Category: zerohedge

The Isoquants Of Gold

Submitted by mickeyman via The World Complex blog,

Today's plot shows a six-year scatterplot of the gold price (in USD) vs the USDX index.

The blue curves are hyperbolae of a constant level of gold x USDX. I have placed these for two reasons. Firstly, if gold and the USDX are inversely related, then the time-evolution of the scatterplot will follow one of these curves. Secondly, for companies operating gold mines outside of the US, the product of the gold price and the USDX indicates the real price they are getting for their product.

These equal-product curves, or isoquants, appear to be of some importance in constraining the evolution of the gold price over the past six years. Generally speaking, the price tends to migrate along an isoquant for an extended period of time, before jumping up (or down) to another one, typically in only a few weeks.

For much of 2008 the plot is constrained between the 600 and 700 isoquants, but the system shifted to the 800 isoquant in early 2009. The gold price advanced along the 800 isoquant until about October 2009, before shifting up to the 900 isoquant. The system then evolved along the 900 isoquant for a few months, with the gold price falling and USDX rising, until shifting to the 1000 isoquant near mid-2010. The gold price rose along the 1000 isoquant for nearly a year, whereupon it shifted to the 1100 isoquant, and after battling at that level for two months or so, advanced rapidly, ascending above the 1400 isoquant in September 2011.

A major battle was fought between the 1300 and 1400 isoquants until March of 2013, whereupon the system plummeted to the 1000 isoquant–a level at which it has remained since. The yellow circle near the middle of the plot shows the last month where we dipped below the 1000 isoquant; however today we crossed above it again.

For the time being it looks as though the 1000 isoquant will be the line in the sand for the gold-USDX system. For the gold price to go to $1000, the USDX would have to go to 100. Not impossible, but the world would have to be in pretty dire shape for us to see that, methinks. If the USG is successful in debasing the dollar to win the trade war, we might see a little advance in gold, but I'd expect it to follow the 1000 isoquant for the next six months at least.


    



via Zero Hedge http://ift.tt/1eZjRaq Tyler Durden

Market Trading Hours During The US Holiday

You asked, we answered.

  • New York, Chicago trading floors: closed
  • CME Equity products closes at 11:30 AM Eastern, resume trading at 6:00 PM Eastern
  • CME and CBOT Interest Rate & FX Products close early at 1:00 PM; resume trading at 6:00 PM
  • NYMEX, COMEX early close 1:15 Eastern; resume trading at 6:00 PM Eastern
  • NYSE Liffe – Normal close
  • Eurex – Normal close


    



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Into The Gold Labyrinth

Gold_Labyrinth

The surprise of 2014 is gold! The yellow precious metal had its fourth week of gains in a row. It seems like the gold market has been ‘set free’ in 2014. This would mean the end of the cyclical correction, which indicates that the market is ready for the big and final phase of the secular bull run in gold. All of this fits perfectly with everything we have been saying for years about gold.

For those who didn’t notice, please read our free Guide to Gold.

One thing becomes very clear here: gold is moving from the West to the East. Chinese gold import from Hong Kong has been rising dramatically since 2011 and at the same time, the gold price has seen a 30% correction. This brought up a lot of questions from subscribers.

Hong-Kong-China-monthly-net-exports-gold

Source: Toqueville Funds / Bloomberg

“How is it possible that the price goes down when there is huge demand?!” To know the answer you have to look at the futures market. Because that is where the market price for gold is set. Yes, you read it well: paper contracts dictate the price of the physical metal.

Since 2011 there are a lot of ‘sell contracts’ for gold, better known as short positions. This caused huge downward pressure on the gold price. An ideal way for China to buy physical gold cheaply. But the Chinese were not the active shorters. American investment banks did that, with JPMorgan in the lead. JPM, AKA, the ‘banker’ of the US government.

JPMorgan built up an historical short position over the years. But at the same time, the bank was bringing in more and more physical gold to store it in its vault below the famous Chase Manhattan Plaza in New York. Where does this gold come from? Just look at the chart for the registered physical gold at warehouses with the COMEX, the American futures market.

COMEX warehouse gold

Source: 24hGold

The COMEX has been sucked dry in the last year. You will never guess who recently signed a sale agreement for the JPM building in the center of New York, underground gold vaults included… yes, you got it, the Chinese!

Those who want an even better view, should check out the next photo of the new situation in NY.

