Phoenix Capital Research recaps some of what I have posted and tells you why we are already in trouble.
- We're likely already in a recession again (though we really never left one since 2008)
- The Fed will soon be buying 90% of all new fixed income.
The Federal Reserve met market expectations Wednesday with another round of easing, this time with a pledge to keep interest rates low until unemployment falls below 6.5 percent and inflation tops 2.5 percent.
"...the Fed's buying like three-quarters of the debt that America issues."
"We're living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up."
“There’s been some discussion on the web of various dealers having difficulty fulfilling orders. I’ve confirmed through my channels that there has been a very big increase in demand in the last six to eight weeks.”
“We can see that by looking at the US Mint statistics. For example, in this month, which is not complete yet, gold sales have more than tripled from the same time last year. Silver sales are up 120% so far. You can kind of sense that the demand for both gold and silver is back to very significant levels.That’s not just in North America by the way....
“We read articles of how the Indian demand has picked up here recently. They think they are going to have a big 4th quarter demand for gold.
"...the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him."
“On Friday in the United States, the Department of Agriculture released its report showing the number of people receiving food stamps in August. The total is 47.1 million people, which is a new record high, Eric, but here is what I believe to be a staggering comparison. The number of people receiving food stamps increased in just that one month by over 420,000, while only 96,000 new jobs were created in August.”
“So 4.3-times more people started receiving food stamps in August than got jobs. Even the miracle 175,000 monthly increase in jobs that was reported just before the election pales in comparison to the number of new people receiving food stamps in August.What this shows me, Eric, is that despite all of the hype coming from the politicians and central planners, the US economy continues to deteriorate rapidly
Romney: Yeah, it's interesting…the former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we're issuing—which they've been doing, the Fed's buying like three-quarters of the debt that America issues. He said, once that's over, he said we're going to have a failed Treasury auction, interest rates are going to have to go up. We're living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up
The number of planned layoffs by U.S. firms jumped 41.1 percent in October to the highest level in five months, although the number includes more than 10,000 jobs in U.S.-owned auto plants in Europe, a report said on Thursday.
Employers announced 47,724 planned job cuts last month, up from September's 33,816, according to the report from consultants Challenger, Gray & Christmas. It was the highest level since May. U.S. automotive companies said they will let go of 11,615 workers, though that includes 10,900 Ford Motor [F 11.015 -0.145 (-1.3%) ] layoffs that will affect workers in Belgium and the U.K. (Read More: Ford to Shut European Plants, Cut Jobs as Losses Mount)Read more
The planned layoffs were modestly higher than the 42,759 announced in October last year. The total for the year so far stands at 433,725, down from 521,823 for the same period in 2011.
The U.S. Labor Department on Monday said it is “working hard to ensure the timely release” of the October jobs report, saying it intends to released the report on schedule Friday despite Hurricane Sandy.
“It is our intention that Friday will be business as usual,” said Carl Fillichio, a senior press advisor at Labor. Mr. Fillichio’s statement provided clarity to an earlier Labor statement that said the agency would assess how to handle data releases this week after the “weather emergency” is over.
Friday’s employment report will be the final read on the labor market ahead of the November elections. Initial reports that a delay was possible briefly fueled speculation that the jobs data, good or bad, might not be revealed until after the elections.
First it was more than the UK. Then more than Portugal. Then a month ago we said that as of September, "it is now safe to say that in 2012 alone China has imported more gold than the ECB's entire official 502.1 tons of holdings." Sure enough, according to the latest release from the Hong Kong Census and Statistics Department, through the end of August, China had imported a whopping gross 512 tons of gold, 10 tons more than the latest official ECB gold holdings. We can now safely say that as of today, China will have imported more gold than the 11th largest official holder of gold, India, with 558 tons.
Yet despite importing more gold than the sovereign holdings of virtually all official entities, save for ten, importing more gold in July than in any month in 2012 except for April, importing more gold in 8 months in 2012 than all of 2011, and importing four times as much between January and July than as much as in the same period last year, here is MarketWatch with its brilliant conclusion that the 'plunge' in gold imports in August can only be indicative of the end of the Chinese gold market, and the second coming of infinitely dilutable fiat.
There is spin, and there is of course, reality. We urge readers to identify where on the chart below is the evidence of Chinese disillusionment with gold:“China’s near-term appetite for gold appears to be waning as bullion imports from Hong Kong slow,” HSBC analysts said in a note following the data release last week.
Anecdotal evidence also pointed to the cooling trend, with one Hong Kong bullion dealer saying the word from mainland clients was that gold inventories are saturated.
“What we are hearing from our customers is that they were buying gold rapidly over the last couple of years, but they would now see some of their stocks sold off before they rebuild some of their inventories,” Scotia Mocatta managing director Sunil Kashyap said in Hong Kong.
Furthermore, with the status quo cartel in desperate need of China stepping up its monetary easing, and jumping right into the race to debase, which is absolutely critical to halt the plunge in tech company revenues and earnings, any interim slowdown in purchases is merely a springboard for even more purchase in the future once inflation does come back to China with a bang.
Incidentally, one thing that MarketWatch completely forgot about is that in Q4 Chinese gold purchasing, all monetary else equal, is set to spike in Q4. From the South China Seas:
All rhetoric aside, one unspinnable aftereffect of China's relentless appetite for gold comes from a different place, namely Australia, where gold just surpassed coal as the second most valuable export to China. From Bullionstreet:Fung expects gold imports on the mainland to stay soft this month as prices have continued to remain high.
