Monday, April 15, 2013

Gold plunges


On The Forced Sale...
Via Ross Norman of Sharps Pixley,
The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand.
Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.
The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".
Futures trading is performed on a margined basis - that is to say you have to stump up about 5% of the actual cost of the gold itself making futures trades a highly geared 'opportunity' of about 20:1 - easy profit and also loss ! Futures trading is not a product for widows and orphans. The CME's 10% reduction in the required gold margins in November 2012 from $9133/contract to just $7425/contract made the market more accessible to those wishing both to go long or as it transpired, to go short. Soon after we saw the first serious assault to the downside in Dec 2012, followed by further bouts in January 2013 - modest in size compared to the recent shorting but effective - it laid the ground for what was to follow. One fund in particular, based in Stamford Connecticut, was identified as the previous shorter of gold and has a history of being caught on the wrong side of the law on a few occasions. As baddies go - they fit the bill nicely.
The value of the 400 tonnes of gold sold is approximately $20 billion but because it is margined, this short bet would require them to stump up just $1b. The rationale for the trade was clear - excessively bullish forecasts by many banks in Q4 seemed unsupported by follow through buying. The modest short selling in Jan 2013 had prompted little response from the longs - raising questions about their real commitment. By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie ; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.
This now leaves the gold market in an interesting conundrum - the shorter is now nursing a large gold position and, like the longs also exposed - that is to say the market is polarised between longs and shorts and they cannot both be right. Either the gold bulls - like in a game of tug-of-war - pull back and prompt the shorters to panic and buy back - or they do nothing, in which case the endless stories about the "end of gold" will see a steady further erosion in prices. At the end of the day it is a question of who has got the biggest guns - the shorts have made their play - let's see if there is any response from the longs to defend their position. 

On Inventories...
Via Mark O'Byrne of Goldcore,
Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions. 
It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.
Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.
The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.
Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009. 
This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.
Interestingly, the drop in Comex inventories would be the biggest for a whole year since 2001, when bullion began its secular bull market.
Absolutely nothing has changed regarding the fundamentals of the gold market and bullion owners are advised to again focus on the long term and the vital diversification benefits of owning gold over the long term.
Although some Federal Reserve policy makers said that they probably will end their $85 billion monthly U.S. bond purchases sometime in 2013. The key word is ‘probably’ and it remains unlikely that the Federal Reserve will stop their debt monetisation programmes any time in 2013 or even in 2014.
Even if the Fed did end them, ultra loose monetary policies and negative real interest rates are set to continue as are competitive currency devaluations and currency wars - two other fundamental pillars supporting the precious metal markets.
Buyers are now presented with another very attractive buying opportunity. We always caution against trying to “catch a falling knife” and buyers should hold off until we get a few days of higher closes or a weekly higher close. Alternatively, they should consider dollar, pound or euro cost averaging into a position at these levels.
Sellers should consider holding off as if contemplating selling they may have missed their opportunity and if they have to sell they may be best placed holding off until prices bounce or recover. Sellers are now disadvantaged both in terms of price but also in terms of premiums that have spread on some physical bars such as one kilo bars.
In the course of gold’s bull market, vicious sell offs like this have often presaged material weakness in stock markets and this may occur again. 
Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. Less informed money is again selling gold or proclaiming the end of gold’s bull market. 
The smart money such as certain hedge fund managers, high net worth individuals, pension funds, family offices, institutions and creditor nation central banks and will see this vicious sell off as an absolute gift and will accumulate again on this dip.
A long term allocation to physical gold bullion to hedge systemic and monetary risk remains vital.

Saturday, April 13, 2013

Yuan reaches record high against the US dollar


The yuan reached a record high yesterday as the central bank fixed its midpoint against the US dollar at the strongest level ever.
That sparked anticipation of further appreciation this year and stoked inflationary pressure on the mainland and Hong Kong.
The People's Bank of China set the midpoint at 6.2506 yuan per US dollar - up from the fixing of 6.2578 on Thursday - ahead of a visit by US Secretary of State John Kerry to Asia. The yuan jumped to 79.775 Hong Kong dollars per 100 yuan, just near the record of 79.729 on Wednesday.

