Is This Why Gold and Bonds Sold Off?

Truly a mug’s game to try and retrofit fundamentals to short-term market moves, but ain’t gonna stop us!

We’ve noted the comovement of the U.S. 10-year T-Note with gold over the past few months, driven, we believe, mainly by geopolitical worries.

Once again today,  bond down, gold down.   We thought the correlation began with a short squeeze in the bond then morphed into worries about global political stability.

Could today’s action be the result of President Trump finally reaching out to  China?   And what really keeps up us at night has been tethered back a bit?

Call me, maybe? Trump reaches out to China’s president in a letter.
BEIJING — The letter wishing China a “prosperous Year of the Rooster” came 11 days after China celebrated its Lunar New Year’s festival. President Trump has yet to speak to President Xi Jinping since his inauguration, even though he has met or spoken directly with at least 18 other world leaders.

But he is now in contact, and promising a “constructive relationship” between the world’s two most powerful nations.

Washington Post

Man,  look at that tracker!


Let’s see if there is follow through to confirm our thesis.

Shorted some gold equities as the GDX is already up over 20 percent for the year.   Always with a stop.

Stay tuned.

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The U.S. By Best Selling Music

The map [below] shows the best selling singer, musical artist or band from each of the 50 US states. While many expected names make the list such as Elvis, Prince, Madonna, etc. there are quite a few surprises.  – Brilliant Maps



Map created by reddit user famicon3


Iowa,  Andy Williams?  Seriously?  Fake News?

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Quote of the Day: Underfunded California Pensions

If the Dodgers fall short, though, fans will be merely disappointed. If CalPERS or CalSTRS falls short, those same fans (and everyone else in California) will have to pay extra to make up the shortfall.  –

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President Trump Checked By 9th

Handoff to Justice Kennedy.


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COTD: Oil Prices Surging!

Just not the oil you think.   Should be good for Italy, Spain, Greece, and….California.



(COTD = Chart of the Day)

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The Resurgence of the State in the Chinese Economy? – PIIE

Probably one of the most productive hours you will spend all year understanding the Chinese economy.   The Peterson Institute is very good.


Published on Feb 7, 2017
PIIE experts assess the degree of resurgence of the state in the Chinese economy at an event held on February 7, 2017. Senior Fellows Caroline Freund and Nicholas R. Lardy present their respective new analyses of Chinese state-owned enterprises (SOEs), state assets, and their implications for global competition. Visiting Fellow Rory MacFarquhar gives his perspective on negotiating with China over SOEs and their impact based on his experience serving the Obama administration.
For more information, visit:….
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QOTD: France’s Presidential Election

In the first round you vote for the person you want; in the second you vote against the person you fear. – The Spectator

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The Clash of Generations Cometh

The Times They Are a-Changin’,

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is rapidly agein’
Please get outta’ the new one if you can’t lend your hand
For the times they are a-changin’  –   Bob Dylan, 1964

It will be 6 years on March 1st since we wrote and posted,  Connecting the Dots: The Coming War Between Generations.   We wrote back then,

It doesn’t take a C.I.A. analyst with a Ph.D. to realize the potential for political blowback when one generation is rendered into servitude due to the excesses of another.   Or does it?  – Global Macro Monitor

We also cited Thomas Friedman a few months later in our piece, The Clash of Generations,

What we are witnessing in the Middle East where the young, who have little or no political voice and a not so bright future are throwing off their autocratic gerontocracies at an incredible pace.   Something similar will manifest here and the rest of the aging west, though probably in different way, when younger generations realize the consequences of being saddled with a massive debt and declining public services as the tax revenues are diverted to debt service and retirement benefits.   Not to mention the world full of carbon they have inherited.
Thomas Freidman,  NY Times,  July 16, 2011

It’s here, folks.

KD over at sent over this tweet,

A retweet of this:

richmond_feb8The chart is from a LA Times article from a few days ago titled,  Cutting jobs, street repairs, library books to keep up with pension costs,

The truth is that there are cities all over the state that just aren’t owning up to all their problems,” said San Bernardino City Manager Mark Scott.

