Gold World News Flash

Bill Bonner on Deleveraging, the Collapse of the Dollar and Rise of a 'Lost Decade'
SKI Report #74: The Short and Long-Term Gold Picture
SKI Report #73: Gold Stock and Gold Update
Bear Market Race Week 147: The Bond Market’s Killing Field 1938-2010
Commodity spike queers the pitch for Bernanke's QE2
Paul Ryans Roadmap for Americas Future
Nine Meals From Barbarism
Trial Balloon For First Steps Toward Quant Ease 2: FT Says Fed Set to Downgrade Outlook for US
Observations On China's Bubble, Or The "Lose-Lose" Reality Of A Financial Cocaine Addiction
Does "No Decoupling" Mean Dollar Set To Surge?
Private Equity Emerging From the Deep?
Gold Thoughts
Get Ready.. Food Prices To Escalate
SOMETHING BIG IS BREWING
Volume by Price Reveals Key Support & Resistance Levels
Gene Arensberg: Chinese put under the gold price
Ambrose Evans-Pritchard: Commodity spike queers pitch for Bernanke’s QE2
Ambrose Evans-Pritchard: Commodity spike queers pitch for Bernanke's QE2
James Turk: Is silver ready to move higher?
Adrian Day: Buy Gold, Sell Wheat
ETF Securities Star Performer on Gold ETF Leader Board
Likely Market Movers to Watch This Week: August 9 – 13, 2010
Likely Market Movers to Watch This Week: August 9 – 13, 2010
Incredible Threat
Morgan Stanley On Why The US Will Not Be Japan, And Why Treasuries Are Extremely Rich (Yet Pitches A 6:1 Deflation Hedge)
Fake Plastic Economy
US Payrolls to Rise 1.1mm Per Month in 2011 – SSTF to Congress
6 Dividend Champions With Consistent Dividend Increases of 10% or More
Germany ETF: Can the Momentum Continue?
Emerging Market ETFs Back in Favor

Bill Bonner on Deleveraging, the Collapse of the Dollar and Rise of a 'Lost Decade'

Posted: 08 Aug 2010 05:56 PM PDT

Sunday, August 08, 2010 – with Ron Holland Bill Bonner The Daily Bell is pleased to present an exclusive interview with Bill Bonner (left). We caught up with Agora Financial's founder, Bill Bonner, at Agora's annual conference in Vancouver, BC. We have interviewed him previously. To read that interview, click here. Introduction: Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-s...

SKI Report #74: The Short and Long-Term Gold Picture

Posted: 08 Aug 2010 05:56 PM PDT

Written Sunday August 8, 2010 Current USERX price = 16.40, Up 89 cents (6%) since the last report 3 weeks ago. Introduction (repeated from prior Reports): I have been using my unique SKI indices to predict price changes in the precious metals' market for more than two decades. And my indices continue to mark the critical points. I have initiated a subscription website since 1/13/06 (yes, Friday the 13th) after having posted free updates for years at 321gold. SKI is a timing service; although almost everyone seems to believe that market timing is impossible, that IS what the SKI indices have done for 35 years. The SKI indices contain short-term (16-20 trading days), intermediate-term (35-39 trading days), and long-term (92-96 trading days) indices. A more comprehensive description of these mathematical indices and their history is found at http://www.skigoldstocks.com/about.php. Basically, the indices compare today’s price to prices from a specified p...

SKI Report #73: Gold Stock and Gold Update

Posted: 08 Aug 2010 05:56 PM PDT

Jeffrey M. Kern, Ph.D. Email: [EMAIL="jeff@skigoldstocks.com"]jeff@skigoldstocks.com[/EMAIL] USERX | historicals Written Jul 18, 2010 Current USERX price = 15.51, Down $2.02 (11.5%) since the last report 4 weeks ago. [FONT=Verdana]Introduction (repeated from prior Reports):[/FONT] [FONT=Verdana]I have been using my unique SKI indices to predict price changes in the precious metals' market for more than two decades. And my indices continue to mark the critical points. I have initiated a subscription website since 1/13/06 (yes, Friday the 13th) after having posted free updates for years at the most informative gold site, 321gold, since its inception approximately seven years ago. SKI is a timing service; although almost everyone seems to believe that market timing is impossible, that IS what the SKI indices have done for 34 years.[/FONT] [FONT=Verdana]The SKI indices contain short-term (16-20 trading days), interm...

Bear Market Race Week 147: The Bond Market’s Killing Field 1938-2010

Posted: 08 Aug 2010 05:56 PM PDT

of th eminThe 1929 & 2007 Bear Market Race to The Bottom Week 147 of 149 The Bond Market’s Killing Field 1938-2010 Barron’s Stock/Bond Yield Gap What ails the Bond Market? The US Dollar! Robert Bleiberg, May He Rest in Peace Bonds are a “Respectable Investments” but to Whom? The Mess in Municipal Bonds Mark J. Lundeen [EMAIL="mlundeen2@Comcast.net"]mlundeen2@Comcast.net[/EMAIL] 06 Aug 2010 Color Key to text below Boiler Plate in Blue Grey New Weekly Commentary in Black Below is my BEV chart for the Bear Race. I wish I could be Bullish. I’ve been a Big Bad Bear for well over 4 years. It’s no fun warning people of a coming disaster when the Stock Market is heading up. But I’m looking at more than just the Stock Market, specifically Debt. But not just any Debt, but Consumptive Debt. Debt (Credit) makes the Economy Hum, when it’s managed wisely. Not only is Profitable Debt paid off, and so goes away, but ...

Commodity spike queers the pitch for Bernanke's QE2

Posted: 08 Aug 2010 05:56 PM PDT

August 08, 2010 08:56 AM - Don't be fooled: a food and oil price spike is not and cannot be inflationary in those advanced industrial economies where the credit system remains broken, the broad money supply is contracting, and fiscal policy is tightening by design or default. Read the full article at the Telegraph......

Paul Ryans Roadmap for Americas Future

Posted: 08 Aug 2010 05:45 PM PDT

Nine Meals From Barbarism

Posted: 08 Aug 2010 05:06 PM PDT

It's always a fun week when the big banks report earnings. This week it's Commonwealth Bank (ASX:CBA), with NAB to give a trading update later in the week. What will CBA's results tell you?

