June 20, 2013 Update

DJIA:15,112 S&P 500:1,628 NASDAQ:3,443 Gold:$1,292 Oil:$96.08 EURO:$1.32 YEN:97.87

The Golden Rule 

The announcement that tapering may begin as early as this year triggered a sell of in spot gold prices overnight. Since gold is correlated with interest rates and is used as an inflation hedge, any news about a QE exit plan was expected to result in a price decline. However, what if there is more to the selloff story than QE? In 1998, right before the collapse of Long Term Capital Management, gold suffered a painful downward movement. Interestingly enough, ten years later, gold sold off again before the crash. I do not believe the timing of these sell offs are coincidental. I posit that steep declines in gold could be an indicator of an upcoming macro financial crisis. Think about it, unemployment in Greece is at the level it was in the US during the Great Depression and continues to push higher throughout the Eurozone. The emerging markets are cooling down. Central banks are pumping money into the global economy in an attempt to stimulate growth. Domestically, unemployment is high and the recovery of the housing market is likely not to meet bullish and optimistic expectations. Even the World Bank has, once again, cut its global outlook. All of these factors point to slow economic growth during a period of low consumer confidence. People are worried about their finances and, as a result of this uncertainty, are losing confidence in what was once the “silver lining” for millions of portfolios internationally. 

Domestic News

• Market Update Futures are down from the Federal Reserve’s hint that the end of the bond-buying program is near. 
• Weekly jobless claims will be released at 8:30, and are expected to be 340,000 for the week ending 6/15 - which is a slight increase from the previous week’s 334,000. 
• The Philadelphia will be released at 10:00, and is expected to increase to -1% in June from -5.2% in May - portraying improvement for manufacturing. 

International Updates

Asia

• Market Update Markets tumbled from sharp declines in Chinese manufacturing activity and an increase in the Shanghai interbank lending rate as a result of the FOMC meeting.  
• HSBC Chinese manufacturing PMI has decreased to a nine month low of 48.3 in June from 49.2 in May.  

Europe

• Market Update  Trading much lower after the Fed meeting, with miners hurting the worst after weak factory data from China. 
• Eurozone finance ministers will meet today to discuss when and how the European Stability Mechanism  (ESM) can be used to bail out financially distressed banks. 
• British banking sectors need to raise a combined £13.4B in order to meet Basle III capital requirements. Branco Santander, HSBC, and Standard Chartered have surplus capital, while RBS, Lloyd’s, and Barclays are not as well prepared. 

Corporate

• Sony (SNE) CEO, Kazuo Kirai, told shareholders that SNE is is no rush regarding Daniel Loeb’s proposal to partially spin off its successful entertainment division to support the stressed hardware operations.  

Commodities and Forex

• Gold getting hit hard, trading below $1,300.
• The dollar continues to strengthen across the board following yesterday’ Fed meeting.