SP 500 and NDX Futures - Deck the Hall With Boughs of Folly

The big tickle today was the US Industrial Production number which came in better than expected.

I have included the economic calendar for this week below.

As I said I think the funds have spend the last week or so squaring up portfolios, getting rid of losers and taking some profits, and now the paint and window dressing start going on into the year end.

After the bell Boeing announced a $10 Billion stock buyback program.

Are there no workhouses, are there no prisons?

JP Morgan 'House Account Only' Trading in Comex Deliveries for 2013

"Are the hedge funds, HFT’s and algos currently having a field day with this worn out trade paying any attention to the steady drain of physical gold on which their speculations are based? As is usually the case in a temporarily successful momentum trade where almost the entire universe is aboard, the answer is probably not."

John Hathaway, The Big Picture in Gold

Here is a chart that I was able to construct from CME data that shows JP Morgan's Comex Gold Delivery activity for their 'house account' only.

I have marked the nominal price of gold on the chart for this year. The last data is as of December 10, 2013.

The months marked with boxes are 'active months' for the delivery process. December is also an active month.

They seem to have had quite a good year for themselves so far. 

For those who would like some color commentary, JPM came into February issuing deliveries to beat the band.  They were quiet in the inactive month and then back swinging hard and delivering in size during April.

In August JPM stopped or took delivery on quite a chunk of gold bullion and the price recovered a bit from its first half of the year pounding.  I can conceptualize this as 'covering' what they have issued in the first half of the year.

Since then the gold price slumped back down into November.   JPM started taking deliveries (stopping) again very heavily in December.   I hear they are stopping something over 90% of warrants issued.

However for the year, and for the year only, their net position is still about 7,600 more contracts issued than stopped in their house account.   This is down from a high of 14,600 contract net issued which they maintained from about April through July. 

I have just added a second chart that shows just the rolling 'net position' for their house account with regard to deliveries for the year.   Just for the sake of tracking their notional position for the year I am going to refer to this as their 'short' although they could just be selling from any inventory which they had somewhere or from the prior year.   And please bear in mind that while this chart show a position that is all negative for the year,  I wanted to be able to plot it against the price of gold, so I inverted the Y axis.

Whether this represents an actual short position or not depends on their opening inventory of gold bullion owned by them, how much of the gold delivered was rehypothecated or leased, and how those contracts were actually settled, be it in equivalent instruments, cash, or actual bullion from whatever sources.

I know this is not all the data we would like to see, and does not begin to address their offsetting positions in other transactions and markets like derivatives.  

And of course I am sure that this is all 'just a hedge' being done in the CTO risk management area, just like the London whale.

Speaking of gold market antics, GATA just sent out this delightful presentation from the Banque de France entitled Managing Gold as a Central Bank.

And here is The Big Picture In Gold by John Hathaway which I recommend that you read.

And the band played on.

Have a pleasant weekend.

Gold Daily and Silver Weekly Charts - 146,000 Ounces Come Out of JPM's Registered Inventory

There were a few notable changes in the Comex gold warehouse inventory yesterday, as 146,000 ounces of gold had their warrants cancelled and were adjusted from 'registered' to 'eligible.'

What is particularly interesting about this is that it knocked the deliverables down back down to 600,000 ounces, with almost half of those held by Scotia Mocatta.

It would certainly be interesting if we knew exactly who held what, and what their net positions might be.   And it would certainly be fun if I knew everything I want to know, and had everything I want to have.  But life is a struggle to find out how things work, and it is especially hard to discover what has been hidden for whatever reason.

There is another interesting chart that Nick and I produced that shows what JPM stopped and issued in terms of Comex gold contracts over the past twelve months.  As you will recall when a party 'stops' a warrant they are taking delivery, and when they issue a warrant they are offering gold for sale. 

I don't think this sorts out what JPM is doing for its house account versus what they are doing overall as a bullion bank.  I may take a crack at that later on.

So obviously some of this is just pure correlation with what customers are doing, ie. selling on price declines, and then buying bottoms and riding it back up. 

What is interesting is the huge spike in year end buying (stopping) of contracts that has not yet been reflected in price.   I am watching this with care, because as you may remember we have seen these big dips in registered inventory signal an intermediate price change within six months, at least within the last ten years of this bull market.

I know quite a few people are getting edgy on this correction and I can't blame them for that.  But that does not mean that someone is going to be able to tell them with high certainty that the market has bottomed and the correction is over so that they can immediately rush out and put in leveraged bull bets and make a fortune. 

There are those who will tell you that, many, many times in fact, almost every other week it seems.  And when and if a turn does come, they will point to that 'call' and say see I was right, and forget about the ninety other times they were wrong. 

It does not work like that.  We will get a confirmation if we get a trend change, and you *might* miss the first ten percent of the up move by waiting.  But you will also miss a lot of wear and tear on yourself and your portfolio in the process.  Most traders who sell the top and buy the bottom with precision are either darn lucky or damn liars.   At least that is what Bernard Baruch says and my own experience tends to validate that.

I do think we are in a bottoming process and the emphasis here is on process.  If we are holding positions without leverage and a longer term time horizon, what difference does it make if the trend change comes next week or next month or even five months from now?  What is important are the fundamentals and the trend. 

I do have both a long term and a short term portfolio.  The long term I have not touched in some years.  The short term has been adjusted to match my thoughts on the current market structure, a little more aggressively than normal perhaps.

I have modified my thinking about Comex a bit, now seeing how much of an insiders' shell game it has become because of the laxity over positions and price antics, and the high amount of paper shuffling and opaque positioning that occurs relative to how much actual clearing of markets between producers and buyers is accomplished.  But it is what it is: a speculative vehicle.  And its role in world markets is changing, diminishing most likely.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - The Pause that Refreshes Before FOMC Next Week

Stocks were treading water this week ahead of the FOMC decision next week.

I think that even though there may be more taper talk that the Fed will not doing anything substantial.

Even if they do taper, we have to keep in mind that this is a cutback on the 80+ billion in monthly liquidity the Fed injects into the financial system by buying Treasuries and Mortgage debt.

But I do think that the discussion about what they will do will be about as substantial as what they actually end up doing which is pretty much nothing.

Have a pleasant weekend.