Friday, April 12, 2013

Bitcoin bubble may have burst


The price of Bitcoins has plunged more than 75% in the past two days, sparking a rush of activity that overwhelmed trading platforms and suggested the bubble in the virtual currency has burst.
Bitcoins were down to $61.11 as of 9 a.m. ET Friday. Prices reached as high as $266 per Bitcoin around 7:30 a.m. ET Wednesday. But the price started to fall through the rest of day and Thursday morning.
At about 10 a.m. ET Thursday, trading was halted on Mt.Gox, a Japan-based exchange that claims to handle 80% of Bitcoin trade worldwide. The price at that time was already at about $123, down more than 50% from the peak.
Mt.Gox issued a statement Friday attributing both the pre-halt price fall and the halt in trading to the rush of new customers trying to trade in the electronic currency.
"The rather astonishing amount of new accounts opened in the last few days...made a huge impact on the overall system that started to lag," the exchange said. "As expected in such situations, people started to panic, started to sell Bitcoin in mass...resulting in an increase of trade that ultimately froze the trade engine."
The exchange said the shutdown was different from the cyber attacks that hit it and other Bitcoin sites earlier this month.
During the Mt.Gox trading halt, trading continued on some smaller Bitcoin markets, and the price fell sharply. When trading resumed on Mt.Gox about 10 p.m. ET, the price quickly plunged as low as $69.45, ricocheted back up to $135.69, then started to fall again. All the new volume flooding back to Mt.Gox caused another 2-hour halt in trading.

Thursday, April 11, 2013

JPMorgan Analysts Say Big Investment Banks Are ‘Uninvestable’


JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets and the top investment bank by fees, is questioning the so-called universal bank model’s future.
Top-tier investment banks are “uninvestable at this point with a risk of spinoff from universal banks,” JPMorgan analysts led by London-based Kian Abouhossein wrote in a research note today. They cited potential rule changes and curbs on capital and funding.
Investors should avoid Goldman Sachs Group Inc. (GS), once the world’s most profitable securities firm, andDeutsche Bank AG (DBK), Germany’s largest bank, because of pressure on earnings and the unknown impact of new regulations, according to the report. Both firms rank among the biggest sales and trading rivals for New York-based JPMorgan, which isn’t mentioned in the report. The bank is scheduled to report first-quarter results tomorrow

Former KPMG partner charged


Federal prosecutors in Los Angeles filed criminal charges Thursday against a former KPMG LLP partner who has admitted to passing on inside information about his clients.
Scott London, the partner in charge of audits of Herbalife Ltd. HLF +2.82%  and Skechers USA Inc. SKX +1.69%  until he was fired from KPMG on Friday, also was hit with civil securities-fraud charges by the Securities and Exchange Commission. The development is the latest in a scandal that led to the accounting firm resigning as auditor of the two companies.
London was charged with one count of conspiracy to commit securities fraud through insider trading, according to the criminal complaint. He faces up to five years in prison and a $250,000 fine. The complaint said the trades generated a profit of more than $1 million for his friend, Bryan Shaw.
Former KPMG partner admitted to passing on inside information about his clients.
The complaint also says London tipped off Shaw about five KPMG clients, more than was previously known.
In exchange, according to the complaint, London received bags containing $100 bills wrapped in $10,000 bundles, concert tickets, and a Rolex watch.

Wednesday, April 10, 2013

FXCM tries to take over Gain

In a move which has shocked the FX world, FXCM has made an offer to acquire Gain Capital (Forex.com) for $5.35 per share, or a total of $210 million -- all payable in FXCM stock. 

That's the headline. But the interesting part is what happened behind-the-scenes. As would be expected in a situation like this, FXCM CEO Drew Niv and his team held a series of discussions with his Gain Capital counterpart Glenn Stevens over the past few weeks, suggesting the merger between the two firms. But Stevens and his team didn't want to do the deal, and sell out at such a low price -- Gain's shares (as at Monday's close of $4.27) sit at less than half their December 2010 IPO price of $9. FXCM has fared much better, with its share price hovering right around their $14 IPO price (see chart below).

Forex trading platform for Bitcoin gets funding


Today, Coinsetter, a New York City-based startup looking to launch a new Forex trading platform for Bitcoin, announced today that it has raised $500,000 in seed capital. The round was led by Tribeca Venture Partners and SecondMarket founder and CEO Barry Silbert (through his Bitcoin Opportunity Fund), with participation from angel investors like Jimmy Furland, a London-based technology entrepreneur, Microsoft Head of Corporate Strategy, Charles Songhurst, and Facebook Product Lead, Ben Davenport.
The investment comes at a time when there’s been a flurry of new interest in Bitcoin, given that the crypto-currency just officially became a billion-dollar market at the end of March. Since then, venture capitalists have weighed in on what they love about Bitcoin, including its potential to not only “disrupt multi-billion-dollar markets, but in doing so also create new big markets,” Lightspeed Ventures’ Jeremy Liew wrote in TechCrunch this weekend.
As is the case with any new concept — let alone a new, unregulated and decentralized virtual currency — there are plenty of conflicting views. Some see Bitcoin as a harbinger of “the end of money,” many more see it as some kind of threat, while others shrug it off as a passing fad.

