. I remain unconvinced.

Sunday, June 24, 2012

Indian weathermen are the key to the price of gold. Not, um, the Treasury yield curve.

The 30/2 Treasury chart does correlate rather well to the price of gold. But is it correlation only, or causation? After all, the Rupee chart also correlates rather well to the price of gold.

I mean, seriously - when the average Indian or Chinese is dithering about whether to buy some gold, does he go and look up the 30/2?

Apparently not. India, which accounts for 25% of world gold demand more or less, buys gold based on the monsoon. Cos apparently Indian peasant farmers make up 40%-60% of India's overall gold demand - that's 10%-15% of all world gold demand, which you'd think is a significant enough marginal quantity to drive price.

A good monsoon means good harvests, which means farmers have more money, some of which they plow into gold because they ain't that enamoured with the Indian banking system, and why should they be.

Here's an article from India Times for you:


Gold sales flat as India keeps an eye on monsoon

Here's an excerpt:

India's annual monsoon rains have covered almost half of the country, showing signs of a pick-up after falling short in the first 15 days of the season and easing concerns about the planting of summer-sown crops such as rice, corn, cane, cotton and soybeans.

India's gold demand picks up between August and October, when consumers buy bullion to celebrate festivals, which peak with the Diwali festival of lights in November.

Here's a translation:

It's got nothing to do with the USA and its yield curve.

More info in this Mineweb article about Gold demand in India:

What Indian consumers think about gold: survey

Various excerpts:

The Indian government's attempts to curb gold demand, since gold already represents 72% of India's current account deficit, appears to be working. India's demand for the precious metal is estimated to fall by 4% in volume and rise 4% in value in 2012, according to a report by global bank, Morgan Stanley.

The survey report notes that Indians own 20,000 tonnes of gold worth $1 trillion. Household gold consumption appears to have gone up to $45 billion in 2011 from $19 billion in 2009. To put things in perspective, India's gross domestic product (GDP) is inching closer to $2 trillion. This means, the value of gold held by Indians is comprises nearly half of the country's GDP.

Gold accounts for one-third of the household portfolios Morgan Stanley surveyed. Respondents from several households said they expect gold prices to rise by 8% in 2012. However, an additional 8% to 10% rise would lead to a proportionate decline in volumes.

The survey notes that gold is not the first asset that Indian households liquidate during bad times; it is equities. Gold remains an important asset class for investment, having outperformed most other asset classes over the past five years.

Indian households also are increasing their demand for gold bars and coins. The survey notes rising income is behind the growing share of gold bar holdings.

When speaking about the reasons why they bought gold jewellery in the past 12 months, respondents said auspicious events like marriages and festival accounted for 35%, while investment demand accounted for 20%. Buying gold as a backup for bad times accounted for 16% of those surveyed, while gifting on events was another 15%. 

Around 8% of those surveyed said they bought gold as an impulse buy or bought gold for no specific reason. Another 6% of those surveyed said they bought gold because they were fond of the precious metal.

Translation:

It's not about the USA.

So... how's that monsoon working out?

Here's a June 22 article that seems to say after a dry spell everything's now working out fine:

For Third Year, Normal Monsoon Set to Boost India Harvests (Mumbai)

Some interesting excerpted factoidia:

A drop in global prices of commodities and ample domestic inventory of rice and wheat will help further cool food prices, said Siddharth Kothari, analyst at Sunidhi Securities & Finance in Mumbai. The Standard & Poor's GSCI Spot Index of 24 raw materials tumbled yesterday into a bear market on concern demand for commodities will weaken.

India imported record quantities of sugar, lentils and oilseeds in 2009 following the weakest monsoon since 1972. A below normal monsoon would have prompted the government to review exports of wheat, rice and sugar, Sunidhi's Kothari said.

State reserves of food grain swelled to 82.4 million tons as of June 1 after the nation harvested record crops for a second year, according to the food ministry. Agriculture makes up almost 14 percent of India's economy and a reduced harvest can lower rural incomes, hurting sales of tractors and cars.

Rainfall was 24 percent below average at 73.7 millimeters since June 1, the weather bureau said Thursday. That's less than the 96.9 millimeters average considered normal for the period. The monsoon got off to a slow start this year, reaching the southern state of Kerala four days later than the normal date of June 1.

Rain in August is forecast at 96 percent of the long-period average as weak El Nino conditions may develop in the later part of the rainy season, the forecaster said.

"Rainfall in July and August is still extremely, critical," said Sonal Varma, a Mumbai-based economist at Nomura Holdings. "Given the risk of El Nino conditions emerging, I think monsoon is still a risk, even though the bureau is predicting a normal rainfall."


Translation:

Nope, still nothing about the 30s/2s yield curve here. Seems to be a lot about Indian weathermen though.

If you're still skeptical, try reading that article I pointed you to on Thursday, about gold demand.