Increasingly, pension costs consume 15% or more of big city budgets, crowding out basic services and leaving local governments more vulnerable than ever to the next economic downturn.

Stunning:  “Every dollar the city [Richmond, CA] collects over the next five years will go toward retirement costs.”

We just had a presidential election that resulted in the biggest political disruption in U.S. history bringing a “so-called” disrupter to the White House.  All because a certain segment of the population was hurt by international trade —  77,744  voters to be exact,  in Michigan, Wisconsin, and Pennsylvania, the marginal votes that led to President Trump’s electoral college victory.

Imagine when the younger generations have their epiphany that they have been screwed by the baby boomers?

Richmond is only the tip of the iceberg and this ugly story is being played out across the nation and the world.

Here is one example of a milquetoast approach to solve the problem,

The California Public Employees Retirement System, or CalPERS, voted in December to lower the pension fund’s discount rate—the projected annual investment returns for future years—from 7.35 percent to 7 percent, in two steps that will occur between now and 2020. It’s a modest adjustment and one that leaves the fund with a discount rate that still might be too high, but even that small change is going to add billions to the state’s annual pension tab.

Last week, the California State Teachers’ Retirement System, or CalSTRS, followed suit, announcing plans to lower the discount rate from 7.5 percent to 7 percent over the next two years.

…Taxpayers will be hit hard by the change. Bloomberg, citing data from the California Finance Department, says the share of pension costs paid by state taxpayers will triple in less than a decade and might increase further if investment returns under-perform the 7 percent threshold.   –

Come on,  let’s stop dicking around about the discount rate, just as they do in climate change debates, and fix the problem.   Public sector pension payments are going to have to be restructured.  Punto!

We say this not because we want it to happen but because there is no other choice, it has to happen.

Some already have, by the way, as they are in the private sector.  We need to move quickly lest the millennials rise up and march the retiring baby boomers off the cliff as they see their taxes raised and public services being cut.

We suspect one big theme in the 2020 presidential election?   The “Clash of Generations” and we don’t think the younger voters will cast their ballot for a Caspar Milquetoast.  We just witnessed in November what happens when voters are angry at their government — anything can happen.


Stay tuned.  We have lots more to say on this.   Prepare for blowback.



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European bonds suffer from uncertainty – FT

Keep some powder dry to buy the French Dip.    That is,  the market panic over the  Euro elections,  if there is one.

The French will hold the populist “Maginot Line” and Le Pen will lose in the second round, “bigly“.  Polls can be wrong for maybe 3-5 points, but 32 points?   We don’t think so.  Nevertheless, have to allow for a small probability of a political shock from now until May 7th and markets are pricing it in.

Geert Wilders, the “Dutch Trump,” and his Freedom Party (PVV)  will win the most seats in the Netherlands lower house next month, maybe 35, but still needs 75 to form a government.  “Most other parties have vowed not to team up with him.”  Sorry, Geert, no prime ministership.   March 15th Dutch elections?  Yawn!

German elections?   Let’s think this through.

If Martin Schultz and his SPD-Green-Left coalition manage to defeat Angela Merkel on September 24th,  the country swings to the left of Merkel,  not to the hard right.  Schultz has called the right-wing parties “rat-catchers.”  The new government will be even more pro-EU than the Merkel government.

The world will definitely miss the strong leadership of Ms. Merkel as a check on President Trump, but Wolfgang Schäuble, her hardline finance minister will be gone.  Then, maybe, just maybe, Greece will get some meaningful debt relief and pro-growth policies in Southern Europe.    No panic here, comrades.

Italy?   We need to do more homework and get back to you.   The same with Portugal and Spain.  But our sense is and what we are seeing in the European street is that these countries are repelled and more willing to run away from Trump rather than attracted to and running to him.    Stay tuned.

The FT’s Katie Martin on what to watch for in markets on Wednesday, including French bonds spread over German Bunds widening as the threat of an exit from the euro looms with Marine Le Pen’s candidacy, and concerns over Greek debt and on US policies steering markets back to havens.

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Map of the Day: Export Markets

Notice any trend or clusters?  Who gets hurt as global trade declines?

imports_feb8Source:  Fascinating Maps

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