*Why?

*Why Now?

Why is the that the actions of central bankers have raised concerns around the  globe.  Quantitative easing by the central banks of the United States, Great Britain, and Japan has received little support from the Bundesbank, which has engineered strong economic growth in Germany.  Of little “comfort” to German taxpayers should be the fact that its stores of gold held by the Federal Reserve have never been inspected and audited.

Even more unsettling is that the Federal Reserve has refused several requests by the Bundesbank to verity the safekeeping of its supplies of The Yellow Metal.  As the chart below shows, German holdings of gold are impressive.  There is every reason for the Bundesbank to want its reserves underground in Frankfort, not France or Fifth Avenue.  Why should German taxpayers provide the gold for the Federal Reserve to lend out when they are already bailing out the Greeks?

Why now is that central banks around the world are building up their gold supplies.  As to be expected, other central banks are now taking steps to repatriate their gold reserves.  The Netherlands only has 10% of its gold at home, with the rest being held in New York, Ottawa, and London.  More central bankers from around the world are sure to follow the Dutch in bringing home bars of The Yellow Metal.  If a central bank has such a lack of confidence in the US Dollar or Euro to buy gold instead, than that same sentiment will have it securing the gold on its home territory.

This is a very bullish development for gold bulls.  Most obviously, it reveals a lack of trust among the central bankers of the world.  That dissipates confidence in fiat currencies, to say the least.  If central bankers do not trust each other, that does little to persuade traders to put any faith (or money) in the currencies of the nation.  That will naturally make gold even more appealing.

There should also be a reduced physical supply of gold for the financial markets.  The physical gold market is very tight.  Central bankers bought more of The Yellow Metal in 2012 than in almost the previous half century.  As Keith Barron, a geologist and precious metals consultant recently observed:

“I believe that most of the Western world’s gold, which is supposed to be in central bank vaults, has been leased out. Much of it is now in private hands in India, and what remains continues going East to China and other Asian vaults. So most of the Western gold has vanished from the vaults and it’s now just a book entry. These various Western countries and bullion banks simply roll these leases over when they come due, and the gold never gets returned back to the countries. So it’s very interesting to see what’s going on. Obviously the trust is breaking down in the system.”

If the German gold is ensconced in the vaults of the Federal Reserve and the Banque De France, it would not seem necessary for it to take years to be returned.  But the physical gold market is very tight.  Even tighter, according to Mr. Barron.  Clearly, Germany is not too worried about the safety and security of its gold supplies as it does not plan to have the transfer completed until 2020.  That will result in about 50% of Germany’s gold being held in Frankfort.  But Germany does want more of its gold coming home, and that is not a bullish sign for the global economy.

Why and Why Now is Germany Repatriating its Gold?

See this.

But as the whole world is counting on Egypt as the peacemaker in the Arab world, thousands of protesters took to the streets of Cairo to protest against the new powers President Mohammed Morsi has reserved for himself. “Not even the pharaohs had so much authority, to say nothing of his predecessor Hosni Mubarak.”, Nobel laureate Mohamed ElBaradei argues.

See this.

Egypt has long been the diplomatic leader of the Arab, but with after the Arabic Spring, Morsi took office so Egypt needed to reassert that leadership. It managed to agree a cease-fire between Israel and Hamas, but for how long will it last and won’t loose that diplomatic leadership its credibility as the Egyptian protests continue and former Arab League General Secretary Amr Moussa argues that the democratic process in his country is in grave danger?

Tomorrow the Palestinian President Mahmoud Abbas will submit the Palestinian bid for a non-member state status to the UN General Assembly. Despite the US opposition against the Palestinian bid, the French foreign minister said that France plans to vote in favour of the recognition of a Palestinian State. Spain as well will vote in favour El Pais reports. And Mr Hague has signaled that Britain could vote also in favour, however Mr Hague said there are conditions. Hague will make a statement in the House of Commons after 12:30 p.m. London time.

See this.

Israel is always about a preemptive strike and given the propaganda coming out of Israel; chart 3 on p2 might as well come from Israel… “The undated diagram was given to the AP by officials of a country critical of Iran’s atomic program. They provided the diagram only on condition that they and their country were not named.” The diagram shows that Iranian scientists have run computer simulations for a nuclear weapon that would produce more than triple the explosive force of the World War II bomb that destroyed Hiroshima…

See this.

