Bad Economic News Right On Cue

228
Wed, Jun 5, 2013 - 12:54pm

Just last week, we openly speculated that the "economic news" was about to turn decidedly sour, given that the yield on the 10-year note had moved significantly through 2%. So far, spot on.

Let's just take a look at today's headlines:

I first posited that this would be the case a week ago. You can go back and re-read the full post if you'd like: https://www.tfmetalsreport.com/blog/4746/hammer-time I haven't gotten the pre-BLSBS selloff I had anticipated...but...the fact that the economic news has turned out as expected makes the post increasingly relevant. At the risk of being BulletPointMan, here's a c&p of the main thesis:

"Once again, this move in rates can be traced to the BLSBS report of Friday, May 3. Since then, the note has fallen four points and now rests near support at 130, which corresponds to a rate of about 2.15%. This level may hold but I suspect that it will not. More likely is a drop to what appears to be critical support near 127-128.
But here's the deal. There is no way, no how that The Fed is going to allow support to fail, thereby letting 10-year rates back up to 3%+. Not happening. Besides the detrimental impact higher rates would have on the U.S. budget deficit and debt, higher rates would also crush any nascent economic recovery.
Already we are seeing things slow down in the U.S. (Even that statement is nonsense because "slow down" implies that previously things had been really cooking.) Check this headline from ZH just this morning. https://www.zerohedge.com/news/2013-05-29/cash-and-tarry-mortgage-applic... And, as discussed last week, if the economy was booming and housing growth was robust, demand for inputs such as lumber would be soaring and soaring demand would lead to higher prices. Right? Right?? Apparently not.

So here's what's likely to happen in the weeks ahead:

  • The 10-year note may fall a bit farther but then it will bounce and begin to rebound
  • Signs that the U.S. economy is weakening will get more mainstream press coverage
  • This will likely begin with a May NFP next Friday that comes in "weaker than expected"
  • A continuation or even increase of QE will shove stocks even higher
  • Gold and silver will finally stabilize and begin trending higher, the start of a summer rally"

OK, then. So what have we seen in the week since this was posted?

  • The 10-year note sold off, reaching a low on Friday of about 128 1/2. It has since bounced back to near 130.
  • The economic weakening is definitely getting more MSM coverage. (See above.)
  • Still waiting on the BLSBS but today's ADP sure raises questions.

Yes, the BLSBS data on Friday could still leave everyone at CNBS grinning ear-to-ear. We'll just have to wait and see. However, it should be clear to everyone that the U.S. economy is not booming or growing. If anything, it simply continues to bounce along the bottom, the illusion of current and future prosperity created by the daily purchase of S&P futures by The Fed's Primary Dealers. There will be no end to QE. Not now. Not later this summer. Not in 2014. Not ever. The only escape from under this mountain of endlessly leveraged debt is currency devaluation. Physical gold and silver will continue to be your only refuge. Buy some today. (And if you do so, please do it through one of our affiliates!) https://www.tfmetalsreport.com/precious-metals-store

I had expected hoped that price would recover today after yesterday's CoT-related selloff. So far, so good. Check this action in gold first. Note that price continues to be centered around the recovery trendline that began back on the overnight of the 18th. It also continues to battle a declining 20-day MA that is now near $1405 but stays resilient. This is a very good sign and, if it continues, foreshadows a jump through $1420 and a move back toward the late April recovery highs just below $1490.

And I've found something interesting on the silver chart. Maybe it's nothing. Worth no more than the paper it's printed upon. However, it is not and cannot be coincidence that all of these points on a chart are connected by this declining arc. And look at how the arc was right there to shove price lower on Sunday, the 18th. The Forces of Darkness tried to make it happen. They clipped price for over 10% in a matter of minutes. But a funny thing happened on the way to the beatdown. No additional sellers emerged. Instead of an accelerating drop into the $teens, price reversed and began to recover. We've been in a sideways, $1 range ever since. This has all the earmarkings of a bottom and a trend change. Will it? Can it? The BLSBS on Friday will likely hold the key.

Finally, today, we need to double back to a story that broke just as I was publishing yesterday's post. Our pal, DenverDave, sent me an email notifying me of a very peculiar change in the daily Comex data. It's a new disclaimer which The Comex apparently hopes will shield them from legal consequence should member vaults one day be shown to hold slightly less metal than is reported. The exact verbiage, which suddenly appeared on Monday is this:

"The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only."