JPMorgen Chase Manhatten Building now belongs to the Chinese

(H/t Koos Jansen)

Yes, that is correct, the vaults of the Fed are right across from the Chase Manhattan Plaza. Coincidence? We do not think so… But the reserves in the US are naturally insufficient to satisfy the Chinese hunger for gold. The effect of the price correction made sure that the ‘weak hands’ in the gold market let go of their gold. Weak hands is a synonym for (small) investors.

Since the rise of the SPDR Gold Trust ETF (GLD) in 2007, more and more investors committed larger amounts of capital to the gold ETF. At the peak of the market there were 1,300 tonnes of gold in GLD, more than countries like China. That was also not part of the Chinese plan. You probably understand by now where this is going. When the gold price got shaken up, those same investors stepped out of GLD.

Meanwhile, more than 500 tonnes of gold was pulled out of GLD, which implies that the ETF has less than 800 tonnes of gold today.

GLD tonnage gold holdings

Where did all this GLD gold go? From the vaults in London, to the smelters in Switzerland to the depots in… Hong Kong! And now we are full circle again: the enormous transfer of gold from Hong Kong to China. All of this – large scale price manipulation in combination with huge gold transfers – is not a walk in the park. All parties need to cooperate.

So it would be hard to imagine that it did not happen with the approval of the US government and the Fed. And probably forced by China! Let us clarify that. China has stopped buying US debt since 2011. That was also the moment that the Fed needed to jump in to support the market. After QE we quickly saw QE2, QE3…

QE Fed base

Without these actions from the Fed there would not have been a single buyer of US Treasuries, which would probably mean the end of the American empire. China wanted, or rather demanded, its gold from the West! You can say many things about the Chinese but they certainly are not dumb.

The Chinese realized that for years they received a poisoned gift from the Americans. Only through the acquisition of gold, both world powers would be on a ‘level playing field’ again. Of course, we do not know where this level playing field is, but we do assume that China has more or less reached it. How much gold landed in China since 2011, is very hard to determine. In 2013 alone, more than 2,000 tons was transferred from Hong Kong to China. And this is just one of the import routes. China is not just buying gold from its own gold mines, but is also directly or indirectly the largest customer of most gold producers. All melted gold also found its way to China.

In short, China was the gold market in the last two years!

However, we are spotting a few signals indicating that China is releasing its grip on the gold market. Not only has the continuous drain from GLD stopped, but we also read that China has started buying US Treasuries again. Even more, the Chinese portfolio of US government bonds is at record levels! Now you also know why the American central bank suddenly started ‘tapering’, or scaling back the buyback program of US debt.

Does China have enough gold then? It would not surprise us.

A small calculation taught us the following:

  • The US owns more than 8,000 tonnes of gold while the yearly US GDP is just shy of 16 trillion dollars. The yearly GDP of China is a little over 8 trillion dollars, almost half. You would expect then that the level playing field for gold in China hovers around 4,000 tonnes.
  • The official amount of gold in the Chinese central bank is still 1,054 tonnes today, but because of the huge gold transfers these last years, we expect that China is close to its golden level playing field.

We do admit, it is a lot of information to digest, but it is extremely important! You have to understand that the US, with the largest pile of debt in the world, would be helped hugely by a higher gold price. The higher the value of gold, the lower the real value of their debt. We have the feeling that if China loosens its grip on the gold market, the gold price can move up quite fast. There is nothing that America wants more and China is now well-hedged.

Where can the gold price go to then? Another small calculation to help us out…

The historical ratio of the monetary base of the Fed teaches us that a gold price of 5,000 to 7,000 dollars/ounce should be enough for the US to make its debt bearable again. From the current level this means at least a quadrupled gold price. For most people this seems improbably high, but do not forget that since the start of the secular trend in gold, its price already went 5x higher. Also in the 70s, the gold price skyrocketed in its second phase from 100 dollars to 850 dollars per ounce in barely four years!

As for now, we’re in the midst of the bottoming proces with gold. Once this proces ends- lets say above 1,300 dollars – the gold price could see a voilent upswing towards 1,550 dollars, where the next battle field arrives for gold. We prefer to play the next U-turn in gold with a selection of quality gold stocks, as the current leverage to the gold price – risk/return – is the best in years, even decades!

Download our Free ‘Guide to Gold’

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The US Is Closed, But Markets Elsewhere Are Open – Full Overnight Summary

On MLK Day, we party like its 1991… in the Shanghai Composite that is. The main Chinese index slid another 14 points overnight to its lowest level since the June near-banking sector collapse fireworks, entering 1-handle territory once more, and making a mockery of all those who still don’t get that since the Chinese stock market is so shallow, the only bubble in China is in its housing market which unlike the stock market is rising just shy of 20% annually.

