Gold’s “Monkey Magic” – An Update on Gold and Gold Stocks

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Has a Bull Market Begun?

Gold stocks have risen so much and so fast recently that a pullback, resp. consolidation either has begun already or is likely to begin soon. We have therefore decided to post a brief update on the situation in order to discuss what might happen next. Back in late November, we made a few remarks in order to clarify why we have focused so much on the gold sector again since last summer.

driefontein processing plantProcessing plant of the Driefontein mine in South Africa – Photo via goldfields.co.za

Here are a few excerpts:

“When a market is down 83% like the HUI gold mining index is, we are generally more interested in trying to find out when it might turn around, since it is a good bet that it is “oversold”. Of course, if it makes it to 90% down, it will still be a harrowing experience in the short term.

We like these catastrophes because they usually mean “the stuff is cheap and there is probably something people don’t see”. That is definitely the case here, since one of the things that has been routinely ignored is the improvement in costs and cash flows that is slowly but surely progressing at many gold producers.”

Something evidently did get overlooked.

1-HUI resistanceThe HUI has rallied by about 57% in a mere three weeks – right after setting a trap for bears by briefly breaking below multi-month support. It has now reached an area of lateral resistance and is quite overbought, so some sort of consolidation is highly likely over coming weeks – click to enlarge. Continue reading

Fundamental About Oil

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The front month WTI futures contract traded as low as $27.27 this morning, a few dimes less than the low of January 20. Just three months out, however, the June 2016 contract is trading at $33.17 and up $0.43 on the day (as of this writing). Just two months further to August, that futures price is $35.11, up $0.53 on the day. That’s about $8 contango just in the five months. This sharp “hook” downward in the oil curve is the signal of liquidation, and unorderly at that.

Trading earlier this week certainly reflected that up and down asset markets, as liquidity strains were evident in widespread fashion. The effect in oil has been devastating, however, as those optimists still suggesting this is all about “supply” are finding the liquidations “winning” the curve battle. In other words, basic economics suggests that demand should rise at lower prices, even with the “friction” of supply, but the persisting liquidations and the cumulative effect has only been lower and lower. The oil curve, like money curves everywhere, is prisoner of a dark economic future.

ABOOK Feb 2016 Oil Curve History 2015

For much of last year, the idea of “transitory” was at least plausible for the longer maturities. After the first wave of the “dollar” and related oil crash, the WTI curve attained an almost simplistic consistency in that respect. As you can see above, from March until early July, no matter what was going on up front, the back end (later 2017 and out) remained largely undisturbed. The fact that this curve dynamic changed in early July is highly significant, representing the renewal of the latest “dollar” driven liquidations (run). Continue reading

The January Jobs Report Does Not Ensure a March Rate Hike

Submitted by Danielle DiMartino Booth – DB Money Strong

Investors should be alarmed by what the Fed will miss in the most recent slew of data on the state of the U.S. labor market. By the same token, they should be reassured that there’s is another payroll report ahead of the March Federal Open Market Committee meeting.

What messages will the Fed glean? Their in-house economists’ metrics will tell them that consumer spending will pick up in the months to come care of full-time job creation and accelerating wage gains. Indeed, wage growth last year was the briskest since July 2009 and January’s outsized 0.5-percent gain gives credence to those who’ve been warning about growing paychecks.

Expect the Fed to disregard the slide in job creation and conclude that a one-month aberration can be dismissed, as one month never makes a trend. In fact, when you average the gains, the trend in payroll growth is accelerating: the three-month average is 222,000, which outpaces the six-month average of 212,000, which in turn bests the 12-month average of 214,000.

The most encouraging aspect of the report, bar none, was the age cohort responsible for the decline in the unemployment rate to an eight-year low of 4.9 percent. The Lindsey Group’s Peter Boockvar points out that the bulk of the gains in the household report came from those ages 25-54 years old.

“In this ripe-age-for-working category, 607,000 more got jobs while there was little change for those aged 16-24 and over the age of 55, in sharp contrast to the prior month and in this cycle,” Boockvar noted.

So the increase in the labor force participation rate and wages, coupled with the decline in the unemployment rate and no disaster in average gains will probably be where the narrative ends for Fed policymakers. Janet Yellen is sure to applaud the improvement in the jobs market when she testifies to Congress next week. Expect speech after speech to echo this merry sentiment in the weeks to come, putting investors further on edge. Continue reading

Take Cover – Now Comes The Gong Show

It was a bad hair night for the Beltway. Among the roughly 515,000 votes cast in the New Hampshire primaries, about 55% or 280,000 went to Bernie, the Donald and Senator Cruz. That is, the preponderance of Republican, Democrat and independent votes alike went for the anti-establishment candidates.