With all ChurchLady sincerity: Well, isn't that special? So now The Comex (which is a futures market...and futures, being paper obligations, are entirely dependent upon trust and confidence) is telling us that the information provided to them by their members is not necessarily "accurate or complete"? What???

A very succinct analysis of this can be found at Jesse's place: https://jessescrossroadscafe.blogspot.com/2013/06/caveat-emptor-another-level-of-risk.html :

"One can only wonder why the Exchange felt the need to add this statement now, after all these years. Especially when Comex eligible gold inventory levels are approaching record lows, and there is widespread mistrust of certain parties and their opaque market positions on this list.
And there are rumours of forced cash settlements in lieu of bullion delivery floating around. The Hong Kong Metals Exchange just folded, and forced cash settlements. And banks are cancelling physical delivery arrangements.
How can someone who is trading metals and storing them at the warehouse not be concerned about a declaration of force majeure without liability recourse? What is the purpose of a commodities exchange when there are no representations made that they even possess what one is trading?"

Look, the shils, disinfo agents and apologists for The Cartels can SPIN and deceive all they want. But use your eyes and your brain. There is now a mountain of individual dots just waiting for you to connect them. You can either blissfully sit and amidst the pile of shit that has been shoveled upon you for decades or you can prepare for the new paradigm. The choice is yours.

Have a great day.

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  228 Comments

Urban Roman StevenBHorse
Jun 6, 2013 - 11:52am

@SBH,

... and they were working on that capability long before then. 911 obviously wasn't the reason for any of this. It was the excuse. All that 2000 pages in the 'Patriot Act' was not feverishly wrought in a few midnight sessions by barely-literate congress critters. It was sitting on the shelf waiting for an excuse.

Response to: Who is listening?


Jun 6, 2013 - 11:57am

New Guest Post

featuring today's Mr. Popular!

SilverSurfers
Jun 6, 2013 - 12:07pm

Begging

GOP Leadership

You all want a Majority in the Senate and 2/3 lock on the House in 2014?

I can and will do for you all, with a little help. Sincerely. Derrick Michael Reid

https://totalcontrol.blogtownhall.com/2013/06/03/usa_nova_slang.thtml

https://totalcontrol.blogtownhall.com/2013/05/29/freedom_v_tbtf_tbtj_greedsters.thtml

https://totalcontrol.blogtownhall.com/2013/06/06/usa_strike_on_the_evil_empire.thtml

Damn it Turd, you put me tears. Thanks

Ronald Reagan- "Tear Down This Wall"
JFK Ask Not What Your Country Can Do For You
"Berlin Wall" Speech - President Reagan's Address at the Brandenburg Gate - 6/12/87
John F. Kennedy's speech in Berlin

Not many of us left, but a living memory can bring you to tears, totally.

murphy
Jun 6, 2013 - 12:07pm

this fits the thread topic

@p4- good to see you!

Department of Homeland Security: We Can Search and Confiscate Electronic Devices Based on a “Hunch”

Posted on

June 5, 2013 by Michael Krieger

Regular readers know my complete and total disdain for the Department of Homeland Security (DHS). An organization that is quite clearly gearing itself up for confrontation with the American public, rather than offering any meaningful protection from foreign “terrorists.” These folks think that because they have a big budget and a badge they do not have to abide by the Constitution. They have such little respect for the supreme law of the land that they claim they can search through travelers’ electronic items, and even confiscate them, based on a “hunch.” No, really.

Terrorists don’t take away freedoms. Governments take away freedoms…and ours is doing a damn good job of it.

From CBS:

WASHINGTON (CBSDC/AP) — U.S. border agents should continue to be allowed to search a traveler’s laptop, cellphone or other electronic device and keep copies of any data on them based on no more than a hunch, according to an internal Homeland Security Department study. It contends limiting such searches would prevent the U.S. from detecting child pornographers or terrorists and expose the government to lawsuits.

The 23-page report, obtained by The Associated Press and the American Civil Liberties Union under the U.S. Freedom of Information Act, provides a rare glimpse of the Obama administration’s thinking on the long-standing but controversial practice of border agents and immigration officers searching and in some cases holding for weeks or months the digital devices of anyone trying to enter the U.S.

