Friday Quick Links

Interesting (if scatter-brained) stuff to click on:

Any Hope for Improving the Fed? - Disappointments with Fed's performance as a macro stabilizer (Macro and Other Market Musings) 

Swiss National Mountain Biking Trail Allows you to just show up and ride - Sounds really cool and the pictures are gorgeous. They do your itinerary, accommodations, even your bike (€20/day for double-boing and disc brakes)! I might need to find two weeks in the summer to do this next year. (Adventure Journal)

Sarah Palin is full of it (again) - She vacillates conveniently between angry woman that understands the economy and simple hockey mom/former governor. At least someone calls her out on it. (The Big Picture) Even if the general public won't notice. Would it be too much to ask for a politician that is intelligent AND doesn't actively try to screw us? Seems like we get one or the other, often neither, never both. 

Having my best week of business yet (predictably high volatility in gold price and GBP/USD helps). I have worn the same pants/boots to work every day and will not change them or wash them until I have a mediocre day. If there is anything baseball taught me: YOU NEVER MESS WITH A WINNING STREAK. At least its not thong underwear

Gold Breaks $1400/toz

This is getting kind of ridiculous. (WSJ)

Quick Friday Thoughts

This week's sign of the apocalypse: J. Crew, Gucci and the like are designing manlier clothes... and some people are considering it manly. WTF?

Rather be lucky than good: business made a huge snap-back today on two fronts:
1. Diwali (I have lots of Indian counterparties)
2. Gold all-time high.

Veal is here. I am under specific instructions from his wife to get him hammered and steal his international-investment-banker blackberry. Tequila? Tequila.

NorCal Margaritas = paleo and better drinking through science (thanks Robb Wolf):
Two shots of gold tequila
Rocks - cold = good
Juice and pulp from one whole lime --> neutralizes the insulin spiking effect of the tequila
splash of club soda --> carbonation makes the booze go through quicker

What I'm listening to now: Gov't Mule. Check out "Soulshine" and "Slackjaw Jezebel"

Weekend Update: Nada Mucho

Nice slow weekend around London. It was cold, but saw a little sunshine. Ran some errands, read, played video games, went to the gym, bought all my grass-fed and exotic meat for the week, etc. Good to have a weekend like that every once in awhile.

Woke up at 4am Saturday morning to watch the last few innings of the Rangers beating the Yankees!! Also, went to the London ski show, which was just a bug tease since the season doesn't even start over here until January. Still provided good fodder for the imagination and wanderlust.

Met up with some friends Saturday night at an ESPN-zone type sports bar (Sports Cafe) to watch LSU-Auburn. Cam Newton is a beast. It'll be interesting to see who comes out of the SEC this year as likely national title contenders.

...And the Cowboys suck. Romo broke his collar-bone last night. Maybe now he'll have more time to focus on his passion: being a full-time Dallas playboy. He's better at that than football anyway.

With the GBP/USD strengthening, the price of gold is down significantly in terms of GBP on relatively little news. I guess markets like the UK's austerity approach more so than the US's hyper-focus on QE and stimulus. Something about spending your way to prosperity or borrowing your way out of debt... Anyway, it's killing the pace of business, so most positive momentum has been scrubbed out and now its back to me trying to grind out a little profit every day.

A New Model for the Long Term Price of Gold

The first truly unique thinking on the price of gold that I have seen in awhile: modeling the long term price of gold versus a 2% line in the sand on short term US Dollar real rates. Fascinating stuff for econ nerds...

Link here

H/T Reformed Broker

Various thoughts

Silver broke $22 this morning, gold is still hovering around all time highs on news of a Spain downgrade and Anglo-Irish Bank needing another cash influx on the order of billions of euros.

Business is increasing steadily.

Saw a leaf with frost on it this morning during my commute.... aaaaaahhhhhhhh!

Business Update

Business has really picked up. We had a mailer for several hundred trading-oriented prospective customers hit yesterday and the phones have been blowing up. To avoid confusion, recall that there are two aspects to what I do: 1) an over-the-counter market-making service in physical gold and 2) speculate on markets largely with futures. The mailer goes to potential clients on the physical based on a business list our US marketing department purchased from a data mining company.