Over the next month you'll get to see how much the banks are actually hurt by higher funding costs, whether bad debts are rising, and if the housing market is causing them any trouble (loan losses). Of course we may learn that bank margins are tight but not terrible, that bad debts are manageable, and that the housing market is in great shape!

One interesting note? ING - Australia's fifth-largest lender - is returning to the securitisation market to source some of its funding, according to today's Australian Financial Review. ING says it's trying to diversify its funding sources. Right now, 53% of its funding is from deposits, 34% from long-term funding, and the rest from short-term borrowing. So what?

When the Global Financial Crisis hit home in 2007, smaller regional banks in Australia lost the ability to fund mortgage lending by packaging up loans and selling them to offshore investors (securitisation...or a kind of financial sausage-making). You can see what happened in the chart below from the Reserve Bank of Australia. Both onshore and off-shore demand for high-yielding mortgage-backed bonds more or less evaporated.

In September of 2008, thought, the Australian Office of Financial Management (AOFM), at the behest of the Rudd government, began buying up residential mortgage backed securities (RMBS). They bought them from smaller regional banks in the name of promoting competition in mortgage lending. The probably also provided "access" to housing finance for borrowers who couldn't get "access" from the Big Four Banks - not that lending standards in Australia would have ever gone subprime.

Since its RMBS purchase program began, the AOFM has purchased some $8.7 billion in RMBS put forth by 14 different issuers. An investigative journalist who does not write free daily e-letters might have a look at the issuers of those RMBS and see which ones were getting government mortgage money to keep the housing market going. It might be a good story.

The "risk appetite" of Australian and foreign investors might start getting pretty dull, though, if Friday's economic numbers from the US are any indication. The private sector added 71,000 jobs according to official government statistics. But the government itself layed off a bunch of temporary hires for the Census. The result was a net loss of 131,000 jobs.

Gold was back up over $1,200 on the fearful news and traded at $1,207.50 in New York. Oil was persistently high too, and trades at $81.07 in the futures market. Most of the US indices opened down on the news and then clawed their way back to indifferent losses by the end of the Friday session.

But now everyone is wondering if there's another big dip coming in the Great Recession. And if it's coming, can't the Fed do anything about it, like buy more mortgage bonds...or something? And what about more stimulus? If households won't or can't spend, is it time for the government to dig even deeper, take one for the team, and spend billions more in borrowed money to "get things going again?"

Those are some of the questions we'll take up in the Daily Reckoning this week. But let's start the week out with a bit of reader mail. It's been awhile. And there's a lot of mail!

Hi,

Thanks for the regular updates. I certainly enjoy reading them when work is not too busy. Having looked through today's, I couldn't help wanting to ask a question.

If you accept the proposition that the last 30-50 years of prosperity has not been the result of careful government planning, deregulation and private sector inventiveness but rather has been a result of the impact of the demographics of the post war boom (i.e., my mum and dad who bought a house, did it up and managed to educate a couple of kids on the wages of a policeman and part time nurse) combined with an expansion of debt (relying on the classical definition of savings as deferred consumption, hence dis-saving or debt must be accelerated consumption), then what happens over the next fifteen years as the boomers age?

My gut feel is that volatility will remain and that the weight of money argument starts to work in the opposite direction which would not be good for equity investments.

Looking forward to tomorrow's DR.

Warm regards,

Matthew

Does perpetual growth require perpetual population expansion? Probably not. An increase in per capita incomes and overall productivity can lead to growth without population expansion. But what we have now is a lot economic activity that exists and is supported by unsustainable credit growth. Until those credits are written down or liquidated, it's going to be hard to move on to "the next big thing."

The scarier question, which your analysis hints at, is whether you can move from one complicated system of systems - the world we have now - to another as yet undefined system, without a lot of people losing a lot of money. You should never discount the positive impact of disruptive technologies. The gales of creative destruction have a way of creating brand new fortunes and industries quickly. It could happen again. But investing in the same old companies and expecting the same old results for the next twenty years?

On debt, liquidity, and barbarism:

Your comments about debt are weak. The fundamental problem to avoid deflation is liquidity. That is what the governments are doing. How much liquidity came out of the financial system with Lehman's collapse? How can society exist without liquidity??

How is $$$ going to get into the hands of people to create hyper inflation??? I don't see how that will happen unless they cut taxes to zero.

The bottom line is that we are a cash-flow world and this is about maintaining social order among human animals. We can't become self actualized to the point where we forget that we are nine meals (or less) from barbarism.

Best regards,

Mike S.

Your comments on our comments are cryptic. Falling prices because of increased productivity is no bad thing. That means the purchasing power of cash relative to goods and services increases with a stable money supply. How bad is that?

Without the exchange of goods and services via money, there is no economy. But the current problem with the financial system isn't a liquidity problem - not enough money to grease the wheels of commerce - it's a solvency problem - too many institutions capitalised by questionable assets whose value was boosted by artificial money creation.

You're probably right that you can maintain "social order among human" animals by creating paper chits and allowing people to claim the value of other's labour with them. But that isn't exactly the kind of social, economic, and political order we'd want to be a part of. We'd prefer the spontaneous order of a system of commerce without coercion, where you trade freely, get to keep the fruits of your labour, and improve the "social order" whether you know it or not by simply making the most of your opportunities and gifts.

As for how the Fed' going to get money into the hands of the people, we think we found the smoking gun last week, and it's not helicopters. In its haste to put "predatory" pay-day lenders out of business, the new Dodd-Frank bill seems to create a conduit for Federal money to pass through banks directly into the hands of...pretty much anyone. Maybe we've read it wrong, but "access" to cheap loans probably means a whole new Federal gravy train...the old hyperinflationary express itself.

On lies:

Dear Friends:

How can the USA run a $3 trillion two-year deficit and obtain such low borrowing rates? You leave out one possibility : they lie. Probably the Fed Reserve is buying most of the bonds and simply not letting anyone know how much QE they are doing. They are unaudited and have shown no interest in the truth in the past.