Since his election, President Barack Obama has taken an expansive view of legal authorities in the name of national security, asserting that he can order the deaths of U.S. citizens abroad who are suspected of terrorism without involvement by courts, investigate reporters as criminals and — in this case — read and copy the contents of computers carried by U.S. travelers without a good reason to suspect wrongdoing.

Now here is some text from the DHS study:

“We do not believe that this 1986 approach, or a reasonable suspicion requirement in any other form, would improve current policy,” the report said. “Officers might hesitate to search an individual’s device without the presence of articulable factors capable of being formally defended, despite having an intuition or hunch based on experience that justified a search.” It added: “An on-the-spot perusal of electronic devices following the procedures established in 1986 could well result in a delay of days or weeks.”

Apparently in America, a search warrant has now been replaced by a “hunch.”

Full article here.

In Liberty,
Mike


Jun 6, 2013 - 12:11pm

Does anyone know what the heck this means

I emailed Ned for help but he must be out.

News Headline Summary

Market talk of a UK high street collapse - Unconfirmed

¤
Jun 6, 2013 - 12:14pm

Nice to see P4

Pain is not a fun place and painkillers suck.

Hope you're on your feet soon.

Take care and heal quick!

¤
Jun 6, 2013 - 12:16pm

TF

Try this...

What the collapse of the Lloyds and Co-op banking deal means to you

https://www.guardian.co.uk/money/2013/apr/24/what-collapse-lloyds-coop-m...

Cry Me A River
Jun 6, 2013 - 12:18pm

TF this is all i was able to find

News Headline Summary

Market talk of a UK high street collapse - Unconfirmed

https://www.channel4.com/news/q-a-what-next-for-the-british-high-street

‘Market talk’ – Signifies information that has not been formally tested through traditional journalistic channels and therefore is to be treated as unsubstantiated. Any interpretation of the talk is taken at the readers own risk and is a representation of the rumours within the market place and never generated by ourselves.
Reaction details:

Print 15:22 - UK Equities - Source: Steve Hawkes, Consumer Affairs Editor

THIS IS FROM LAST YEAR:

Tuesday 10 January 2012 Business

Q&A: What next for the British high street?

https://www.channel4.com/news/q-a-what-next-for-the-british-high-street

"Dazzling" sales in the week before Christmas, yet forecasts remain gloomy as plunging profits threaten to close more shops. Channel 4 News asks: what is the future of the British high street?

Retailers gave a cautious welcome to news that a "dazzling" week before Christmas saw sales rise by 2.2 per cent compared with the last year. At the same time, professional service firm, Deloitte, said the total number of retailers in England and Wales falling into administration increased by 11 per cent to 183 last year.

Channel 4 News takes advice from Maureen Hinton, lead analyst at Verdict Research, and other researchers to find out where the high street is likely to stand.

What will the British high street look like in 12 months time?

Retail analysts suggest the slow death of the traditional British high street will continue this year. The high street we are likely to see next year will look rather different to the pre-recession days as more mid-market non-food shops face tough times.

The leisure and entertainment sector - restaurants and cafes, books and music shops - will continue to see casualties as more and more people choose to stay in to eat.

This could also be the year in which the value end of the clothing market begins to suffer, as they are dependent on high sales volumes.

Cry Me A River
Jun 6, 2013 - 12:22pm

Thanks

Thanks


Jun 6, 2013 - 12:25pm

Taper this!

Moving too fast and labeled the top as "FOMC" when it was, instead, the day The Bernank testified at Congress. Regardless, all the talk of "tapering" is being exposed as a big lie and SPIN.

agNau
Jun 6, 2013 - 12:25pm

Different tapering...