But the reason why China’s GDP missed even though it beat last night, when it posted 2013 GDP growth of 7.7%, higher than the 7.6% expected, is that as the Bloomberg chart below shows, it was the lowest nominal growth since the financial crisis.

And since overnight liquidity in China collapsed once again, the PBOC announced it had provided short-term liquidity to some big banks today, and that it would conduct a reverse repo tomorrow. Of course, with the January 31 Trust default just 11 days away, the Chinese liquidity tinderbox is locked and loaded especially with the Chinese New Year just around the corner.

In other news, European stocks recovered from a lower open and gradually edged into positive territory, with the DAX index outperforming where ThyssenKrupp shares advanced by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, in spite of consensus beating retail sales data from the UK, the FTSE-100 index underperformed its EU peers, weighed on by Royal Dutch Shell which issued an unexpected profit warning and consequently sent share tumbling at the open. As a result, in spite of higher oil prices, oil & gas was the only sector to trade in the red.

Looking elsewhere, GBP surged across the board following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. At the same time, UK rates curve steepened, with Gilts moving into negative territory as a result. Going forward, market participants will get to digest earnings release by MS and GE, as well as Housing Starts and Building Permits from the US.

There is nothing on the US calendar today as the US is closed for holiday

Market level recap

  • S&P 500 futures little changed at 1833.7
  • Stoxx 600 down 0.1% to 335.5
  • US 10Yr yield down 0bps to 2.82%
  • German 10Yr yield down 0bps to 1.75%
  • MSCI Asia Pacific down 0.3% to 139.2
  • Gold spot up 0.1% to $1255.3/oz

Asian Headlines

The PBoC said it sees increased positive signals in the economy and that it will maintain appropriate liquidity and credit and social financing growth. (RTRS) PBOC’s Weibo says Jan. lending is rising fast and the PBOC have asked banks to tame pace of lending and adjust banking liquidity at proper time. (BBG)

EU & UK Headlines

UK Retail Sales Ex Auto (Dec) M/M 2.8% vs Exp. 0.3% (Prev. 0.4%, Rev. 0.2%)
UK Retail Sales Ex Auto (Dec) Y/Y 6.1% vs Exp. 3.2% (Prev. 2.3%, Rev. 2.1%)
UK Retail Sales Incl. Auto (Dec) M/M 2.6% vs Exp. 0.3% (Prev. 0.3%, Rev. 0.1%) – Joint highest on record
UK Retail Sales Incl. Auto (Dec) Y/Y 5.3% vs Exp. 2.5% (Prev. 2.0%, Rev. 1.8%) – Highest since October 2004

– The ONS says the rise in sales was driven by smaller stores where annual sales grew more than three times faster than in bigger stores.

Eurozone Construction Output (Nov) M/M -0.6% vs Prev. -1.2% (Rev. -1.1%)
Eurozone Construction Output (Nov) Y/Y -1.7% vs Prev. -2.4% (Rev. -2.3%)

Fitch affirmed Netherlands at AAA; outlook negative. S&P revised Portugal sovereign credit outlook to negative from credit watch negative; rating maintained at BB, affirmed Malta at BBB+; outlook stable and affirmed Slovenia ratings at A-; outlook stable. (BBG)

BofA Merrill Lynch have upgraded its Q4 GDP forecast for the Eurozone to 0.3% Q/Q from 0.1% Q/Q, and its 2014 GDP forecast to 1% from 0.8%. (BofA)

RBC sees the first UK rate rise in November 2015 vs August 2016 previously and says the BOE may lower unemployment threshold to 6.5%. (BBG)

UK Chancellor Osborne has called for an above inflation rise in the minimum wage from GBP 6.31 to its pre-recession value of GBP 7.00 per hour.

French Finance Minister Moscovici is aiming for GDP growth of more than 1% in 2014 and has repeated 2014 GDP growth forecast of 0.9%. (BBG)

A new accounting standard adopted by the EU from September may reduce Italy’s debt-to-GDP ratio – the second highest in the region after Greece, by as much as 2 percentage points, according to an official at Italy’s statistics agency ISTAT.

