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The gold and silver charts have not been updated for today's rally.
As is clear from the metals charts, gold and silver were DEEPLY oversold short term. So this *could* be a relief rally. The talking heads say it was because of the weak leading indicators this morning with overtones of QE3, but I think it is more likely that the momentum traders took it as low as it would go without hitting the physical markets and threatening a major divergence.
We will know if this is a new bull leg in the metals if they can take out and hold their exponential moving averages on the charts below decisively.
You cannot see it on this chart, but on my daily charts it appears that gold and silver are in a trading range, with the triangles being negated.
Stocks are also short term oversold. I hear that Facebook will go out at $38 per share tonight, and will likely color the market action tomorrow. The SP may tip its hand in the last hour of trading into the weekend.
It appears that tomorrow is the option expiration for May in stocks, and so I suspect that the selling today are the usual animal spirits one sees around such expirations, and tomorrow there will be quite a bit of pressure to maintain a 'stable market' for the secondary shenanigans on Facebook.
So I have taken off all stock short hedges and am letting the bullion run. I *might* put them on into the close before the weekend depending on what I see on the tape.
I would add that the source of the payment for the consumption is a major factor.
If it comes from a growing median wage that permits consumption and savings by the broader public, then the virtuous cycle is engaged.
However, if the consumption comes from borrowing and credit expansion with the benefits flowing overseas or to the wealthy, there is no virtuous cycle, or the amelioration of misery. Debt in this case is a narcotic.
In the end it is all about balance, and reform. Stimulus, taxing the rich, and austerity by themselves will only further distort the distortions. Although it should be noted that large imbalances in wealth go hand in hand in imbalances of power, which tend to erode the happy moderation of a functioning democracy with a vibrant middle class. And the 15% tax on capital gains and the other tax loopholes used by the wealthy is an exorbitant privilege, repugnant to a government by the people.
Imbalances in wealth and distorted domestic economies are often the impetus to war and empire, as nations ruled by the superwealthy seek overseas markets in colonies. Such economies only maintain themselves by continual expansion and domination.
The recovery, in whatever form it takes, will be sustainble when the median wage improves.
It is astounding how significantly one idea can shape a society and its policies. Consider this one.
If taxes on the rich go up, job creation will go down.
This idea is an article of faith for republicans and seldom challenged by democrats and has shaped much of today's economic landscape.
But sometimes the ideas that we know to be true are dead wrong. For thousands of years people were sure that earth was at the center of the universe. It's not, and an astronomer who still believed that it was, would do some lousy astronomy.
In the same way, a policy maker who believed that the rich and businesses are "job creators" and therefore should not be taxed, would make equally bad policy.
I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed and all those jobs would have evaporated.
That's why I can say with confidence that rich people don't create jobs, nor do businesses, large or small. What does lead to more employment is a "circle of life" like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me.
So when businesspeople take credit for creating jobs, it's a little like squirrels taking credit for creating evolution. In fact, it's the other way around.
Anyone who's ever run a business knows that hiring more people is a capitalists course of last resort, something we do only when increasing customer demand requires it. In this sense, calling ourselves job creators isn't just inaccurate, it's disingenuous.
That's why our current policies are so upside down. When you have a tax system in which most of the exemptions and the lowest rates benefit the richest, all in the name of job creation, all that happens is that the rich get richer.
Since 1980 the share of income for the richest Americans has more than tripled while effective tax rates have declined by close to 50%.
If it were true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment is at record highs.
Another reason this idea is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the median American, but we don't buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, we go out to eat with friends and family only occasionally.
I can't buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can't buy any new clothes or cars or enjoy any meals out. Or to make up for the decreasing consumption of the vast majority of American families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
Here's an incredible fact. If the typical American family still got today the same share of income they earned in 1980, they would earn about 25% more and have an astounding $13,000 more a year. Where would the economy be if that were the case?
Significant privileges have come to capitalists like me for being perceived as "job creators" at the center of the economic universe, and the language and metaphors we use to defend the fairness of the current social and economic arrangements is telling. For instance, it is a small step from "job creator" to "The Creator". We did not accidentally choose this language. It is only honest to admit that calling oneself a "job creator" is both an assertion about how economics works and the a claim on status and privileges.
The extraordinary differential between a 15% tax rate on capital gains, dividends, and carried interest for capitalists, and the 35% top marginal rate on work for ordinary Americans is a privilege that is hard to justify without just a touch of deification.
We've had it backward for the last 30 years. Rich businesspeople like me don't create jobs. Rather they are a consequence of an eco-systemic feedback loop animated by middle-class consumers, and when they thrive, businesses grow and hire, and owners profit. That's why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.
So here's an idea worth spreading.
In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class, is the single smartest thing we can do for the middle class, the poor and the rich.
Thank You.