Posted: 08 Aug 2010 04:42 PM PDT

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Observations On China's Bubble, Or The "Lose-Lose" Reality Of A Financial Cocaine Addiction

Posted: 08 Aug 2010 04:04 PM PDT

Jim Quinn's has penned a good post on the "mother of all bubbles" in which he analyzes the impact of cheap credit and surging money supply on Chinese real estate, hot on the heels of recent Zero Hedge disclosure that nearly 65 million homes in China lie vacant. Using data from The Casey Report depicting the explosion in monetary aggregates, it is rather easy to see just where all the "excess" credit and easy money has gone. In many, if not all ways, the experience China is about to undergo with respect to its real estate bubble is comparable to that of the US, and simply the lack of an overlap of bubble peaks in 2007/8 is what helped China experience an all out economic rout, which due to how its socio-political structure is intertwined, may have well led to a domestic revolution and/or civil war. Yet the longer China avoids looking in the mirror, and continues to "feed the monkey" the worse off it will be when no amount of incremental cheap money can forestall the collapse. Which in itself is a very comparable predicament faced by our own administration and central bank. But before we present the Quinn article, we will take a brief detour into Michael Pettis' recent observations on the pitfalls association with a monetary heroin addiction.

From mpettis.com

The cocaine of cheap money

All this might sound like I am effectively recommending that the PBoC continue to repress interest rates, but of course repressed interest rates are what caused the problem in the first place. To continue to do so simply makes the underlying problem worse, by piling on even more non-viable debt. Rather than suggest that the PBoC must keep rates low, what I am really arguing, I guess, is that this is a very difficult trap from which to escape.

What can the authorities do? If Beijing raises interest rates quickly, debt and bankruptcy will surge and growth will collapse – although the eventual rebalancing of the economy might happen much more quickly.

If they don’t raise interest rates, they can keep growth high for a while longer, but the amount of reserves and misallocated capital will continue rising, making the eventual cost of raising interest rates even higher. The risk is a Japanese-style stalemate in which for many years the authorities are forced to keep rates too low because they simply cannot countenance the alternative, and during this time consumption growth continues to struggle.

Finally, if they raise interest rates slowly, they will slow growth while still suffering many more years of worsening imbalances, until rates are finally high enough to begin reversing the imbalances. But for this strategy to work, they would need a very, very accommodative external sector – China’s domestic imbalances require high trade surpluses until they are finally reversed.

So there’s the dilemma: they’re damned if they do and damned if they don’t. So far the authorities do not seem to be seriously considering raising interest rates, and my guess is that if the US successfully pressures them to revalue the currency, they will be even less likely to do so.

In fact they may do what they did the last time the currency revalued – engineer a reduction of real interest rates and a rapid expansion of credit. This will counteract the contractionary effect of revaluing the currency – competitiveness lost because of a higher currency will be counterbalanced by competitiveness gained by lower costs of capital.

This of course will also put more upward pressure on the trade surplus, allowing China to continue to use the external sector to absorb excess capacity. Of course it will also sharply increase the asset misallocation problem – as Japan demonstrated after 1985 when, in response to the appreciating yen, they reduced interest rates and expanded credit.

So interest rate policy has to choose between rising bankruptcies or rising misallocation of capital. Even ignoring political pressures, this isn’t an easy choice. And it will require a great deal of sympathy and cooperation from abroad.

Of course, none of this should come as a surprise to anyone. Still, that both the key developed and developing country are stuck in a regime of "extend and pretend" is very troubling, and means that it is not a question of when one drops out of exhaustion in the pursuit by the depressionary bear, but when either does so. In a world where decoupling has proven to be a myth, the failure of one is the failure of all. Which is why China and the US realize all too well that despite political theater otherwise, both are stuck in an increasingly symbiotic relationship. And in case there are any doubts as to the true size of the Chinese predicament, here is Jim Quinn with "The Mother Of All Bubbles."

In the latest issue of The Casey Report Bud Conrad does a fantastic job analyzing the truth about Asia. Japan is a ticking demographic time bomb. The Chinese government has created the mother of all bubbles and when it pops, it will be felt around the world. The China miracle is not really a miracle. It is a debt financed bubble. Sound familiar?

I picked out 4 charts from Bud’s article that paint the picture as clearly as possible. The chart below shows that compared to the real estate bubble in Japan during the late 1980s and the current bubble in China, the US housing bubble looks like a tiny speed bump. The US has 20% to 30% more downside to go. For those looking for a housing recovery, I’d like to point out that Japan’s housing market has fallen for 20 years with no recovery. I wonder if the National Association of Realtors will be running an advertisement campaign in 2025 telling us it is the best time to buy.

Take a gander at home prices in China. Since the 2008 financial crisis, the Chinese housing market has skyrocketed 60%. There are now 65 million vacant housing units. The question is no longer whether there is a Chinese housing bubble, but when will it pop. There is one thing that bubbles ALWAYS do. An that is POP!!!

The price of land in and around Beijing has gone up by a factor of 9 in the last few years. Delusion isn’t just for Americans anymore. These two charts should be placed next to the word “bubble” in the dictionary. This will surely end in tears for anyone who has bought a house in China in the last two years.

As Mr. Alan Greenspan can attest, bubbles can only form when monetary policy and/or fiscal policy is extremely loose. The bubble king supercharged the US housing bubble with his 1% interest rates in the early 2000s. The Chinese must have hundreds of Paul Krugman disciples running their economic bureaucracy. There can never be enough stimulus to satisfy a Krugmanite. The Chinese leaders feel they must keep their GDP growing at 10%. A slowing of growth to 5% would unleash social chaos among the hundreds of millions of peasants who have come to the cities from the countryside for jobs. The chart below shows that when you control the printing presses and the banks making the loans, you can make stimulus ”work”. In the U.S., the Federal Reserve has printed, but the banks have hoarded their cash and have not made loans.

The Chinese authorities have printed and instructed the banks to make loans for shopping malls, apartment buildings, office towers, and condo towers. Average citizens have bought as many as five condos. Every Wang, Chang, and Wong knows that real estate only goes up. Their $585 billion stimulus package was used to build entire cities that sit unoccupied. The 2.2 million square foot South China Mall, with room for 2,100 stores, sits completely vacant. The Chinese have taken the concept of “bridges to nowhere” to a new level.