US Headlines

US Senate voted 72-62 to send the USD 1.1trl government spending bill, which would fund the US government through September 30th, to President Obama to sign. (BBG)

Equities

Heading into the North American open stocks in Europe are seen broadly higher, with the DAX index in Germany outperforming its peers where ThyssenKrupp shares surged by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, oil & gas related stocks failed to benefit from higher oil prices and the sector underperformed its EU peers since the get-go, weighed on by Royal Dutch Shell which issued an unexpected profit warning. Of note, given that today also marks expiration of various equity option contracts may result in erratic, albeit short-lived price action around expiration times.

FX

GBP/USD rallied over 100pips and moved above its 21DMA line following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. Broad based GBP strength saw GBP/JPY also move above its 21DMA line, with the consequent JPY weakness also ensuring that USD/JPY was able to move into positive territory.

French President Hollande has said the EUR rate is particularly high. (BBG)

Deutsche Bank sees Turkish GDP growth at 2.8% in 2014. (BBG)

Commodities

Commerzbank sees gold rising to USD 1,400 by end of year, as well as a revival of commodity investment demand in 2014 and forecasts copper to average USD 7,600 in 2014. (BBG)

Morgan Stanley have said that gold prices look likely to remain under pressure this year with rising US interest rates and we remain firmly of the view that far greater upside lies with the platinum group metals and palladium in particular. (DJN)

South Africa’s National Union of Mineworkers accepts Northam platinum wage offer according to Tantsi and the platinum strike has been called off’. (BBG/Twitter)

Morgan Stanley say Brent to average USD 103/bbl in 2014 on higher supply. Brent crude is to peak in Q1, fall in Q2 on refinery maintenance, according to a Co. report. (BBG)

* * *

We conclude with the overnight summary by DB’s Jim Reid

Markets have started the week on the back foot, despite a brief rally following a better-than-expected Q4 GDP print in China. Indeed, Asian equities recorded a small pop following the GDP report, but the gains were shortlived as the general negativity on China’s growth trajectory continues to weigh on Asian markets. In terms of the data itself, China’s Q4 GDP (7.7% YoY) was slightly ahead of expectations of 7.6% but it was slower than Q3’s 7.8%. DB’s China economist Jun Ma maintains his view that economic growth will likely accelerate in 2014 on stronger external demand and the benefits from deregulation. The slight slowdown was also evident in China’s December industrial production (9.7% YoY vs 10% previous), fixed asset investment (19.6% YoY vs 19.9% previous) and retail sales (13.6% vs 13.7% previous) data which were all released overnight. Gains in Chinese growth assets were quickly pared and as we type the Shanghai Composite (-0.8%), HSCEI (-1.1%) and AUDUSD (-0.1%) are all trading weaker on the day. On a more positive note, the stocks of mining companies BHP (+0.29%) and Rio Tinto (+0.26%) are trading flat to slightly firmer and LME copper is up 0.1%. Across the region, equities are generally trading lower paced by the Nikkei (-0.5%) and the Hang Seng (-0.7%). Staying in China, the 7 day repo rate is another 50bp higher to a three month high of 9.0% with many investors continuing to focus on the Chinese shadow banking system following the looming restructuring of a $500m trust product that was sold to ICBC’s customers. The PBoC said late last week that it expects cash demand to increase substantially before the Lunar New Year on Jan 31st and it has asked banks to pare back the pace of lending in preparation for this.

Last week ended on a sour note as the S&P500 (-0.39%) faded into the close on the weight of a number of profit warnings and earnings disappointments. The big headline misses came from the likes of General Electric (-2.3%) and Intel (-2.6%) – the latter reporting disappointing earnings on the back of continuing weakness in traditional PC demand. Morgan Stanley (+4.4%) bucked the general trend by reporting a solid Q4, courtesy of strong performances in investment banking and capital markets. But overall the S&P500 has managed a fairly lacklustre Q4 reporting season thus far, with just 60% of the 50 companies that have reported managing to beat analyst estimates. The picture on the revenue side is about the same with 63% of companies beating expectations on the top line. Looking deeper at the earnings beats/misses so far, it’s clear that the financials sector has had a decent earnings season, with 13 financials beating EPS estimates and only 6 missing. On the other side of the ledger, the clear underperformer is consumer services, specifically retail where only 2 companies have met sales estimates but 6 have missed. Our oft-used earnings summary table for the S&P500 is included in today’s PDF. We’ll be updating this for both the S&P500 and Stoxx600 as we head deeper into the earnings season.

