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The almost incessant bear raids on gold and silver took a break today as what economists like to call an 'exogenous event' took risk off the table, triggering a sharp flight to safer havens.
The gold and silver markets were short term oversold, in honor of Comex option expiration. Given an apparent free pass from the CFTC, the wiseguys were whooping it up in the paper metals markets, extending their leverage and selling short.
A hedge fund with a spreading strategy blew up earlier this week, leading to a massive decline in open interest and a sharp selloff in gold. One might surmise that this pigeon had been carefully marked out by his bankers for the slaughter, and it only needed the sanction of a poor GDP number, an FOMC decision, and the all clear from the regulars and the regulators to pluck the unlucky ducky. Perhaps he will have more time to spend at the poker tables, for he is a ranked player.
Silver made an exceptionally sharp rebound, again highlighting the artificial nature of this market and the price suppression. Some day the Comex will blow up in a default, and weighty people with grave pronouncements will opine endlessly on bubblevision about it and the need for 'new regulations.' But at the end of the day, it will be the investors who trusted in the integrity of the market who will be the losers.
A third chart has been posted. This is a very tentative analysis of the gold market, and a possible formation that we noted earlier this week that might be activated around the 1300-1310 support level. We had not expected this to happen until next week, into a possible cycle low point, but sometimes things happen and the market adjusts.
Too soon to print this one, but I wanted to share it from my 'private stock' of charts which I watch for my own purposes and needs.
I like gold, but silver looks more likely to be the irresistible force this year. I particularly like it because it is still so narrowly owned and little understood. When a certain contrarian bellwethers I watch become bullish of silver I might consider selling some, but not until then. And it appears as though it might have a long way to go, with lots of volatility and corrections. Never boring.
My biggest concern as always is the general liquidation panic that sweeps aside all assets, and in which everything is sold. This is hard to predict and not a common occurrence. The steady decline is more likely. There is an interesting divergence between stocks and gold/silver these days. It certainly worked this week. Short US stocks and long metals was a double barrelled blast.
This is familiar. Demonstrations are taking place in a country for several days, and suddenly the US financial markets take notice and dive as it is risk trade off. Sounds like Greece all over again, without the flash crash.
Even Hillary of State weighed in, hedging the US bets on the if-come, encouraging their guy for thirty years Hosni Mubarak to be measured in his response, and perhaps step aside nicely since they like the opposition leader Mohamed ElBaradei who although currently under house arrest may be a contender, depending on which way the military tilts. A military I should add, that receives more direct US support ($2 billion annually they say) than any other country except Israel.
Perhaps the Egyptian government should compromise and force the demonstrators into free speech zones, deep in the desert and away from city and canal. Its the American way after all.
The important IPO of BankUnited was consummated this morning, and Blackstone and Carlyle, along with their underwriters on the Street, breathed a sigh of relief, and then pushed the 'sell' buttons.
The US equity market is very thin and held in weak hands. When genuine selling appears, and in this case for a part the withdrawal of artificial support, prices drop sharply as the risk trade comes off. Gold, silver and the dollar all rallied. But what about the bonds? Cliche-wise, this will probably end badly as Ben stretches the dollar and the bond to fill the pockets of the monied interests.
And as for the next incident to stir the muddy waters of this gaseous recovery, head to higher ground if they start showing live pictures of demonstrations from the Americans' worst nightmare, Ar Riyadh. Then this will not be so easily dismissed as the rants of an 'uneducated people incapable of democracy'' as they said today on American TV, don'cha know.
It will be interesting to see if this is a rounded intermediate correction and consolidation followed by a resumption of the fundamental trend and a new breakout higher, as we had seen in May-August last year.
More on this tonight.
I just did not have the time or energy to do the work analyzing today's US GDP estimate for the 4Q10. The drop in stocks and spike higher in metals had me squaring off accounts between the usual non-financial chores.