Noted in post sometime back(with accompanying link to article with same observation).....when the dollar rises the metals have been hit harder(fall harder) than when the dollar declines in value(metals rise is muted). The dollar is being pushed down......the metals are being capped. We all know the announced "tapering" was fed talk.......so what was the goal of that talk? Reaction was ?...........stronger dollar.......falling bonds......rising rates..........not good.(a test) This is volatility in the system......the Yen adjustment was too much(dollar strengthening)....the REBALANCING is what we are seeing......the race to the bottom.......everyone devaluing in tandem. A little over here......reaction A little over there.....reaction... Much like water being drained out of a tub.......all the toy boats drift lower in reality.....as the attention is directed from spot A to spot B to spot C....... All the while time is ticking off the clock......preparations are being made...... SEC announcement, reminders of FDIC limits, warnings are everywhere and nowhere..... Distractions always there. This time ticking was a point I touched on earlier.....I have noted that we have all been put on a PERPETUAL WAIT. AS AN EXAMPLE.....we wait on the COT report....tomorrow.....the next one.....the next one.... We wait on the FED minutes...the dissection of the FED minutes....the reaction to the FED minutes.......THE NEXT FED MEETING......THE BLSBS.....THE REVISIONS.......THE DISSECTION ....... HOUSING NUMBERS.....BREAKDOWN OF NUMBERS.... We basically wait for a REACTION to any of these things.....and when we get none......we are reminded of NEXT set of data. And once again wait. Meanwhile, the market magically rises. Like drifting in and out of sleep.


Jun 6, 2013 - 12:37pm

High Street in this context refers to Big4 UK retail banks

"Major high street banks in the U.K. include Barclays PLC, Royal Bank of Scotland Group PLC (RBS), Llyods TSB Bank PLC, and HSBC Bank PLC. These large High Street banks typically offer a diverse selection of banking services such as online banking, mortgages and savings." -- the UK TBTF according to Investopedia

This could be 'legit' trader gossip, or just a headline-seeking algo with crossed wires:

Lloyds, Co-op execs to give evidence on branch sale collapse (Reuters)

"Lloyds Banking Group (LLOY.L) and Co-operative Group CWSGR.UL executives will provide evidence to a panel of MPs examining the collapse of a branch sale which was meant to create a new British challenger bank. [...] One of the sources said Lloyds executives will appear before the commission before the end of June."

EDIT: One more LIKELY candidate -- RBS

RBS Breakup Said Not to Be Consensus View of U.K. Lawmaker Panel -- Bloomberg

"Members of the U.K. Parliamentary Commission on Banking Standards have not yet reached a consensus on whether Royal Bank of Scotland Group Plc should be broken up, three people familiar with the discussions said.

The people said lawmakers are considering the contents of a draft report before meeting next week to agree on conclusions. The future of RBS will be part of those talks, two of them said. They asked not to be identified because the draft is private"

Will the bad be taken out of RBS? -- BBC

"A draft report from the Parliamentary Commission on Banking Standards calls for the split of Royal Bank of Scotland into a good bank and a bad bank, I have learned.

The MPs and Lords on the Commission have till next Monday to read the report and formulate their views."

Cry Me A River
Jun 6, 2013 - 12:39pm

Gold Silver Pop

They Might Want To Pump It Before The Jobs Report Tomorrow So They Can Slam It. Or Maybe, If We See A Number Less Than +140,000, Markets View This As QE Won't Be Decreased.

I think the "Concensus Range" is +140,000-200,000

Two Inauspicious Signs That Tomorrow’s Jobs Report Will Be Bad

https://ncwtv.com/nn/two-inauspicious-signs-that-tomorrows-jobs-report-will-be-bad-8784/

Tomorrow is the big Non-Farm Payrolls report AKA the jobs report.

The report is always the most closely-watched report of the month.

The tension is especially high for a few reasons.

The market remains near all-time highs, but has been weak. There are concerns about the US recovery. And there is serious talk about the Fed beginning to slow down its monetary easing in a way that we haven’t seen since the end of the financial crisis. So the stakes are even higher than normal.

In today’s Morning Money, Ben White of POLITICO notes a two inauspicious items:

JOBS DAY PREVIEW: NOT LOOKING GREAT – The ADP miss on Wednesday (135K, under 165K expectations) lowered hopes for Friday’s BLS jobs report. Harris Private Bank’s Jack Ablin: “While the job market, like many other segments of the economy, continues to expand, it appears to be growing at a slowing rate. … Based on a cozy historical relationship between ADP and the Bureau of Labor Statistics’ private payrolls, a simple regression would imply a disappointing net gain of only 139,000 jobs.”

Cry Me A River
Jun 6, 2013 - 12:49pm

Expectations Are Low For Tomorrow's Jobs Report

https://economy.money.cnn.com/2013/05/02/april-jobs-report-preview/

The Labor Department will release its latest update on the U.S. job market Friday morning, and the outlook is neither rosy nor gloom and doom. Economists surveyed by CNNMoney are expecting 140,000 jobs were created in April.