Over a 20-month period, Chinese M2 grew 47%, reflecting the outrageous level of spending by the Chinese authorities. When you hand out $3.5 trillion to developers, they will develop. When a government official, who can have you executed, tells you to lend, obedient bankers lend. The Chinese authorities can hide the truth for a period of time, but the bad debt caused by the Chinese stimulus and malinvested in office buildings, condos, malls, and cities will eventually lead to a monumental collapse in the Chinese real estate market. This will result in a stock market crash and a dramatic slowing in economic growth.

The mother of all bubbles will Pop. Only the timing is in doubt. Based on history, the Chinese real estate bubble is in search of a pin.

Does "No Decoupling" Mean Dollar Set To Surge?

Posted: 08 Aug 2010 03:03 PM PDT

Earlier we presented Morgan Stanley's traditionally bullish opinions on the economy as relates to the firm's view on rates, which nonetheless translated into an opposite trade recommendation: one that goes against the very core of the bullish economic sentiment. Curiously, Morgan Stanley did a comparable bait-and-switch in its FX analysis last week, when it called for a spike in the recently beaten down USD, on the back of an expectation of US economic growth by 3.4% and 3.3% in Q3 and Q4 (these numbers will shortly be revised lower as MS is way above consensus, see Exhibit 1, and even sellside strategists are finally becoming aware of the double dip), or economic data weakening elsewhere. In other words, no decoupling. With the EUR surging, and the recent strength in Europe's manufacturing centers driven purely by a surge in exports, the likelihood that foreign economies are looking at a step function drop is pretty much guaranteed. Which brings us to a parallel observation, one we have brought up previously, namely that various governments will likely escalate the trade imbalances on an increasingly shorter timeframe, taking advantage of the record short-term volatility in key crosses, and ping ponging quarter after quarter between export strength and weakness, all the while hoping to ride the crest of the wave of recent strength beyond upcoming economic declines. In other words, borrowing a term from TV jargon, the economy will soon downshift from "progressive" to "interlaced" as instead of operating at full steam constantly, each developed economy will be in a quarterly On:Off regime, all the while hoping to remain in investors' good graces when it comes to stock markets, and be punished aggressively when it comes to FX. Judging by the results in Q1 and Q2, and the interplay between Europe and the US in light of a surging then plunging dollar, it is working... for the time being. One wonders however how long the developed, overleveraged economies can hope to maintain this ruse, which is nothing short of another confidence game on risky assets and a bet for central planning.

Back to Morgan Stanley. Below is Stephen Hull's view on why nondecoupling means it is time to take profits on USD shorts and unwind all those EUR longs.

Our core views from the remainder of 2010 remain unchanged, namely that after a period of weakness we think that the dollar
is close to forming a bottom against the major currencies. Following a string of weaker than expected economic data, expectations about the outlook for US activity has meant the dollar has been in the sweet spot for bears. Going forward, we do not expect the US economy to decouple from the major economies. We expect the dollar to recover via either US growth rebounding in the second half of 2010 or data weakening elsewhere, or both!
We forecast the US economy to grow by 3.4% and 3.3% on an annualised basis in the third and fourth quarter, higher than consensus estimates as Exhibit 1 shows. While that is our core view, it is also possible that the US is just leading a broader decline in global activity, and if that is the case then we should soon start to see weakness in other economies, which presumably might be associated with a period of risk aversion. If we are right with either of these outcomes, we would expect the dollar to recover from its recent selloff.
One of the factors which has hindered the dollar more in recent weeks has been concerns that the Federal Reserve might start to ease further. Expectations that the Fed might reinvest the proceeds of their MBS portfolio have been boosted by recent press articles, and there seems to be a decent chance that the Fed might want to keep the excess reserves in the system at around US1trn as insurance against any further weakness in activity. To some degree this has already been reflected in the price of the USD; certainly interest rate markets are priced back at levels last seen in the crisis period. Indeed, the rolling eighth Fed Funds contract has made new highs, reflecting the fact that the market anticipates the Fed to be on hold for as long as it did even when the S&P 500 was back at the 666 lows (Exhibit 2). So a lot of bad news is in the price, and presumably the market is already assigning a fairly high probability that the Fed may ease further.

How about other currencies? Not too surprisignly, MS is also quite bearish on the Yen, speculating that there is an abnormally high chance that the BoJ will intervene to lower the JPY from near record levels.

We continue to monitor the capital flow situation in Japan and note that Japanese investors have put a record amount of capital into foreign bond markets in the new fiscal year. Given the recent strengthening of the yen it would seem that this outflow has been done on a currency hedged basis. However, if sentiment towards the JPY changes, the currency risk could be unhedged and, given the strength of the tradeweighted yen, not helped by the fact that CNY is fairly weak against the JPY, it is perhaps unlikely the JPY will strengthen much further. Our models continue to show that there is a high probability of BoJ intervention. Currently we calculate this to be about 48%, compared with a long-run average of 20%, a reading which is higher than occasions when the BoJ have actually intervened in the past. A policy response to Japan’s growing deflation problem and the strong Yen is perhaps not far away.

Lastly, and just as notably, is the disclosure that Morgan Stanley has opened up a new 10% EURCHF short with a 1.31 target and a 1.41 stop. The cross was at 1.38 as of this writing, and still sufficiently high to cause nightmares for a whole generation of Central and Eastern European underwater mortgage borrowers.

We have decided to add a short EUR/CHF trade to our portfolio. Following the recent correction we think these are good levels to attempt to buy the franc as the Swiss economy remains robust, while our valuation models suggest that the Franc is not expensive, helped by Switzerland's continued low levels of inflation. We are adding a short of 10% with a target of 1.31 and a stop at 1.41 (current 1.3781).

Private Equity Emerging From the Deep?

Posted: 08 Aug 2010 02:46 PM PDT

Via Pension Pulse.

David Currie, partner and chief executive at SL Capital Partners, reports in the FT, Most pensions need help with private equity investment:

Following the publication of the FTfm article, ‘Sceptical investors taking the more direct route’ (July 11 2010), discussions in the press have focused on the private equity fund of funds sector and the idea that pension funds will shift from investing via these vehicles to a more consultant-led or direct investment model.