Briefly recapping the weekend news flow, the ECB has reportedly given selected Euroarea banks three weeks to submit details of their trading books and risk models as part of the central bank’s upcoming asset quality review. Banks have until January 31st to provide data on trading book portfolios, applying common definitions used in regulatory and accounting standards where possible (Reuters)

Also in Europe, after the US markets closed on Friday, Ireland was upgraded by Moody’s back to investment grade (Baa3 from Ba1) with the rating agency noting the dual tailwinds of an improving fiscal outlook and the government’s exit from the EU/IMF programme as the rationale for the upgrade. In Asia, the latest home price data from the Chinese government showed that average new home prices in 70 major Chinese cities climbed 0.4% in December on the month, easing from November’s +0.5% and seeing the fourth straight slowdown since August’s 0.8% gain. Average nationwide new home prices are up 10% YoY. Elsewhere in Asia, the Bank of Japan is said to be planning to raise credit lines for low interest loans to entities that are showing increasing financial support to industries such as the environment, medicine and welfare (Nikkei).

Previewing the week ahead, the coming week will be a little more quiet than usual with a holiday-shortened week in the US and a relatively light economic data calendar. But there are still a number of important data releases ahead of the month-end FOMC on January 29-30th. The main US economic data releases this week will all come on Thursday with the release of initial jobless claims, the Markit flash PMI and existing home sales. This week’s jobless claims also coincide with the survey period for January payrolls. The 3rd week of US reporting season will see 69 S&P 500 companies reporting, accounting for 17% of index market cap, including Microsoft, P&G, IBM, Verizon and McDonald’s. The US Treasury will auction $15bn of 10yr TIPs on Thursday. US equity and bond markets will be shut today for the Martin Luther King Day long weekend.

In Europe, the highlights on the data docket include Tuesday’s German ZEW Survey and Thursday’s flash PMIs for the EZ/France/Germany. In the UK, watch for the unemployment which will be released on Wednesday, where expectations are for unemployment to fall to 7.3%, edging closer to the BoE’s 7% forward rate threshold. The latest BoE minutes are released on Wednesday. The World Economic Forum meets in Davos, Switzerland starting Wednesday with the IMF due to release its latest world economic outlook a day ahead of that.

In Japan, the BoJ monetary policy meeting is scheduled on Wednesday where the central bank will provide its three year economic outlook. In China, the HSBC flash manufacturing PMI is on Thursday where consensus is expecting a further slowdown to 50.3 (from 50.5 in December).


    



via Zero Hedge http://ift.tt/KxcdYT Tyler Durden

Does the US Need a Third Political Party?

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The short and sweet answer to this question is yes, yes and yes. For the past 5-6 years the United States has experienced something that no one ever thought could happen. That being political gridlock and with gridlock its means that nothing will happen. No decisions will be made and if they are, in all likelihood they’ll be half measures. The United States is unique in that for a democracy we only have two political parties. In any other democratic country there are 3-5 political parties such that people can truly pick and choose who they want in office. The other major difference is that in other countries if the prevailing political party isn’t doing the job, they are voted out of office even before their term is up. In the US we are stuck with political leaders who even if they aren’t doing the job; well we’re stuck with them for up to 6 years (Senate). It gives new meaning to the term “lame duck” and quite frankly we have too many lame ducks in government.

In the interest of full disclosure, I used to be a Democrat. I was a Democrat because I believed that the Democratic Party was the party of the people. I’m now more Independent that ever and the reason is I don’t believe the Democrats are any better than the GOP. Plus I’m old enough to remember the Cuban Missile Crisis and how then President Kennedy led us out of that disaster. Quite frankly, the only politician I think highly of these days is Bernie Sanders because at least he tells it like it is. The prevailing politicians in Washington, DC seem perfectly content to allow the government to run on autopilot with no leadership whatsoever.

