23.4.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

U.S. Mint Runs Out of Smallest American Eagle Gold Coin; Is There a Shortage of Physical Gold? Coordinated Smackdown by Naked Shorts?

Posted: 23 Apr 2013 11:21 PM PDT

Demand for gold coins has surged following the record price plunge in gold last week. Demand is so high that the U.S. Mint Runs Out of Smallest American Eagle Gold Coin.
The U.S. Mint ran out its smallest American Eagle gold coin after demand surged following the biggest drop in futures prices in 33 years.

Sales of the coins weighing a 10th of an ounce were suspended after demand more than doubled in 2013 from a year earlier, the Mint said today in a statement. Total sales of American Eagles in April have almost tripled from a month earlier, according to Mint data on the website.

On April 15, gold futures in New York plunged 9.3 percent, the most since 1980. Retail sales and jewelry demand soared in India, the world's top buyer, and China, the second-biggest. Coin sales also surged in Australia.

The Mint also sells 22-karat American Eagle coins of 1 ounce, half an ounce and a quarter of an ounce.

The U.S. Mint suspended sales of silver coins in January for more than a week because of lack of inventory. Sales of the coins jumped to a record that month.
Bullish or Bearish?

It's possible to make a bullish or bearish argument out of this shortage. The bullish argument is simple: demand is strong. The bearish argument is small investors are a contrarian indicator just as they were with silver in January.

I am not taking a short-term stance one way or another, so don't ask. I do like my chances longer-term as I explained at the Wine Country Conference. See Mike "Mish" Shedlock: A Brief Lesson in History.

Shortage of Physical Gold?

Some writers have spun this story into the message there is a shortage of physical gold. No there isn't. There is a temporary shortage of certain coins, no more no less.

Divergence Between Physical Gold and Paper Gold?

Other writers have noticed the price premium on small denomination coins and concluded there is some sort of "divergence between physical gold and paper gold".

Once again, that's nonsense. Premiums on small denomination coins is not the same a general premium on physical gold itself.

How do I know?

Easy: If I went to buy or sell at GoldMoney (and GoldMoney only deals in physical metals with allocated, audited storage), I would pay the same small markup as before, based on the current futures price.

Here is another way to tell. Go buy or sell a one ounce bar and see how much it costs or how much you can get. Here's a hint: your selling price will not fetch $1900 as it once did, nor would it cost you over $1900 to buy.

Smackdown by Naked Shorts?

Many claim blatant manipulation by naked shorts. Mercy! Under this theory, shorts piled on to the tune of 163,000 gold futures. Really?

Keith Weiner tackles that theory for the Acting Man Blog in The Last Contango. Here is the pertinent chart.



Weiner asks "If someone had sold 163,000 futures to cause the price to drop, then wouldn't the open interest [in futures] have risen? If Santa went down chimneys, wouldn't there be soot on his red and white uniform?"

The answer to both questions is of course "yes". Instead, the chart shows a 16,000 open interest drop in gold futures and a 12,000 drop in silver futures.

Ignore the Hype in Both Directions

Bulls blame every drop on manipulation and frequently tout preposterous price targets. Bears cite jewelry demand and other nonsense as if it's important (and it isn't).

It is best to ignore the hype and silliness on both sides.

Fundamentally, what has changed? I suggest nothing.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Germany Private Sector Output Declines First Time Since November; Eurozone Activity Declines 19th Time in 20 Months

Posted: 23 Apr 2013 10:18 PM PDT

As expected in this corner, the Markit Flash Germany PMI® shows German private sector output declines for first time since November 2012.
Key Points:

  • Flash Germany Composite Output Index(1) at 48.8 (50.6 in March), 6-month low.
  • Flash Germany Services Activity Index(2) at 49.2 (50.9 in March), 6-month low.
  • Flash Germany Manufacturing PMI(3) at 47.9 (49.0 in March), 4-month low.
  • Flash Germany Manufacturing Output Index(4) at 47.9 (50.0 in March), 4-month low.

PMI vs. GDP



Lower levels of private sector business activity reflected a decrease in new order volumes for the second successive month during April. The overall pace of contraction was the steepest since October 2012, largely driven by a marked decrease in new work received by service providers. Manufacturing new orders dropped at the fastest pace so far this year but, in contrast to the service sector, the rate of new business decline remained slower than on average in 2012. In the manufacturing sector, new export orders declined at the most marked pace so far in 2013, but the rate of contraction was slightly slower than seen for overall new work.

April data suggested a general lack of pressure on operating capacity in the German private sector, as backlogs of work decreased for the twenty-second month running. The current period of declining work-in-hand but not yet completed) is the longest since this series began over 10 years ago.
Eurozone Activity Declines 19th Time in 20 Months

The Markit Flash Eurozone PMI® shows Eurozone suffers ongoing downturn in April.
Key Points:

  • Flash Eurozone PMI Composite Output Index at 46.5 (46.5 in March).
  • Flash Eurozone Services PMI Activity Index at 46.6 (46.4 in March). Two-month high.
  • Flash Eurozone Manufacturing PMI at 46.5 (46.8 in March). Four-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 46.3 (46.7 in March). Four-month low.