"However, gold consumption is likely to climb again in the fourth quarter, a traditionally peak season when Chinese people buy gold jewellery for weddings and presents," he added.
In other words, take the chart above, showing only Chinese imports through HK, and add tens if not hundreds more tons of gold entering the country from other underreported export channels such as Australia. One thing is certain: China no longer has any interest in buying additional US Treasurys. What it does have an interest in is up to readers to decide.Australia's gold sales to China hit $4.1 billion in the first eight months of this year as it surged by a whopping 900 percent.
According to Australian Bureau of Statistics, the yellow metal became the second most valuable physical export to China, surpassing coal and only behind iron ore.
The unprecedented jump in gold sales, along with continued acceleration of export revenues for other commodities led by coal, up 80 per cent to $4bn, caused total exports to China to rise by 10.7 per cent for the year to August, the Bureau said.
Perth Mint supplied most of the gold to China through a variety of banks.
Analysts said Chinese buyers are hoarding the precious metal amid a slowing economy, property-buying restrictions and uncertain financial markets as its central bank increases its holdings.
China's foreign currency reserves of gold are low and its move to build them up will provide an important base demand for gold, they added.
Even though we have presented comparable scenarios looking at the coverage of the US money base in gold terms previously, aka "gold coverage" ratio, including once from Dylan Grice, and once from David Rosenberg, now that we have drifted into a new, previously unchartered and very much open-ended liquidity tsunami, it is time to revisit the topic. Luckily, Guggenheim's Scott Minerd has done just that. Not only that, but he presents three distinct gold pricing scenario, attempting to forecast a low, medium and high price range for the yellow metal.
To wit: "The U.S. gold coverage ratio, which measures the amount of gold on deposit at the Federal Reserve against the total money supply, is currently at an all-time low of 17%. This ratio tends to move dramatically and falls during periods of disinflation or relative price stability. The historical average for the gold coverage ratio is roughly 40%, meaning that the current price of gold would have to more than double to reach the average. The gold coverage ratio has risen above 100% twice during the twentieth century. Were this to happen today, the value of an ounce of gold would exceed $12,000.”
The Labor Department said weekly applications fell by 30,000 to the lowest level since February 2008. The four-week average, a less volatile measure, dropped by 11,500 to 364,000, a six-month low.
Applications are a proxy for layoffs. When they consistently drop below 375,000, it suggests that hiring is strong enough to lower the unemployment rate.
- It is likely that some of the jobless claims in one large state--California--were not included in the claims reported to the Department of Labor this week. This happens occasionally, our source says. When a state's jobless claims bureau is short-staffed, sometimes the state does not process all of the claims that came in during the week in time to get them to the DOL. The source believes that this is what happened this week.
- The California claims that were not processed in time to get into this week's jobless report will appear in future reports, most likely next week's or the following week's. In other words, those reports might be modestly higher than expected.
- The source believes that the number of California claims that were not processed totalled about 15,000-25,000.
Read more: http://www.businessinsider.com/what-happened-with-jobless-claims-2012-10#ixzz290yXKaQD
Estimated macro models used for policy evaluation—whether old Keynesian or new Keynesian—have this basic mechanism built into them. However, they differ greatly in their predictions of the policy impact because of different assumptions about expectations, the marginal propensity to consume, the speed of price adjustment, and crowding out of other spending. For example, Christina Romer and Jared Bernstein used old Keynesian models to predict the effect of the stimulus package of 2009 before it was implemented. They predicted large effects of the package with multipliers around 1.5. In contrast, in research with John Cogan, Volker Wieland and Tobias Cwik, I used a new Keynesian model to predict the effects of the 2009 stimulus. We predicted a much smaller effect, with multipliers averaging 0.5, even less when you include transfer payments.
Romney: Yeah, it's interesting…the former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we're issuing—which they've been doing, the Fed's buying like three-quarters of the debt that America issues. He said, once that's over, he said we're going to have a failed Treasury auction, interest rates are going to have to go up. We're living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up. The Federal Reserve is just taking it and saying, "Here, we're giving it.' It's just made up money, and this does not augur well for our economic future.
You know, some of these things are complex enough it's not easy for people to understand, but your point of saying, bankruptcy usually concentrates the mind.Click below for more.
n other words, for once we actually were shockingly optimistic on the US economy. Assuming BofA is correct, and it probably is, this is how the Fed's balance sheet will look like for the next 2 years:
Or, in terms of US GDP, the Fed's balance sheet will have "LBOed" just shy of 30% of all US goods and services.
It gets worse:
Since the Fed is effectively becoming the marginal player in both the MBS and Treasury markets, a very relevant question is how much private market debt is left to sell. Short answer: not much. According to BofA's calculation, the Fed will own more than 33% of the entire mortgage market by 2014.
That's half the story.
On the Treasury side, in just over 2 years, "Fed ownership across the 6y-30y portion Treasury curve is likely to reach about 50% by end of 2013 and an average of 65% by end of 2014." You read that right: in just over 2 years, the Federal Reserve will hold two thirds of the entire bond market with a maturity over 5 years (which by then will be part of the Fed's ZIRP commitment, yield 0% and essentially be equivalent to cash).
No wonder that David Rosenberg is worried that the Fed will soon run out of securities to buy (well, there are always equities of course, but the Fed will not monetize those until some time in 2015 when hyperinflation is raging).
And speaking of hyperinflation (and our earlier note that nothing "else is equal") the real question is if indeed the Fed will own $5 trillion in "assets" in 27.5 months, what does that mean for gold and crude? The answer is plotted below: