Today’s security markets were about the most subdued I ever have seen.
Things were so quiet that for several hours half of the floor traders crowded into a small bathroom at the New York Stock Exchange to watch a new coat of paint dry. There were active discussions over whether the color was grayish green or greenish gray, but no consensus was reached. All personnel involved said that this aesthetic experience was far more exciting than floor action. The volume of shares traded was the lowest since just before the Gadsden Purchase in 1853, which immediately preceded the incorporation of Chipotle’s Mexican Grill.
I could be wrong, but this period feels rather like the far recession of water from beaches just before a Tsunami wave comes in. I have a gut hunch that we are seeing the contemplative period following yesterday’s default on a bond interest payment by Banco Espirito Santo in Portugal. I don’t know what the effect of this will be on the derivates house of cards around the world. At the very least it puts the lie to all of the European Bank stress tests, the results of which were – and I apologize here for the technical financial jargon – "Just move along. Nothing to see here."
Strangely counter-intuitive price rises in TLT over the past while suggest that there is a non-zero possibility that the Fed may not be opposed to a sharp stock market drop that could drive a lot more people into bonds, which in turn could help keep interest rates down, a useful outcome for a country that is so deeply in debt that we are borrowing money from the inhabitants of Pluto even though they no longer inhabit a planet.
Gold and mining stocks look more interesting than ever. There’s a lot to read and understand. Here’s a start:
Massive PM-Futures Buying
Jul 11, 2014
Both gold and silver have enjoyed massive buying by American futures speculators in recent weeks. It all started with Fed chair Janet Yellen’s cavalier dismissal of inflation, but the buying momentum persisted well after that. Happening in the midst of the summer doldrums when global precious-metals investment demand is weak, this is an exceptionally-bullish portent. It is setting up the PMs for a major autumn upleg.
A little over a month ago, I wrote an essay on the record shorting of gold and silver futures by American speculators. This one group of traders utterly dominates gold and silver price action, and therefore the fortunes of stock traders’ flagship GLD gold ETF and SLV silver ETF. Gold futures had just seen their biggest jump in spec shorts, and silver futures their highest levels of spec shorts, in at least 15.4 years!
As I said then with gold and silver loathed and languishing near ugly multi-month lows, extreme shorting is very bullish. Futures shorts contractually have to be covered before expiration, and this is done by buying offsetting longs. The higher speculators’ futures shorts get, the more near-future buying they guarantee. And since futures are so hyper-leveraged, this buying to cover often happens quite rapidly.
In early June near the gold and silver lows, speculators merely needed to keep $6000 in their account to control a single 100-ounce gold contract, and $8250 for a single 5000-ounce silver contract. But these contracts were worth a whopping $125,000 and $95,000 respectively at $1250 gold and $19 silver. So that represented maximum leverage of an insane 20.8x in gold futures and 11.5x in silver futures!
The government of the Ukraine is playing very aggressively and should beware of stomping on the bears toes.
Russia Vows to Respond After Shelling From Ukraine
By Daryna Krasnolutska and Olga Tanas Jul 13, 2014 3:00 PM MT
Russia and Germany called for a resumption of Ukraine crisis talks as President Vladimir Putin’s government condemned the shelling of its territory that left one person dead.
Putin and German Chancellor Angela Merkel agreed during a meeting in Rio de Janeiro yesterday that international representatives should meet as soon as possible, probably via video link, said Dmitry Peskov, the Russian president’s spokesman. The so-called contact group on Ukraine should work to secure a cease-fire and a resumption of monitoring, he said.
Clashes between Ukraine’s government forces and pro-Russia rebels in the east of the country have intensified since President Petro Poroshenko called off a cease-fire July 1. Putin and Merkel met as Russia warned of “irreversible consequences” after the Foreign Ministry said a Ukrainian army shell killed one person in the southern region of Rostov. Ukraine said its military didn’t fire on Russian territory and is ready to help investigate the incident.