Want proof? The upcoming Budget Bill that was just approved by the House and senate will now go to President Obama for approval. This budget was devised by Senator Patty Murray (Democrat) and Rep, Paul Ryan (Republican). This bill contains no provision whatsoever for any extension of UI. Yet Democrats in both houses approved it and no one even raised a red flag concerning this issue. On December 28th millions of Americans were dropped from the UI rolls regardless of where they were in terms of UI benefits. In other words many Americans had 20 weeks to go before they exhausted their benefits and were dropped prematurely. And we wonder how the Unemployment Rate dropped from 7.0 to 6.7 percent with only 74,000 jobs created? Mathematically that is impossible. The only way it can happen is if millions aren’t being counted as unemployed. Well guess what? When you drop off Unemployment you’re considered to be “employed” even if you aren’t. If you really want a true measure of the employment situation in the United States then look at the Department of Labor’s U6 rate. This shows the true picture as it takes into account the total number of long term unemployed. That number rest at 12.7 million and yet no one pays attention to this. Everyone is perfectly content to look at the official rate and say “see, things aren’t so bad the unemployment rate is going down” or they’ll look at the JOLTS Job Report and say “see, we have 4 million vacant jobs, those unemployed people don’t want to work.” It doesn’t exactly help when we have 12.7 million long term unemployed.

So what does Obama do? He tries to push through an extension via a bill that was voted down this past week. The issue? The Senate requires a majority of 60 votes and the final number came in at 55. Since when is 55 not a majority? The fact is that despite all the rhetoric regarding his record of job creation, the jobs that have been created are low level, minimum wage and menial at best. The American people expect more from their leaders but sadly won’t get it with this crowd in DC. The fact is that the folks in DC live in an insulated, glass bubble and don’t live in the real world. When they go home to talk to constituents, who do they talk to? Campaign contributors, not the average Joe. The average Joe has no voice with these people unless they wish to spend their lives writing letters.

In Ancient Rome there was a two party system: the Patricians and the Plebes. The Patricians represented the “high net worth” folks and the Plebes represented everyone else. This system did not work and required a Caesar to break the deadlock. Problem was that Caesar had absolute power and that always corrupts absolutely.

Originally posted: Does the US Need a Third Political Party?

You might also enjoy: USA:The Land of the Not-So-Free


    



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Death to Forex

The Forex market is dead and dying, in parallel with the US economy; which is fitting, considering the US is still the world reserve currency.  

Significant harbingers that have changed the Forex market forever:

For those readers who believe this is all part of a ‘conspiracy’ to issue in a one world currency, read the following Kissinger transcript post Nixon shock (in part):

Secretary Kissinger: But if they ask what they’re doing—let me just say economics is not my forte. But my understanding of this proposal would be that they—by opening it up to other countries, they’re in effect putting gold back into the system at a higher price.
Mr. Enders: Correct.
Secretary Kissinger: Now, that’s what we have consistently opposed.
Mr. Enders: Yes, we have. You have convertibility if they—
Secretary Kissinger: Yes.
Mr. Enders: Both parties have to agree to this. But it slides towards and would result, within two or three years, in putting gold back into the centerpiece of the system—one. Two—at a much higher price. Three—at a price that could be determined by a few central bankers in deals among themselves.
So, in effect, I think what you’ve got here is you’ve got a small group of bankers getting together to obtain a money printing machine for themselves. They would determine the value of their reserves in a very small group.
There are two things wrong with this.
Secretary Kissinger: And we would be on the outside.
Mr. Enders: We could join this too, but there are only very few countries in the world that hold large amounts of gold—United States and Continentals being most of them. The LDC’s and most of the other countries—to include Japan—have relatively small amounts of gold. So it would be highly inflationary, on the one hand—and, on the other hand, a very inequitable means of increasing reserves.
Secretary Kissinger: Why did the Germans agree to it?
Mr. Enders: The Germans agreed to it, we’ve been told, on the basis that it would be discussed with the United States—conditional on United States approval.

 

Secretary Kissinger: They would be penalized for having held dollars.

These are not very sophistocated guys, according to the transcript (Conspiracy Theorists are encouraged to read the FULL transcript), but it does give credibility to the rumor that Arthur Laffer explained economic policy to Dick Cheney and Donald Rumsfeld in a bar by drawing a half circle on a napkin.

So, how does the Death of Forex have an impact on my portoflio?  How is this information valuable to me, and not just for Fortune Cookies?

1. If you are considering participating in Forex, or are already doing so, and you are a US Citizen or live in the US, consider setting up something outside of US, legally.

2. If you are a portfolio manager, hedge yourself from a potential collapse of your domestic currency.  There are plenty of high quality articles on Zero Hedge that outline this, just remember that if the US Dollar collapses it may be orchestrated with the ECB, now being run by an American trained MIT alumni, so if the USD goes down it doesn’t mean exactly that the EUR will go up.

3. If you are investing internationally, be sure to hedge your Forex position with forwards, options, and avoid huge bank spreads that can be as high as 14% of your total transaction (up to 700 pips per side).