Egyptian stock market:

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Oil:

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Looming Dangers

Here is King at the press conference earlier presenting the report:

Take aways:

• Currently UK banks report that they have substantial buffers over the minimum required level BUT reported capital ratios do not provide an adequate picture of banks health
• Uncertainty around ratios are in part responsible for lack of investor confidence
• Expected future credit loses may be understated 
• Costs arising form past conduct failures (***cough*** fines ***cough***) may not be fully recognised
• Risk weights may be too optimistic
• Taken together these issues are likely to have material implications for the adequacy capital buffers
• Warrants immediate action

Which all means that the only formal recommendation from the BoE found on page 5 of the report is as follows:

The Committee recommends that the Financial Services Authority (FSA) takes action to ensure that the capital of UK banks and building societies reflects a proper valuation of their assets, a realistic assessment of future conduct costs and prudent calculation of risk weights. Where such action reveals that capital buffers need to be strengthened to absorb losses and sustain credit availability in the event of stress, the FSA should ensure that firms either raise capital or take steps to restructure their business and balance sheets in ways that do not hinder lending to the real economy.

So how much are we talking that needs to be raised? The ‘big four’ (two of which are majority owned by the taxpayer let’s not forget – Lloyds and RBS) will need to raise up to £35bn.

So here we are some 5 years after the collapse of Northern Rock and nothing has been fixed – the health of the UK banking sector is in a precarious state as ever and this announcement all but guarantees that the losses on the taxpayers ‘investments’ in Lloyds and RBS will be substantial, and that hopes of selling-off these ‘wards-of-the-state’ anytime soon are between slim and none.

It also raises another important point – if the UK was really recovering then why an earth do UK banks need to raise another £35bn? The health of the UK economy as reflected in its banks point to one that is simply treading water and far, far from any meaningful recovery.

We wouldn’t be surprised if we hear from one of the rating agencies after this announcement warning the UK government that its much cherished (and very rare these days) AAA rating will be going the way of France pretty soon.

Complete non-surprise as the Bank of England announces that UK banks need more capital – ratings downgrade on the UK to follow?

….It has been 223 years of getting together to stuff & devour a turkey – so we’ve had enough practice! In 223 BC, a year of the pre-Julian Roman calendar, a time known as the Year of the Consulship of Flaminus and Philushe denomination 223 BC for this year has been used since the early medieval period, when the Anno Domini calendar era became the prevalent method in Europe for naming years… The money used in those days was likely Bronze from the Ancient Seleucid Empire based in Syria. It was struck between 223 and 187 BC for the King Antiochos III the Great. The Seleucid Empire was one of the great Hellenistic States that was formed on the death of Alexander the Great at the breakup of his Empire. Antiochos III ruled a huge empire, from Syria to India and Afghanistan… a once great Hellenic state – where the money was made of something with some worth – 2223 years later – paper money is near to worthless and value held more in terms of hope than belief – Greece is now just another Turkey….Syria….Palestine….Iran …..all Turkeys….Which is the biggest Tukey though? Surely, with Iran’s ccy losing 50% in a week & with the Revolutionary Guard summoning the embattled President Ahmadinejad to explain why the economy is in trouble – although the meeting (grilling) has been called off it is cler that Iran is supplying Palestine – Iranian sanctions are biting hard and that there’s a 33% chance of Israel striking Iran before Dec 31st – that would explain the charts on page 2 ….. enjoy whichever turkey you’re stuffing this year.

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1896 – 2012 Dow wave count suggests you should enjoy your turkey this year

http://www.project-syndicate.org/commentary/downside-risks-will-prevail-in-2013-by-nouriel-roubini

Technical picture getting clearer all the time… Correcting short term…Advise caution

RXZ2 ~ bunds on recent highs… & there are some telling charts around… There are 3 examples on page 2 (but happy to add a Demark and Wave study to others upon request if anyone needs/wants… & as we discussed on fri & again on the daily report yesterday we’ve seen profit taking on the lows in SP as target was hit and now the correction appears to be spilling over (on a technical basis) to many markets… Given the binary approach (risk on/off) expect a shift to be self perpetuating… Equally the accelerated move off lows confirms a higher level in stocks here despite weak volumes yesterday should happen prior to any new lows… Charts 1&2: Nasdaq set up identical to copper (both risk on obv.) and bunds on a 240 min chart are posting a high… (Chart 3 RX).

