Citi’s Fitzpatrick - Major Markets to Resume Their Decline

Today top Citibank analyst, Tom Fitzpatrick, told King World News, “For people who feel that Germany is just going to capitulate, Merkel has been fairly clear that she is taking a hard line.”  Fitzpatrick, a 28 year veteran and top analyst at Citibank, which has $1.3 trillion in assets, also said, “We expect to see a reemergence of the stresses, as well as the equity markets beginning to fall again.”  But first, here is what he had to say about deteriorating consumer confidence:  “We’ve been looking at this for a while, and, if you look at the overlay of the consumer confidence index vs the equity markets (see chart below), what it quite clearly shows, contrary to what most people think, is that the consumer sentiment drives the equity markets rather than vice versa.” 

Continue Reading...

Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant Possibility

From Bridgewater's Daily Observations:

Be Careful When Betting Against Human Nature

Alliances are shifting in a logical manner. The German-French alliance is breaking down in favor of contributor (higher rated credit) countries aligning against recipient (lower rated credit) countries. Similarly, the terminology to describe who is reasonable and who is unreasonable reflects these parties' respective interests. Those who don't have to contribute use terms like "inflexible" and "irresponsible" to describe the contributors' reluctance to "do enough" to prevent collapse by lending more to recipients who can't service their existing debts, while those who have to contribute use terms like "inflexible" and "irresponsible" to describe the recipients' reluctance to "do enough" cutting of their spending and borrowing to service their debts. Students of human nature and deleveragings know that this is to be expected.

Similarly, talk of a fiscal union to resolve these problems has to be looked at in light of the question of whether it is in the interest of fiscally strong contributors to have a fiscal union with fiscally weak recipients in which the majority rules how the money is divided.

For this reason, we think the popular assumption that the Germans and the ECB (which requires agreement of the key factions within it) will come through with the money to make all these debts good should not be taken for granted. Said differently, we think there are good reasons to doubt that European bank and sovereign deleveragings will be prevented from progressing to the next stage in a disorderly way, without a Plan B in place. This "fat tail" event must be considered a significant possibility.

Ministry of [Un]Truth $GLD $SPX

By Eric Sprott & David Baker

Speaking at a Brussels conference back in April 2011, Eurogroup President Jean Claude Juncker notably stated during a panel discussion that "when it becomes serious, you have to lie." He was referring to situations where the act of "pre-indicating" decisions on eurozone policy could fuel speculation that could harm the markets and undermine their policies' effectiveness.¹ Everyone understands that the authorities sometimes lie in order to promote calm in the markets, but it was unexpected to hear such a high-level official actually admit to doing so. They're not supposed to admit that they lie. It is also somewhat disconcerting given the fact that virtually every economic event we have lived through since that time can very easily be described as "serious". Bank runs in Spain and Greece are indeed "serious", as is the weak economic data now emanating from Europe, the US and China. Should we assume that the authorities have been lying more frequently than usual over the past year?

Continue Reading....

Shell Game - FX Concepts

MARKET INSIGHT REPORT
By John R. Taylor, Jr. Chief Investment Officer

I was profoundly depressed when reading the Eurogroup’s announcement on Saturday where they described the outlines of their “rescue” of Spain’s ailing banking sector. The communique stated that “the loan amount must cover estimated capital requirements with an additional safety margin estimated as summing up to €100 billion in total.” Who are they kidding? Even though they regard €100 billion as the top, the problem is far larger than this, both in terms of size and locus. We think this “rescue” will have a half-life of less than three months. Somehow the European approach reminds me of a street scam called three-card Monte, where the con man, watched by a group of accomplices, or shills, rapidly moves three cards around the table. The goal is to follow the one lucky card. The shills play the game, winning and losing, hoping that the mark – you or me – will think the game is easy. When the mark invests, all of a sudden the cards move more quickly, several tricks are employed and the winning one is never found. Even though this game was seen regularly on the streets of New York through most of the last century, this scam was actually invented in Spain hundreds of years ago. Where else, but southern Europe, where they still can’t find the money? Throughout this expanding crisis, the Europeans have yet to put significant amounts of cash behind their bailout funds, but that is not our argument here. Even though there is no way this new money can actually be delivered, but let’s ignore that. The problem we would like to examine is both more basic and more centered on Spain’s singular problems. Whether the EFSF or the ESM supplies the €100 billion, we will assume the Germans and some other countries will be standing behind this liability – ignoring the illogic of the Italians borrowing money to fund this bailout, paying 6% for their money, while on-loaning it to the Spanish state at 3%. We’re trying to figure out how long this current ruse will help Spain – and puzzled as to how anyone could actually think it would actually solve their underlying problems.


Continue Reading...

Honey! I Shrunk the Global Economy

MARKET INSIGHT REPORT - May 31, 2012
By John R. Taylor, Jr. Chief Investment Officer FX Concepts

Austerity plus a high level of indebtedness is a recipe for national catastrophe, but this toxic brew is being consumed by more than half of the developed economies. Even though it didn’t work in the 1930’s, forcing Herbert Hoover from office and ruining his reputation in the history books, the more conservative half of the political spectrum has embraced it once again. Austerity, forcing economies to live within their means while paying down their debts looks like the best way out when national indebtedness passes more than 300% of national GDP. But by not spending and saving instead, the size of the economy shrinks while the debt stays the same, raising relative indebtedness. The problem is that this way out of our globally over-geared situation involves very significant social dislocation, economic distress, and the destruction of wealth with an increase in poverty.

Sprott Market Insights - Gold Alert

HONG KONG GOLD EXPORTS TO CHINA (KG)

There have been key developments in the physical gold market over the last few weeks which we feel are worth highlighting:

1) The Chinese gold imports from Hong Kong in April, 2012 surged almost 1300% on a YoY basis. Total gross imports for the month of April were 103.6 tonnes and the net imports were 66.3 tonnes¹. It is not the data for April alone which has caught our eye. There has been a stunning increase of gold imports through Hong Kong for export into China over the past 2 years. Between May 2010 and April 2011, China imported a net 66 tonnes of physical gold through Hong Kong. Between May 2011 and April 2012, that number jumped to 489 tonnes. This represents an increase of 640%.

Continue Reading...

London Trader - Staggering 515 Tons of Gold Sold in 4 Hours

With many global investors still rattled by the recent price action of gold and silver, today King World News interviewed the “London Trader” to get his take on these markets.  The source told KWN that not only was a shocking amount of paper gold sold in just 4 hours yesterday, but it was also confirmed that the mainstream media is not reporting the staggering amount of physical gold that has actually been purchased by China recently.  Here is what the source had to say:  “China has purchased hundreds of tons of gold in the last couple of months.  China is not disclosing what their true reserves are.  Russia is delaying disclosure and so is Iran.  We saw record gold imports of over 100 tons through Hong Kong to China in April, as reported by the mainstream media, but what has been reported is just the tip of the iceberg.”

Continue Reading...