5/18/12

This morning, something different. An MP3 of a Jim Kingsland Show segement with (click link…) Gene Kirsch, senior financial analyst with Weiss Ratings talking about the troubles at JP Morgan Chase and the Weiss D credit rating of JP Morgan.

The Jim Kingsland Show is brought to you by CAMI (this web site and associated company) and the Delaware Depository Services Company.

When you click the link the broadcast will load in your computer’s default media player. Simple as that!

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Facebook IPO, looks good for a short, after the initial 11 a.m. pop, or to completely stay away from until the dust settles. CNBC, whose web site is giving $FB the full court press with the top half of  the home page all FB, cheers that retail demand is the highest evah! That should be a warning sign – nothing like jumping into a crowded trade!!

Using similar valuation metrics, Apple would be worth trillions of dollars if it was priced like FB. It’s obvious people are going to pay up for future growth. At the $100 bln valuation (today) on $4 bln in revenue, there is no complicated math, FB has its work cut out for it. The advertising on the site will have to become unruly to pull in more revenue.

Greece and Europe continue to keep the stock market on a short leash.

Gold continues to rise after the Thursday pop. This is classic bounce from oversold. I still see a muddled outlook for the metals near term as long as the dollar remains firm. I have been seeing more references to Europe and the state of the world economy and how it may force, err used as an excuse for Bernanke to into QE3. Where have you read about that? Hmmm. I have no idea what I am talking about.

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5/17/12

Systemic Risk

A funny thought crossed my mind the other day. ‘What if Greece exited the euro-matrix and to everyone’s surprise there was economic recovery in the style of Iceland?’ I know, silly thought – apples to oranges comparison.   There are so many arguments against even a slightly positive outcome for Greece (especially with the banking cartel calling the shots). This is why I am not comfortable with the pre scripted scenario that is already impacting millions of people: namely (and according to banks), Greece formally defaults as opposed to selective default of a few months ago, euro bond liquidations occur and completely clobber the central bank concept of ‘stable markets’, the situation spirals out of control as Italy and Spain flee austerity and exit the euro (with more extreme market volatility), then Portugal, eventually France and ultimately Germany dump the euro leading to its death. Going further, the script also includes a polarization of nationalist tendencies and war eventually breaks out in Europe between the nationalist haves and have nots.   

My happy scenario concerning the thought of something positive contradicts what I’ve been writing for over a year (early to the game) that the euro is not long for this world. Should this end game script play out, it would seem that it would be all over for the euro within a few years or less. The overt systemic risk is clearly seen in Europe and if everything plays out as seems to be planned expect Europe to go completely go FUBAR at a massive cost to the masses with the spoils going to a remaining few Eurobanks.

The Chase Mess

But what matters more is what is going on behind the scenes. Let’s take the Chase situation as an example. The NY Times is reporting the $2 bln loss has as turned into a $3 bln loss. Will these losses replicate themselves further? Probably, but this isn’t the big enchilada that takes down the money center banks. Oh, if I am wrong and the banks implode overnight everyone will become instantly poor apart from retaining their worldly possessions, or hard assets like gold and diamonds, real estate – so it really won’t matter if I am right, or wrong. lol. It’s just that the big bank implosion the-day-after-tomorrow is an outlier imho.

However, from what my contacts in banking tell me (and I need to be careful about not exposing sources) is to follow the money trail and use a little imagination about JP Morgan and recent events involving the bank.

Side note: Read more here for a heap of rehash and worry: Systemic risk is everywhere and the derivatives exposure is a big problem with JP Morgan and other big banks. http://usawatchdog.com/jp-morgan-derivatives-exposure-systemic-risk-is-everywhere/

Certainly, it is true that U.S. banks have derivatives books containing notional value of $300+ trillion in potential exposure, with JP Morgan having the largest chunk of the derivatives exposure (a time bomb set to go off one of these fine days), but ‘people familiar with the situation’ suggest that the more egregious tie to The Morgan’s $2 $3 bln loss is connected to MF Global and the mystery of the $1.6 bln in assets that magically disappeared last year. Let’s play a game of pretend. Supposing  JPM managed to pick up the remains of MF before the spectacular collapse  at a steep discount and made bets to look like hedges in euro paper that recently went in the wrong direction (much like Corzine’s euro bet blunders). Then come the losses which force big Jamie Dimon with a big emergency conference call with complete vagueness about what was involved (trade secrets) except that JPM had a loss of $X bln due to troubles in Europe (always the convenient scape goat). Why. the other night I came home neglecting to buy milk. I conveniently blamed Europe and I was off the hook with my wife! Booyah!! 

