Baltic Dry Index. 1092 +06
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
"Rule
No. 1: never lose money; rule No. 2: don't forget rule No. 1"
Warren
Buffett.
The big event today is America’s employment numbers, and
the spin put upon them. Not that many people take Uncle Scam’s numbers at face
value anymore. Since at least the days of President Clinton, Uncle Scam’s
numbers are on a par with China’s.
We open
today with should Holland, the country not the ludicrous French love rat, leave
the Eurozone and the EU? A well respected mainstream research consultancy
suggest that they should. If the UK votes itself out of an unreformed EU,
whether or not and independent Scotland is trying to get in, I suspect several
other countries will choose to bolt free of the dying EUSSR and Brussels
control too.
“I
can calculate the movement of the stars, but not the madness of men.”
Sir Isaac Newton.
Dutch would be 'better off' if they left the euro
There are big economic benefits for the Dutch in leaving the EU, finds a major study
The average Dutch household could be better off by over £8,000 a year and national income will grow by over £1 trillion if the Netherlands leaves the euro and the EU, according to a new study.The study by the respected British Capital Economics research consultancy into "Nexit" finds significant benefits over the next two decades to 2035 for the Netherlands in leaving the EU and negotiating a similar status as Switzerland.
"Over that 21 year period, the benefits of Nexit to Dutch national income would have accumulated to between €1,100 (£913bn) billion and €1,500 billion (£1.3 trillion) in today's prices," the report concluded.
"This is equivalent to between €7,100 (5,893) and €9,800 (£8,134) per household each year. But even if the Netherlands is unable to negotiate a status akin to Switzerland's, the economy would be better off out of the union than in."
While acknowledging risks to leaving the EU, Capital Economics concludes that the Netherlands, a AAA rated creditor country in the eurozone, is better out of the EU because the threat posed to its long-term wealth by the structural problems of the European single currency.
"There are, of course, risks
to leaving the union - and these need to be recognised and addressed by anyone
considering Nexit," the report said.
"But there are also
significant risks to staying in a bloc with a fundamentally flawed currency. In
this instance, our analysis shows that the Netherlands would be better off
taking control of its own destiny, rather than sticking with the 'devil it
knows'."
The research has been seized upon
by Tory Eurosceptics and Ukip to counter, what they see as alarmist, warnings
from prominent business leaders and mainstream politicians of an economic
meltdown if Britain left the EU.
"This report is significant
because it has been produced by a credible City research group. It cannot be
easily dismissed," said Douglas Carswell, the Conservative MP for Clacton.
"It shows we are no longer
alone. It is not just us Brits who have come to realise that European
integration is fundamentally flawed. We're very like the Dutch, a small country
that has prospered by trading globally. Think what countries like ours could be
in a different type of Europe."
The independent study was
commissioned by Geert Wilders, the leader of the Dutch anti-EU Freedom Party,
to assess the cost for the Netherlands of leaving the Union as he leads
national opinion polls in the run up to European elections this spring.
"Contrary to what the
scaremongers claim, our economy would not grind to a halt. We would earn
billions more than right now," he said.
----The report on "Nexit", an expression merging the abbreviation for Netherlands and the word exit, also finds economic benefits to being outside the EU, including a reduction in business costs by "a minimum of €20 billion annually by 2035 through ﾑrenationalisingﾒ regulations in areas currently in the jurisdiction of Brussels institutions".
Overall the report concludes that
the Dutch would be able to manage their economy "more effectively by
having the freedom to set monetary and fiscal policy to fit Dutch national
conditions, and not the euro-zone as a whole".
More
In other EUSSR news, Mr Draghi makes a bet that Club Med youth unemployment can go far higher than 57%. I think the EMU likely to fly apart in mid-summer after the European elections.
Split ECB paralysed as deflation draws closer, tightening job vice in southern Europe
Mario Draghi said the ECB’s council had discussed a wide range of measures but needed more information
The European Central Bank has
brushed aside calls for radical action to head off deflation and relieve
pressure on emerging markets, denying that the eurozone is at risk of a
Japanese-style trap.
Yields on German two-year notes
almost doubled to 0.12pc as markets slashed expectations for future rate cuts,
while the euro spiked 1.5 cents to more than $1.36 against the dollar, implying
a further tightening of monetary conditions for Europe.
Mario Draghi, ECB president, said
the bank is “alert to the risks, and stands willing and ready to act” if
inflation falls even further below target or if the fragile recovery falters,
but offered no clear guidance on future policy.
Deutsche Bank, BNP Paribas,
Barclays and RBS had all expected a cut in the main interest rate, while there
had been widespread reports that the ECB would open the door to quantitative easing
- allegedly by halting "sterilisation" of its €175bn bond holdings.
“Monetary policy in the eurozone
is incredibly tight and is doing real damage to the economy, yet they do
absolutely nothing. It boggles the mind,” said one former ECB governor.