4. Unless you are forced by circumstance, or are extremely intelligent, experienced, and sophistocated, DO NOT INVEST IN FOREX, especially with 3rd party ‘managers’ that boast consistent usually unrealistic returns.  

5. Stay out of cash as much as possible, a big Forex market event can create hyperinflation, or even black market rates as we’ve seen in Argentina and India, or make the use of currencies in certain venues difficult or prohibited.

A final thought, about the biggest players in the world’s largest market by volume.  Germany is the economic backbone of the Eurozone and thus the Euro.  Euro is currently the only alternative to the US Dollar, and US Bond market.  Here’s a passage about the banking culture in Germany, with their most important FX banks:

The Commerzbank Tower is 53 stories high and unusually shaped: it looks like a giant throne. The top of the building, the arms of the throne, looks more decorative than useful. The interesting thing, said a friend, who visited often, was a room at the top, peering down over Frankfurt. It was a men’s bathroom. Commerzbank executives had taken him up to the top to show him how, in full view of the world below, he could urinate on Deutsche Bank. And if he sat in the stall with the door open …

 

Urinals pissing on DB

 

Just a thought, considering the current sentiment against the FX trading banks, maybe it would have been better, in hindsight, to instead invest in some dynamic model for FX.  But every organization reaches it’s ultimate level of optimization, in the case of this Forex environment, it involves the excretion of one of the few products we can all agree that Germany does well (beer), and is combined with the alleged manipulation (cheating) of FX dealers.   It paints a sad and surreal death the the modern Forex market.  


    



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Philippine Navy Adds To Regional Arms Build-Up As China Words (And Deeds) Escalate

Submitted by Luke Hunt via The Diplomat,

The Philippine navy hopes to add two more warships to its fleet as Southeast Asian countries continue to expand their militaries in response to the Chinese government’s increasingly assertive territorial ambitions in the South China Sea, also known as the West Philippine Sea.

 

Armed forces chief of staff General Emmanuel Bautista said the new acquisitions would come under the fresh U.S. military assistance plan announced last month by U.S. Secretary of State John Kerry when he visited the Philippines.

China began widening its territorial claims about five years ago to include nearly all of the seas dividing Southeast Asian countries and their northern neighbor. The claims defy international standards and maritime law, and Beijing refuses to have the dispute heard before an international court.

Its attitude has angered Vietnam, Malaysia, Brunei and the Philippines, but the four countries have struggled to forge a united front within the 10-member Association of Southeast Asian Nations (ASEAN) when dealing with Beijing over the issue.

Adding to recent tensions was Liu Yazhou, political commissar at the People’s Liberation Army National Defense University, who said in a magazine interview that the Chinese military could match the U.S. by “seizing opportunities.”

“An army that fails to achieve victory is nothing,” Liu was quoted as saying by a defense magazine “Those borders where our army has won victories are more peaceful and stable, but those where we were too timid have more disputes.”

That type of language again irritated its neighbors.

The Vietnamese have for the first time publicly marked a naval battle fought against China over disputed islands 40 years ago. Commemorations came a month after the Chinese government published new rules requiring foreign fishing vessels to seek Beijing’s permission to operate in much of the South China Sea.

Taiwan has rejected those regulations, described by some as potentially state piracy, while others have rejected or ignored them.

Vietnam has also moved to bolster its own defenses, taking delivery of its first Russian-made Kilo class submarine, which is part of substantial military upgrade by Hanoi – primarily through a multi-billion-dollar deal with Moscow. Malaysia has also added two French-made Scorpene submarines, boosting its own maritime capabilities.

Indonesia and Singapore are also expanding their fleets in what The New York Times described as “The Submarine Race in Asia.” The paper noted that much of this arms competition was being propelled by growing wealth in Southeast Asia but added these countries and China should realize that increasing their armaments can only undermine their security as well as the stability that nurtures their economies.


    



via Zero Hedge http://ift.tt/Kokvmt Tyler Durden

Chinese Money Markets Spooked Despite Slight Beat (And Miss!) In GDP

Chinese overnight repo rates were already on the rise (several trades at 5.5%: 200bps above Friday's close) as contagion concerns over wealth management product default spreads and the Chinese Business Climate Index tumbled to its lowest since June 09. Equity futures were sliding also with JPY strength and the Shanghai Composite was testing down towards the 1-handle once again. Then, amid the glorious nashing of spreadsheets and in the face of missed manufacturing and services PMIs, Chinese GDP (according to the Chinese government) came in at a better-than-expected 7.7% YoY (7.6% exp.) and handily above the all-too-crucial-to-hit 7.5% target GDP growth – but in keeping with the Schrodinger plan missed QoQ expectations (+1.8% vs +2.0% exp.). Industrial production also miraculously met expectations of 9.7% perfectly; and (shocker) Retail Sales perfectly matched expectations of 13.6% YoY. The results of all this 'meeting expectations' – JPY weakness (back down to 104 instantaneously) and implicitly US equity futures regain some momentum and scramble back close to unchanged.