Historically, pension funds have used a mix of strategies to deploy their private equity allocation depending on their own size and experience in the asset class. We agree that some of the largest pension funds and sovereign wealth funds have their own direct private equity strategies to deploy capital that involve a mix of direct and fund investments.

However, we are convinced the majority of global pension funds remain open to the idea that the additional layer of fees charged by private equity fund of funds represents a price worth paying to get the requisite access and the assurance over administration and compliance that an experienced manager can bring. Our pension fund clients engage us to provide a complete private equity solution for what is typically only ever up to 5 per cent of their total investment portfolio.

The majority of pension funds do not have the €100m (&ound;83m, $132m) allocation to private equity that has been noted as the level that would allow them to invest directly in a structured long-term way into private equity. For these schemes, the hurdles of minimum allocation, administration of the investments and the risk diversification mean that a fund of funds is the only viable route.

In SL Capital’s fund of funds, the average commitment by a client is €12m, which would normally represent the pension fund’s entire private equity commitment, or at least its entire US or European private equity commitment. It is impossible to get true diversification, across at least 10 private equity funds, with a €12m allocation, as most funds require a minimum commitment of €5m.

It is also worth noting that the larger funds of funds sit on the private equity funds’ advisory boards as a matter of course. These positions are open only to the largest or most sophisticated investors and offer a deeper access and relationship to the manager, enabling added insight, a view on strategic direction and a first look at valuations and performance. This really matters when times are difficult, as the experienced fund of funds investors can deploy their team’s deep knowledge and expertise to help restore confidence in leadership or offer solutions to ensure all investors are protected.

While the world’s largest pension funds operate significant teams globally, we as a fund of funds also work closely with them to deploy capital. In this case we are providing support in a specific area of the European or US markets that they find hard to access, due to their proximity to the market or knowledge of the best managers in that segment. In these terms we are the “eyes and ears” for these larger groups in specific areas, such as smaller, regional or local funds, secondaries and direct co-investments. They recognise the advantages of working with fund of funds that can add value to their overall programme.

PE funds and funds of funds got hit hard during the crisis. But there is evidence that PE is finally turning the corner. Tom Fairless of of Financial News reports, Private equity emerging from the deep:

In July 2007, Charles “Chuck” Prince, then chief executive of Citigroup, said: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

It is exactly three years since the music stopped. On August 9, 2007, BNP Paribas said it had suspended three funds linked to US sub-prime mortgages because it could not value the underlying assets. Within hours, the London interbank offered rate soared to its highest level in six years, forcing the European Central Bank to promise unlimited cash to keep credit flowing.

Thus a French bank called the end of a debt binge rooted in the Anglo-Saxon world that ultimately engulfed the global economy. The era of mega-buyouts – which culminated in the $45bn acquisition of US energy group TXU by a private equity trio in February 2007 – ended abruptly. An agreed $52bn buyout of Canadian telecoms group BCE fell apart the following year.

Six of Europe’s top private equity executives reflect on the impact of the credit crunch, and whether the industry will return to its pre-crisis heights. They responded to the following questions:

1) How significant is the financial crisis in the history of private equity?

Michael Queen, chief executive, 3i Group: In my 25 years in private equity, I believe we’ve seen the most challenging market since the industry emerged in the 1980s, with a significant decline in investment and a very tough environment for fundraising. While there’s cause for some optimism, I think we’ll continue to see challenging and volatile markets for some time.

Dominique Senequier, chairman and chief executive, Axa Private Equity: Private equity has a longer history than people think. We have been rocked by many crises. The most recent, post-Lehman crisis has been like a meteorite hitting the earth. But what it has shown is that the industry has the capability and strength to adapt, redefine itself and continue forward.

Andrew Joy, partner, Cinven: This is the first big crisis since the industry came of age, and as a result will stick in all personal and institutional memories. In the long run, the recent crisis will be seen as a healthy corrective to the increasingly spreadsheet-driven, unreflective habits that were spreading in the industry and its service providers.

Jeremy Coller, founder, Coller Capital: Private equity is a young industry and the financial crisis is the biggest single event in its history. I think, with hindsight, it will come to be seen as an important milestone in private equity’s evolution as an investment discipline and an asset class. The lessons learnt by fund managers and investors alike will guide the development of the industry for many years to come.

Johannes Huth, head of Europe, Kohlberg Kravis Roberts: One year ago, investors were assessing the impact of the financial crisis and sought liquidity wherever available.

Today, as investor confidence is returning, we see increased interest in long-term asset classes, such as private equity.

Kurt Björklund, Co-managing partner, Permira: Clearly it was very significant. Investment activity collapsed; some portfolio companies came under great pressure; the financing environment was thrown into reverse; and it impacted the dynamics between limited and general partners. But the industry has shown throughout a number of cycles that its model works as well in defence as in offence.

2) Where are the biggest post–crisis opportunities?

Michael Queen: We see opportunities in infrastructure around the world where demand remains strong, as well as mid-market and growth deals as companies continue to struggle to access funding. Geographically we’re seeing some recovery in Asia and resilience in emerging markets although this tends to be reflected in pricing.

Dominique Senequier: There are many. But the two I would highlight would be firstly that the crisis provides an opportunity for the industry to show it can be a real contributor to growth and prosperity in society. Secondly, it has demonstrated that private equity can be a source of capital outside the equity markets.

Andrew Joy: Strong businesses with growth ambitions will need long-term, committed shareholders with the skills to help. Public markets have been shown to be fickle so private equity is in pole position to develop such companies.

Jeremy Coller: There are many opportunities: in secondaries, financial institutions need to restructure to meet changing regulatory requirements and many investors will want to reshape their portfolios in the face of new economic realities. More generally, private equity has a big opportunity to demonstrate its added value to the economy and society, by helping rebuild companies and their infrastructure.

Johannes Huth: We see an investor base that is particularly focused on opportunities in faster-growing economic regions, in natural resources and infrastructure and in investment opportunities across the capital structure of companies with growth potential.

Kurt Björklund: Private equity thrives on dislocation and rapid change. Firms with strong sector experience and geographical presence are able to generate high-quality opportunities from a range of different sources, many off-market in today’s environment. Balance sheet repair, for financial and non-financial vendors alike, is providing strong dealflow at the moment.