Since the latter are basically campaigning against the Imperial City and all of its careerists, cronies and corruptions, the first impulse is to cheer them on. After all, nothing could be worse than the self-perpetuating gang of war mongers, welfare statists, K-Street lobbyists and pork-barreling politicians who rule the nation today from their permanent berths in Washington DC.

Unfortunately, there is something worse. When you combine the mindless raw populism of Bernie and the Donald with the rapidly advancing lunacy and desperation of Janet and her baleful band of money printers you have a combustible recipe for abrupt system failure. American capitalism and democracy as we have known it could blow sky high by the time this election cycle is complete and a new President settles into office.

Before elaborating on that dismal note, however, let me first dispatch with Senator Ted Cruz. He unfortunately has the Ronald Reagan mutation when it comes to his political genome. I admire his resolute opposition to Big Government at home and his demonstration in Iowa that you can stand-up to a big, thieving special interest group like the Ethanol Lobby, and still win elections.

On that score, I recall my third election to Congress in 1980 from a small town district in Michigan. Even though it was a hotbed of Chrysler supplier plants and evangelical right-to-lifers, I helped lead the charge against the Chrysler bailout on the House floor and voted against the Hyde anti-abortion amendment dozens of times, thereby earning the wrath of Chrysler CEO Lee Iacocca in Detroit and the so-called pro-life lobby in Washington. Continue reading

The Double Fallacy Recovery

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Everyone knows the Titanic sank in April 1912, and if they didn’t they were reminded only a few years ago at its centennial. Less well known, for good reason, is the novelFutility, written by Morgan Robertson in 1898 years before Titanic had even been conceived. Robertson’s book includes the largest vessel ever constructed and he even offered it the name “Titan.” And much like the real Titanic, Titan carries only about half the lifeboats necessary for all the souls onboard and even strikes an iceberg in the Atlantic closing in on Newfoundland.

The physical descriptions of the ship in the novel were eerily close to what Titanic would eventually become; including a capacity for 3,000 passengers and crew, the configuration of the masts and even the propellers. To some, Robertson was a visionary if not a prophet. The legend survives to this day because of those similarities.

It is not well-known beyond the committed because the similarities end there. And even the seeming connections are not all that fantastic to begin with; in 1898 large ships were attaining that configuration and size, Robertson merely imagined what the next steps might be. Further, the route through the North Atlantic was just common and icebergs a quite familiar hazard especially at night (both Titan and Titanic met their fate around midnight).

Thinking the novel some kind of wizardry on the part of Morgan Robertson is an example of the Texas Sharpshooter fallacy. In this specific case, observation has proved that view correct as Robertson does not ever again appear in the same visionary capacity. Continue reading

Without More Democracy Europe is Doomed

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

Screen Shot 2016-02-11 at 07.44.44Former Greek Finance Minister Yanis Varoufakis has inhabited many guises. The “rock star economist”, “the bad boy of capitalism”, and even “Dr. Doom”—the latter referring to his rather gloomy worldview and tendency to predict economic Armageddon.

An economics professor by trade, he was an unusual choice for the role of Finance Minister in the left-wing Syriza government, with his open-necked shirts, leather jacket and radical, anti-austerity views. The media might have been mesmerized by his stint in government at the height of the Greek debt crisis from January to July 2015, but his fellow Eurozone ministers, with whom he repeatedly clashed, were less enamoured. He was forced to resign before a new bailout could be agreed for his beleaguered nation.

Now Varoufakis has a new role, as spokesman for a pro-democracy movement that launched on Tuesday in Berlin. Billed as a pan-European collective, DiEM25 (Democracy in Europe Movement 2025) aims to shift the balance of power away from the unelected Brussels bureaucrats and restore it to the people and their elected representatives.

Without this Varoufakis says, in typical fashion, the European project is doomed. Newsweek sat down with him to discuss his political future, the forthcoming U.K referendum on its EU membership, and his longstanding friendship with Margaret Thatcher’s former chancellor, Norman Lamont.

What is behind the launch of this new movement? Do you really see the European Union as a threat to democracy?

The EU as a decision-making body is a democracy-free zone. It’s a bit like being on the moon and speaking of an oxygen deficit when there is no oxygen, similarly in Brussels there is no democracy. There is democracy at the level of the nation state because there are parliaments, but the bodies that make the important decisions, such as the troika [the European Commission, the International Monetary Fund and the European Central Bank] and the Economic and Financial Affairs Council (Ecofin), are not answerable to anyone. The finance ministers all go home and denounce the decisions made by the Eurogroup but claim there is nothing they can do about it. Most of those decisions are made by shadowy bodies and bureaucrats that nobody knows about, let alone elects. That is why the European economy is the planet’s greatest financial black hole. Continue reading

The Walking Dead: Something is Rotten in the Banking System

Submitted by Pater Tenebrarum  –  The Acting Man Blog

A Curious Collapse

wizard bank 2

Ever since the ECB has begun to implement its assorted money printing programs in recent years – lately culminating in an outright QE program involving government bonds, agency bonds, ABS and covered bonds – bank reserves and the euro area money supply have soared. Bank reserves deposited with the central bank can be seen as equivalent to the cash assets of banks. The greater the proportion of such reserves (plus vault cash) relative to their outstanding deposit liabilities, the more of the outstanding deposit money is in fact represented by “covered” money substitutes as opposed to fiduciary media.

