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Bret Rosenthal is Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds. Bret Rosenthal is responsible for the day to day management of the Fund’s investment and business activities. Rosenthal Capital Management, LLC, is an independent investment management company... More
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  • Precious Metals Outlook: Key Developments In The Physical Gold Market

    Guest Post: Sprott Asset Management Details Recent Gold Strength

    There have been key developments in the physical gold market over the last few weeks which we feel are worth highlighting:

    1) The Chinese gold imports from Hong Kong in April, 2012 surged almost 1300% on a YoY basis. Total gross imports for the month of April were 103.6 tonnes and the net imports were 66.3 tonnes1. It is not the data for April alone which has caught our eye. There has been a stunning increase of gold imports through Hong Kong for export into China over the past 2 years. Between May 2010 and April 2011, China imported a net 66 tonnes of physical gold through Hong Kong. Between May 2011 and April 2012, that number jumped to 489 tonnes. This represents an increase of 640%.

    Source: Census and Statistics Department of Hong Kong

    2) Central banks from around the world bought over 70 tonnes of gold in April, 2012. Data from the IMF showed developing countries such as the Philippines, Turkey, Mexico and Sri Lanka were significant buyers of gold as prices dipped2.

    3) Iran purchased $1.2B worth of gold in April, 2012 through Turkey. As the developed nations continue devaluing their currency at the expense of developing nations, countries such as Iran, China and Mexico are forced to look at alternative stores of value3.

    4) After twenty years of lackluster returns and stagnant bond yields, Japanese pension funds have finally discovered the value of investing in gold. The $500M Okayama Metal and Machinery pension fund placed 1.5% of its assets into gold bullion-backed ETFs in April in order to "escape sovereign risk"4.

    5) Bill Gross writes5, "Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year-old global monetary system. […] As they (investors) question the value of much of the $200 trillion which comprises our current system, they move marginally elsewhere - to real assets such as land, gold and tangible things, or to cash and a figurative mattress where at least their money is readily accessible". Is the bond king recommending gold? YES, YES YES!

    6) The Gold Mining ETF, GDX, has seen strong inflows in the past 3 months. The number of units outstanding have increased from 162.5M6 to roughly 187M7 between March 1, 2012 and May 31, 2012. This represents an increase in assets of almost $1.2B in a span of 3 months. It is worth pointing out that for a majority of this three months period, GDX, and by extension the gold mining companies were experiencing significant declines in their market values.

    We believe there has been a material change in the gold investing landscape. The HUI, which is the Gold Bugs Index, is now up over 20% from its lows since May 16th, 2012. The slide in gold equities seems to be subsiding as a foundation for a strong move upwards is set. New buyers, represented by the Chinese, central banks, Japanese pension funds and the Iranians, bought almost 140 tonnes of gold in April alone. To put this into perspective, the annual gold production is approximately 2600 tonnes8. China and Russia produce around 500 tonnes of gold annually, which never makes it to the open market. This leaves about 2100 tonnes of gold production annually for the rest of the world.

    When buyers representing 140 tonnes of new demand enter a market which only has 175 tonnes of monthly supply, we are left wondering about two things:

    1) In a balanced market, where is the source of supply to the new buyers going to come from?

    2) How can a new buyer of size get into the gold market, which is already balanced, without significantly impacting the price of gold?

    The answer is fairly obvious. When demand outstrips supply, prices move higher. These significant macro changes in the supplydemand dynamic of the gold market should propel the price of gold to new highs.

    Jun 11 12:20 PM | Link | Comment!
  • News That Moves Markets: Bank Of Japan Directly Manipulating Equity Market, MS Credit Downgrade Main Event Euro Woes Sideshow

    BOJ Flaunts Unwritten Rule

    Filed under the category 'Things that make you go hummm' I would like to submit the following story regarding the actions of the Central Bank of Japan. Apparently we have entered a brave new world of centralized control. In rather Orwellian fashion, the BOJ has decided to directly support the Japanese equity market. Said support in and of itself is not that dramatic. We all know Central Banks have had an ever increasing heavy hand in direction of equities around the world since the 2008 crisis. However, other central banks have had the courtesy to attempt to hide the manipulation. There seems to be an unwritten rule among central bankers that manipulation is ok and encouraged as long as lying and misdirection are concurrently employed to dupe the sheepeople.

    Now, however, the BOJ has decided to flaunt the unwritten rules and manipulate openly in a desperate attempt to change market direction. Duping the Sheepeople is apparently now a mistake and instead leading by the nose to slaughter is preferable….

    Submitted by ZeroHedge:

    Bank Of Japan Goes Full Tilt, Buys Record Amount Of ETFs And REITs To Prevent Market Crash

    One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central bank unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY's red phone hotline goes directly to Citadel's ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, "The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date…The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday." Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: "the move failed to prevent a sharp fall for the Tokyo equity market." But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.