But why oh why Jamie Dimon if this was just a good ole fashioned  hedging was it NOT accounted for via traditional GAAP accounting entry? This is the most damning evidence that we’re being told a crock of whatever you want to put in the crock.  The official story is just a big lie, that’s why. There is no hedge, it was hocus pocus to hide other mischief as in MF Global skulduggery which needed some digestion time. This is tied to wild eyed betting. Why not? The bank knows the Fed will bail it out.   

Oh yes,  Jamie, tell the lies to your sycophants.

I can see it now, this could spur mini panic and more calls for greater regulation (even after Dodd-Frank), which ultimately gives the big bankers more time to do their tricks and cheats ahead of the above euro disintegration scenario.

It would be funny and not surprising if more power ends up being given to money center banks under the guise of ‘what’s best for us’ due to whatever market nightmare that’s in the making.  These are just suspicions on my part, though they are fed by greater thinkers from the actual banking business. In a way I agree with Greg Hunter. Something bad is coming around, it’s just that I see future events unfolding in more maniacal and unexpected ways. Understanding dollars and cents alone doesn’t cut it. The numbers are huge and inconceivable. Analysts need to dig deeper to uncover the dark and more horrible motives. As the side view mirror says, ‘objects are closer than they appear’.

The landscape of the financial markets should make those who strive to analyze look deeper and beyond what they are fed. The various market places are not island unto themselves. The are a breeding ground of tangled alliances. Societies around the globe frown on marriages between direct relations (such as a brother and sister), but in the financial markets the relations are between the parents and children (a gross thought while you eat your moning toast). Everything is inter related in these markets.

Last week Jamie tried to tell us his bank’s hedges went bad when the spreads in CDS widened, but not in the underlying securities. If that was all there was to the story there would be no story, but this situaton looks as if it will stick around for a while. Sure, when you trade, you can make a bad trade… it happens all the time. But the overall coyness of the super secret trade should raise some immediate red flags.

Related indirectly: Corzine still raising political cash http://bit.ly/JxBqzE (via @FuturesMagazine)

Related: Banking woes, according to Fitch (CNBC): http://www.cnbc.com/id/47458722. My comment: the world’s top 29 banks  really need about 30x more than $556 bln to account for their off balance sheet exposure.

Gold

Up today. It was oversold as noted yesterday. The moves are going to become bigger and bolder after a sustained period of other gains, or losses. Right now too many short betting for the death of gold.  It wouldn’t surprise me if some of the gold weakness and weakness in crude is tied to the unwinding of positions by JPM. I mentioned $1400 area for gold as major trendline support for the last 5 years,  I would be shocked if gold were to sink that low due to China which should not be underestimated:

Related: China Q1 gold demand hits record, bucks global fall- WGC – Reuters http://bit.ly/JM0Asu

Appropos of nothing, or actually quite relevant for today. A Quote from George Washington… is he still around today? The fire has always been burning:

“The incertitude which prevails in Congress, and the nonattendance of its Members, is discouraging to those who are willing, and ready to discharge the trust which is reposed in them; whilst it is disgraceful, in a high degree to our Country. but I believe the case will never be otherwise, so long as that body persist in their present mode of doing business; and will hold constant, instead of annual Sessions; against the former of which, my mind furnishes me with a variety of Arguments, but not one, in times of peace, in favor of the latter.

Annual Sessions would always produce a full representation, and alertness at business. The Delegates, after a recess of 8 or 10 Months would meet each other with glad Countenances; they would be complaisant; they would yield to each other as much as the duty they owed their constituents would permit; and they would have oppertunities of becoming better acquainted with the Sentiments of them and removing their prejudices, during the recess.

Men who are always together get tired of each others Company; they throw off the proper restraint; they say and do things which are personally disgusting; this begets opposition; opposition begets faction; and so it goes on till business is impeded, often at a stand. I am sure (having the business prepared by proper Boards or a Committee) an Annual Session of two Months would dispatch more business than is now done in twelve; and this by a full representation of the Union. “

– George Washington, letter to Thomas Jefferson, Mount Vernon, March 29, 1784; Fitzpatrick 27:376

5/16/12

Gold

Let’s talk about gold. From the chart below, I see a very oversold condition (below the oversold condition during the worst of 2008) when gold lost 32% of its value. So far gold has fallen 17% from its peak of the year in dollar terms and around 10% priced in euros. This chart also tells me that if selling persists, wake me up when/if the price gets to the long term support trend line of about $1,400 per ounce.

