Saturday, February 13, 2016

NIRP, Deflation, and Gold

I'll move myself and my family aside
If we happen to be left half alive
--The Who

Gold appears to have bottomed alongside recent central bank actions. The December FOMC rate hike corresponded to THE recent bottom in gold prices. Then gold took off like a scalded (yellow) dog after the BOJ announcement of NIRP.

What is particularly interesting here is that these central bank actions are inherently deflationary? What? "I get how raising rates is deflationary," you say. "But how is NIRP deflationary? Isn't the idea to push people out of cash and into spending?"

Perhaps, Grasshopper, but NIRP should cause less funds to be deposited with financial institutions. With less funds on deposit, there is less opportunity for banks to pyramid credit which is the essence of inflation classically defined.

While common wisdom is that gold is a hedge against inflation, it is better viewed as a bet against disorder. NIRP may be the ultimate monetary disorder--one with decidedly deflationary character.

Gold is a way to keep assets out of the system and side step disorder.

position in gold

Friday, February 12, 2016

Debt Perspective

There used to be a graying tower alone on the sea
You became the light on the dark side of me

Nice perspective on the size of US debt.

$19 trillion in federal debt + $70 trillion in unfunded liabilities = $90 trillion. GDP of the world currently ~ $18 trillion.

If the analysis was expanded to include all world debt and unfunded obligations, then Lady Liberty and those NYC skyscrapers would look awfully small.

Thursday, February 11, 2016

Remaining Above the Law

"Gentleman, whenever you have a group of individuals who are beyond any investigation, who can manipulate the press, judges, members of our Congress, you are always going to have in our government those who are above the law."
--Nico Toscani (Above the Law)

Evidence now shows that Hillary Clinton routinely swapped emails classified as top secret with various aids, which suggests the possibility that those aids could be indicted alongside Clinton.

Judge Nap remains confident that recommendations to indict are pending from the FBI.

Those recommendations would then go to the Department of Justice and the Attorney General. Of course, since the AG was appointed by President Obama, there is a better than average chance that the DOJ will seek to whitewash the issue (see lack of follow-thru on the IRS/Tea Party scandal for an example).

The judge feels that even if the AG rejects an FBI recommendations to indicts, "the repercussions against Mrs Clinton will be, in my view, as catastrophic to her political career as if she'd been indicted."

Meanwhile, what we are observing is a textbook case of a political official struggling to remain above the law.

Breaking Bad

I've never seen you look like this without a reason
Another promise fallen through
Another season passes by you
--Big Country

Markets down a bone or so out of the gate after heavy market action overseas last night. That put major indexes below recent lows.

Meanwhile, gold is up $40.

Has the feel of a meaningful day...

position in SPX, gold

Wednesday, February 10, 2016

Lehman Analog

"Last February, we were at $66 a share. Lehman Brothers is NOT Bear Stearns. We have a great business. Real estate will come back. I am not fucking giving this company away!"
--Richard Fuld (Too Big To Fail)

Overlaying Deutsche Bank on Lehman's stock price in its final days looks like this:

The Lehman squiggles denote big short term moves higher in a general downtrend. Until LEH was gone, of course.

Expect the same with DB.

position in SPX

Crash Course

I keep looking for something I can't get
Broken hearts, they're all around me
And I don't see an easy way
To get out of this
--Cutting Crew

Last Friday Fleck wrote the following:

"I continue to be somewhat surprised that all the destruction that has occurred in the stock market thus far hasn't led to a wide open break, but the pressure continues to build and I think a big dislocation is as close to a certainty as those things can ever be. I realize that is a pretty bold statement on my part, as such events are quite rare, but in this case it is a virtual slam dunk, for reasons I have reiterated many times."

Sure feels that way to me also. People have been lulled into a slumber that tells them that there's no way that 'they' will let that happen.

All the while more hand grenades roll across the trading floor.

position in SPX

Tuesday, February 9, 2016

Gator Update

Chance Boudreaux: Do you still have that thirty-ought-six - the one I gave you for your birthday?
Douvee: No, a gator ate it. But I still got your shot gun.
--Hard Target

Todd Harrison has been watching the hungry alligator pattern. Here's his recent update:

Plenty of bite remaining.

position in SPX

Super Story

"My whole life, people have been telling me what I could do and couldn't do. I've always listened to them, believing in what they said. I don't want to do that anymore."
--Rudy Ruettiger (Rudy)

It was a pleasure to watch the Denver Broncos and Peyton Manning win Super Bowl 50 last Sunday. A six point underdog, the Broncos were viewed as unlikely winners due to their lack of offensive capacity. In fact, the Broncos were underdogs much of the season and were one loss away from being eliminated from playoff contention with a couple of weeks left in the regular season.

The pregame storyline contrasted the aging Broncos versus the upstart Carolina Panthers with the two quarterbacks serving as microcosms of the narrative. The 39 yr old Manning, a 5 time league MVP viewed by many as perhaps the best the game has ever seen, is clearly in the twilight of his career and spent the season modifying his role from centerpiece to contributor in the Bronco's scheme.

Twenty six yr old Panther QB Cam Newton, on the other hand, plays with the epitome of youth. Big and fast, with the strongest arm I have ever seen on a quarterback, Newton, who was named this year's league MVP the night before the Super Bowl, attracts attention both on and off the field with his brash style.

The primary story of Super Bowl 50 was Denver's defense. The Bronco front brought relentless pressure, sacking Newton six times and forcing critical turnovers. Denver linebacker Von Miller won the game's MVP award, but the award could have easily gone to the entire defensive crew.

The most enjoyable thing about football from where I sit, however, is observing how teams adapt. All pre-game preparation is done under the assumption that those plans will require modification as the game unfolds. At the professional level, the winner is usually the team that can improvise the best during the game. Clearly, the Broncos won the day from this standpoint. They were able to counter a strong Panther defense and smother all attempts by Newton et al to break the Bronco's vice grip on the Panther offense.

It also felt good to watch Peyton Manning win a Super Bowl in what was likely (and hopefully) his final game. Possessing only a fraction of his former physical skills, Manning demonstrated how to adapt individual style to fit the team's needs. Manning built his reputation on an extraordinary work ethic and on ambassadorship for the game. Winning Super Bowl 50 as a contributor rather than star would constitute a fitting close to a storybook career that has earned the respect of insiders and outsiders alike.

Monday, February 8, 2016

Sprechen Ze?

Ninety nine dreams I have had
In every one a red balloon
It's all over and I'm standing pretty
In this dust that was a city

Deutsche Bank (DB) continues to be the poster child for growing stress in the banking system. The stock is now marking lower than in 2009.

Zero Hedge reports that DB, with $50 trillion in gross notional derivative exposure, is now issuing public statement to sooth concerns about its payment capacity.

Of course, it won't take much movement in derivative prices to push this puppy into insolvency.

position in SPX

Fiddling About

Commodus: Have I missed it? Have I missed the battle?
Marcus Aurelius: You have missed the war.

Heads of state often say foolish things and the president's annual State of the Union address is a veritable launching platform of foolery. Nested in the silliness of President Obama's most recent address were comments about the strength of the economy and criticism of those who fail to admit that the economy is booming.

It does not take an economics PhD to argue otherwise. As a wise sage once told me, "If you have eyes, see. If you have ears, listen."

Fiddling while Rome burns is what heads of state tend to do.