Things That Make You Go Hmmm… Anne Elk’s Theory On Brontosauruses

28-Jul (USAGOLD) — If you, like me, are troubled by the record low yields in the still struggling economies of the eurozone periphery, then the latest Things That Make You Go Hmmm… by Grant Williams is a must read.

“Make no mistake, folks, Europe is back — and not in the good way,” says Williams. He goes on to clearly illustrate the dangerous game being played by Mario Draghi and the ECB. It is the same dangerous game being played by Janet Yellen and the Fed, Mark Carney and the BoE, as well as Haruhiko Kuroda and the BoJ.

It is a house of cards, built on what Williams calls the ‘Annie Elk Theories’ (harkening back to an old Monty Python skit) about economies and monetary policy. Theories that are more “minimal accounts” than actual theory.

Our policymakers have been able to keep all the plates spinning because thus far, “the public’s buying into whatever they spin.” But what happens when it is revealed that a fraud has been perpetrated? The whole charade could unravel quite quickly indeed, with devastating global implications.

Another must read by Grant Williams, via our friends at Mauldin Economics.

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Posted in Central Banks, Economy, Monetary Policy |

Gold may soon break out of its bear market


29-Jul (CNBC) — If ever there was a time to own gold as a safe haven alternative to other financial assets during tumultuous times, there’s no time like the present.

… For investors, uncertainty is high and fears are rising about trade wars, isolationist policies, higher energy prices, sanctions and large-scale attacks—all threatening a fragile global recovery.

“While gold benefits from geopolitical tensions, such tensions are usually limited in scope, thus making only a mediocre argument to buy gold. Having said that, I think we are entering an era of increased instability. Such an environment will warrant an expansion risk premium, causing headwinds to most asset prices,” said Axel Merk, who runs the Merk Funds, including Merk Gold Trust.

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Posted in Gold News, Gold Views |

Clashes kill 30 in Benghazi in escalating Libya turmoil

29-Jul (Reuters) – Libyan forces on Tuesday battled Islamist militants with rockets and warplanes for control of an army base in the eastern city of Benghazi after at least 30 people were killed in overnight fighting.

Intense fighting in Benghazi, Libya’s second city, and battles between rival militias in the capital Tripoli have pushed Libya deeper into chaos after two weeks of the fiercest violence since the 2011 civil war ousted Muammar Gaddafi.

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Posted in Geopolitical Risks |

Argentina’s President Is Spending The Last Few Hours Before Her Country’s Default Among Friends

29-Jul (BusinessInsider) — Bar any last minute heroics from a delegation meeting with negotiators in New York City, Argentina is set to default tomorrow. Ironically, it will default on debt dating back to its last default in 2001.

…Now Argentina has until Wednesday to pay up, according to a New York Judge. A delegation has been sent from the country to try to convince the Court to instate a stay on all payment to bondholders — Argentina’s condition for negotiating — but so far it’s been unsuccessful.

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Posted in Debt |

Russia sanctions threaten to blow euro zone off course

29-Jul (Reuters) – The knock to confidence from harsher European sanctions on Russia could spoil the euro zone’s budding economic recovery even if it shrugs off the fallout on trade.

Following months of hesitation, the European Union will seek on Tuesday to seal the first broad economic sanctions on Russia – its third-biggest trading partner – following the downing of a Malaysian airliner over territory controlled by pro-Moscow rebels in eastern Ukraine.

If endorsed by ambassadors from 28 European Union countries, Europe could limit access to capital markets by Russian state banks, impose an embargo on arms sales and restrict trade of high-tech energy technologies and “dual use” technology that has both civilian and defence applications.

Even if these measures are diluted, they will mark a fundamental change in how Europe deals with Russia, one which carries risks not just for Moscow but for Europe itself.

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Russia Risk Propels Europe Bonds to Record Highs

29-Jul (The Wall Street Journal) — Government bonds in the euro area have been on the up for months. Now the threat of wider sanctions against Russia and its implications for Europe is propelling them to record highs.

An anemic economic recovery and stubbornly weak inflation prompted a package of easing measures from the European Central Bank in June, further fuelling a rally in 2014 that has taken in euro-zone bonds of all stripes.

More recently, some investors, unnerved by persistent worries over Russia, are heading to the safety of German Bunds, Europe’s premier safe retreat. In addition, some are betting that any damage to the region’s economy from tougher western sanctions against Russia could prompt an even more robust response from the central bank—including the possibility of a large-scale bond-buying stimulus program, which the ECB has so far avoided.