Notice the two solid blue lines on the right. For now the uptrend is alive. $1400 is the lower end of the long term trendLooking at the level of shorts in the August futures contract, any sort of surprise turnaround in gold, could mean a fast and furious rally.

For now, if weakness persists (and sentiment is very negative with every genius who missed the gold market bull run now calling the end of gold again), the next area of weakness to be tested will be lower 1520’s and then the $1490’s.

As I had stated at the Scott Travers seminar at FUN back in January, I went along with the sentiment that we would see $2000 this year, but that the road to that level would not be an easy one. I stick to that forecast.

Much to the discredit of the doomers who have wanted to see the end of the dollar yesterday, there are many powerful forces at work making sure that such doom does not come to pass tomorrow, or the day after. I would also guess that there are other higher forces aligned with the banking system in keeping it alive, though I will leave details on that for another blog post at another time. Let’s just say, not to sound like an Occupy Wall Street member, financial repression (where wages fail to keep up with inflation over the long term) is not an accident.

Related: German People Becoming Frantic About their Central Bank Gold Reserves in “Safe Custody” at NY Fed
http://bit.ly/L5HAD5  Probably not the best of situations.  

Crude

You can tell it’s an election year when the price of crude drops $10 in the space of a month. This is being portrayed as a sign the economy may slow further. What we can say with certainty is if the decline sticks, the price of gasoline will drop so that the populace will forget about $5 gasoline by this November. $5 gasoline will be back soon enough after November.

That’s my hot air. To look at the facts, OPEC this month in its global forecast continues to foresee demand unchanged at 89 million barrels a day.  OPEC cites a “stabilization of the U.S. economy” and growing demand for crude in Japan.

According to a report on the web: “Non-OPEC global supply is expected to grow by 600,000 barrels/day this year, primarily due to increased production in the US.” That addition to the daily supply pool of 89 million barrels  is not enough to make a large enough impact.

This is why I wonder why there is this magical drop in the price of crude. Supply/demand dynamics remain the same as earlier in the year. Oh, right, the U.S./Iran standoff almost seems as if it’s on the back burner.

Of course for all of us who pay at the pump, it’s nice to see lower prices, but is it a long term trend or an election year mirage?

From the Bad IPO Timing Department

GM plans to stop advertising on Facebook http://reut.rs/JInqkT via @reuters

Another View on JP Morgan’s Dimon

Why J.P. Morgan’s Jamie Dimon Should Resign – Economic Intelligence (usnews.com) http://bit.ly/JBMk5N

Greek Bank Run

Bank Run: Greek Depositors Withdrew $898 Million From Banks Monday.  http://tinyurl.com/6n3awyb, but the FT says ‘nothing to look at here, fears are overblown’. You need a subscription to see the FT’s version.

5/14/12

JP Morgan and Greece remain concerns for U.S. market players. More down days to come until these issues are resolved, or a new piece of positive news floats to the surface.

Read more: Greece Virtually Out Of Cash One Day Before Critical Bond Maturity http://www.zerohedge.com/node/447640

Details here: JPMorgan Chase chief Jamie Dimon acknowledges “terrible, egregious mistake” http://wapo.st/KYkhBq

Heads are starting to roll at JP Morgan, but Jamie Dimon is likely to be spared unless the losses severely deepen (and that is possible since the $100 bln trade has not been unwound – you know, the trade that Dimon has not given details about for fear that competitors would exploit the situation). This may be more than bad from a symbolic point of view where banks have clearly not learned their lesson from 2008 that making bets in the financial markets are dangerous. Let’s consider the size of the trade in question. It was a $100 bln trade, or more than 50% of its market value on Wall Street, now pegged at $141 bln. Insane! Of greater insanity, is that this will likely blow over and the craziness of what the banks do from day to day will merrily continue.

As for Greece, the unconfirmed talk in the Forex is that a return to the Greek drachma is being quietly engineered. Either way, the Greeks are piled high deep in a fiscal /*^t stew. Imagine the Greeks having to pay back debt denominated in euros with weakling drachma currency. Cue the belly laugh! Greece will need to go full South America and default on everything (and without the hope of ‘Brady bonds). The scope of losses to Europe will exceed Greek GDP which is $300 bln.