Both have gone really well today with gold touching all time nominal highs around $1279 per troy ounce  (depending on where you get your trading info).Over the coming weeks I will begin cold-calling to follow up from those mailer prospects, but until then I get to wait on the inbound calls to slow down. That's going to require some serious caffeination (wish I had some of the espresso from Italy).

Basically my work day consists of being on and off the phone all day (for physical deals entered via our proprietary trading system), speculating on markets through a futures exchange platform and rocking out via the Grooveshark streaming music website (lots of Grateful Dead and Railroad Earth right now) with Bloomberg TV on in the background. Manic, but fun.

Hipsters Buying Gold, Look Out Below!

My idiot-investor-warning is flashing code red on this article: Bubble Alert: Trendy New York Hipsters Buying Gold (Clusterstock).

Remember Giselle demanding she be paid in Euros and Jay-Z videos featuring 500 euro bills? Ever heard of the  magazine cover contrarian indicator? This might be more blatant. Damn.

[Hat Tip Reformed Broker]

Links

Here are the interesting stories I've been reading last night and this morning:

Record number of Americans are pulling from their retirement (hardship exemptions and the like) - Zero Hedge via Reformed Broker

Wall Street Firms are Firing again - WSJ - When the firms that generate the research are cutting staff, that can't be a good sign. Also, beware of the possibility of banks being operationally bearish but pedalling bullish research.

Nice, gloomy outlook from the WSJ Europe this morning (which I read on the tube every morning, if you wonder)

Gold as Currency more than Commodity - WSJ - H/T Big Picture - I've heard it before. Gold is different. But its really its own category, so lets stop putting the square peg in the round hole.

Long article in the NYT about PR missteps so far this year á la Toyota, Goldman, BP and LeBron.

Links!

WSJ: Ten Reasons to be Cautious

iBankCoin: The Michael Phelps Econ Conundrum (i.e. Inflation or Deflation: DEFLATION)

WSJ: China will probably be named world's second largest economy after 2010 (beating out Japan)

Bloomberg: 'The expendables' demolished 'Eat, Pray, Love' at the box office. Guns > butter tea

Bloomberg: Gold goes up forever (GGUF)

QE 1.5

As expected, The Fed has announced that they will roll capital from maturing mortgage-backed-securities into 2-10 year treasuries. While not monumental enough to warrant being described as QE2, Barry Ritholtz has dubbed this QE 1.5 and I find that to be very appropriate. If they instead simply allowed the cash from maturing securities to let be, it would shrink their balance sheet (even if sloooooowly) and be considered somewhat of a tightening bias. Since the Fed thinks the recovery may be stalling (see WSJ article), this is not a very strong vote of confidence in the economy.

Gold popped up above $1200/oz on the news but has since settled down a bit. The USD is weakening substantially against some fo the major currencies as the rest of the G7 is beginning a tightening bias. Don't expect cheap international travel for awhile.

For what its worth, I'm not sure what the continued benefit of QE will be going forward. It seems to me that market/political uncertainty is inhibiting growth more than an access to cheap money. All that the corporates are doing (a lá IBM) is raising cheap money to pay off more expensive debt, shore up balance sheets and generally hoard it as if Cormac McCarthy were writing their future.

Two articles: Gold and Equity valuations

First interesting article is from The WSJ regarding China's decision to remove some restrictions in Chinese bank gold trading. Upon hearing this news, gold has been up about $10/ounce in less than 24 hours. We'll see if this adds to China's long term importation demand for the yellow metal.

Second link is from the Big Picture. We have once again hit the 50% retracement level in the S&P 500. Stocks (once again) are not inherently cheap. Ritholtz draws the conclusion : "That does not mean we cannot grind upwards from here; it just means that its going to take a lot of something — good earnings, liquidity, sentiment, breadth, momentum, psychology, quantitative easing, something – to move higher from here"

I would have to agree.