3) Will the industry be smaller or larger in five years?

Michael Queen: It is hard to say at this point, but there is no doubt that the private equity industry will have changed as a result. We’ve already seen some fallout during the crisis and stronger diversification of investment strategies. We could see newer entrants including sovereign wealth funds enter the fray.

Dominique Senequier: It will be larger in assets and probably in terms of players and stakeholders. But at the international level, the key opportunities for pension funds will only be those presented by private equity firms that have global reach and capability.

Andrew Joy: The industry is likely to be larger. I believe that private equity has intrinsic advantages over public equity, including a longer-term investment horizon, alignment of interest between management and shareholders and engagement by the owners in helping growth.

Jeremy Coller: The size of the industry is relatively unimportant; what is important is that it will be more robust.

Johannes Huth: We expect to see a limited number of large firms with a global network, which can offer partnerships with investors and companies on different types of investment opportunities. On the other side, we also anticipate a large group of small firms that operate on a regional level and specialise in specific opportunities.

Kurt Björklund: The industry’s long-term growth trend will continue but, inevitably after the recent period of very rapid growth, we expect to see a period of limited growth over the short term.

4) What is the biggest lesson you have learnt from the crisis?

Michael Queen: At the top of the market it is easy to forget that a long-term successful business is built on values, relationships and an ethical business model – the downturn helps everyone to remember these enduring truths.

Dominique Senequier: Stick to your convictions. We did. We distanced ourselves from the deal-making frenzy in 2007; we remained focused on not over-indulging in financial leverage, but instead found ways to support good management teams. It doesn’t always make you “flavour of the month” but such an approach rewards a disciplined, long-term investment philosophy.

Andrew Joy: The biggest lesson is to remember the previous lessons! To anyone who was in private equity in the late 1980s nothing that happened in 2007-08 should have come as a surprise. Likewise, none of us should be surprised if the years 2011-13 turn out to be excellent years for making investments.

Johannes Huth: The crisis has strengthened our belief in how important it is, from a value creation and a societal point of view, to stand shoulder to shoulder with our portfolio companies and investment partners, especially in challenging economic times.

Kurt Björklund: That early recognition of a changed environment, early and decisive action as opposed to debate, and a strong senior team pulling in the same direction makes all the difference. Also that you have to keep a very open line of communications throughout the organisation and with your investors in good and more difficult times.

These are all excellent points, but the biggest reason PE has turned the corner is that confidence has flowed back in public markets and larger investors are willing to take on more long-term investments in private markets. There remains one big structural impediment to PE, namely, banks are unwilling to lend ridiculous amounts to mega buyout funds as they did during the boom years, but this is all for the better.

We are moving into a leaner and meaner environment. Long gone are the days of "sophisticated" financial engineering and crazy leverage. Fund managers with operational experience are going to survive the shakeout in the PE industry while the quants and their spreadsheets are going to be left in the dust. PE is a tough business. Only the strong survive.

Gold Thoughts

Posted: 08 Aug 2010 01:56 PM PDT

Nations of the EU have clearly demonstrated that attempting to create prosperity though debt will lead to nothing but economic pain and woes. Greece, U.S., et al thought the debt fueled party would go on far ever. It did not.

SPY – SP500 Exchange Traded Fund

As you can see on the chart below and I have pointed out key support and resistance levels using the volume by price indicator. The thin red resistance levels would be areas which I would be tightening my stops and or pulling some money off the table.

The SP500 is currently trading at the apex of this wedge. The market internals as of Friday were still giving a bullish bias which should bring the index up to resistance once more on Monday or Tuesday. From there we will have to see if we get another wave of heavy selling or a breakout to the upside.

GLD – Gold Exchange Traded Fund

Gold has the opposite volume to price action as the SP500. We are seeing a lot more over head resistance and that's going to make it tough for gold to make a new high any time soon.

USO – Crude Oil Trading Fund

Crude oil broke out of is rising wedge last week and has started to drift back down as traders take profits. Many times after a breakout we will see prices dip down and test that breakout level before continuing in the trend of the breakout. I should point out that there is a large gap to be filled from last Monday's pop in price and we all know most gaps tend to get filled.

UUP – US Dollar Exchange Traded Fund

The dollar has been sliding the past 2 months and it's now trading at the bottom of a major support level. If the dollar starts to bounce it will put some downward pressure on stocks and commodities.

Weekend ETF Trend Conclusion:

In short, I feel the market has a little more life left in it. I'm expecting 1-2 more days of bullish/sideways price action, after that we could see the market roll over hard. It's very likely the US dollar starts a significant rally which will pull stocks and commodities down.

With the major indices and gold trading at key resistance levels, traders/investors ready to hit the sell button, and the dollar at a key support level I think its only a matter of time before we see a sharp snapback. That being said there is one scenario which is bullish and could still play out. That would be if the US dollar starts to flag and drift sideways for a week or so, and for stocks and commodities to also move sideways before taking another run higher. Watching the intraday price and volume action will help us figure out if buyers are sellers are in control this week. Anyways that's it for now.

If you would like to receive my ETF Trading Alerts visit my website at: http://www.thegoldandoilguy.com/specialoffer/signup.html

Chris Vermeulen

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Gene Arensberg: Chinese put under the gold price

Posted: 08 Aug 2010 01:22 PM PDT

8:49p ET Sunday, August 8, 2010

Dear Friend of GATA and Gold (and Silver):

Gene Arensberg's latest "Got Gold Report" sees a Chinese put under the gold price and the large commercial shorts retreating enough to justify reinstating long trading positions in gold and silver. Arensberg's report is headlined "China Goes for the Gold" and you can find it here:

http://www.gotgoldreportsubscription.com/GGR20100808.pdf

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Help keep GATA going

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Ambrose Evans-Pritchard: Commodity spike queers pitch for Bernanke’s QE2

Posted: 08 Aug 2010 01:22 PM PDT

By Ambrose Evans-Pritchard
The Telegraph, London
Sunday, August 8, 2010

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/793323…

Don't be fooled: a food and oil price spike is not and cannot be inflationary in those advanced industrial economies where the credit system remains broken, the broad money supply is contracting, and fiscal policy is tightening by design or default.

It is deflationary, acting as a transfer tax to petro-powers and the agro-bloc. It saps demand from the rest of the economy. If recovery is already losing steam in the US, Japan, Italy, and France as the OECD's leading indicators suggest — or stalling altogether as some fear — the Eurasian wheat crisis will merely give them an extra shove over the edge.

Agflation may indeed be a headache for China and India, where economies have over-heated and food is a big part of the inflation index. But the West is another story.

Yields on two-year US Treasury debt fell last week to 0.50 percent, the lowest in history. Core US inflation is the lowest since the mid-1960s. US business inflation (pricing power) is at zero. Bank lending is flat and securitised consumer credit has collapsed from $900 billion to $240 billion in the last year. Hence the latest shock thriller — "Seven Faces of Peril" by James Bullard, ex-hawk from the St Louis Fed — who fears that the United States is now just one accident away from a Japanese liquidity trap.

In Japan itself core CPI deflation has reached -1.5 percent, the lowest since the great fiasco began 20 years ago. Ten-year yields fell briefly below 1 percent last week. Premier Naoto Kan has begun to talk of yet another stimulus package. "The time has come to examine whether it is necessary for us take some kind of action," he said.

In a normal recovery, the US labour market would be firing on all cylinders at this stage. Yet the latest household jobs survey showed a net loss of 35,000 jobs in May, 301,000 in June, 159,000 in July. The ratio of the working age population with jobs has fallen to 58.4, back where it was in the depths of recession. Over 1.2 million people have dropped out the work force over the last three months, which is the only reason why the unemployment rate has not vaulted back into double digits. A record 41 million Americans are on food stamps. This is unlike anything since the Second World War. It screams Japan, our L-shaped destiny.

"Unprecedented monetary and fiscal stimulus has produced unprecedentedly weak recovery", said Albert Edwards from Societe Generale said this latest "Ice Age" missive. That stimulus is now fading fast before the private economy has clasped the baton.

After digesting Friday's jobs report, Goldman Sachs' chief economist, Jan Hatzius, thinks the Fed will abandon its exit strategy and relaunch QE this week, taking the first "baby step" of rolling over mortgage securities. Future asset purchases may be "at least $1 trillion." He is not alone. Every bank seems to be gearing up for QE2, even the inflation bulls at Barclays. The unthinkable is becoming consensus.

Into this deflationary maelstrom, we now have the extra curve ball of Russia's export ban on grains. There is a risk that this mini-crisis will escalate if Kazakhstan, Belarus, and Ukraine follow suit, and if the scorching drought lasts long enough to hit seeding for winter wheat next month. But remember, there was a global wheat glut until six weeks ago. Stocks are at a 23-year high. Prices are barely more than half the peak in 2008. The US grain harvest is bountiful; Australia, India, Argentina look healthy.

The Reuters CRB commodity index is no higher now than in April. Last week's commodity scare looks like an anaemic version of the blow-off seen in the summer of 2008. The chief risk is that central banks will panic yet again, seeing ghosts of a 1970s wage-price spiral that does not exist.

In July 2008, Jean-Claude Trichet told Die Zeit that there was "a risk of inflation exploding." As we now know — and many predicted — eurozone inflation was about to fall off a cliff. But acting on this apercu, the European Central Bank raised rates. No matter that half Europe was already tipping into recession. The Western banking system went into meltdown within weeks. The Fed was not much better. It issued an "inflation alarm" in August 2008. Dr Robert Hetzel of the Richmond Fed has written a candid post-mortem in "Monetary Policy In The 2008-2009 Recession," rebuking the Fed and ECB for over-reacting to inflacionista hysteria. They tightened into the crunch.

For those wonkishly inclined, Dr Hetzel said their error was to view the enveloping crisis through a "credit" prism, missing the tectonic issue that the "natural rate of interest" had fallen below the Fed funds rate. Failure to diagnose the problem properly meant that Fed policy may have made matters worse. This is perhaps the best analysis I have ever read on what went wrong, yet it has received scant attention.

Do we have any assurance that central banks have learnt their lesson? Clearly not the ECB, judging from Mr Trichet's ill-judged article for the Financial Times two weeks ago: "Now It Is Time for All to Tighten." Much of what he wrote is correct in as far as it goes. Public debt is out of control. Budget stimulus may start to backfire. We are at risk of a "non-linear" rupture should confidence suddenly snap in sovereign states.

Yet he also suggested that half the world can copy the fiscal purges of Canada and Scandinavia in the 1990s, all at the same time, without setting off a collective downward spiral. He offered no glimmer of recognition that the fiscal squeeze must be offset by ultra-loose money. True to form, the ECB is now draining liquidity. Three-month Euribor has risen to the highest in over a year.

John Makin from the American Enterprise Institute described the Trichet argument that collective removal of fiscal thrust can be expansionary as "preposterous and dangerous." Mr Edwards called it "risible."

Berkeley's arch-Keynesian Brad DeLong could only weep, saddened that everything learned over 70 years had been tossed aside in a total victory for 1931 liquidationism. "How did we lose the argument," he asked?

Unfortunately, such obscurantism is taking hold in the US as well. Alabama Sen. Richard Shelby has blocked the appointment of MIT professor Peter Diamond to the Fed Board, ostensibly because he is a labour expert rather than a monetary economist but in reality because he is a dove in the ever-more bitter and polarised dispute over quantitative easing.

The Senate has delayed confirmation of all three appointees for the board, who all happen to be doves and allies of Fed chairman Ben Bernanke. The Fed is in limbo until mid-September. So the regional hawks who so much misjudged matters in 2008 have unusual voting weight, and now they have a commodity spike as well to rationalise their Calvinist preferences.

Whatever Dr Bernanke wants to do this week — and I suspect that he is eyeing the $5 trillion button lovingly — he cannot risk dissent from three Fed chiefs: one yes, two maybe, but not three. He faces a populist revolt from the Tea Party movement, with its adherents in Congress and the commentariat. And China simply hates QE, which may or may not be rational but cannot be ignored.

Global markets have already priced in the next QE bailout, banking the "Bernanke put" as if it were a done deal. We will find out on Tuesday if life is really that simple.