A variety of morning links…

Gold Negative YTD In Dollars But Bull Market Not Over – Morgan Stanley http://bit.ly/JAo047 via Zero Hedge. Good for Moron Stanley. The bull market will eventually resume, but as long as the dollar is seen as the haven, gold will remain under pressure and $2,000 remain elusive. This is a good time to buy gold, so was the $1660 area — anytime is a good time to buy gold — especially if your supply of fiat dollars is unlimited. $1540 remains a key testing area, otherwise it likely goes to $1500, though that will largely depend on how much upside is left in the buck.

By 3:1 margin, economists surveyed by WSJ do NOT expect Fed to launch QE3. Full survey results at http://is.gd/qS3iqw (xls file). My comment: So, it’s looking like we’ll soon see another round of QE. Lol. These guys make weather forecasters look like gods.

Avon may have finally read the writing on the wall. $AVP up 5.5% pre-market after saying it may consider Coty takeover offer.

Happy 28th Birthday, Mark Zuckerberg! http://bit.ly/LIO1Pb

Tooting my own horn…. My article on Platinum is in the May #CoinAge Mag. At newsstands now not online. $GLD $PL_F. Nice front cover mention of the 4 page article I did for them:

5/11/12

Is it JP Morgan, or JP Moron?

Quick – how did JP Morgan lose $2 bln in six weeks? Sell credit default swaps with spreads that ended up blowing out even if the underlying bond spread remained tight. To boil down a long article on this subject today from the Globe and Mail of Toronto:

“Think of it this way. If JPMorgan was using this trade as a hedging strategy, it means the company was probably short corporate bonds. (By going short, the banks benefits when the bonds do badly, while in the CDS market it suffers because has a higher change of paying out.) But because JP Morgan was selling insurance protection, the lower CDS value from wider spreads wasn’t offset by any bond spread movements.

JP Morgan wouldn’t be the first U.S. financial institution to get dinged by the basis trade. Merrill Lynch posted a $16-billion loss in the fourth quarter of 2008 for the same reason…”

See the Globe and Mail for further details: How did JPMorgan lose $2-billion in six weeks? http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/how-did-jpmorgan-lose-2-billion-in-six-weeks/article2429647/

Talk about an achilles heel ( you’ll understand that if you read the Globe article. haha.

The bottom line? JPM is not going to make the money it thought it would make in the 2^nd quarter. This brings to mind the original Three Stooges. The violence of the short films (mostly committed by Moe on Larry, or Curly), was not specified in the script. Instead, non descript instructions in the script were given: “Moe punishes Curly”.

This is what’s going to happen in the market today. JP Morgan shall be punished. A pall will be cast over its shares for the rest of the quarter. JP will either have to pull some really great news out of the hat, or its stock will be punished to the point of doing the “dead cat bounce”.

Make no mistake about it. The trades that soured for JPM were not rogue trades. They were conducted by an expert trader with his bosses knowlege. The buck ultimately stops at Jamie Dimon’s office. Gosh, perhaps Jamie has overstayed his welcome?

Recently, this space mentioned the ills of Bank of America. BofA and JPM are like two peas in a pod today. Both are undergoing some slappage.

Let’s face it, we can conclude for now that not only is JPM too big to fail, but it is also too big to be run properly. Mistakes will happen with the sort of far flung structure of these megabanks.  

Overall Market

Stocks are poised to open lower. Banks are an important part of the market. Foul ups bleeps and blunders at JP Morgan – known as the ‘King’ of risk management – is not what gets the bullish juices flowing. I realize that no one is infallible, that even King JP Morgan, can err. BUT, these are supposed to be the smartest guys in the room running these trades so I have little sympathy for them.

One might expect a larger stock market decline. But there is complaceny where these banks are concerned. First and foremost, JPM is not going to be allowed to fail as long as the Fed controls the game. Everyone knows it. But still, stocks (the Dow, S&P 500) are going to fall.

I noted my recent trade in Arena Pharmaceuticals ($ARNA). The stock is up over 100% on FDA panel backing.   

Today Brings Facebook’s Last Chance To Sell Itself by http://read.bi/JlH4me

GOLD

I have written ad nauseum about the long term positives for gold. Short term, the price is impacted by the strength of the dollar relative to the euro and a number of other currencies. As I stated at FUN in January during the Scott Travers conference that was open to the public, the road to $2000 is going to be bumpy. I am more convinced that $2000 shall come, but we may have to wait until at least the end of the year. Remember – I don’t see gold as a price play, I believe it should be acquired to hedge against a future dollar decline. Now is as good as any other time to purchase physical gold.