“The idea that everything is
alright because they are not in actual deflation is a false premise. They are
already so far below their 2pc target that it is causing much higher
unemployment and making it that much harder for the eurozone periphery to
adjust. I am afraid to say that Mario Draghi has been captured by the German
political class. He doesn’t want to compromise the support of Angela Merkel’s
government,” he said.
Bourses in Europe and the US
rallied strongly despite the disappointment but tell-tale fractures in
financial markets call for caution. Simon Derrick, from BNY Mellon, said the
sharp rise in the Japanese yen - typically the early warning signal for trouble
- has echoes of events in the build-up to the Lehman crisis.
----Any decision has been kicked into touch until March and possibly longer. Yet delay is risky. Core inflation has already fallen to 0.6pc once tax rises are stripped out. The M3 money supply has been contracting at a 1pc rate over the past three months, against a target of 4.5pc growth.
“They are not fulfilling their
basic mandate. They are letting deflationary forces become embedded in the
system just like Japan in the 1990s,” said Lars Christensen, from Danske Bank.
“The rhetoric is even the same.
The Bank of Japan kept denying that they were going into deflation, and kept
insisting that monetary policy was accommodative when it was fact too tight,”
he added.
More
Below, SocGen’s
uber-bear thinks in emerging markets it’s “déjà vu” all over again. Global
stock markets are all at sea if he’s right.
SocGen's Albert Edwards thinks it's 1997 all
over again for emerging markets
Societe Generale's uber-bear is
at it again.
After the turmoil in emerging
markets over the past few weeks, Albert Edwards thinks the unravelling has been
"the final tweet of the canary in the coal mine".
He thinks the warnings are being
ignored, and that the ongoing "debacle will be less contained than
sub-prime ultimately proved to be."
In the US Edwards points to
S&P weakness reflecting worries about the outlook for US profitability.
Edwards says that the "dire
profits situation will only get worse as EM implodes and waves of deflation
flow from Asia."
Then we should see "the
fragile situation in the US and Europe" overwhelmed, says Edwards.
Now Edwards thinks that even if
the Federal Reserve "resumes massive QE" as the "world melts
down", that things still won't perk up:
More
Mobius Says Emerging-Market Selloff to Deepen Amid Outflows
Feb 7, 2014 5:34 AM GMT
The worst isn’t over for emerging
markets after the benchmark stock index sank to a five-month low and the
nations’ currencies tumbled, said Templeton Emerging Markets Group’s
Mark Mobius. “The negative sentiment is pretty much in place so you can expect a lot more selling,” Mobius, 77, who oversees more than $50 billion in developing nations as an executive chairman at Templeton, said in an interview from Rio de Janeiro today. “We are looking but actually not buying at this stage. Prices can come down or take time to stabilize.”
More
With yet
more rioting in Rio overnight, continuing strikes in South Africa’s mines, and
Argentina and the Ukraine in a race to the death to implode first, who am I to
disagree with both.
We end for
the day with the ironies of ironies. Warren Buffet got taken to the cleaners by
Lehman Brothers in of all things, insane derivatives gambling. Watch what the
banksters and great vampire squids do, not what they say. There’s just no
honour among thieves these days.
Those who trade derivatives are usually paid, in whole or
part, on “earnings” calculated by mark-to-market accounting. But often there is
no real market, and “mark-to-model” is utilized. This substitution can bring on
large-scale mischief. As a general rule, contracts involving multiple reference
items and distant settlement dates increase the opportunities for
counter-parties to use fanciful assumptions. The two parties to the contract might
well use differing models allowing both to show substantial profits for many
years. In extreme cases, mark-to-model degenerates into what I would call
mark-to-myth.
Warren Buffett. Berkshire Hathaway annual report 2002.
Lehman Brothers Maybe Sold Warren Buffett a Rainbow
Feb 6, 2014 7:54 PM GMT
If you are like me, you will enjoy the heck out of Dan McCrum's FT
Alphaville series (part
1, part
2, part
3) on Berkshire Hathaway's index put options, but I cannot guarantee that
you are like me. I was mildly titillated by his
use of the term "negative cross gamma," if that gives you an
idea.I also cannot guarantee that it contains the full truth about Buffett's derivatives. It is based on some papers written by Pablo Triana, a professor at Esade Business School, which speculate a bit about what might be going on with the put options that Berkshire wrote a few years ago. Berkshire's disclosure of those trades is notoriously wispy,1 so the speculation is not conclusive. But it is interesting! Here (and here), for instance, is an effort to reverse-engineer exactly what the trades look like and to figure out their risk sensitivities, which, again, is not something that Berkshire Hathaway itself makes easy.2
Yesterday's post is even more interesting, and even more speculative. As far as I can tell from the related Triana paper, an old Lehman Brothers internal presentation washed up on a beach somewhere and Triana stumbled over it.3 Here is the presentation. The thing that interests Triana and McCrum -- and me, and you, if you're like me -- is a tantalizing slide that seems to say that Buffett sold Lehman what is somewhat romantically referred to as a "rainbow put," or more prosaically as a "Worst of Basket Put Option." Like so:
More
I can assure you that the marking errors in the
derivatives business have not been symmetrical. Almost invariably, they have
favored either the trader who was eyeing a multi-million dollar bonus or the
CEO who wanted to report impressive “earnings” (or both). The bonuses were
paid, and the CEO profited from his options. Only much later did shareholders
learn that the reported earnings were a sham.