1-TMS- euro areaEuro area true money supply (excl. deposits held by non-residents) – the action since 2007-2008 largely reflects the ECB’s money printing efforts, as private banks have barely expanded credit on a euro area-wide basis since then- click to enlarge.

Many funny tricks have been employed to keep euro area banks and governments afloat during the sovereign debt crisis. Essentially these consisted of a version of Worldcom propping up Enron, with the central bank’s printing press as a go-between.

As an example here is how Italian banks and the Italian government are helping each other in pretending that they are more solvent than they really are: the banks buy government properties (everything from office buildings to military barracks) from the government, and pay for them with government bonds. The government then leases the buildings back from the banks, and the banks turn the properties into asset backed securities. The Italian government then slaps a “guarantee” on these securities, which makes them eligible for repo with the ECB. The banks then repo these ABS with the ECB and take the proceeds to buy more Italian government bonds – and back to step one. Simply put, this is a Ponzi scheme of gargantuan proportions.

Still, in view of these concerted efforts to reliquefy the banking system, one would expect that European banks should be at least temporarily solvent, more or less. Since they have barely expanded credit to the private sector, preferring instead to invest in government bonds, the markets should in theory have little to worry about. Continue reading

It Was Never About Oil

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The link between stock prices and oil has been especially high of late, and that has left quite a few traders and experts stumped. For a good long while any impact from oil was denied as only “transitory” or even helpful to consumers through some sort of “tax cut” effect. In January 2016, however, liquidations appeared regularly in one alongside the other. This is/was not supposed to occur. From last month:

“Absent an economic recession, stocks have fallen too far in my mind as a long-term investor,” says John Buckingham, who manages about $600 million as chief investment officer of Al Frank Asset Management…
“It’s a big move, and the sentiment in crude is driving pretty much all asset classes right now,” said Brett Mock, managing director at brokerage JonesTrading Institutional Services LLC.

Again today, stocks sold precipitously (in the morning) while oil crashed, as if there might be some common monetary theme behind all the liquidation efforts. It has left even the most veteran stock watchers as reluctant petroleum analysts still wondering why so much crude supply could be so devastating.

“It’s the oil tail wagging the market dog ,” said Art Hogan, chief market strategist at Wunderlich Securities.

That has left the “market” seemingly in desperation for the Fed to come back and save stocks as so many believed had happened before.

“There could be some growing optimism ahead of Janet Yellen’s testimony. She has in the past had the ability to push markets higher, although that’s diminished in recent years,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

It’s a nice fairy tale, but the very fact that stocks and oil are where they are suggests the Fed hasn’t been effective at all; particularly since all anyone will talk about is a looming recession contradicting everything monetary policy has described or promised. In fact, the entire idea of the “Greenspan” put, updated from Bernanke to Yellen, never materialized. When needed, when the market was most pressed, the Fed failed – spectacularly. And 2008 was not the first as this century has already witnessed just 15 years in two 60% declines in stocks (for the S&P 500; worse in other segments/indices). Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Europe Stocks Head for Worst Drop Since August as SocGen Plunges (BBG)
• Hong Kong Stocks Fall 4% in Worst Start to Lunar New Year Since ’94 (BBG)
• Yellen: Not Sure We Can -Legally- Do Negative Rate (CNBC)
• How Low Can Central Banks Go? JPMorgan Reckons Way, Way Lower (BBG)
• Kyle Bass Says China Bank Losses May Top 400% of Subprime Crisis (BBG)
• Bass: China Banks May Lose 5 Times US Banks’ Subprime Losses (CNBC)
• Germany’s DAX Is One Of The World’s Worst-Performing Stock Markets (BBG)
• It’s A Bad Time To Be A Bank (Ind.)
• European Banks Face More Energy Problems (CNBC)
• Energy Debt Fuels Broader Malaise (BBG)
• Is The Market In European Coco Bonds About To Pop? (Ind.)
• Some Hedge Funds Want to Make Subprime Auto Loans Next Big Short (BBG)
• The Mining Industry Makes Oil Giants Look Great (BBG)
• Why Does the US Government Pursue Student Debtors in Prison? (BBG)
• Notes from the Locked Ward (Jim Kunstler)
• When Will the Rest of Europe Want Its Own ‘Brexit’? (BBG)
• Will Greece Become a Refugee Bottleneck? (Spiegel)