Gold, Guns and Canned food no longer at a premium

As a gold trader, this post by Team MacroMan is near and dear to my heart (with nice charts that I can't figure out how to steal). I've been playing the slow summer sell-off for some time.

Of course, I could get my comeuppance if we get another large news event for a European sovereign debt fear. Something like Spain's cajas not being able to raise the necessary capital required by the EU stress test results (which are weak at best anyway) and then continuing to see their economy (20% of EU GDP) continue to decline amid ever-increasing unemployment (above 20%) and sky-rocketing savings rates (18.5% ).

That sort of event aside, I think it is entirely possible we could see sub $1000 prices per ounce over the coming months. I think the appropriate analogy is that of a bonfire (I would never dare to call it a bubble, right?), we need more buyers to keep this thing propped up. As physical demand (jewellery, etc) is hitting mulit-year lows and we're no longer getting the boost from new hedge fund investment (thanks John Paulson!), I think we're looking at a steady bleed down for awhile. There are many scenarios where I'm wrong, I'm just trying to flesh out the base case. Having to publish it publicly forces me to organize the thoughts better and if it benefits you? Well, then that much better!

BSY

Initial Post

Good morning friends and family. I thought it'd be a good opportunity to provide everyone with a few quick updates:

Nicole arrived here safely (if not slightly delayed) a little over a week ago. She finished her summer associate position with Kilpatrick Stockton and will be working on applications and some well deserved R&R for the duration of her stay (until August 3rd). It's been really fun to have her here. This has apparently been one of the driest summers on record here, so its actually quite pleasant to be outside most days. The tube and the flat can be a little warmer than I would prefer, but so it goes.

On Friday, I left the office a little early and Nicole and I caught a cheap flight to southern Portugal (see on a map here). Had a quick dinner and enjoyed some air conditioning at the hotel (doesn't exist in the UK, my appreciation for modern comfort is entirely renewed). On Saturday, we had a big English-style buffet breakfast (eggs, bangers, baked beans, bacon and some fruit) and then spent 6 hours at a nearby beautiful beach. Thankfully, much of it was spent on a lounge chair under an umbrella reading or napping. Very civilized.

That evening, we found a brand new restauraunt along a beach road that didn't even have their permanent menus printed yet. It was nicer than we expected, but certainly not formal. We had some great wine and some local mini-clam things followed by Monkfish in a boullabaise-type preparation. Fantastic. On sunday, we had a short time at the pool and then off to the airport for our 2.5 hour flight home. All in all, a pretty nice weekend and my first time at a beach since Barbados (no body surfing available here though).

Unfortunately, I received some bad news on the business side this morning: there has been yet another error in getting the trading bank accounts opened, so I am delayed yet again. I really thought I was going to be operational by this week. Something about the account not being opened properly. To put it mildly, I am a bit frustrated/annoyed/outright angry, so I'll be focusing my attention on some poor assistant vice president with BofA until this gets opened.

Other than that, the business looks promising. We are making the encessary tweeks to our proprietary trading platform to facilitate cross-currency and international business. I think we've also got a rudimentary system for accounting setup. One of the accountants in Dallas has either volunteered or been conscripted to assist me with our accounting needs and will be working the graveyard shift until I either get someone full-time or we figure out the technology to make it easier on this poor trader in London.

Also, Moody's downgraded the debt of Portugal early this morning, so that is conveniently causing some fresh sovereign debt fears and rallying the price of gold back above $1200 per ounce (800 GBP per ounce). Hurray for safe haven buying. Should be fun if I can ever get the handcuffs of this antiquated banking system off. Two sayings I would keep in mind if I could trade actively right now: "The trend is your friend (until the turn at the end)" AND "if you're long, you're wrong. If you're short, you're fired." Eventually this will turn and gold will head lower. That will be fun too as long as I'm right about timing, but until then I'll enjoy the party supplied by the GGUF crowd (Gold Goes UP Forever).

I hope this note finds you all well and hope to see you soon. Come visit. I'm free most of August and for the second half of September, so book now.

Brad