Notes From Underground

It wouldn’t be Notes From Underground if we didn’t ask the most obvious and ridiculous question. It may be the subject of global comedians but the NSA‘s overreach is not a laughing matter for what it really shows is that in the guise of National Security, even a democratic republic leans toward political repression. This is similar to the McCarthyism that grew from what Michael Parenti called “the Anti-Communist Impulse.” Everything becomes an excuse for the government to pry  and the danger for all lovers of freedom is that once governments delve into every nook and cranny of life, the end result is always disastrous. It is not about Democrat or Republican for the Democrats will not always be in office.

From a global macro perspective, the U.S. has lost the moral high ground and will find it difficult to lecture others on various areas of global concern. Last month, Treasury Secretary Jack Lew was preaching to the Germans on the need to ease up on austerity. Last week, President Obama was giving a speech at the Brandenburg Gate. How would that speech be received today? If the G-8 wasn’t a joke before, doesn’t the extensive invasion of privacy make those ultra-expensive photo-ops become meaningless when you already know everybody’s pre-conference policies? In the Der Spiegel article, “The documents show that the NSA is more active in Germany than any other country.”

And to make matters more pertinent to the global macro perspective, one of my favorite European Parliament members, and a French icon from May 1968, laid it out: “The EU must immediately suspend negotiations with the U.S. over a free-trade agreement.”Last month, the U.S. administration was pointing to the U.S.-European Free Trade Agreement as a corner-post of its growth agenda. There are real costs to the abuse of power. It sends a message of arrogance, whether or not everyone is doing it.

***The Thursday BLOG called the shift in silver/gold and a possible low in GOLD based on the analysis of the GOLD/YUAN cross and its relevance to the important level of the IMF gold sale to India. I had looked at the IMF GOLD sale at $1048 as important but realized that maybe the price in terms of the Chinese that price may be more critical. The price level was 7150 YUAN and on Thursday night  we hit a low of 7220 YUAN to an ounce of GOLD and it provided momentary support. This will be an important level in my opinion–we will keep a close watch on this.

At the same time, the silver held and set the course for the Friday rally, which was followed upon today. Can’t say that this is the end of the GOLD selloff but it is certainly something to watch. The other GOLD/CURRENCY crosses look terrible on the charts but better technicians may find longer term support levels on the GOLD/SWISS, GOLD/EURO and certainly the GOLD/YEN.

***Jeremy Stein’s speech to the Council on Foreign Relations was much anticipated as it seems that it was Governor Stein whose work provided the impetus for the Bernanke Fed to begin the conversation about “tapering ” the large-scale asset purchases (QE). But the Stein speech proved to be somewhat of a Michael Jackson moonwalk (h/t KM) as Stein was walking back his more strident views on the FED laying the groundwork for financial instability. While I believe that the FED is relieved to see some liquidation in the amount of risk that investors hold, the velocity of the delevearging and the velocity of the rise in YIELDS frightened some FOMC members.

In a very telling statement, Stein reveals some of the FED‘s thinking: “… how we will make decisions about the policy fundamentals that the FOMC controls–the path of future short-term policy rates and total stock of long-term securities that we ultimately plan to accumulate via our assets purchases. Yet as research has repeatedly demonstrated, these sorts of fundamentals only explain a small part of the variation in the prices of assets such as equities, long-term Treasury securities, and corporate bonds.

“THE BULK OF THE VARIATION COMES FROM WHAT FINANCE ACADEMICS CALL ‘CHANGES IN DISCOUNT RATES,’ WHICH IS A FANCY WAY OF SAYING NON-FUNDAMENTAL STUFF THAT WE DON’T UNDERSTAND VERY WELL–AND WHICH CAN INCLUDE CHANGES IN EITHER INVESTOR SENTIMENT OR RISK AVERSION,PRICE MOVEMENTS DUE TO FORCED SELLING BY LEVERED INVESTORS OR CONVEXITY HEDGERS …” (EMPHASIS MINE).

The FED doesn’t understand this stuff very well … so much for the deification of the cult of the Fed.

***At 11:30 p.m. CST, the Reserve Bank of Australia will announce its interest rate decision. The consensus calls for the overnight rate to remain at 2.75%. No argument here as the continued weakness in the Aussie dollar and the dynamic steepening of the 2/10 yield curve during the last month means the RBA can allow the dynamics of a weakening currency to help aid the slowing economy. In addition, the recent replacement of PM Gillard with previous PM Kevin Rudd the bank may not wish to be seen in an overt political action … no change.

Tags: Fed, Gold, gold/silver, gold/yuan, IMF, Jack Lew, Jeremy Stein, NSA, Obama, QE

This entry was posted on July 1, 2013 at 7:01 pm and is filed under Europe, Fed, Gold, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.