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5/10/12

Market Comment

Stocks are attempting to bounce off of support which as noted yesterday was looming. Gold managed to bounce off the lows yesterday and is flirting with $1600. One of the positive inputs for the market is the 1,000 (I guess they are desperate) decline in jobless claims. The trade deficit in March ballooned to over 51 billion. The significance with that figure is that it will take .4% percentage points off of GDP and knock it from 1.9% to 1.5%. Now that’s a vibrant recovery! haha.  

Just how good of a day I shall have in the market (and perhaps year) will be determined by the FDA and whether it will give $ARNA’s diet drug a second chance. Arena Phamaceuticals is halted for the rest of the day.  I have a long position in this name and actually added to it last Friday by dumping my calls in SPY to take profits. No go at the FDA this stock goes to $1.50. Yes, 8, or $9 from the wednesday close at $3.66. I am actually somewhat skeptical that ARNA will make it today, but I never like being on the outside looking in on these FDA plays.  I hedged with a smattering of puts.

 More on Gold

Goldman is sticking to the pro gold side: GOLDMAN: Gold Is The ‘Currency Of Last Resort’ And It’s Heading To $1,840 In 6 Months by @GOLDCOREhttp://read.bi/KNFp7N

Jim Rogers: Get Out of Stocks; Buy Gold, Silver and Agriculture (SLV, GLD, AGQ … http://sns.mx/GIgXy0

My comment: As usual, the gold naysayers have emerged from the woodwork. This is typical déjà vu all over again.

Presidential years and the stock market. There is no telling what’s going to happen in these turbulent times. In the past, many election years were positive.

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5/9/12

This post is a little later than usual. I err on the side of my days as a journalist (Bloomberg, CNBC, Fox etc) and attempt to come up with a solid reason for what might move a market even if I do know that a gazillion variables are at work (time consuming, bad habit). Take, for example gold: last week we were bouncing around in $1650 to the $1660 area. Today, we’re back to the $1580s. What happened?

For long term physical holders, these moves are not of great concern. Gold ultimately goes higher. Central Banks led by the Fed will have no choice but to continually print more fiat money. There is nothing complicated about what will happen: the more fiat money, the less valuable the fiat currency which will enable the price of gold to rise. To add a dash of complication, since the dollar is the standard bearer of currencies in the view of the world (for the most part though the tide is turning), it’s a proposition of a dollar that has fallen over time as opposed to gold going up. One day this lopsided world view will be corrected and gold will be seen, as it really already is and always has been, as the standard bearer for world currencies.

Short term, the dollar is up again today. This pulls the value of gold lower in the short term. This factor alone could be enough to explain gold’s recent weakness. Who was predicting 10 years ago that the dollar would hold its own as a refuge from collapsing countries? Not many folks. Gary Shilling comes to mind – a long term dollar bull and he’s sticking to that forecast.

Other factors might include a liquidation of a large paper position somewhere in the world, banks in Europe could be selling gold again. This is where the journalist way of figuring out a specific reason can sometimes fall short. Other activities are going on behind a curtain that even journalists have no access to.

As John P Morgan is purported to have once said – markets shall fluctuate. That could be reason enough for gold’s recent move, though for reporters, that’s a reason that would get them in trouble with editors.

The near term gold chart is not pretty looking.

A sideways to weaker chart pattern that shows support in the $1540 area, but consider as well the delicate balance between established Western nations that are gold superpowers versus Asian contenders for gold that need to catch up to the West. Let the price fall too far and an opportunity is opened for the East to accumulate more at cheaper prices so the gap between Eastern and Western gold holdings would then narrow further (bad for the West’s gold advantage).  This is why I see a floor under the price of gold. I’ve referred to this floor as the “Asian put” that keeps the Western Powers That Be in check. Perhaps they would like to destroy the price of gold so that it no longer outs the fiat circus, but they can’t.  The bears should not underestimate this “put”, but for now have the upper hand in terms of the near term direction of the gold market. As a result, I am not expecting gold to go to $1000. If it does, you may send me your best humble pie and I will eat it, but I doubt I will have to with respect to the concept of a gold collapse to $1k.

These assaults on gold are good buying opportunities, though I recognize that after a while one can run out of fiat cash to sieze on all of these ‘buying opportunities”. But for those who have waited and are not in, legging in at these ranges is something to be further explored.