As of March, only 63.3% of the civilian population, over age 16, was participating in the job market. That's the lowest labor force participation rate since May 1979, and we will closely be watching those figures for improvement.

Mickey
Jun 6, 2013 - 1:23pm

QE deflationary

not necessarily so--its al in how they do it--this qe has not gone to the people but to the market and thereby the banks--so this qe has inflated the stock and bond markets--which help the already wealthy. They already have most everything they need so will not spend to drive up prices of normal consumer stuff.

this is a more or less conversation--and my be why house prices are reported up so much--they just are not selling lower end homes so if all thats being sold are upper end of course the average price increases.

helps when the private equity firms stop buying tons of low end homes for rentals.

Mickey
Jun 6, 2013 - 1:24pm

Hate TA??

no--just do not trust it as much when we see so much intervention by govt and games by hedgies.

But you have to look at charts to get a pulse on things and then use something called judgment. I know judgment is not normally used by the big boys using hft.

Sad-descent
Jun 6, 2013 - 1:29pm

Dollar is weak against the Yen

Could this be because a carry trade is unwinding? If so I wonder how long that process takes.

Mickey
Jun 6, 2013 - 1:30pm

tomorrows jobs

yada yada-headline is one thing the devil will again be in the details which only we types look at.

more part time workers (see article on Obamacare and jobs and how costly it is when companies have to pay for people working 30 hours and over) fewer full time-a ton of birth death and a fudged lower participation rate.

or just get transcripts from Verizon to hear the story-any story. Pretty soon pillow talk will not be privy.


Jun 6, 2013 - 1:30pm
ivars
Jun 6, 2013 - 1:33pm

Interesting, i just noticed

Interesting, i just noticed that the real disconnect between stock and silver price directions after 2008 started in Autumn 2011 and then accelerated notably in December 2012, reaching maximum of all the time since 2003.

Of course, one more last gasp spike before crash in stocks up is possible, which would mean taking down silver a bit more, but its not given that stocks are not crashing already. Events are getting into some motion finally with yen spiking and Nikkei crashing.

If there is final move up in stocks, that would last no longer than 4-5 months from now, meaning crash in October-November 2013. If not, I have chart rough directions of possible interplay between stocks and silver - stocks down, silver up.

I wander, was it really Abenomics that accelerated the final divergence from December 2012? If so, it may be coming to an end right now.


Jun 6, 2013 - 1:34pm

And this is just hilarious...

You want to talk about SPIN? Keep in mind that Goon Plosser IS NOT an FOMC voting member for 2013.

Fed's Plosser does not comment specifically on monetary policy or economy in prepared remarks

Fed's Plosser says cutting QE3 clearly on the table at upcoming FOMC meetings

But then The Goon goes on to say:

Fed's Plosser says Fed is struggling with views on job participation rate

says:
- Fed does not have good answers on participation rate

And, of course, THE BERNANK has consistently stated that QE will never end until the uemployment rate falls below 6.5%, at a minimum, and that he doesn't see this happening until 2015, at the earliest.

So...if you have "no good answers" on the participation rate, why would you expect tapering?

A textbook example of Fed Goon doublespeak, MOPE and SPIN.

ivars
Jun 6, 2013 - 1:59pm

There are interesting things

There are interesting things also happening in bonds, under surface. If , finally, FED gets afraid of stock bubble and bonds have no buyers, the scenario with FED cancelling USG debt to itself would come very soon, and, it will not be deflationary even if some 2 trillions of formal money supply is removed. On the contrary. USG debt to the FED has already been discounted in PM prices, and that is one of the major reasons they were not able to keep Autumn level when QE3 kicked in.

So, thesis is that IF QE stops, and even if USG debt to FED is canceled in some form to reduce total interest payments, reducing money supply, both these events will be both commodity inflationary and PM favorable.

foggyroad
Jun 6, 2013 - 2:01pm

Posted with a Question

So if the trillions in money market funds is being persuaded to flow elseware and uninsured deposits are subject to 'Bail in',

where will this money flow, what is safe?

How much redirection into G&S, would it take to explode the last bastion of non-counterparty risk, asset class?