First Bitcoin fund launches from Malta


Ever since the bitcoin cryptocurrency first launched and achieved initial success, institutional investors and hedge fund managers have secretly sought a regulated investment vehicle for bitcoin placements. Malta-based Exante Ltd. has the solution with their new Bitcoin Fund.
“I hope our fund will be the first hedge fund to take advantage of using bitcoins,” explains Managing Partner Anatoliy Knyazev. Exante actually announced the fund in October last year, but they did not make a serious effort to market it. Now, with more institutional interest emerging, they agreed to provide this update to Forbes.
Although any person or entity can acquire and store bitcoins on their own, institutional investors are typically restricted in the types of assets available within their investment charter. Similar to a mutual fund or hedge fund for alternative assets, Exante’s Bitcoin Fund permits institutions and high-net worth individuals to access the vibrant bitcoin market with a licensed product and this alone is an innovative development.


Monday, April 8, 2013

The bizarre banking loophole that has opened up in Malta


The bizarre banking loophole that has opened up in Malta

Malta throws a spotlight on how secure our bank accounts really are – or aren't
Valletta in Malta
The chair of Malta-based AgriBank is furious at suggestions Malta is next after Cyprus.
Sharon Connor's story, featured on our front page today, is one of the most heart-rending we have ever covered. Not only did she lose her husband tragically early, she has now also lost much of her life savings amid the Cypriot banking collapse.
Once again it throws the spotlight on how secure our bank accounts really are. Last week I wrote that AgriBank, a new player in the British savings market, is offering temptingly high interest rates, but is authorised in Malta, and therefore dependent on the Maltese €100,000 deposit protection scheme.
With memories still fresh of the Iceland debacle, when Icesave's failure overwhelmed the country's deposit protection scheme, I felt it worth a warning, especially given the fact that Malta, like Cyprus, has a super-sized financial sector.
I was wrong. The truth is that deposits in AgriBank are not protected whatsoever. What has emerged is that there is an alarming loophole in EU compensation arrangements, and reason to be seriously concerned about the EU's so-called "single passport" for banking.
AgriBank, although it has no historic connections with Malta, has been granted a licence to operate as a bank by the Malta Financial Services Authority (MFSA) and, because Malta is in the EU, the bank is allowed to take deposits in any of the 26 other countries in the union.
This is one of the drawbacks to the EU's neo-liberal drive for single markets, but profound inability to produce single regulators. We have the farcical set-up of a single banking market, but 27 different regulators all able to offer authorisation for a bank to operate across the entire union. Given the dog's dinner that is RBS, maybe you think our regulators in London are no better than those in Bucharest or Bratislava, but I don't quite buy it. The catastrophic collapses in Reykavik (though outside the EU) and Nicosia tell you otherwise.
But even more bizarre is the loophole that has opened up in Malta. It turns out I was right to assume that banks registered in an EU state have to become members of that state's €100,000 protection scheme, as set out in the European Deposit Guarantee Scheme Directive.
But see if you can make head or tail of this. The MFSA emailed me to say: "We can confirm AgriBank is a member of the Malta Deposit Compensation Scheme (DCS)." Yet on AgriBank's website it says "AgriBank's deposit products are not covered by a depositor compensation scheme."
So is it or isn't it? The MFSA explains it, sort of, in this way. "Please note that on 16 May 2012, the MFSA had issued a policy under which it prohibited (or limited) any newly licensed credit institutions from creating undue liabilities on the local deposit compensation scheme … The position of AgriBank is therefore that while it is a member of the DCS, its funding shall be in the form which are [sic] not considered as eligible deposits under the DCS … There are currently ongoing discussions with AgriBank regarding amendments required to the text on their website."
As far as I can work out, this confirms that you can obtain a cross-EU banking licence from Malta, operate in the UK, be a member of a compensation scheme, but not really be a member of a compensation scheme. Yet one more tiny example of the mountain of idiocies that make so many people loathe the EU.
I don't want to suggest, of course, that Malta is anything other than a paragon of financial virtue, rather than a tax haven favoured by hedge funds. Indeed, when I asked the MFSA questions about AgriBank, its chairman, Professor Joe Bannister, replied in person. "All banks applying for a licence in Malta have to go through a rigorous procedure before being granted the licence," he said. Bannister is furious at any suggestion that Malta is next after Cyprus. "Such statements are ill-founded and have created unnecessary unease about Malta," he adds.
Yet the country's finance minister, Edward Scicluna, is chastened by what he witnessed at EU talks over Cyprus. Writing in the Malta Times he said God help his country if it encounters similar problems in the eurozone.