TRADE: RXF3 142/141 put spread ~ 32 days seems like a decent trade… looking for a 2 point retrace/type of correction with a 141.39 minimum target on the wave count so the p/s suits parameters… Looks ok if you can get this for 9 tics & a 10:1 payout max (-6/-7 delta). 142.75~87 support to monitor as through there we slip away quickly… (mkt is currently 8/9 vs 143.10). Historical bund vol 6-12% (so already through) and can drift lower, which is what I favour – despite some commentators pointing out its relative cheapness ~ it’s cheap for a reason: (eco- fascism!)… If not the put spread (directional) then the other trade i like is the: RXF3 142/141.50/141 put fly for 21⁄2, quoted 2/21⁄2 currently from the market makers vs 143.10 virtually flat delta ~ great landing area… Jan again so 32 days left… Should drift towards target here and 50 max payout for a cost of 21⁄2 looks decent… Could own the put fly by selling 149 calls for a credit (3/4 otm call)… and add small delta plus get paid to have the trade on.

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All things copper, Bunds, Nasdaq and Gold $2500+

BRUSSELS (AP) If an unprecedented debt crisis has been battering the European Union for over three years, isn’t it time EU employees take a sizeable pay cut too? To outsiders, however, it seems that EU personnel have no interest in swallowing their own medicine. Last Thursday about 1,000 EU civil servants congregated under the star-shaped headquarters of the EU Commission to push their demands. ‘The strike is not at the right moment. In southern Europe, we have people struggling,” said Ioannis Sakiotis, a Greek at the EU Commission’s fisheries department who was thinking of the deep misery the debt crisis has caused back home. “All working people face a lot of problems”. http://news.malaysia.msn.com/business/anti-austerity-strikes-protests-to-engulf-europe

Can the workers of Europe rise and unite together to bring confront the specter of austerity and budget cuts? I doubt it ~ what will be interesting is:

1. the disparity of numbers involved in demonstrations vis a vis creditor and debtor nations

2. whether the opposition parties can leverage up on the electorate malcontent

3. do we get to be entertained by UKIP leader Nigel Farage

14 November: European Day of Action and Solidarity – Large scale trade union mobilisation for jobs and solidarity and against austerity… In response to an appeal by the European Trade Union Confederation, a large-scale mobilisation will be held across Europe on 14 November. The aim of this European day of action and solidarity is to call upon Europes leaders to demonstrate their determination to really get to grips with the deterioration in employment and to respond to the growing social anxiety felt by Europes citizens. Austerity is a total dead end, and must be abandoned. Social protection and wages can no longer be sacrificed. This is a social emergency, and it is time to listen to what the citizens and workers have to say, and to change course. http://etuc.org/

The last time this body went on strike was 29 Oct 2010… Remember?? No…quite…still that was a time where printing money seemed outlandish and EU Council had little power… Now they run the ECB it would appear and the whole of the European apparatus is unelected, unaccountable and under water… at least the workers get a day off to think about the Eco-Fascist State dressed up as Federalism that engulfs them… like frogs in water, the heat is getting turned up yet no one notices….

http://world.time.com/2012/11/13/europe-faces-a-multi-national-general-strike-against-austerity/

3 Strikes & you’re OUT! (Unless you are a European…)

EU doubters will join me in recognising the problems – EU advocates will as usual, be in denial about the disparities that exist. Greeks are not Germans – and Germans therefore will not help Greeks as if they were. This argument should not hold up in a working EU zone, but alas – what we read and are told has little to do with reality. Greeks are foreign, do not have the support of the German electorate who clearly have doubts over funding Europe – yet we are supposed to think that the EU can function as a Federal State – in the not too distant future – in my opinion, nothing has become clearer recently than the total ineptness of the Governing body at the heart of the Union. There is NOT a political push for change – because the incentives for the Creditor nations are simply not there. If you believe they are, I suggest you are being naive. They can huff and puff – but the Sovereign walls will simply not be blown down by such blustering, as such Draghi disappointed yesterday – Well I never – what a shocker – what did you expect him to be able to do?