Nick Hanauer
Prepare to meet Nick Hanauer. He's a venture capitalist from Seattle who was the first non-family investor in Amazon.com. Today he's a very rich man. And, somewhat jarringly, he's screaming to anyone who will listen that he, and other wealthy innovators like him, doesn't create jobs. The middle class does - and its decline threatens everyone in America, from the innovators on down.
From
The Inequality Speech That TED Won't Show You at National Journal.
I want to put a spike in all this spin around the CEO defense, that poor Jamie could not have possibly known what was going on in London because the company was so large, and he is such a busy man. Sarbanes-Oxley was designed to put a stop to that lame excuse touted out by defense lawyers and apologists in the media every time something like this happens.
The CIO operation was transformed under Jamie's direction as a dodge to the impending Volcker Rule, set to take effect in July, that prohibited this kind of risky prop trading by institutions backed with deposit insured money and both explicit and de facto government guarantees.
He wanted it up to be what it was, an opaque profit center. It probably sounded like a good idea, taking a risk hedging and reduction function and turning it in to a profit center. Because of the accounting differential between the CIO and the portfolios it was alleged to hedge, one could take profits and not realize losses in a quarter, which provided a nice billion dollar cushion for earnings. Every industry has their accounting dodges like this that allow a company to 'manage earnings.' In tech it is in acquisition accounting and inventory writedowns.
But in their clumsy piggishness, the JPM CIO traders took their usual overly large and manipulative positions, as they have done in other markets, masquerading as hedges. But this particular credit market was too narrow and specialized, and they stepped on the toes of savvy market insiders. And it blew up in their faces.
When the media called Jamie on it a few months ago, after traders complained that 'the London Whale' was rigging market prices, he called it a legitimate hedging operation and dismissed it as 'not a problem.'
The same thing is going on in other markets as well, even now, and on a much larger scale with larger positions and more leverage. The difference is that it is smaller traders and the public that are being hurt, while much of the risk is being misrepresented and unrealized, for now.
And so the regulators are sitting on their hands and doing nothing about it because they are being discouraged from taking action by powerful interests in the Administration and the Congress. JPM has long been known as the government's 'go to guy' when something needs to be done to unofficially intervene in markets.
Remember, it was pressure from the Geithner Treasury and the Fed at the behest of JPM that created the loophole that would have permitted the CIO unit to continue to function as a prop trading unit even after the Volcker Rule supposedly shut such risky ventures down.
And they are afraid of what will happen to JPM if these market positions, particularly in the derivatives and metals markets, are exposed for what they really are, and their own involvement in allowing it to happen for so long. That is the credibility trap, and the reason for the remarkable lack of investigation and prosecution of financial fraud.
International Financing Review
JP Morgan investment unit played by different high-risk rules
16 May 2012
The JP Morgan Chase unit that lost more than US$2 billion through a failed hedging strategy had looser risk controls than the rest of the bank, according to people familiar with the situation.
The risk of losses is tallied by the bank using a so-called value at risk (VaR) calculation. However, the Chief Investment Office, the unit responsible for the high-profile loss that JP Morgan disclosed last Thursday, had a separate VaR system.
It used a less stringent calculation that gave a lower risk assessment of its trades, according to people who previously worked at the bank.
The unit also reported directly to CEO Jamie Dimon, a factor which allowed it to maintain a separate risk monitoring set-up to other parts of the investment bank, these people said.
“It was very large, but was never very transparent, and it wasn’t clear that they had an appropriate funding cost,” said the source with direct knowledge of the CIO. “They were running more risk than the investment bank – and with no peer review process (from those in the investment bank).”
Despite repeated warnings from executives inside the firm as long ago as 2005, the CIO unit remained notably free from oversight.
A source with knowledge of the situation said that these warnings included the size of the CIO, the fact that its risk reporting was not transparent and the scope for the unit to get “bigger and bigger” because it had a lower cost of funding than the rest of the investment bank.
Until April, the CIO unit’s unusual autonomy allowed it to build up risky positions without triggering alarms.
Indeed, the unit was encouraged to be a profit center, as well as hedging against risk, a source with direct knowledge of the unit said. Ina Drew, who headed the unit, earned more than US$15 million in each of the past two years, making her among the highest-paid executives at the bank and one of the most compensated women on Wall Street.
Drew could not be reached for comment... (Did you check under the bus? That is where masters-of-the-universe like Corzine and Dimon throw the ladies when they are done using them to establish plausible deniability. - Jesse)
Read the rest here.
I am leaving a bit early this evening.
Facebook and Greece are dominating the market, and both in their own ways are contributing to the selling.
The wiseguys see Facebook coming out at around 36-38 and intend to run it up I think to the 60+ are and then dump it for a quick return. So they are raising cash and, gasp, selling even AAPL to do it.
Greece has the markets edgy for all the usual reasons. The status quo does not like it when people stand up to them.
The Open Interest in the precious metals on the Comex is doing some odd things, staying steady or even rising on sell offs. That is not long liquidation yet. It is more of a transfer or ownership and the expansion of 'the big short.'
More on this tomorrow.
