SP Futures and Gold Daily Charts at 2:30 EDT: Smoke and Mirrors

The spike in the overnight futures based on the vague assurances from China to revalue the yuan higher, an obvious and strictly political move to pre-empt the discussion of their currency manipulation at the upcoming G20 meeting, was used to justify a classic 'wash and rinse' in the price of stocks, and bring in some coin for the needy Wall Street banks.

This is how the moral hazard of bailing out the Too Big To Be Banks has returned as an unintended consequence, strangling the real economy and the very markets which the bailouts were intended to save by taxing production and capital with the drag of a corruption tax that also has a dampening effect on efficient capital allocation.

The Banks, being fundamentally unreformed and insolvent, with failed business models based on fraud, are unable to make their expected outsized returns using conventional business means. With the mortgage and CDO ponzi scheme collapsed, they must resort to the more familiar soft control frauds in the capital allocation markets, creating and exploiting inefficiencies to support their unsustainable existence. Better that they would have been broken up and liquidated where necessary, rather than being saved without a structural reform.

No matter the rationales put forward, it was an act of political corruption in which the Congress and the last two Administrations are complicit. More and more wealth is being transferred out of the productive economy and into the hands of a financial elite that spends it in the non-productive accumulation of capital, high risk speculation, and hoarding incented by historically low tax rates for the very wealthy.

As I suggested last night, the spike higher in the futures was artificial, and worth fading to the short side. But while it stays above the trendline now around 1110 I would not lean on it too hard, since the threat of a snapback rally in the last hour is always there on these thin volumes. If it breaks down, we are probably heading down to the 1060 support in a roundabout way. The economy is floundering, with about half of US GDP dependent on fraud in financial assets and corporate accounting.

There is also an FOMC rate decision coming up on the 23rd, Wednesday, so we will see some artificial action around that. It is also the day that GTU closes its shelf offering which should take some of the pressure off the unit price.



Chart Updated at 5:00 PM EDT

As a reminder this is the option expiration week (June 24th) for gold and silver July contracts at the COMEX. Even so, the pullback in the price of gold is well within the range of the handle. Short term it is relatively easy to manipulate the price within a certain range of the primary trend, given the current state of regulatory capture at the CFTC. At some point the primary trend will take a much steeper slope as we head towards a commercial failure to deliver. But no one can accuse the people in New York and Washington of long term thinking when there are short term profits to be made, and campaign contributions to be pocketed.



Chart Updated at 5:00 PM EDT

Net Asset Values of Precious Metal Trusts and Funds in an Option Expiration Week

Although there will be plenty of commentary seeking some 'fundamental' reason for this pullback in gold and silver, I was looking for it, and noted last week that this week is the option expiration for the July contracts on the COMEX.

This is the kind of weakness I like to buy in adding to the 'long gold / short stocks' hedge I am running. It takes some guts but that is why we use charts to help take the emotion out of your decision and maintain a perspective. It also helps to ignore non-sensical forecasts and book-talking from chatboards and analysts who live in perpetual fantasies that come alive periodically when the market gives them a random nod. If you really want to see the worst in human nature, become a trader.

It really is that obvious anymore. Words like 'malfeasance' or at least 'nonfeasance' in office come to mind when considering the regulators at the CFTC and the SEC, their bosses, and the appropriate oversight in the Congress.

When there is a default on delivery, as I suspect there will be, I would hope that the usual 'non-involvement' and personal incompetency defenses will not be so easily accepted by a long-suffering public.

As a reminder, the GTU shelf offering closes on June 23.

SP Futures Up Sharply on 'Hopes of Chinese Yuan Strengthening'

While the SP 500 stock futures are indeed up about 15 handles, you'll forgive me if it seems like the rationale for this rally at a key resistance point is as thin as its volumes, or the integrity of its governance, and as contrived as the great reformer himself.

It looks like a fade, but we'll have to wait for tomorrow. Sometimes the trading desks and hedge funds like to probe higher in thin trade to find out where the stops are, and their position size, to determine the cost of a breakout, or a breakdown. You know, like the flash crash which the US capital allocation system most recently enjoyed.

US STOCKS-S&P futures surge at open after China's yuan move
NEW YORK
Sun Jun 20, 2010 6:14pm EDT

NEW YORK June 20 (Reuters) - S&P 500 stock index futures rose sharply at the start of trade on Sunday as investors bet China's announcement over the weekend to make the yuan more flexible will lift sales at U.S. multinationals over the long-term.

The rise suggests indexes will open higher on Monday and follows a strong start of trade for the Australian dollar and euro as China's move signals more yuan appreciation and was taken as a vote of confidence in the global economic recovery's staying power.

The revaluation will effectively increase the purchasing power of Chinese buyers and "the best bet would be for commodity-based companies and consumer goods companies," said Tom Sowanick, chief investment officer at Omnivest Group in Princeton, New Jersey earlier on Sunday.

S&P 500 futures SPc1 jumped 13.80 points to 1123.90 and were well above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Happy Father's Day

4 years: My Dad can do anything!
7 years: My Dad knows a lot…a whole lot.
15 years: My father does not know quite everything.
18 years: Father is so old-fashioned.
21 years: Oh, that man - he thinks he knows but he doesn't.
25 years: He knows a bit about it, but not much.
30 years: I might find out what Dad thinks about it.
35 years: Before we decide, we will get Dad's idea first.
50 years: What would Dad have thought about that?
60 years: My Dad knew literally everything!
65 years: I wish I could talk it over with Dad.

Not everyone has had a good and loving father. It is easier for a man to have children than for children to have a real father. And even if you had a good one, a great shock awaits when you realize that one day, no matter how badly you wish to speak with him, you can't; it is not possible.

And yet you do, and you can.

"Because you are his children, God sent the Spirit of his Son into our hearts. He is the Holy Spirit. By his power we call God, "Abba." (Αββα) And Abba means 'Father.'"

"Abba, Father," he said, "everything is possible for you. Take this cup from me. Yet not what I will, but what you will."