“There is a definitely risk of a blow-back into the European economy [from Russian sanctions] and that is why Bunds are rallying,” said Alastair Thomas, head of rates and treasury management at ECM Asset Management.

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EU reaches deal on fresh Russian sanctions

29-Jul (Financial Times) — Ambassadors from all 28 EU countries have reached a deal on wide-ranging sanctions against Russia that include a ban on the country’s biggest state-owned banks from selling stock or long-term debt on European markets, according to EU diplomats.

The agreement comes after more than seven hours of deliberations in Brussels in which negotiators made only minor modifications to legislation proposed by the European Commission which would also hit exports to Russian oil exploration projects and impose a blanket arms embargo on future weapons shipments, reports Peter Spiegel from Brussels.

The ratcheting up of sanctions comes almost two weeks after a Malaysian Airlines plane was shot down over eastern Ukraine, killing 298 people.

Tony Blinken, the US deputy national security adviser, said that the White House is likely to impose a fresh set of sanctions later this week.

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QE: New York Fed purchases $0.370 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

The Daily Market Report: Russian Default Risk Rises


29-Jul (USAGOLD) — Gold has slipped back below the $1300, on better than expected U.S. consumer confidence. However, the tone remains broadly consolidative ahead of the two-day FOMC meeting beginning today and more significant economic data out later in the week.

Geopolitical tensions in Ukraine and the middle east are likely to continue limiting the downside in gold. Economic risks are growing out of the Ukrainian situation as well, which warrant some attention.

As Argentina hurdles toward its third default in less than as many decades, it is also worth acknowledging the much more significant global risk of a Russian default. The FT reported on Friday that Russian banks and companies have $161 bln in foreign debt coming due in the next 12-months.

“Given the relatively strong fundamentals of Russian corporates, we believe that the external funding requirements are manageable, but would be at risk if sanctions continue to increase in degree and in duration.” — Jacob Nell, chief Russia economist at Morgan Stanley, via FT.com.

The Russian economy was already on the ropes early in the year, even before the first round of sanctions hit. Russian GDP was just +0.9% in Q1 as they moved to annex Crimea and Russia-backed separatists began making trouble in other parts of Ukraine.

Initial western sanctions were pretty tepid, primarily targeting individuals. Since the downing of Malaysian Airlines flight MH17 though, the west has gotten more serious. The U.S. announced tough additional sanctions last week. The EU is now poised to target Russia’s finance, energy and defense sectors as well.

Depending on how ‘tough’ the new EU sanctions are, they may well push Russia into recession. With the European economy also teetering on the brink of recession, the EU has been understandably reluctant to take a hard-line on Russia. They risk condemning themselves to another economic contraction as well. However, the shooting-down of a civilian airliner, leaves the EU with little room to maneuver.

If Russia loses access to both U.S. and European capital markets, the risk of default increases. Russian CDS spreads have been trending wider; evidence of the growing concern within the market.

When Russia last defaulted in 1998, the crisis culminated with devaluation of the ruble, a default on the domestic debt, a moratorium on payment to foreign creditors, and the shuttering of a number of banks. Russian yields soared to 47% and inflation was running at a stunning 84%.

Concerns about Russia weighed heavily on the U.S. stock market. In August of 1998 the DJIA plunged almost 1,000 points (back when a thousand points meant something) in just three-days. It was nearly a 20% correction.

Markets are even more interconnected today and it’s difficult to assess the counter-party risks that might come into play if the Russian economy starts to unravel. Certainly the European banks have significant exposure. U.S. banks have exposure to Russia as well, but even greater exposure to the European banks that have exposure to Russia. If Russian default risks continue to grow, look for the term ‘contagion’ to be resurrected.

The sharp 2.9% contraction in first-quarter GDP suggests there is some vulnerability in the U.S. as well. We’ll get out first peak at Q2 GDP tomorrow and while most analysts expect a rebound, expectations as to the magnitude of that rebound have ratcheted lower in recent weeks. The median forecast remains around +2.9%, but a number of analyst now have sub-2% expectations.

Russia has been aggressively accumulating gold in recent years, which will provide them with a bit of a buffer in the face of harsher sanctions. Individual investors should be sure they have an adequate buffer against any so-called ‘black swans’ that might take flight from a potential Russian financial crisis.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

US consumer confidence surged to 90.9 in Jul, above expectations of 85.5, vs upward revised 86.4 in Jun.

Posted in Economic Data |

US S&P/Case-Shiller 20-cities home prices index +1.1% to 170.6 (nsa) in May, below expectations, vs 168.7 in Apr.

Posted in Economic Data |

Gold rises on Ukraine, Middle East conflicts; Fed eyed

29-Jul (Reuters) — Gold hit its highest in a week on Tuesday as violence flared in the Middle East and Ukraine, but gains were capped by uncertainty ahead of a Federal Reserve policy meeting and important U.S. data later this week.

Israel knocked out Gaza’s only power plant, flattened the home of its Islamist Hamas political leader and pounded dozens of other high-profile targets on Tuesday, with no end in sight to more than three weeks of conflict.

Meanwhile, intense fighting between Ukrainian troops and pro-Russian rebels in eastern Ukraine killed at least 19 civilians, local officials said on Tuesday, as Kiev pressed an offensive to close in on the separatists.

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Posted in all posts, Gold News, Gold Views |

Gold better at 1307.32 (+2.93). Silver 20.60 (+0.018). Dollar climbs. Euro lower. Stocks called higher. US 10yr 2.48% (-1 bp).

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Medicare, Social Security head toward insolvency, at slower rate

28-Jul (The Hill) — Social Security and Medicare are marching steadily toward bankruptcy though Medicare’s finances improved over the last year, according to a report released Monday by the trustees for the two entitlement programs.

Medicare will avoid insolvency until 2030, the program’s trustees said, a longer projected life span fueled by drops in healthcare spending.

The latest projections push the life of the Medicare trust fund back four years later than a year ago.

But the trustees for both Medicare and Social Security also continue to paint a dire long-term picture for programs that will come under more strain, when it faces a flood of retirees in the coming years.

…The trustees’ new projections found fewer changes for Social Security, projecting that reserves for the retirement and disability trust funds will tap out in 2033 — the same as last year’s estimates.

Social Security’s disability trust fund, whose reserves are estimated to run out in 2016, remains in perhaps the worst shape of all the programs.

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The Daily Market Report: Gold Consolidates Above $1300 Ahead of FOMC, U.S. Data


28-Jul (USAGOLD) — Gold is consolidating in a narrow band, just above the $1300 level. While the yellow metal remains underpinned by geopolitical risks, the market is already looking forward to key U.S. economic data as well as the FOMC meeting later in the week.

The FOMC’s two-day meeting begins tomorrow. The Fed is widely expected to hold steady on policy and taper asset purchases by an additional $10 bln. However, the advance Q2 GDP number comes out 5-1/2 hours before the FOMC statement. The first look at Q2 growth is expected to show a rebound from the terrible final Q1 figure of -2.9%.

If there were a negative surprise for Q2, I suppose the Fed might react that same day, although it seems doubtful. The Fed has maintained that dismal first-quarter was just “noise” largely attributable to bad weather. A weak second-quarter would chip away at that meme, but the Fed likely wouldn’t react until the next meeting, if it were inclined to do so.

U.S. nonfarm payrolls for July are also out this week. Median expectations for payrolls are running around +225k, which would be a drop from the strong June print of +288k.

It’s looking increasingly like Argentina will default on its debt for the third time in less than 30-years. Argentina has already said it won’t be able to make the payment due on Wednesday, that was ordered by a U.S. judge. Negotiations with those holdout creditors have broken down. A default would likely lead to yet another devaluation of the peso, stoking already high inflation in the country.

Fighting in Eastern-Ukraine continues, which has prevented aa group of international investigators from reaching the MH17 crash site. Meanwhile, the U.S. released images that purport to prove that Russia has been firing on Ukrainian military positions across the border. Heavy fighting around Horlivka reportedly killed 13 civilians.

The latest informal cease-fire in Gaza has already unraveled, with both sides charging the other with firing first. Attempts by U.S. Secretary of State John Kerry to orchestrate a more permanent cease-fire seem to have fallen apart.

Analysts say that ISIS is about to launch an attack on Baghdad. Coming off of some success on the Syrian front, an assault on the Iraqi capitol would mark a pretty significant escalation in that conflict.

Posted in Daily Market Report, Gold News, Gold Views |

3rd time unlucky: Argentina set for new default

28-Jul (CNBC) — Argentina is on course to default on its debt for the third time in 28 years on Wednesday – an event that could cost U.S. hedge funds millions of dollars and provide investors with yet another worry amid geopolitical turmoil.

The Latin American country has just two days to comply with a U.S. legal ruling to repay $1.3 billion to so-called holdout creditors, who snapped up junk bonds around the time of its massive $82-billion default in 2001 and refused to accept the debt restructurings that followed. At the same time, the country has to find $539 million to pay interest on restructured debt. The Buenos Aires government has warned that it won’t be able to pay.

If Argentina fails to repay in full – or strike a deal with those involved – it will enter partial default.

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Posted in Debt |

QE: New York Fed purchases $1.067 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

US Dallas Fed Index rose to 12.7 in Jul, below expectations of 12.8, vs 11.4 in Jun.

Posted in Economic Data |

US NAR pending home sales -1.1% to 102.7 in Jun, below expectations of +0.5%, vs negative revised 103.8 in May; -7.3% y/y.

Posted in Economic Data |

US Markit flash services PMI steady at 61.0 in Jul, above expectations of 59.8. Employment falls to 52.8, vs 56.1 in Jun.

Posted in Economic Data |

Gold Holds Above 200-Day Moving Average Support


28-Jul (Kitco News, via Forbes) — Last week’s action saw December Comex gold futures fall to test its 200-day moving average, but that important long-term support zone held. In the near term, gold remains in a choppy, corrective phase, but continues to hold above key moving average and Fibonacci retracement support zones.

This week’s action could see volatile trade amid a number of key economic releases in the U.S., but emerging geopolitical uncertainties should help keep a bid underneath the market.

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Posted in Gold News, Gold Views |

Gold slips on steady dollar ahead of U.S. data, policy meeting

28-Jul (Reuters) – Gold fell on Monday, as the dollar approached multi-month highs, but prices held above $1,300 an ounce on heightened tensions between the West and Russia, and violence in the Middle East.

Investors awaited the Federal Reserve’s policy meeting and second-quarter GDP data on Wednesday and non-farm payrolls figures on Friday, which will be used to gauge the strength of the economy and the outlook for the U.S. central bank’s next cycle of interest rates tightening.

Spot gold was down 0.2 percent at $1,305.24 per ounce by 1158 GMT. The metal logged its second consecutive weekly drop on Friday on strong U.S. economic data.

U.S. gold futures were up $3.50 at $1,305.50 an ounce.

Traders said the metal was likely to remain around $1,300 ahead of the expiration of Comex gold options for August on Monday.

“Today, we have option expiry, with a lot of calls and puts in the $1,300 area …if we close above that level then there will be more consistent support over the next few days when attention turns to the FOMC (Federal Open Market Committee) meeting and U.S. data,” MKS SA senior vice president Bernard Sin said.

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Posted in Gold News, Gold Views |

Gold easier at 1305.29 (-2.51). Silver 20.67 (-0.03). Dollar firm. Euro weak. Stocks called mixed. US 10yr 2.47% (+1 bp).

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Gold Jumps Most in a Week on Conflicts in Ukraine, Gaza

25-Jul (Bloomberg) — Gold and silver futures jumped the most in a week as escalating havoc in Eastern Europe and the Middle East boosted demand for haven assets.

Ukraine and Russia traded accusations of cross-border shelling as tensions between the ex-Soviet neighbors intensified. Gaza Strip violence expanded after dozens of Palestinians and 13 Israeli soldiers died in the conflict’s bloodiest single day.

Gold has climbed 8.6 percent this year. Fighting this month in Gaza has killed more than 800 Palestinians and 35 Israelis, roiling a region in upheaval from Iraq to Yemen. Russian President Vladimir Putin is facing more pressure to expedite the investigation into the crash of a Malaysian passenger jet on July 17 in Ukraine.

“When you see schools shelled in Gaza and heavy artillery fire from Russia and Ukraine, people are very nervous, and you can’t blame them,” Peter Thomas, a senior vice president at Zaner Group LLC in Chicago, said in a telephone interview. “As we go into the weekend, with the amount of turmoil that we have, people are going to buy gold.”

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Posted in Geopolitical Risks |

As Ukraine Forces Make Headway, Russia Is Said to Step Up Role

25-Jul (New York Times) — Russia has stepped up its direct involvement in fighting between the Ukranian military and separatist insurgents, unleashing artillery attacks from Russian territory and massing heavy weapons along the border, Ukrainian and American officials say.

Russia’s aim, the officials say, appeared to be to stem and perhaps roll back gains made by government forces, who have been retaking rebel-held territory and trying to seal the border. They say Russia’s accelerated intervention raises the prospect of more direct and more heated fighting between Ukraine and Russia.

American officials, citing military intelligence, including satellite images, warned that Russia appeared to be preparing to arm the rebels with more high-powered weaponry than it has previously supplied, including tanks, armored vehicles and powerful Tornado multiple rocket launchers.