Supplemental Reading: 5 things gold is telling us http://www.theglobeandmail.com/globe-investor/markets/markets-blog/5-things-gold-is-telling-us/article2427558/ via @globeandmail

The Stock Market

If this were not an election year, I’d be yammering about the end of the recent bull leg up in stocks.  But since this is an election year, the bears need to be on guard for a surprise that would lift key stock indicators. Should the Dow portray an image of ugliness, along with a rough labor market and a moribund national housing picture – then stick a fork in Obama. My bet is that while not much can be done to make a big difference in the condition of housing and labor due to structural inertia, the stock market is likely to be the target of some sort of juicing to convince the masses that their 401ks are fine thanks to a healthy Dow. So I still do not rule out some sort of application of Fed magic to boost key market indices – although here again, the bears are holding the upper hand short term.  I also anticipate that with the next leg up in stocks, anyone with an agenda that is not pro Obama will attempt to apply equal and opposing force to whatever the Fed may concoct. In other words, we are likely to see some very choppy and volatile trading in the months ahead. But still, bet against the Fed? One day it will pay off in spades, but still not at this point.

We are near an important support area. If broken it will be so much for the idea of ‘Don’t Sell in May because this is an election year’.. or why ‘heding is so important’.

Maybe the O. team wants a summer stock market mess in order to engineer a fall rebound? You can’t put anything past Washington and the power hungry,, though I am not willing to dismiss bullish overtone potential for the broader stock market  going into November, 2012.  We could do an entire post on the ugliness of deeper market internals that mostly professionals, or traders follow, but that’s a post for another day. The illusion of a good stock market will be focused on big cap names and key indices.

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5/8/12

What’s the old nursery saying? I see England, I see France, I see your underpants.  France is still on the minds of investors – so too Greece. There was no crash yesterday, but sentiment is damaged. The Dow tried to end higher, but still finished the day a bit weaker with a 29 point decline.

Today is another radio day and I hope you’ll tune in at 10 a.m. eastern time on the web: http://www.live365.com/stations/wrcr?site=pro

My guests today will in Ian Russell who is selling coins via his Greatcollections.com through his OWN auction site. He is circumventing the giant – Ebay. Lots to talk about in this realm.

Former Conference Board economist Delos Smith is going to talk economics. We’ll discuss the U.S. employment situation. We will also talk about Europe and how developments there might impact the U.S.

The broadcast are brough to you by Certified Assets Management (this websire).  Be sure to tune in.

I am going to spend some time talking about some of thoughts I recently posted on gold.

When you think about it, Gold is a standard that judges the activities of today. It’s no accident that gold has ramped from below $300 at the start of the 21^st century to its present level of $1630.

The release of the Wiki Cables last year proved that there is manipulation in the price of gold. What was once fringe nut case talk was revealed to be true through the diplomatic channels. According to those cables, there was U.S. concern that China knew that the U.S. was suppressing the price of gold.

And wouldn’t it be natural that a standard bearer with a 6 thousand year legacy (gold) would be suppressed to keep  the truth from coming out that too much debt is not such a good thing? The spending policies of today are geared toward kicking the can down the road so that funding can continue for what has turned out to be quite the totalitarian and authoritarian western system that has revolved around dollar hegemony.

Gold is also a commentary on our materialistic and consumerist society. Granted, we’re all living in this paradigm, and there is nothing wrong with nice things per se, but I read somewhere recently a post about how at one time the American dream was once a quest for truth and justice, freedom – now the American dream is equated with homeownership and that has already burned many. Priorities are backwards even with all of the sophistication of the 21^st century creature comforts. We live in truly remarkable times in many ways – medical, technology, general standard of living – yet our Federal governments are overloaded with debt with no future prospect but perpetual creation until it can be created no more.

Just when it ends, no one knows exactly. Perhaps when debt servicing reaches 50% or more of the U.S. federal budget?  That gives some time, but not much… maybe 10 more years at the most. Look at Japan, debt to GDP is 3x, but they somehow muddle through. We’re at 1x debt to GDP, cab we get to a 3x debt load?

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5/7/12

Election Correction

U.S. stock futures looked scary late yesterday evening in reaction to key favored agents of the banking cabal in Europe losing political contests.  Sarkozy of France has been ousted by the voters and members of the Greek ruling parties aligned with the Troika failed to win a majority to form a new government.

This morning the losses have moderated, but stock futures remain a touch lower.  This is only the beginning of the political high jinx in Europe, which no reader to this space should be surprised of since we highlighted these 2012 elections at the start of the new year.