Two weeks after the Berlin wall came down great efforts were being made to smooth the transition – possible only because of a solid legal/business framework in existence within West Germany. On 28 November 1989 Chancellor Helmut Kohl announced a 10-point program calling for the two Germanies to expand their cooperation with the view toward eventual reunification (Greece has had 10100 point programs to date).

Initially, no timetable was proposed. However, events rapidly came to head in early 1990. First, in March, a grand coalition was formed on a platform of speedy reunification. Second, East Germany’s economy and infrastructure underwent a swift and near-total collapse. While East Germany had long been reckoned having the most robust economy in the Soviet bloc, removal of Communist discipline revealed ramshackle foundations of that system.

Of course the German workforce reacted as Germans do ~ what is the difference in Greece… I could not sum it up better than Merkel herself: “You have to say to them: It’s not okay to go on strike every time a privatization takes place,” she said. “It’s not okay when you have a tax system, but no one pays taxes.” Like most political happenings in Europe the Union wasn’t born Great, it certainly has not achieved Greatness – so it must therefore have Greatness thrust upon it. Given that – ask yourself this: Are the Greeks nearer to becoming German after the last 4 years of further away? I rest my case…

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Eurozone Crisis for Dummies

On the dawn of a new Chinese era and in the year of the Dragon it’s apt that the creatures are (tenuous i know) representing the best possibilities for growth going forward…
Draghi has to ease – he wants to ease – if easing were as easy as breathing fire he would have burnt down F/furt already. In the absence of a sound monetary policy out of Europe for 4 yrs ~ although I’d question whether ECB policy was EVER sound – Trichet sound? – in fact the only thing that ‘Trichet’ sounds like is the verb ‘to cheat’ in French… but I digress. In the absence of a coherent CB the Europeans and the World as a whole have had to rely on the Chinese to pump the money in hope of restoring global growth.

This was achieved through the usual manner – low rates/weak ccy/growth policies – the exact policy the EU periphery needs but they unfortunately find themselves in the midst of Quantatitive Tightening – it’s Germany who have reaped the benefit of the easing to date… but that (according to Draghi) is about to end… He is worried about the power house of Europe and he should be. He is worried about money supply contraction… and he should be… he wants to ease – and he should – today in my opinion – but he will wait for the Politicians to act… They’ll surely understand that the ECB can not keep rolling over the problem for years to come right? WRONG – in the same way Merkel is NOT incentivised to fix Greece – every politician who has imposed austerity (Monti aside) is no longer in a job… Political suicide does not seem to be the horse to back – despite what the main stream media spout daily.

Today the Chinese get together to decide what happens going forward for their great nation – will this mean opening up China to western business philosophy like honest legal systems & banking? (Don’t laugh…) – clearly not – the Chinese will continue as they have. The US will continue to complain and will continue to heap QE upon QE as Ben gets his copter pilot renewal endorsement from the American people (weaker RMB policy = stronger $ whichever way you look at it). So the ECB need to act but most think he’ll wait…. that hasn’t dampened the reach for negative rate plays in short ends – just look at the flow below.

The UK meanwhile – with low inflation, back almost (miraculously to their target 4 years and a knighthood later) and pathetic growth will also ease… They need to keep that ship in any port for their policy to have credibility (-ve real rates and inflate the problem way as the tax payers are so lethargic they won’t even notice). SO the Old Lady should and will want to ease… but they will not today either… QE to come yes – and remember to check out those fans in the Qly inflation report (oh…that’s right – even King’s fans have just been found to be worthless in latest study. With the UK coalition nearing the end of tough austerity talk (its coming – they have an electorate to appease) the BoE will likely wait and see as well today…

So there you have current Monetary Policy in a nutshell – A Global coming together of total incompetence ~ 2 Central Banks meet today, totally independent ~ yet with their hands tied by politicians or outside forces prohibiting policy to be made. Kings paradox of policy? More like paradox of political pansies.

