Saturday, June 14, 2014

You Know Things Are Bad When Even Lloyd Blankfein Warns of Impending Financial System Reset!

In an interview with CNBC, Goldman Sachs CEO Lloyd Blankfein advises the CNBC host that at some point, some event will happen that will reset portfolios.
Blankfein states that interest rates will rise, which will be a shock to the market, and states that  I have a lot of bad dreams at night, liquidity is one of them.
Lloyd Blankfein’s full interview with CNBC is below: 

CNBC Transcript:
I mean, is there something coming that we don’t know about? well, joe, there is always something coming that we den foe about because nobody know what is the future is. and, you know the second we assume there is not going to be any volatility.
it’s not just happenstance, you usually get shocks after, in fact, it’s the very complacency that always leads to that kind of aing sho you know at the end of the day markets are very calm. i think, given the calm in the market, we can look for explanations. i don’t really understand it fully. i don’t think anybody understands it fully. some exgogenous thing will happen. eventually, people acknowledge higher growth. money is a commodity will start to cost something again and that, in itself, will produce a shock to the mark as again a lot debt has been issued, acquired. those portfolios will be market-to-market when interest rates rise, that, in itself, will be a shock to the market.
do you wake up in the middle of the night and say to yourself, liquidity? your former cfo? i have a lot of bad dreams at night, liquidity is one of them.
that’s your watch word? it still? it certainly was in ’08 i would say that most, there are a lot of problems, with the way problems manifest themselves in a financial services firm ultimately is liquidity dries up. we are remote from a session like that. but we keep a very watchful eye on our liquidity as every financial institution should.
lloyd, it’s been unprecedented the volatility seems unprecedented. you never see — how difficult the environment is to trade with no volatility. if something is coming, it just seems like it could be a doozy. but when we are taught to think we’ve already had the doozy the next doozy is we paid the piper.
i mean, is it really, are we looking at something that could be quite it fromening coming up our not?
well, joe, one has to always be prepared. the answer is, i don’t know, so i wouldn’t, given enough time everything happens. it’s not difficult to trade.  in fact, when nothing is moving, it’s quite easy to trade. a lot of trading isn’t going on, a lot of policency in the market for that. this could go on a while or change. can i tell you, it won’t go on forever. we should are the luxury of a steady, calm, quiet market forever. its just not our lot in life to have that. i mean, i almost wish it would be like that. we’ve accommodated our business to the levels of flow, now you can see what our returns on equities, you know, we’ve had for the past couple of years, low double digit returns in the markets we have now. i’ll tell you, we’re an intermediary in the market. we are scaling ourselves with the current mark. we are preserving our optionality to play our role in the market when volatility picks up, some say when volatility picks up, i don’t want to quibble with that. i think in the long run, we can’t lack on a volatility in the market. we’re not that lucky.

Wholesale Prices Unexpectedly Drop

Gold, Silver, Oil, Gas Jump On Middle East “Powder Keg” Concerns

Today’s AM fix was USD 1,273.00, EUR 938.17 and GBP 750.06 per ounce.
Yesterday’s AM fix was USD 1,261.75, EUR 932.90 and GBP 749.66 per ounce.
Gold jumped $12.80 or 1.02% yesterday to $1,273.80/oz. Silver surged $0.35 or 1.82% to $19.56/oz.

Middle East ‘Powder Keg’
Gold consolidated near a two-week high today and is set for the first back to back weekly advance since April, as concerns that a U.S. recovery may be stalling and geopolitical risks in the Middle East led to safe haven demand.
Gold is 1.6% higher this week, after rising 0.3% last week. Silver is also poised for the second week of gains. In the physical gold market, premiums on gold bars are  quoted at 80 cents to $1.20 an ounce in Singapore and Hong Kong.
The unrest in Iraq drove oil to an eight-month high and sent stocks tumbling globally. U.S. crude touched an intraday high of $107.68, and was up 75 cents at $107.28, extending the previous session’s $2.13 gain on concerns about oil supplies.
After a long period of consolidation, oil prices look like they could be on the verge of breaking out of their range and moving higher (see chart).

Gold in U.S. Dollars – 1 Week (Thomson Reuters)
Iraq and disappointing U.S. economic data propelled gold and silver higher yesterday. Disappointing U.S. retail sales and an uptick in weekly jobless claims led to investor buying of haven assets.
The Commerce Department reported a gain in retail sales of 0.3% in May. Economists were expecting a gain of 0.6% last month.  Jobless claims rose 4,000 to a seasonally adjusted 317,000 according to the Labor Department. This is 7,000 more than economists were expecting.
Uncertainty has returned and in a big way. This is favouring safe haven assets such as gold and weakness in toppy looking risk assets such as many stock markets.
The combination of poor economic data along with the risk of war in Iraq could be the catalyst that gold needs to get out of its recent funk.

NYMEX Light Sweet Crude Oil (WTI) – 20 Years (Thomson Reuters)
Violence in Iraq exploded as Iraqi separatists,  the Islamic State of Iraq and al-Sham (ISIS), took over the second largest city in Iraq. ISIS forces are just 50 miles from Iraq’s capital, Baghdad.
Sunni Islamist militants gained more ground in Iraq overnight, moving into two towns in the eastern province of Diyala. U.S. President Barack Obama is considering military strikes to halt their advance towards the capital Baghdad.

Gold in U.S. Dollars – 1 Month (Thomson Reuters)
To the north, a Kurdish militia known as Peshmerga took over key government installations in strategically important, oil hub of Kirkuk. The situation in Iraq has deteriorated significantly in a very short period of time  and an all-out sectarian conflict is looking more likely as each day goes by.
With Syria’s Kurds already exploiting civil war there to run their own affairs, Iraqi Kurdish expansionism is worrying U.S. ally Turkey, which has its own large Kurdish minority and fears a renewed attempt to redraw borders and create a Kurdish state.
Iraqi President Maliki’s army already lost control of much of the Euphrates valley west of the capital to ISIS last year, and with the evaporation of the army in the Tigris valley to the north, the government could be left with just Baghdad and areas south – home to the Shi’ite majority in Iraq’s 32 million population.
Gold in U.S. Dollars – 5 Year (Thomson Reuters)
The Wall Street Journal is reporting that Iran sent two battalions of Iranian Revolutionary Guards to help the Iraqi government in its battle against ISIS. This is an important development. Iran has already intervened in Syria and has the power to crush ISIS in open combat.
Iran, which it is believed funds and arms Shi’ite groups in Iraq, could be brought deeper into the conflict, as could Turkey to the north. In Mosul, 80 Turks were held hostage by ISIS after Ankara’s consulate there was overrun.
Iranian or Turkish intervention would make the conflict inside Iraq much worse. Israel wants to see a continuation of the tough line against Iran which it continues to see as an existential threat.
Gold bullion has increased 6% this year in part as tension between Russia and the U.S. and EU led to some haven demand. Developments in the Middle East are likely to deepen geopolitical tensions between Russia and the West and this should support gold and indeed lead to higher gold prices in the coming months.
There is still the potential for a wider Middle East conflict as the region remains a ‘powder keg.’ Iraq may be the match that sees the region explode into chaos and war – with attendant effects on global oil prices and the global economy.