    For those who are unaware of Japan's explicit but at least forthright approach to asset price manipulation, read on:

    Japan's monetary authority is almost unique among its peers in the major developed economies, in its high-profile purchases of ETFs, which it began in December 2010 as part of aggressive easing measures.

    Since then, the Bank of Japan has bought almost ¥1 trillion worth of ETFs - along with another ¥78.9 billion in REITs - and has an additional ¥642 billion to spend on the stock funds after raising the program's size at it last policy meeting in April.

    The central bank emphasizes that the program has only broad goals such as supporting interest rates and reducing risk premiums, rather than supporting financial markets.

    Jefferies Japan's head of Japanese strategy Naomi Fink says that while the ETF purchases are really part of the broad push to reflate asset prices in the deflation-plagued country, they do "provide a bit of a backstop, when they think they can curb the downside" for the market.

    "Still, it's a very small amount," Fink said of the ETF purchases. "It's more designed to bolster sentiment … [and] it works best when sentiment is fragile."

    As a tangent here, do these "strategists" even listen to what they sound like? "Very small amount"… "designed to bolster sentiment." Oh ok. That makes everything so much better. It is just too bad that a Martingale strategy where one has an infinite balance sheet is not all that available to everyone in the world, except to 5 or 6 market participants of course, all of whom are incentivized to destroy their currencies and ramp their "inflation-sensitive" assets ever higher. Surely that according to Jefferies is perfectly acceptable.

    Sentiment was certainly fragile Monday, as investors returned from a four-day holiday weekend to find the yen considerably stronger - a negative factor for Japan's export-focused corporations - U.S. employment growth weaker than expected, and European election results raising more uncertainty for the euro zone.

    And while investors don't find out about the Bank of Japan's market operations until after the close of trading, "there's a market assumption that when the Topix falls more than 1%, that triggers ETFs," according to Fink.

    Still, Fink advised against trying to front-run the central bank by jumping into the market whenever the Topix - Japan's key broad-market index - drops 1%.

    And whatever you do kids, remember: frontrunning central banks is not to be tried at home…

    "I wouldn't exactly call that my favorite strategy," she said, adding that since the ETF-buying program isn't meant to be a "price-keeping operation," it offers little in the way of trading opportunities.

    … After all that's what Primary Dealers are for: and since they make sure that no bond auctions can ever fail (courtesy of the $30 trillion custodial asset cloud, which desperate economists have pegged fancy post-modernist theories to explain how infinite supply can generate infinite+1 demand without having the faintest clue of how the shadow banking system works) there naturally has to be some kickback in it for them. Because otherwise one of them might even speak up and tell the rest of the world just how much of a fraud the system truly is.

    And yes, the BOJ IS completely open about what they buy and how much: Click Here for Chart Details

    Credit Update: As always I adhere to the belief that 'Credit Leads Equity'. So in the midst of equity market mayhem over the last two weeks a review of credit volatility is in order. A conversation with the oft accurate always eloquent MJ reveals some telling insights. To date, credit market volatility appears normal and not a repeat of MF Global 2012 action. Credit, as judged by the CDX IG18 index, remains in a trading range between roughly 101 and 89. A move dramatically above 101 would be cause for concern as of now no sirens are blaring.

    MJ Credit Guru: Morgan Stanley Not MF Global

    The potential rekindling of the European sovereign crisis has generated numerous bearish headlines and strategy reports over the past month. This weekend's elections and the outright stupid comments by some of Greece's politicians were interpreted as "events" that meant last year's successful trades (short banks and sovereign risks) are being given a second chance to prosper. Given the performance of last year's short sellers, even as the US economy grew and credit expansion broadened, this trading reaction is to be expected.

    However, in order for this year's sovereign crisis to become a short seller's dream it needs to find a way to destabilize the global financial system. This will be much more difficult this year due to the launch of the LTRO and the likelihood that another LTRO will be launched if bank funding concerns begin to mount.

    Nevertheless, we believe the real reason for US equity market weakness is not Europe…but fears that Morgan Stanley might suffer the same fate as MF Global. MS' potential counterparty collateral increase associated with credit downgrades is causing many investors to remember the AIG's 2008 demise as well as last year's MF Global implosion.

    The number of people asking if firms are cutting their trading exposure to MS spread like wildfire yesterday and it seems likely to accelerate today. However, investors need to remember that MS is not MF Global and the economy is much stronger today than it was in 2008.

    Additionally, banks that fall under the supervision of the FED are not going to cut their credit lines to MS. Why? Cause the FED will fire and replace their boards almost instantaneously. When BAC's board was rumored to be considering cutting MER and CFC loose at the height of the credit crisis BAC was publicly warned that such actions would hurt the US and global financial system. Some FED members went so far as to say that such actions would decrease the safety and soundness of Bank of America. Code words for "No!" you cannot do that and, by the way, you are fired!" Next sentence.."Now that your calendar has been freed up; Congress would like you to answer some questions in front of 400 cameras." There is no reason to believe anything has changed.

