Notes From Underground: To The Talking Heads On TELEVISION … Europe Is Not the U.S.

As the sellers of snake oil and the creators of the corporate cult of personality take their “bows” for breaking the story about the European bailout that roiled the global equity markets, I had to step back and realize that the European Polity is not the U.S. While Geithner and others are held captive to the vagaries of the DOW JONES and S&P, it seems that the Europeans, and, especially the Germans, are not enthralled by markets going up and how many days of a winning streak exist. There are actually decision makers who are not captured by the price of Deutsche Bank or Siemens. In the U.S. it is only the stock market reactions that seem to dictate the decisions made in Washington. Some in Europe seem to want to effect policy for the longer term regardless the cost to certain financial entities. If forcing the issue on how large a hit private bondholders are to take means that markets dive … so be it.

The longer term is much more important. It was interesting to listen to the CNBC crowd congratulating Liesman for breaking the BAILOUT STORY–the story was actually out Sunday morning in the European papers. What was not reported today was the piece by Ambrose Evans-Pritchard, in which Germany’s highest ranking judge “issued a blunt warning that no further fiscal powers may be surrendered to Europe without a new constitution and a popular referendum.” The chief of the German Constitutional Court is most concerned about NO TAXATION WITHOUT REPRESENTATION. This is a major issue for the Bavarian Burghers have never been directly asked if they wanted the EURO or if they wish to TRANSFER their hard-earned EUROS to the more profligate citizens in the PIIGS.

The U.S. financial media is solely concerned with equity prices and if democracy is a stumbling block to higher equity prices, then the will of the people be damned. As the economic engine of growth shifts from the Western world to Asia and Latin America, it is important to understand that input from the new wealth is going to be heard. The U.S. model of dominance is shifting just as it did as the sun set on the British Empire.

Quick Hitter#1: Thanks to Ellen Galluccio of Natixis for providing a list of the coming important political dates:

Sept. 28 Finnish Parliament votes on new powers for EFSF

Sept.29 German parliament due to ratify the EFSF

Oct.3 Eurozone finance ministers meet in Luxembourg

Oct.11 Slovak parliament votes on the EFSF, last European Parliament to do so

Oct.13 Eurozone ministers meet to sign off on Greek aid

Oct.14 G-20 finance ministers meet in Paris

Nov.3-4 G-20 summit in Cannes

Quick Hitter#2: An important trade to look at is the PLATINUM-GOLD spread. This precious metals spread is trying to tell us something about the state of the world economy or else is providing a great opportunity to purchase a precious/industrial metal at a very attractive price. If the European BAILOUT is truly as significant as the equity rally this week has shown then that PLATINUM should outperform GOLD as platinum plays a role as a store of value and in the global economy in its role in automobile production.

Last year at this time platinum was trading at a $300 premium to GOLD while at present it is an $85 discount. Is this spread telling us how slow the global economy is projected to be as auto production slows? Is there somebody dumping stockpiled Platinum to raise cash? Has the dramatic weakening in the South African rand led to platinum miners selling production as the DOLLARS rise against the RAND means increased profits in terms of RAND and thus pushing stockpiles onto the world market? Not sure of the reason but it is certainly worth watching.

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10 Responses to “Notes From Underground: To The Talking Heads On TELEVISION … Europe Is Not the U.S.”

  1. Ray mckenzie Says:

    Great take on this extremely important issue Yra. Cnbc is the people magazine of finance so no surprise they focus only on equities. Can you get a show on PBS or somewhere where intelligent discussion takes place?

  2. yra Says:

    If your people sponsor it and I could get TOM KEENE to join me it will be a GOLD MINE.Serious discussion with the needed flippancy thrown in—as Dan Glickman said to me–Harris you are nothing but an old prairie populist

  3. Danny Says:

    Interesting observation on platinum vs. gold. With a longer term view of the ratio between the two…the platinum is trading at a bigger discount now than when Lehman Brothers went down. That is a pretty dreary outlook, unless of course like you say…something fundamental with production/supply has changed significantly.

  4. JediTrader Says:

    I don’t think CNCB is the worst, Yra’s friend Dennis Gartman is always insightful, as are others, but I do agree that they focus waaaaay too much on these short term equity moves. It can be annoying.

    So who else is just short the EUR/USD? I mean this whole last minute bailout is a joke. I found this amusing….

  5. J Kraus Says:

    There is a trend in place that is set to somewhat reduce the long-term demand for platinum. As you mentioned, the big demand driver is the automotive industry. Dramatically increasing global fuel-efficiency standards are reducing the per-vehicle platinum requirement to a considerable degree. First, as modern technology enables inherently cleaner and more efficient engines, the need for downstream exhaust clean-up by platinum exhaust catalysts is lessened. Secondly, as vehicle mileage increases (through reduced weight, better aerodyamics, etc.), less motive power is required to propel the car through the EPA/EU emission test cycle. Less output power means smaller catalytic converters can be utilized.

    Hybrid vehicles use considerably less platinum for exhaust clean-up and electric vehicles use none whatsoever.

  6. JediTrader Says:

    Also, any tips on preparing for the CFA? I am about to crack open the Yield Book that Prof Waspi recommended… I did notice he has the designation if you can somehow summon his advice.

    My goal is to trade global markets either as an independent/prop trader or through a hedge fund. I’m taking the CFA route because credentials are so important to the world and the cost/benefits are way better than the Master’s route….Thanks for any help!

  7. yra Says:

    Jedi–good luck and I am sure that Professor Waspi will respond as he is always reading the blog –so look for a response

  8. samsoro Says:

    Yra, great note. Any thoughts on today’s action? Yields were up, and it seemed equities attempted to follow, but then ultimately went south with the Euro and copper (aka Europe & China). Yields ultimately did what they were supposed to do (tighten), but I wondered if treasuries could be at the precipice of something different — “yeah, I’m scared and I worry about deflation but I’m starting to worry about sovereign risk.” Maybe?

  9. Saturday Breakfast Links | Points and Figures Says:

    […] Watch the Gold-Platinum spread. ($GLD, $GC_F) […]

  10. yra Says:

    samsoro–thanks for the note.I hope that today’s NOTES clear up some thinking on what is happening in the world.Again,the move in the Gold/Platinum is signaling that thew world is in disarray and so we see more and more that people blindly rush to the treasury market

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