I am not the shiniest non GMO tomato in the basket, but Inquiring minds want to know, Comments welcome to this fruity poster!

https://www.youtube.com/watch?v=BmPrt_gn-eM

Slamming The Money Market “Gates” – Capital Controls Coming To $2.6 Trillion Industry Submitted by Tyler Durden on 06/05/2013 20:41 -0400

  • Institutional Investors
    • Mary Schapiro
      • Reality
        • Reuters
          • Shadow Banking


          • The first time we wrote about the Volcker-led Group of 30 recommendation to crush Money Markets in January 2010 by effectively imposing capital controls and fund "gates", whose purpose was simply to scare investors out of the $2.6 trillion liquidity pool and force said capital to reallocate into a much more "reflation friendly" asset classes such as stocks, many were concerned but few took it seriously. After all, such a coercive push into a "free" market at the time seemed incomprehensible (if, in reality, turned out to be just a few years ahead of its time).

            Fast forward two years to July 2012 when the same proposal of "risk-mitigation" by allocating a portion of the balance to a "loss-absorption fund", which would "create a disincentive to redeem if the fund is likely to have losses" was not only re-espoused by Tim Geithner, and the NY Fed but the SEC put it to a vote and the proposal would have almost passed had it no been for a nay vote by Commissioner Luis Aguilar opposing Mary Schapiro in the last minute. Still, once more many largely unconcerned about the implications behind this urgent push to intervene and establish pseudo-capital controls in this major source of potential stock buying "dry powder."

            A few months later, following the coercive bail-in of Cypriot deposits, and the new "blueprint" for Europe bank rescues, whereby the authorities have strongly hinted that no more than the insured limit should be kept as as a deposit at a bank and it is preferred that the balance is invested in stocks or some other ponzi-enabling instrument, many have finally started to wonder if indeed there isn't some overarching strategy to "tax" financial assets in a world slowly but surely going insolvent and where the much desired debt inflation is so slow to materialize (just as we predicted would happen in September of 2011 in The "Muddle Through" Has Failed: BCG Says "There May Be Only Painful Ways Out Of The Crisis").

            Today, with a brand new leader, Mary Jo White, now that the clueless and co-opted Mary Schapiro is long gone, the $2.6 trillion Money Market Fund industry is one step closer to finally being gated. But don't it call it that - the SEC prefers the term "protecting investors"

            From Reuters:

            A portion of the $2.6 trillion money market fund industry would be required to fundamentally change how it prices its shares in an effort to reduce the risk of abrupt withdrawals, under a proposal released by U.S. regulators on Wednesday.

            Funds could also charge withdrawal fees and delay return of funds to customers in times of financial distress, under the Securities and Exchange Commission's proposal.

            The SEC plan comes after a long debate over whether changes made in 2010 were enough to avoid a repeat of a run on money market funds seen at the height of the financial crisis.

            Naturally, those who see the writing on the wall - the MMF industry - is not happy:

            The fund industry has warned that further major reforms could kill investor interest in money market funds.

            Well, of course. After all this is the whole point. Recall what we said in July of 2012:

            In a nutshell, money market funds (much more on this below), have always been one of the most hated liquidity intermediaries by the central planners: they don't go into stocks, they don't go into bonds, they just sit there, collecting no interest, but more importantly, are inert, and can not be incorporated into the rehypothecation architecture of shadow banking.

            And perhaps that is precisely why the Fed is pulling the scab off an old sore. Recall that for the past year, our primary contention has been that the core reason for all developed world problems is the gradual disappearance of good collateral and money good assets.

            Even if the MMF cash were to shift, preemptively, into bonds, or any other "safe" investments, the assets backing the cash can them enter the traditional-shadow liquidity system and buy time: the only real goal at this point. In the process, the cash itself would be "securitized" and provide at least a year or so in additional breathing room for a system that has essentially run out of good liquidity, and in Europe, out of any collateral.

            Expect more and more efforts to disgorge the $2.7 trillion in money market funds as the world gets closer and closer to D-Day. And what happens with MMF, will then progress to all other real asset classes as the government truly spreads out its capital controls wings.

            Funny: we said this 9 months before a capital control "disgorgement" struck in Cyprus. Fear not: it is coming to every other "taxable" financial asset. But whereas we thought the money market forced capital expropriation would be first, some places like Europe were so desperate they couldn't afford to wait that long.

            So what proposals is the SEC planning on applying in order to enforce the capital reallocation pardon avoid investor losses? There are two, both perfect strawmen, and have been well-known since the first time we approached this topic three and a half years ago.