For me the 'tell' that something was dodgy was the unusualy lower chain deflator which is used to calculate the 'real' GDP by removing the inflationary effect. .3% versus 1.5% expected and 2.1% prior. For every tick lower on the deflator the headline GDP growth number rises.
John Williams of ShadowStats did his usual excellent job of dissecting the corpus of the BEA's work and I am grateful for this excerpt. His site is a must read.
You may wish to take the time to read some of the free reports, on how the US government numbers are 'adjusted' over time, and his hyperinflation report which is quite interesting. I still do not agree, preferring to stay with my stagflation forecast which has long been my expected outcome. But I am keeping an open mind to both the deflationary and hyperinflationary outcomes.
Bear in mind that the UK had showed a contraction for the same period, a much more credible representation of the numbers. And so the talking heads would say that the UK suffered from the weather, and was mired in snow. Yes, and the US economy is mired in self-serving scoundrels and craven nincompoops.
GDP Estimate Was of Unusually Poor Quality.
This morning’s "advance" estimate of annualized 3.17% real (inflation-adjusted) GDP growth was nonsensical, even though it was somewhat shy of consensus. Most of the reporting was based on guesses; hard data simply are not available this early. Consider that more than the total reported fourth-quarter growth was accounted for by a narrowing of the trade deficit. The Bureau of Economic Analysis (BEA) indicated that 3.44 percentage points of growth was generated by an improved net export account. That estimate, however, was based on just the two months of available data (October and November) for the quarter. December’s data will not be available until February.
As noted in Commentary No. 345, the relative improvement suggested in the trade deficit for the fourth-quarter (based on the October and November reporting) could have added 1.3 annualized (0.3 quarterly) percentage points to fourth-quarter real GDP growth, but not 3.44 percentage points. That differential required extremely optimistic assumptions on the part of the BEA as to the December trade results. Accordingly, the upcoming trade release will be particularly interesting in terms of its implications for GDP revisions.
Separately, after quarters of a significant inventory build-up, a reduced pace of relative inventory increase reduced the reported real fourth-quarter GDP growth rate by 3.70 percentage points. Inventories at this point in time are even less reliable than the trade data. Nonetheless, inventory build-up still accounted for half the annual average GDP growth in 2010.
Also, despite the 30% annualized (8% quarterly) quarter-to-quarter contraction in housing starts, residential investment rose at a 3.4% annualized pace.
The point here is that reported 3.17% annualized growth, with the regular +/- 3.0% 95% confidence interval, along with such unusually large swings in unreliable components, should not be taken as a serious or meaningful measure of quarterly economic growth. I believe that realistic growth would have been flat-to-minus and eventually that should prove out in long-range revisions.
Where early GDP reporting generally is of extremely poor quality, some catch-up should be seen in the annual benchmark revisions due for release on July 29th. At that time — as will be seen with the payroll employment reporting due for revision a week from now — the revisions to prior economic growth generally will be to the downside, showing a more-protracted and deeper economic contraction in place than officially is recognized at present.
With quarterly weakness in the housing starts and in new orders for durable goods, the indications remain in place for a re-intensifying economic downturn, as discussed inSpecial Commentary No. 342.
"Advance" Guesstimate on Fourth-Quarter 2010 GDP Was Unusually Flimsy.
The opening comments covered several unusual issues with the current GDP report. A more traditional problem lies in how inflation was handled. On a one-to-one basis, the lower the inflation rate used to deflate the GDP, the higher will be the real or inflation-adjusted GDP growth rate. Annualized GDP inflation — the GDP Implicit Price Deflator — was reported showing annualized inflation of 0.3% in the fourth-quarter, down from 2.0% in the third, while annualized CPI inflation rose to 2.6% in the fourth-quarter, up from 1.5% in the third.
And some practitioner of economic auterism will snarkily say, "But har har and tut tut. You obviously do not understand that the deflator has nothing to do with inflation, although it purports to perform the function of taking out the inflationary effect. The deflator is merely what we say it is."
And to that I say, yes, and it also has nothing to do with reality, but rather the desire to make black appear white, and hell seem a heaven.