Also, as often discussed in this space – no one should have much of an issue with this downdraft in the market since we have often discussed the need for hedging in a volatile market.

The overall meme in reaction to the elections in Europe is that pan European austerity government policies are falling due to unhappy regional electorates. The outcome of these elections are seen, as of today, as an indicator that future elections outcomes in Europe could usher in the end to the European Union (nationalism over broad based European monetary policy), which in turn would slow global economic growth. European masses love their socialism and certainly not austerity and appear ready to bag the EU to gain relief from austerity, even if the dismissal of austerity could hasten an even worse financial situation for Europe.  

Let’s think for a moment of other potentials.

1. 1.       In the U.K. will Cameron be kicked out before year end?
2. 2.       Renewed socialist control in Serbia? – yes, in the place where socialism is associated with that infamous figure – Slobodan Milosevic.
3. 3.       More signs of political shift in Germany following the ability of the Pirate Party (digital freedom of info group) to secure seats in the Parliament of northern German state Schleswig-Holstein parliament. The so called Free Democrats have also scored victories.

Is this the real deal setting us up for a stock market crash? My gut tells me to wait and see whether there might be some sort of coordinated Central Bank activity to calm the markets should weakness snowball to panic stock selling. Gold’s relative UNDER performance to the downside relative to other assets may be a clue not to rule out intervention since we obviously live in times where intervention is accepted and expected.

Obama Thought

Since the monetary pain of many in France and Greece inspired an all-out and well deserved temper tantrum at the voting booths (even if the European system will die more quickly should socialism rule the roost), will the same sort of economic frustration make for November dramatics here in the U.S? More than one pundit has suggested that Romney is not the enemy that Obama faces, but the economy since even in the face of massive spending props (trillions of dollars), the economy is still quite sluggish. Here’s a chart from the Washington Post that may be the road to pink slipping Obama in November:

WaPo could also put together a chart on national real estate, which also paints a pretty bad picture of non recovery.

Gold, Berkshire, the Metals…

Many of you are uncivilized in the eyes of Warren Buffet’s partner: Charlie Munger: Civilized people won’t buy gold http://t.co/IUwtOFGv

To boil down the Berkshire Hathaway weekend media circus shareholders meeting, the company’s earnings were weaker than forecast by analysts (media ignored the weaker than expected aspect). The only headline that had any attention grabbing potential to it, was the Munger comment about gold. I don’t hold Munger in much contempt for making such a statement. What would you do, if you were an obscure (except to the CNBC crowd) 88 year old man, closing in on the drooling stage of life? Why, I would come up with some sort of outrageous statement. Good work Charlie, you grabbed their attention and avoided being completely overshadowed by that relative youngster associate of yours – Warren Buffett.

Of course, Buffett also stuck to his claptrap statements about the unproductiveness of gold vs the productivity of his companies – which still couldn’t meet the earnings estimates bar.  

More on Gold

Gold ran in place last week, while silver lost more ground from the year’s highs. Gold Drops 1.2% for Week as Silver Falls 3.1%, US Gold Eagles Surge: http://www.coinnews.net/2012/05/05/gold-drops-1-2-for-week-as-silver-falls-3-1-us-gold-eagles-surge/

From Finvez, the chart of overall commodities performance (year to date):

Adjunct to Gold: Bernanke Drives the Art Market

As usual, Jim Grant, of Grant’s Interest Rate Observer has a spot on analysis – must watch. The Fed is the squid of squids:

Concerning Munch’s Scream being sold to the highest bidder at $119 mln… Dow Theory’s Richard Russell in a King World interview:

“…‘the Scream’, a painting by Munch, sold at auction for a record $119 million.  I doubt if the buyer cares whether that painting will be worth $100 million, $50 million or $200 million ten years from now.  The buyer knows that he owns a priceless work of art, something that will double in value in case of wild inflation or something that will be worth $60 million during the worst deflation. 

Even if the dollar becomes worthless as a unit of exchange, the Munch painting will still be worth a fortune in whatever unit of money is in favor ten or fifty years from now.

All of which tells us something about gold.  For over five thousand years, gold has represented purchasing power.  No matter what form of money was in existence at the time, gold possessed purchasing power, which is why many wise men own gold.”

Read more at KingWorldNews.com.

CROCS

Is there further near term shorting ahead for this stock? I noticed an informal Facebook “research poll” in the side column where the advertising is.  75% of poll respondents say they will “definitely not buy” $CROX shoes in the next 3 months. The stock broke support Friday in the 19 area. January Gap fill next in the 15 area?