 

Chinese money markets are concerned…

 

China's 4Q Business Climate Index dropped to 119.5 from 121.5 (lowest since June 09); and the Entrepreneur Index also fell to 117.1 from 119.5 (also the lowest since June 09)

 

But GDP beat expectations on a YoY basis…

 

But misses on a QoQ basis – QoQ annualized growth only 7.4% down from 9.1%

 

The response – JPY weakness and US equit yftures picks up

For a sense of just how well "managed" (or how well "trained" the analysts are) the Chinese economy is – by that we mean goal-seeked –

  • US Q4 GDP "guess" at 3.3% has a +/-0.4% error… (about a 13% standard error)
  • China's Q4 GDP "guess" at 7.6% had a +/-0.1% error… (about a 1.3% standard error)

So does that mean China is 10-times better at Central Planning?

 

As Bloomberg's Michael McDonough ( @M_McDonough ) pointed out, here are the countries most dependent on Chinese demand for their exports…


    



via Zero Hedge http://ift.tt/Ko6uoN Tyler Durden

Firing Squads Set To Return With A Bang, As Lethal Injection Shortage Persists

Chalk this one up to US (f)austerity, and a $1.1 trillion omnibus spending bull that forgot to add Pentobarbital among the billions in pork spending.

Two months ago we reported that due to a shortage of Pentobarbital, Ohio would be unable to execute death row convicts. It appears that the shortage has persisted into the new year, and now some states are taking matters into their own hands. Or rather the hands of the firing squad. As NBC reports, due to the lethal drug shortage, lawmakers in at least two states to call for the return of firing squads. “Missouri state Rep. Rick Brattin, a Republican representing Harrisonville, introduced legislation Friday (.pdf) that would add five-person firing squads as an alternative to the state’s current method of capital punishment, lethal injection.”

Ostensibly, the reason why firing squads may be back with a, well, bang, is due to the “unethical” and “inhumane” prolonged death death last Thursday of Dennis McGuire in Ohio who was executed using a new combination of drugs that had never been used in a US execution before.

It took almost 25 minutes for McGuire, who was executed for raping and murdering a 22-year-old pregnant newlywed, to die gasping and choking Thursday from a new combination of drugs that had never before been used in a U.S. execution. McGuire’s family said Friday it intends to sue Ohio prison officials for what they called McGuire’s “torture.”

And while Missouri can still enforce the death penalthy using lethal gas, its gas chamber hasn’t been functional since 1965. Which means that should the legislation pass, a firing squad may be used as soon as January 29: “With the state’s next execution scheduled for Jan. 29, “we’ve been having all of these troubles getting the drugs to administer the lethal injection,” Brattin told the statewide radio network Missourinet on Friday. “I was just looking at a second option, something we could do if we had to utilize the death penalty and we could not administer the lethal injection,” Brattin said. Besides being “quick and something we could do at a moment’s notice,” he said, an execution by firing squad would be more humane than McGuire’s ordeal.”

While Oklahoma law provides for firing squads if lethal injection is ever ruled unconstitutional, only Utah actually continues to use them, and then only for inmates convicted before 2004 as it seeks to phase them out.

The current shortage of the traditional lethal injection of Pentobarbital may mean this changes soon:

State Sen. Bruce Burns filed a similar bill (.pdf) Monday in Wyoming, saying the state would have to do something soon before it runs out of approved drugs for lethal injections.

The good news: bullets are cheap.

State Sen. Bruce Burns filed a similar bill (.pdf) Monday in Wyoming, saying the state would have to do something soon before it runs out of approved drugs for lethal injections.

The better news: an all too ethical and too easily distracted society will very soon have even more violent and absolutely meaningless Twitter fights over the ethics of said firing squads (while it is actively pretending to look for a job)… and the NSA will be just as busy recording all of it.


    



via Zero Hedge http://ift.tt/1miHfjE Tyler Durden