S&P:

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Draghi is Italian for Dragon & 2012 is the Chinese year of the Dragon…

Despite the main stream media’s insistence that the race was a close one the money, men always priced an easy Obama win – as such stock futures fell about half a percent while bond futures rose. While the result ended uncertainty about regulation and monetary policy, some remained on edge about taxes and overall economic health. The $600 billion of automatic tax increases and spending cuts that could take effect in January and send the fragile U.S. economy into a tailspin is the issue that markets would have always have had to face.

With Republicans retaining control of the U.S. House of Representatives, some investors feared compromise on fiscal reform would remain hard to come by, which would keep markets under pressure. Economists fear letting all the tax hikes and spending cuts take effect at once would dampen consumer and business spending, push the U.S. economy back into recession and generally weigh on markets.

Steven Englander, head of G10 foreign exchange strategy at Citigroup, warned that the fiscal cliff “could become a bigger issue down the road, and if we don’t see progress quickly the market may reconsider how risk-positive the next few months will be…” that could clearly hurt the U.S. dollar, should investors worldwide think the U.S. deficit will drag on the economy.

Billionaire investor George Soros, an outspoken Obama backer, said he saw the result “opening the door for more sensible politics. Hopefully, the Republicans in office will make better partners in the coming years, most urgently in avoiding the so-called fiscal cliff.”

Obama’s win did remove uncertainty about the future of Federal Reserve policy. Romney had said he would have replaced Fed Chairman Ben Bernanke, whose dovish monetary policy has been a helped propel the gains in both U.S. bond and stock prices in recent years. The benchmark S&P 500 has rallied 67 percent since Obama took office – one of the most impressive runs ever for stocks under a single president… yet unemployment remains stoically around 8%, an issue many thought would hamper the President’s election chances.

Benchmark bond yields, meanwhile, hit record lows despite a downgrade of the U.S. credit rating last year. Cumulative returns for all maturities on all U.S. Treasuries are at 14 percent since Obama took office. The U.S. economy has held up better than other advanced economies, but growth has remained sluggish and unemployment high. Economists expect about 2 percent growth this year. Under a second Obama presidency, Wall Street will likely have to forgo trying to repeal Dodd-Frank financial reforms. Wall Street has squirmed at the reforms, which include stricter capital requirements for banks and the Volcker Rule that is intended to stop banks from making bets in the financial markets with insured deposits…..but now after confirming a 2nd term the real work begins – financial engineering or eco-fascism – only time will tell.

Gold:

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Crude:

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As Always…..Follow the money….

Wang Yang has become a torchbearer for advocates of free-market economics and quasi-enlightened governance, much the way his former rival Bo Xilai, the fallen party chief of Chongqing in southwest China, had been championed by the neo-leftists who crave a return of Mao-style populism. With Bo having been deposed in a salacious murder and adultery scandal, Wang stands as one of the country’s few charismatic political figures. “There’s always a degree of manoeuvring over who may or may not be promoted to Standing Committee positions, but I can’t recall a time when we’ve been so focused on the prospects of one person,” said Joseph Fewsmith, an expert on Chinese politics at Boston University.

For a variety of reasons, the Standing Committee, currently run by nine men, will probably be reduced to seven during the coming party congress, which begins Thursday. With two spots already occupied by Xi Jinping and Li Keqiang, who are set to become president and premier respectively, Communist Party power brokers, including retired President Jiang Zemin, 86, are in the throes of a secretive political dance to decide on the remaining seats.

HSBC piece well worth a read:

“We should eradicate the wrong concept that happiness is a benevolent gift from the party and the government,” he said this year…”
“If China doesn’t reform,” he said, “we will be slow boiled like frogs.”

The bottom line is that this will be an appointment & indication of the willingness of China to reform ~ if at all…. https://www.research.hsbc.com/midas/Res/RDV?ao=20&key=BYNEyfTeAq&n=348494.PDF http://www.zerohedge.com/news/2012-11-05/far-more-important-election-part-1-chinas-political-process http://www.zerohedge.com/news/2012-11-05/far-more-important-election-part-2-chinas-market-implications

G20 Finance Ministers and Central Bank Governors addressed their concerns about the US fiscal cliff and the European debt crisis in their final statement yesterday evening. As the downside risks to global growth are still elevated they pledged to do everything to strengthen global growth. http://www.g20mexico.org/index.php/en/press-releases/537-final-communique

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Charts court

“If China doesn’t reform, we will be slow boiled like frogs”