Facebook

The Wall Street Journal has crunched some numbers. YOU are actually worth quite a bit to Facebook. To Facebook You’re Worth $80.95. Summary: http://www.wilmott.com/blogs/irismack/index.cfm/2012/5/6/Wall-Street-Journal-To-Facebook-Youre-Worth-8095

Copper

Not worth $3.68 a pound. Copper is not gold: Thief ‘Extremely Grave’ After He’s Shocked And Catches On Fire « CBS http://stks.co/3h2h.

Jim again, copper will remain stuck in this range as the battle rages over whether the world economy stalls, or QE shall win the day.

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5/4/12

Labor Market Friday

What a pile of steaming…. well, never mind. Headline unemployment managed to slip to 8.1% in April while in a separate report, non-farm payrolls rose by a smaller than expected 115,000.  Again, you need to dig deeper to see some reality.  Here’s an example in today’s labor department data dump: people not in the labor force rose by 522,000 from 87,897,000 to a record 88,419,000. That forces the labor force participation rate to decline to a new 30 year low of 64.3%. Yes – just make the people disappear from the counting process and voila, unemployment falls even as job creation is really contracting.  

ZeroHedge.com puts it this way:

“Here is what the  unadjusted data that led
to this number says. The seasonal addback in  April was +22K, a rapid
break from the last 3 years when April saw a  negative seasonal
adjustment following the traditional huge positive  adjustments in the
January-March period, which in turn means that the  record warm winter
give back has not even started! As a result, the  seasonal addbacks in
2012 are now a massive 4,499,000 jobs: jobs that  have not been added
but are expected to materialize based on historical  seasonal patterns.
And just as importantly, in April the Birth-Death  addition was a
whopping 206K, far greater than the comparable addition  in 2010 and
2011, and much bigger than expected, which brings the year  total now to
a +20K cumulative total. It means, that by rough  estimation, the
reality is that in April the unadjusted, unbirth/deathed  number was a
decline of -111,000, and likely far worse once the true  weather
adjustments start taking place. This number is corroborated by  the
Household Survey which dropped by 169,000. So much for the recovery.”

The initial market reaction? Stock futures are selling off. Perhaps it will be a weak Friday for the stock market. Gold has drifted off the lows. The Fed is in denial if it does not realize the economy will soon need more propping from its traditional methods with half-lives that continue to decline. Time is of the essense as November moves closer into view. One sour labor department report won’t be enough to move the Fed  to fresh all-out QE, as opposed to maintaining just Twist (which is slated to end in just over a month); but more negative tea leaves may change the game. With a dead labor market, it’s hard to believe that other economic figures are going to be gangbusters.

Facebook

The coming Facebook IPO is already a disaster for some. Facebook shares are already trading in the online second marketplaces, where a variety of alternative assets trade, including privately held stock. The shares have been changing hands above $40.  Yesterday the price range for the IPO was set at between $28 to $35 per share. Oopsies for now, but this does look expensive even at $28.

$FB valuation calculator. http://stks.co/3fPO.

Gold Trades at a Record High

Where’s the gold bull market? It’s in New Delhi. Gold sets new record at Rs 29750/ 10 gms – Zee News http://bit.ly/KdL0pu. Interestingly, as part of the article, silver is weak in India.

Globally, gold has been drifting in its recent range looking for more macro economic clues.

This isn’t a new revelation (since this space revealed last year, gold price suppression showing up in Wiki leak dump), but this theme needs to gain wider understanding and acceptance.  CoinWeek News:: Former Central Banker Confirms US Government Gold Price Suppression Efforts http://bit.ly/IJztR6

Here’s a must read column. The gold standard? Not as kooky as some make it out to be. “Gold standard for all, from nuts to Paul Krugman | http://bloom.bg/Khq5FE”

Yahoo!

This is an amazing situation. Will Yahoo have to fire another ceo? TWO IMPOSSIBLE CHOICES: Should Yahoo Fire Scott Thompson Over His Made Up Comp Sci Degree? [POLL] by @nichcarlsonhttp://read.bi/IJCxwv.

Sunday Elections to Watch

France and Greece Poised for Crucial Votes Sunday http://nyti.ms/KyZ1wf

Speaking of Greece. Ya can’t make this stuff up: (the tax bills haven’t gone out in Greece ahead of the election)… http://hat4uk.wordpress.com/ (Thanks to long time reader Peter Pierce for bringing this to my attention).