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Posted in Geopolitical Risks |

The Daily Market Report: Gold Regains $1300 On Geopolitical Tensions and Weaker Stocks


25-Jul (USAGOLD) — Gold rebounded ahead of the weekend, trading back above the $1300 level. Persistent geopolitical risks and weaker stocks are offering support to the yellow metal. However, a firm dollar remains an impediment on the upside.

The dollar index jumped to a new 5-month highs, more on euro weakness than any true dollar strength. A surprise decline in German business sentiment was the catalyst for a drop in the single currency to an 8-month low.

The dollar got an additional boost from a slightly better than expected U.S. durable goods print for June, but it wasn’t enough to recoup the terrible (negatively revised) 1.0% decline seen in May. Accordingly, there have been further negative revisions to Q2 GDP expectations.

Evident growth risks in Europe continue to stoke expectations that the ECB will have to ease further in an effort to prevent yet another retreat into recession. While U.S. economic data continues to encourage the optimists, it hasn’t been robust enough to to swing the pessimists.

U.S. advance Q2 GDP comes out next week. Median expectations are running around +2.9%, which strikes me as wildly optimistic in light of the -2.9% Q1 results and the data that have come out subsequently. Certainly, if the advance number is sub-2%, expectations of a Fed rate hike would likely get pushed toward the end of 2015. If the number is really bad, the Fed may have to consider un-tapering at that point to avert recession; or at a minimum try to ensure it’s a short recession.

Meanwhile, fighting rages in Ukraine, Gaza and Syria:

Ukrainian Troops Recapture Rebel Stronghold of Lysychansk After Fierce Fighting
West Bank Protests Grow as Israel, Hamas Fighting in Gaza Rages
Syria conflict: Isis ‘overruns’ Raqqa military base

Posted in Daily Market Report, Gold News, Gold Views |

Gold Gains From 5-Week Low as Prices Near Technical Level


25-Jul (Bloomberg) — Gold rose from a five-week low in New York, narrowing a second weekly loss, on speculation prices near a technical level will discourage selling.

Bullion fell as much as 1.3 percent to $1,289.40 an ounce yesterday, the lowest since June 19, as U.S. equities reached a record after data showed jobless claims fell and global manufacturing increased. The metal, which yesterday fell near its 200-day moving average, slid 28 percent last year on expectations the Federal Reserve would tighten monetary policy.

U.S. interest rates may rise sooner than forecast “if the labor market continues to improve more quickly than anticipated,” Fed Chair Janet Yellen said last week, adding the central bank must press on with stimulus because “significant slack” remains. Gold is heading for a monthly loss even amid unrest in Ukraine and the Middle East.

Gold’s decline to near the 200-day moving average “has so far been enough to halt the slide, as short-sellers have used that support to book some profit,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said today by e-mail. “Considering the improvement in recent data and speculation about the Fed’s intentions with regard to tightening, the market will be nervous over the coming week, leaving little room to the upside.”

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Posted in Gold News, Gold Views |

US durable goods orders +0.7% in Jun, just above expectations of +0.6, vs negative revised -1.0% in May. Ex-trans +0.8%.

Posted in Economic Data |

Gold better at 1295.00 (+2.15). Silver 20.43 (+0.099). Dollar higher. Euro slides. Stocks called lower. US 10yr 2.51% (+1 bp).

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U.S. Says Russian Artillery Firing Across Border Into Ukraine

24-Jul (The Wall Street Journal) — The U.S. believes Russia is firing artillery across its border at Ukrainian military positions, the State Department said, an assertion that Moscow is playing a more direct role in the Ukrainian conflict.

The latest accusations show U.S. officials raising pressure on Moscow and more closely examining Russian activities near the rebel-held portions of eastern Ukraine since the downing of Malaysia Airlines flight 17, which Washington blames on pro-Russian separatist fighters.

State Department spokeswoman Marie Harf also said on Thursday that the U.S. has evidence Moscow intends to deliver powerful rocket systems to the pro-Russia fighters in Ukraine, but she declined to provide details about the systems or about how officials came to that conclusion.

“We have new evidence that the Russians intend to deliver heavier and more powerful multiple rocket launchers to the separatist forces in Ukraine and have evidence that Russia is firing artillery from within Russia to attack Ukrainian military positions,” Ms. Harf told reporters at a news briefing, calling the findings “some pieces of info I’ve been able to get from our intelligence friends.”

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Posted in Geopolitical Risks |