    MS also has strong client driven franchises with built in profitability and do not appear to have a huge concentration of risk. MS also has a huge amount of liquidity and can borrow from the FED. The Volcker rule has also materially decreased the amount of credit market liquidity, almost forcing many clients who need to trade credit to trade with MS

    A major difference between the MF Global situation and MS is that MF Global was never a systematically important firm. MF Global was also highly leveraged to one basic trade based on a traders EGO, MS is a systematically important firm with a global business.

    MS will not fail, but its negative credit migration and a drop in its equity price could cause a surge in systematic risk that causes the VIX to rise.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 09 1:54 PM | Link | 2 Comments
  • Top Shelf Tweets:AAPL Anxiety, Treasuries Troubles, China Cuts, Gold Glowing, Carry Trade Confirms

    STORIES LIKE THIS ADD TO THE 'AAPL IS TOPPING' THOERY: The Cody Word: How Apple can get from $500 to $1,000 a

    BretRosenthal11:41am via HootSuite

    Treasuries are back on their worst levels of the session as the long bond now holds a loss of almost one point

    BretRosenthal11:41am via HootSuite

    Today's selling has dropped the 30-yr to 98 17/32 and has made for a jump of almost 6 bps in yield to above 3.20%

    BretRosenthal11:41am via HootSuite

    TLT looking more and more like a great short

    BretRosenthal9:31am via HootSuite

    PBOC cuts Reserve Requirement Ratio by 50bps to 20.5% over the weekend. THIS IS VERY BULLISH FOR MARKETS. CHANOS BEWARE…

    zerohedge8:32am via TweetDeck

    How many EU officials does it take to change a light bulb? None. There's nothing wrong with the bulb; its condition is improving every day

    GoldCoreFeb 20, 7:51am via Web

    Gold Demand in India 'Quite Likely' to Gain This Year, UBS Says - Bloomberg see

    GoldCoreFeb 20, 7:50am via Tweet Button

    Oil and Gold Surge 1% on Open in Asia - Iran "Military Action Likely" via @addthis #oil #iran #currencywars#gold

    BretRosenthalFeb 17, 5:15pm via HootSuite

    Trouble Brewing Behind Facade Of Bull

    BretRosenthalFeb 17, 2:45pm via HootSuite

    12 Scary Debt Facts for 2012

    BretRosenthalFeb 17, 10:12am via HootSuite

    I'd be remiss if as a fund manager I drank the CB Kool-Aid and stopped analyzing market behavior

    BretRosenthalFeb 16, 2:26pm via HootSuite

    While You Were Sleeping, Central Banks Flooded The World In Liquidity

    BretRosenthalFeb 16, 12:01pm via HootSuite

    Major breakout higher for the carry trade aud/jpy hits 84.78 on positive Greece headlines. Let's see if it holds

    BretRosenthalFeb 16, 10:51am via HootSuite

    DOW transports in consistent decline since Feb. 3rd. Not good

    BretRosenthalFeb 16, 10:11am via HootSuite

    aud/jpy carry trade approaching highs of yesterday. A break above would suggest consolidation for mkts a double top = correction

    BretRosenthalFeb 16, 9:46am via HootSuite

    Global Gold Demand in 2011 Rises 0.4% To $200 Billion - Central Banks, Asia and Europe Diversifying Into Gold: …

    BretRosenthalFeb 15, 2:23pm via HootSuite

    2 recent distribution days for the NYSE not a good omen either

    BretRosenthalFeb 15, 1:21pm via HootSuite

    RT @zerohedge: Newton Is Back As Apple Finally Falls

    BretRosenthalFeb 15, 10:51am via HootSuite

    Fed President Fisher: "Excessive" easing may only fuel inflation fears" Yah think? This guy is full of insightful comments this morning

    BretRosenthalFeb 15, 10:42am via HootSuite

    Fed's Fisher says QE 3 is a fantasy of Wall Street; says no need for further QE unless deflation or unexpected shock. QUE UNEXPECTED SHOCK

    BretRosenthalFeb 14, 4:11pm via HootSuite

    Carry trade (AUD/JPY) makes new HoD at close 83.88. Close above 84 key for continued rally

    BretRosenthalFeb 14, 2:53pm via HootSuite

    CDX IG17 trading near top of range(100-92) a break above to new wides would make this equity selloff more than simple pullback. Stay tuned

    BretRosenthalFeb 14, 12:08pm via HootSuite

    RT @zerohedge: "Any Israeli stupidity will be answered with massive retaliation" Iran's Mehr agency…. But what about Israeli brilliance…

    BretRosenthalFeb 14, 11:39am via HootSuite

    It's Not Just Gasoline Consumption That's Tanking, It's All Energy

    Disclosure: I am short TLT.

    Feb 21 4:40 PM | Link | Comment!
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