Warren Buffett. Berkshire Hathaway annual report 2002.
At the Comex
silver depositories Thursday
final figures were: Registered 50.73 Moz, Eligible 129.50 Moz, Total 179.23 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
No crooks today, just Russian spooks letting the NSA know, we can listen in too, and we know what you’re up to in the Ukraine. And a great time was had by all except the unfortunate people trapped in bankrupt, and headed for a US-Russian sponsored civil war Ukraine.
Intercepted F-Bomb Phone Call Shows U.S. Role in Ukraine
Feb 7,
2014 5:00 AM GMT
Some undiplomatic language by the top U.S. diplomat for Europe has rattled
relations with the European Union and added more tension to the East-West
strains over Ukraine’s political crisis. “F--k the EU,” Assistant Secretary of State Victoria Nuland said in a private phone call, expressing frustration with European Union efforts to resolve Ukraine’s political turmoil.
On the eve of Russia’s showcase Olympics in Sochi, the U.S. suggested yesterday that Moscow’s intelligence apparatus was involved in some way with the leaked recording of the intercepted phone call between Nuland and U.S. ambassador to Ukraine Geoffrey Pyatt. The call was made last month, based on references in the discussion.
State Department spokeswoman Jen Psaki blamed Russian “tradecraft” -- a word used to describe espionage activity -- after an unknown individual posted the audio recording on Google Inc.’s (GOOG) YouTube. The clip, which was subtitled in Russian rather than Ukrainian and accompanied by photographs and images of people mentioned in the call, was reported by the Kyiv Post earlier yesterday as Nuland arrived for talks in the Ukrainian capital.
While
saying the U.S. doesn’t know who recorded the call or posted it, Psaki said an
aide to Russian Deputy Prime Minister Dmitry Rogozin was the first to draw
attention to it in a posting on Twitter Inc. (TWTR) The aide, Dmitry
Loskutov, tweeted in English: “Sort of controversial judgment from Assistant
Secretary of State Victoria Nuland speaking about the EU.”
“We think this is a new low in Russian tradecraft, in terms of publicizing, posting,” Psaki told reporters yesterday in Washington.
Psaki didn’t dispute the authenticity of the recording and said Nuland has called EU officials to apologize. Psaki joked that those who know her aren’t surprised by Nuland’s language in private conversations.
----The disclosure of eavesdropping on a U.S. official follows months of controversy about the American electronic snooping made public by former National Security Agency contractor Edward Snowden, who has been given asylum in Russia as he seeks to avoid U.S. prosecution for disseminating classified information.
The recorded call may cause
trouble for the Ukrainian political opposition, which has tried to fend off
Russian assertions that it’s acting on behalf of Western interests.
----On the phone call, Nuland discussed which opposition figures should and shouldn’t join a new government in Kiev under an offer last month by Yanukovych. The Ukrainian president proposed that opposition leader Arseniy Yatsenyuk would become prime minister and another opposition figure, former boxer Vitali Klitschko, would become deputy prime minister.
Nuland said she was agreeable
toward “Yats” taking the post, though, “I don’t think Klits should go into the
government. I don’t think it’s necessary, I don’t think it’s a good idea.”
More
Ukraine Imposes Capital Controls as President Meets Putin
Feb 6, 2014 11:57 PM GMT
Ukraine’s central bank imposed
limits on foreign-currency purchases after its interventions failed to
alleviate pressure on the hryvnia, while President Viktor Yanukovych left to
meet his Russian counterpart, Vladimir Putin.
The monetary authority’s measures
include a waiting period of at least six working days for foreign-currency
purchases by companies and curbs on individuals’ market access, according to a
statement on its website late yesterday. It also moved the hryvnia’s official
exchange rate, used for accounting purposes, to 8.7 per dollar from 7.99, the
first change since 2012.
More
Another
weekend and a another wet one expected here in southern England. From the
relative safety and stability of offshore, quirky UK, the world from the near
continent to far away emerging markets, has never looked more unstable since I began
trading markets in 1968. Have a great weekend everyone.
"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise. The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."
Hans F. Sennholz
The monthly Coppock Indicators finished January.
DJIA: +202 Down. NASDAQ: +330 Up. SP500: +249 Up. The new Fed bubble continues, but seems to be running out
of momentum. Does the Final Fed Bubble end in an emerging market crash?
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