Obama targets wealthy IRAs


President Obama’s budget, to be released next week, will limit how much wealthy individuals – like Mitt Romney – can keep in IRAs and other retirement accounts.

The proposal would save around $9 billion over a decade, a senior administration official said, while also bringing more fairness to the tax code.


Read more: http://thehill.com/blogs/on-the-money/domestic-taxes/292071-obama-budget-to-target-wealthy-iras#ixzz2PtE6Ekl4 
Follow us: @thehill on Twitter | TheHill on Facebook

Thursday, April 4, 2013

Beyond the Post-Cold War World


By George Friedman
Founder and Chairman
An era ended when the Soviet Union collapsed on Dec. 31, 1991. The confrontation between the United States and the Soviet Union defined the Cold War period. The collapse of Europe framed that confrontation. After World War II, the Soviet and American armies occupied Europe. Both towered over the remnants of Europe's forces. The collapse of the European imperial system, the emergence of new states and a struggle between the Soviets and Americans for domination and influence also defined the confrontation. There were, of course, many other aspects and phases of the confrontation, but in the end, the Cold War was a struggle built on Europe's decline.
Many shifts in the international system accompanied the end of the Cold War. In fact, 1991 was an extraordinary and defining year. The Japanese economic miracle ended. China after Tiananmen Square inherited Japan's place as a rapidly growing, export-based economy, one defined by the continued pre-eminence of the Chinese Communist Party. The Maastricht Treaty was formulated, creating the structure of the subsequent European Union. A vast coalition dominated by the United States reversed the Iraqi invasion of Kuwait.
Three things defined the post-Cold War world. The first was U.S. power. The second was the rise of China as the center of global industrial growth based on low wages. The third was the re-emergence of Europe as a massive, integrated economic power. Meanwhile, Russia, the main remnant of the Soviet Union, reeled while Japan shifted to a dramatically different economic mode.
The post-Cold War world had two phases. The first lasted from Dec. 31, 1991, until Sept. 11, 2001. The second lasted from 9/11 until now.
The initial phase of the post-Cold War world was built on two assumptions. The first assumption was that the United States was the dominant political and military power but that such power was less significant than before, since economics was the new focus. The second phase still revolved around the three Great Powers -- the United States, China and Europe -- but involved a major shift in the worldview of the United States, which then assumed that pre-eminence included the power to reshape the Islamic world through military action while China and Europe single-mindedly focused on economic matters. 

Read more: Beyond the Post-Cold War World | Stratfor 

Bill Gross "Man in the Mirror" - What if rates go up, prices go down?


Investors should be judged on their ability to adapt to different epochs, not cycles. An epoch may be 40-50 years in time, perhaps longer.

Bill Miller may in fact be a great investor, but he’ll need 5 or 6 more straight “heads” in a future epoch to confirm it. Peter Lynch is a “party pooper.” Warren is the Oracle, but if an epoch changes will he and others like him be around to adapt to it?

No matter how self-indulgent you think this IO is, I just looked in the mirror and saw at least a 7. You must be blind!

What if an epoch changes? What if perpetual credit expansion and its fertilization of asset prices and returns are substantially altered? What if zero-bound interest rates define the end of a total return epoch that began in the 1970s, accelerated in 1981 and has come to a mathematical dead-end for bonds in 2012/2013 and commonsensically for other conjoined asset classes as well?

http://www.pimco.com/EN/Insights/Pages/A-Man-In-The-Mirror.aspx 

BOJ to pump $1.4 trillion into economy in unprecedented stimulus


(Reuters) - The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.
New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014 in a shock therapy to end two decades of stagnation.
The U.S. Federal Reserve may buy more debt under its quantitative easing, but with the Japanese economy about one-third of the size of the United States, the scope of Kuroda's "Quantitative and Qualitative Monetary Easing" is unmatched.
 
"This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.

Wednesday, April 3, 2013

The Four Traits Of Monetary Union Collapse


There are four traits that UBS identified as common trends around the breakup of a monetary union. So has Cyprus (as is tirelessly pointed out, only 0.2% of the Euro area measured by GDP) set a course for the Euro’s destruction? Indeed, with Cyprus having checked the first three items on that list, while it has not left the Euro (yet), UBS concludes, "it may well be occupying a seat very close to the exit."

Via UBS: Is Cyprus Still In The Euro?
The four traits are:
  • Monetary union break up is preceded by capital flight from perceived weak from perceived strong parts of the union
  • Monetary union break up has tended to be regarded by governments as an opportunity for seizing cash or other assets held by citizens
  • Capital controls tend to be imposed early in the break up, and foreigners’ asset holdings are often discriminated against
  • Break up of a monetary union is normally associated with civil unrest and authoritarian government in at least some part of the former monetary union.