            In a compromise move, the SEC's plan mostly focuses on prime funds for institutional investors, which are seen as more prone to runs because those investors are more sophisticated and more likely to pull large blocks of money first if there is a panic.

            The SEC estimated that institutional funds represent 37 percent of the market with $1 trillion in assets.

            The SEC's plan calls for two alternative proposals that it said could be adopted alone or in combination.

            The first piece would require prime funds used by institutional investors to transition from a stable, $1 per share, to a floating net asset value (NAV) - a move designed to reduce the risk of runs like those during the financial crisis.

            The SEC said that retail and government funds, which are not considered to be at the same risk for runs, would not have to move to a floating NAV. Retail funds are defined as those that limit shareholder redemptions to $1 million per day.

            The industry has long fought against moving away from a stable share price, which it says is appealing to investors looking for a safe product.

            The second proposal, meanwhile, would give fund boards for institutional and retail funds the authority to impose so-called "liquidity fees and redemption gates" during times of stress.

            That would give funds the power to stop an outflow of investor money, an idea that the SEC's two Republican commissioners last year said they might be able to support.

            We are not sure what is more amusing: that the SEC is so naive it thinks someone will actually believe it can prevent a capital run in a financial panic, or that its transparent attempt to spook money market investors away from their holdingsnow that the threat of imminent lock ups and gates looms over their heads is not what this is all about. We anticipate that the SEC will drop numerous analogies to Cyprus as a reminder that if something can be gated, it will be gated.

            What is more important, is that unlike Schapiro's plan the current SEC proposal should have no difficulty in passing.

            The initial industry reaction on Wednesday indicated the SEC's plan may not generate the same degree of opposition that the SEC faced last summer when then-SEC Chair Mary Schapiro called for what some consider stricter reforms.

            Schapiro, who stepped down as SEC head last December, had advocated for a series of possible reforms, including capital buffers and redemption holdbacks, or a broader switch to a floating NAV - two ideas vehemently opposed by the industry.

            She was unable to muster the votes needed to issue a proposal for comment after three of her fellow commissioners said they could not support her plan without additional study.

            Schapiro's proposal was starkly different from what the SEC unveiled on Wednesday. This time, the SEC's plan contains some proposals that a few fund sponsors have previously said they could live with.

            "It has been a journey to get to this point," said SEC Chair Mary Jo White, who took over the agency earlier this spring.

            And if the industry is onboard, all the token SEC votes needed to enforce the plan will be in place.

            At that point money markets will merely be the latest experiment in behavioral control: how to spook those with money in the multi-trillion industry enough to where they pull their cash and either spend it on trinkets, boosting inflation - a very welcome outcome for the Chairman - or merely investing it in the "stock market." Perhaps instead of a lock up, at times of crisis MMF investors will be given the opion of allocating funds to the Solyndra du jour (a la the Cyprus bank bailout) or lose all the money.

            We are confident the central planners will find a way,

            Kudos as per usual to our intrepid Tyler's
zman ivars
Jun 6, 2013 - 2:11pm

"Fed cancelling USG debt to

"Fed cancelling USG debt to itself would come very soon"

I don't think that would come anytime soon, most investors are still hoping for a Fed exit of its balance sheet, cancelling the debt would be very shocking at this time, and would really hurt the US dollar.

I think cancelling of US debt on the Fed's balance sheet comes in one big chunk, maybe when it approaches the $7-10 trillion range, we are still too early in the game for that scenario.

Once you cancel debt, you are devaluing the currency without any doubt, and you kill confidence in that currency, there is no going back, they will save that tool for the "end game", and that's a long ways off in my opinion.

SilverTree
Jun 6, 2013 - 2:20pm

SILVER AND GOLD GOING APESHIT

SILVER AND GOLD GOING APESHIT ON BULLION VAULT!!

GOLD = $45,524.17 /ozt

SILVER = $23,498.22 /ozt

gold silver ratio of 1.937!!!!!!!

https://www.bullionvault.com/gold-price-chart.do

Kcap
Jun 6, 2013 - 2:21pm

The Dollar

Down over $1 today...

And....

G/S nudged up a bit......

We are in opposite world now. So do the opposite of all conventional wisdom.

Kcap

foggyroad J Y
Jun 6, 2013 - 2:21pm

JY896

JY896 I really enjoy your informative posts and insights.

Thankyou.