GDP vs. PMI



Summary:

The Markit Eurozone PMI® Composite Output Index was unchanged on March's reading of 46.5
in April, according to the flash estimate. The sub-50 reading indicated a drop in activity for the nineteenth time in the past 20 months, the exception being a marginal increase in January
2012.

Activity fell sharply again in both manufacturing and services. While the former saw the steepest rate of decline for four months, the latter saw the downturn ease slightly compared with March.

New business fell for the twenty-first successive month, with the rate of deterioration accelerating for the third month in a row to signal the steepest decline since December. Marked falls were seen in both manufacturing and services.

The ongoing deterioration in the order book pipeline prompted firms to cut payroll numbers for the sixteenth month running. The rate of job losses accelerated slightly on March, reflecting stronger rates of job shedding in both manufacturing and services.
Wishin' and Hopin'

Those wishing and hoping that Germany was going to remain divergent from the rest of the eurozone can now safely toss that notion on the scrapheap of foolish ideas.

As I have been saying, at some point Germany will start a steep acceleration of the overall eurozone recession. That time may be at hand now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Wine Country Conference "Opening Remarks" Video Posted

Posted: 23 Apr 2013 07:21 PM PDT

My opening remarks for the Wine Country Conference are available at Wine Country Conference Speaker Presentations.

Unlike the speaker presentations, my opening speech is a short 7 minutes or so.

We are making a couple of video presentations available each week for three weeks.

John Hussman's presentation "An Unstable Equilibrium" was posted last week. My presentation "A Brief Lesson in History" is also available.

Speaker presentation material, Yahoo! Finance media interviews, and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides.

If you enjoy the videos and slides please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research.

All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation.

Thanks again for a successful 2013 WCC and we look forward to many more! The 2014 conference will raise money for autism research and programs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Political Prediction: Merkel Loses Chancellorship in September as Support for AfD Soars

Posted: 23 Apr 2013 11:18 AM PDT

Now that we have an Understanding of German Political Parties let's consider some scenarios from reader Bernd who lives in Germany about how the election on September 22 plays out.

In past elections, as many as 40% of the eligible population did not vote. This brings a very large pool of voters that may turn out for the anti-Euro AfD party.

Bernd comments "All indications show that AfD has a huge potential to convert nonvoters to voters. If election turnout is high, seats in Parliament may look drastically different than today."

For the past two weeks I have been watching the iPhone app Wahl-O-Meter and AfD has risen from 5% of the vote to 6.6% now.



Not only has AfD been rising, but today is the first day I have seen AfD above Die Linke. In the same timeframe, support for FDP has been sinking.

FDP is right on the bubble, polling 5% down from 5.4% or so. It takes 5% of the vote to stay in parliament.

This is significant because FDP currently has the third largest representation in parliament and is the junior partner in Merkel's existing CDU/CSU/FDP coalition. The very real danger to Merkel is FDP goes to zero percent representation.

In theory CDU, CSU, and SPD could easily form a coalition that totals over 50% of parliament. However, the SPD political party leadership has ruled out a coalition government that includes Merkel as chancellor.

AfD Support Rises to 19% in Handelsblatt Online Poll

Via Google translate, please note 19 percent would vote for the anti-euro party.
The new anti-euro party alternative for Germany (AFD) has a good chance to collect in autumn in the Bundestag. The result of a representative survey of online market research company market research on behalf of Handelsblatt Online. 19.2 percent of the 1,003 respondents affirmed therefore the question of whether they would give the party their vote in the general election (24.9 percent of men and 14.8 percent of women).

54.6 percent of respondents (56.7 percent of men, 53 percent of women) would not choose the AFD on the other hand, 26 percent of respondents stated that they have not made a choice decision (18.4 percent of men, 32.2 percent of women).

Their greatest potential voters, the party in the 46 - to 65-year-olds: 23.1 percent of this age group, the AFD would give their vote (in the 31 - to 45-year-olds: 19.3 percent among 18 - to 30 - year: 14.2 percent).
Online polls are notoriously inaccurate, so the key takeaway is continually rising interest.

A few weeks ago many news agencies were stating AfD would not reach the five percent threshold. Bernd and I think 12% or more is easily achievable.

With that backdrop out of the way, let's take a look at reader Bernd's speculative estimates for the September election.

Bernd's Speculative Estimates

  • CDU/CSU: 36%
  • SPD: 23%
  • Grünen: 13%
  • AfD: 12%
  • Die Linke: 06%      
  • FDP: 04%
  • Piraten: 03%
  • Others: 03%

Should that scenario or any close approximation play out, it will be quite difficult for Merkel to stay in power.

A "natural coalition" between CDU/CSU and AfD could in theory work, and it might not take 50% of the popular vote to form such a coalition on account of the parties losing representation. Yet, even in such scenario, the price to pay for CDU/CSU would likely be Merkel's chancellorship.

Bernd outlines four possibilities

Four Possibilities

  1. SPD, CDU, CSU form a coalition in which Merkel steps aside or is forced out.
  2. SPD forms a coalition with half term Merkel (CDU) and half term Steinbrück (SPD) as chancellor.
  3. The politics splinters as happened in Italy with unknown effects for the coming government.
  4. CDU/CSU and AfD form a coalition under a new and unknown chancellor. Together they reform EU politics.

Bernd states option four would be ideal but right now such a possibility is wishful thinking as opposed to a strong likelihood.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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