Highlights of the week of; August 19, 2013

nasdaqNASDAQ HALT

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of August 19th, 2013.:

  • FOMC minutes released on Wednesday August 21st, 2013.
  • Reserves of Emerging markets ex-China down US$ 81 billion since May.
  • NASDAQ shutdown for more than three hours on Thursday August 22nd, 2013.
  • Silver soars back into bull market.

FOMC minutes released on Wednesday August 21st, 2013:
The Fed minutes for the July FOMC meeting, released last Wednesday, failed to give definitive clues over when the US Central Bank will begin to taper its QE-3 program.
While there was broad support on the committee for its existing plan to begin to scale back its purchases later this year, and that a few members suggested that it might soon be time to slow the program ‘somewhat’, a few others believed it was appropriate to be patient and to evaluate additional information on the economy before acting.

Highlights of the FOMC minutes released August 21, 2013:

  • ‘Almost all’ FOMC participants ‘broadly comfortable’ with taper ‘later this year’.
  • A few members stressed patience in decision.
  • A few others suggested it might soon be time to ‘slow somewhat’ purchase pace.
  • US jobless rate had slowed ‘considerably’ since QE3, other measures showed more modest labor gains.
  • Low inflation could pose risks.
  • Several Fed participants willing to consider lowering 6.5% unemployment threshold if easier policy needed.
  • A few worried changing forward guidance could undermine policy effectiveness.
  • Some concerned that higher market rates could be significant economic restraining factor.

Source:

Although it is difficult to argue that there have been definitive signs of a strengthening economy subsequently, there has been a further decline in unemployment to 7.4 percent, from 7.6 percent that to our minds tips the balance of likelihood in favor of a small taper (perhaps by around US$ 10 billon per month to US$ 7.5 billion per month) at the next FOMC on 18 September. However, the next monthly jobs report in a couple of weeks’ time may be important in determining whether the Fed bites the bullet next month.

Despite the ambiguity, US bond markets reacted slightly nervously, sending the yield of the 10-year Treasury to a new 2-year high of 2.918 percent as can be seen from below chart.

5 day 10 yearnote chart

Reserves of Emerging markets ex-China down US$81 billion since May:
On Thursday June 22nd, The Financial Times reported that Central Banks in the developing world have lost US$ 81 billion of emergency reserves through capital outflows and currency market interventions since early May.

The data, which excludes China, is about 2% of all developing country Central Bank reserves, according to Morgan Stanley analysts, who compiled the data from central bank filings for May, June and July.

However, some countries have suffered more precipitous drops. Indonesia has lost 13.6 percent of its Central Bank reserves from the end of April until the end of July, Turkey spent 12.7 percent and Ukraine burnt through almost 10 percent.

India, another country that has seen its currency pummeled in recent months, has shed almost 5.5 percent of its reserves.

Below chart shows the free-fall of the Indian Rupee against the USD-Dollar since May of this year.

INR-USD

Source:

NASDAQ shutdown for more than three hours on Thursday August 22nd, 2013:
On last Thursday, August 22nd, trading in all US$5.65 trillion of Nasdaq-listed securities was halted at 12:14 p.m. EDT,  due to a technical glitch, 
after hours of confusion and several false starts, trading resumed around 3:25 p.m. EDT,  just about half an hour before the closing bell as can be seen from below chart.

NASDAQ flash Freeze

NASDAQ says the trading halt is due to a UTP SIP quote dissemination issue.

  • UTP stands for;
    “Unlisted Trading Privileges” and refers to the ability of other exchanges to trade securities listed on the NASDAQ
  • SIP stands for:
    “Securities Information Processor” and is the system that allows NASDAQ to send quotes for those securities to other exchanges.

The shutdown was the longest in recent memory, and prompted U.S. Securities and Exchange Commission Chair Mary Jo White to call for a meeting of Wall Street leaders to help ensure the “continuous and orderly” functioning of securities markets.

Silver soars back into bull market:
Silver futures rose with USD 0.985 an oz on Friday to close on USD 24.08 an ounce as can be seen from below chart.

Silver August 23 2013

Friday’s, August 23rd closing price of Silver of USD 24.08 an ounce, was its highest closing price since May 3rd this year. From its low of June 27th, 2013 of USD 18.53 an ounce, Silver is up USD 5.55 an oz or 29.95 percent, as can be seen from below 6 month chart.

silver_6_month_o_usd

Based on the definition that a bull market is a rise of at least 20 percent across the market for a prolonged period of time, we can conclude that silver has entered a bull market this week.

PGM Capital comments:
As reported by USA commerce department on Friday, August 23rd, 2013,  sales of new single-family homes in the United States fell 13.4 percent in July to their lowest level in nine months, casting a shadow over the country’s housing recovery. The reading, which was well below economists’ expectations, could be a sign that a recent surge in interest rates in the USA is weighing on the country’s economy.

On bets that the Fed would soon begin tapering its bond purchases, yield of the USA 10-year note and subsequent mortgage rates have risen sharply since May this year as can be seen from below chart form the St Louis FED.

30 years USA mortgage rates

Source:

It is worth mentioning, that the QE-3 stimulus program is designed to lower interest rates to make it easier for businesses to expand and take on new workers

These higher mortgage rates are having an impact now on the USA housing market, which makes tapering (bond purchases) by the FED somewhat less likely.

The three-hour trading outage on the Nasdaq stock exchange last Thursday, is completely unacceptable in modern times for which NASDAQ should have built in redundancy, backup systems to avoid interruption of trading on its platform. This event has hit investors and traders confidence in the USA markets, for which most investors might start asking themselves whether New York can still call itself the financial capital of the world.

Gold, Silver, Platinum and Palladium all closed the week higher, for which Silver has entered in a bull market and joining Platinum and palladium which are already in their next bull market phase, from their low for June 27, 2013.

If gold manages to break through USD 1,416.00 an ounce level next week, it will also be entering into a new bull market phase.

Stocks of almost all Gold and Silver miners rose more than 10 percent last week, for which most of which have also entered into their new bull-market phase, from their low of June 27, 2013. Gold and Silver mining stock are considered a forward looking indicator in which direction the market believes that these precious metals prices may be heading in the (near) future. Strong performance of these mining stocks last week may be the first indicator that a strong bull market in these precious metals is underway.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Gold, Silver and other precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely

Eric Panneflek

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