Jake, iluvtostack, Xty, excellent stuff today!

TF, as usual you are Smokin!

https://www.youtube.com/watch?v=wVOa3xhl0bg

RBS Breakup Said Not to Be Consensus View of U.K. Lawmaker Panel -- Bloomberg

"Members of the U.K. Parliamentary Commission on Banking Standards have not yet reached a consensus on whether Royal Bank of Scotland Group Plc should be broken up, three people familiar with the discussions said.

The people said lawmakers are considering the contents of a draft report before meeting next week to agree on conclusions. The future of RBS will be part of those talks, two of them said. They asked not to be identified because the draft is private"

Will the bad be taken out of RBS? -- BBC

"A draft report from the Parliamentary Commission on Banking Standards calls for the split of Royal Bank of Scotland into a good bank and a bad bank, I have learned.

The MPs and Lords on the Commission have till next Monday to read the report and formulate their views."

It is nice to see the Leaders of these Banks getting what they deserve!

Sarc/off!

Disgusting! Trickle Down Works: UBS Joins Federal Reserve In Hiking Banker Salaries By 9% Submitted by Tyler Durden on 05/30/2013 13:34 -0400

  • Bloomberg News

    • A week ago we reported that despite making 50% less money for the Treasury in the first quarter, the hedge fund formerly known as the Federal Reserve was generous enough to hike the salaries of its employees by a (true inflation indexed?) 11.7%. It appears the workers of the Fed's Markets Group are not the only ones who can barely make ends meet: next up - investment banks, and specifically UBS, which as Bloomberg just reported has hiked the salaries of its bankers by 9%.

      And since banks always do compensation decisions in tandem, expect every other bank to hike wages appropriately to avoid "disgruntlement."

      The good news - trickle down works.

      The bad news - it is only working for those for whom trickle down has always worked (courtesy of the Cantillon Effect and the fact that Wall Street has owned the nation since the advent of the Fed), and for those who have zero urgent need of that marginal dollar increase.

      But maybe, some time during QEternity^infinity, the same trickling will finally spill over into the broader economy and the much desired wage inflation will finally reach Main Street.

      We wouldn't hold our breath.

ivars zman
Jun 6, 2013 - 2:29pm

Quote:I don't think that

Quote:
I don't think that would come anytime soon, most investors are still hoping for a Fed exit of its balance sheet, cancelling the debt would be very shocking at this time, and would really hurt the US dollar.

I think cancelling of US debt on the Fed's balance sheet comes in one big chunk, maybe when it approaches the $7-10 trillion range, we are still too early in the game for that scenario.

Once you cancel debt, you are devaluing the currency without any doubt, and you kill confidence in that currency, there is no going back, they will save that tool for the "end game", and that's a long ways off in my opinion.

Well, may be then safer way is to issue 2 trillion interest free USD by USG directly, and pay the debt to the FED off. In that way, FED will get 2 trillion USD and corresponding amount of Treasuries will be liquidated. That would reduce FEDs asset side by 2 trillion USD, so its liability side ( bank reserves in USD) will also be reduced by 2 trillion.

Would that be as bad for USD as just cancelling of debt? Formally, USG or Congress has every right to issue money, I think, is that not true?

After that, issuance of money can be done by USG/congress interest free, and spent fiscally, as MMT proposes. That would be inflationary for sure, but perhaps not immediately .

ivars
Jun 6, 2013 - 2:34pm

Quote:Final key point: The

Quote:
Final key point: The consensus view at present is that "tapering" is benign and does not mean the end of accommodative monetary policy. Yet bonds' volatility says that is a false belief. It is saying that tapering is in facttightening, at least in the sense that it will lead to the market setting interest rates rather than the central bank.

My source concluded his remarks by noting that the ill-fated geniuses at the credit hedge fund Long Term Capital Management went astray in 1998 when they thought they were just observers of euro-zone bonds, but later learned to their horror that they were the market. Likewise he says, the Fed may think it is just influencing interest rates but, in fact, it is setting them. If it backs away from QE, however slightly, how high will rates go? No one knows, and that is where the volatility is coming from.

https://www.marketwatch.com/story/bond-volatilitys-grim-message-for-the-market-2013-06-06

Good one.

tmosley
Jun 6, 2013 - 2:39pm

@Silvertree: That is the

@Silvertree:

That is the price of a KILO, not an ounce.

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