* * *

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GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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Ambrose Evans-Pritchard: Commodity spike queers pitch for Bernanke's QE2

Posted: 08 Aug 2010 01:22 PM PDT

By Ambrose Evans-Pritchard
The Telegraph, London
Sunday, August 8, 2010

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/793323…

Agflation may indeed be a headache for China and India, where economies have over-heated and food is a big part of the inflation index. But the West is another story.

Global markets have already priced in the next QE bailout, banking the "Bernanke put" as if it were a done deal. We will find out on Tuesday if life is really that simple.

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

James Turk: Is silver ready to move higher?

Posted: 08 Aug 2010 01:22 PM PDT

2:20p ET Sunday, August 8, 2010

Dear Friend of GATA and Gold (and Silver):

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, observes in commentary today that silver has been appreciating just as much as gold has over the last nine years and may be an even better buy now for investors who are prepared to deal with its greater volatility. Turk's commentary is headlined "Is Silver Ready to Move Higher?" and you can find it at the GoldMoney Internet site here:

http://goldmoney.com/gold-research/is-silver-ready-to-move-higher.html

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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To contribute to GATA, please visit:

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Adrian Day: Buy Gold, Sell Wheat

Posted: 08 Aug 2010 01:22 PM PDT

Hard Assets Investor submits:

By Matt Hougan

Adrian Day is one of the true pioneers of global investing. For years, the London native has run a boutique global investing firm (Adrian Day Asset Management) that combines complete independence, a global purview and a long-term value philosophy to bear on the markets. HardAssetsInvestor.com's Editor-in-Chief Matt Hougan caught up with Adrian recently to discuss his view on gold, platinum, wheat and the broader commodities landscape.

ETF Securities Star Performer on Gold ETF Leader Board

Posted: 08 Aug 2010 01:22 PM PDT

Bron Suchecki submits:

The table below ranks all ETFs and other non-listed custodial facilities who publish regular figures on their holdings (source: Sharelynx). Balances are by issuer, rather than stock exchange their individual products are listed on.

Rank	ETF/Custodial Facility	Gold Ounces as at July 2009	Gold Ounces as at July 2010	% Increase	% Market Share
1^st	Gold Bullion Securities	40,465,445	47,238,687	16.7%	5.3%
2^nd	Zurcher Kantonalbank	4,738,397	5,612,194	18.4%	0.6%
3^rd	ETF Securities	2,716,282	4,938,090	81.8%	0.6%
4^th	iShares	2,323,677	2,921,785	25.7%	0.3%
5^th	Julius Baer	1,849,375	2,607,096	41.0%	0.3%
6^th	Central Fund/Trust of Canada	1,571,037	2,108,910	34.2%	0.2%
7^th	Xetra Gold	1,019,540	1,607,743	57.7%	0.2%
8^th	Bullion Vault	583,705	666,055	14.1%	0.1%
9^th	Sprott	na	582,417	na	0.1%
10^th	GoldMoney	425,168	498,567	17.3%	0.1%
11^th	Claymore	366,000	356,664	-2.6%	0.0%
12^th	Benchmark (India)	68,674	162,427	136.5%	0.0%
13^th	Bullion Management Group	92,544	86,448	-6.6%	0.0%
14^th	UTI (India)	46,136	69,607	50.9%	0.0%
15^th	e-Gold	68,208	60,256	-11.7%	0.0%
16^th	Reliance Captial (India)	38,935	52,760	35.5%	0.0%
17^th	GoldIST (Turkey)	46,780	46,780	0.0%	0.0%
18^th	Mitsubishi UFJ (Japan)	na	27,869	na	0.0%
19^th	Kotak (India)	11,060	22,345	102.0%	0.0%
20^th	SBI (India)	23,920	19,837	-17.1%	0.0%
21^st	Religare (India)	na	5,273	na	0.0%
22^nd	Quantum (India)	1,961	3,472	77.0%	0.0%
	Gold "Products" Sub-total	56,456,844	69,695,282	23.4%	7.8%
	COMEX	9,140,646	11,085,141	21.3%	1.2%
	TOCOM	180,464	129,472	-28.3%	0.0%
	Other Privately Held	818,565,798	813,860,802	-0.6%	91.0%
	Total Privately Held	884,343,752	894,770,697	1.2%	100.0%

The World Gold Council sponsored Gold Bullion Securities dominates with 68% market share of known or visible products. However, when considered in light of estimated worldwide private/institutional gold holdings of 895 million ounces(1), its real market share of investor gold holdings is 5.3%. Not too shabby considering how secretive gold investors can be.

The market share percentages also indicate that caution should be taken prognosticating from ETF and futures movements as they only account in total for 10% of the market. I suppose analyst and commentator obsession with them stems from their visibility in what is an otherwise opaque market.

The standout performer over the past year has to be ETF Securities, with an increase of 82%. At this rate they have the number two spot in their sights. However they may encounter strong competition from iShares, who on June 24 split their shares down to 1/100th of an ounce (a $12 per share price compared to $120 for their competitors) and on July 1 reduced their management fee from 0.40% to 0.25%,(2) leaving Gold Bullion Securities at 0.4% and ETF Securities at 0.39%.

This has iShares’ ounces up 6.95% from June 24 to August 4, compared to Gold Bullion Securities down 2.61%, ETF Securities down 2.67% and all Issuers’ ounces down 0.97% over the same time period. At this time iShares appear to be getting a positive response from their “newly refined” product – could a price war be on the cards?

Sprott’s closed end fund made a big entry straight to 9th place, reflecting its strong support from the goldbug community, who do not trust the “bankster” ETFs. My reading of the commentators is that the trusted products seem to be Central Fund/Trust of Canada, Bullion Vault, Sprott, GoldMoney, Bullion Management Group and probably e-Gold. If we split the leader board on that basis we do get an interesting result.

	Gold Ounces as at July 2009	Gold Ounces as at July 2010	% Increase
Untrustworthy	53,716,182	65,692,629	22.3%
Trustworthy	2,740,662	4,002,653	46.0%

Benchmark appears to be winning the Indian ETF war, with a 136% increase and a balance more than double their nearest competitor. The Indian gold ETF market is unique with seven products listed. Certainly it is a larger gold market than the US (with three products fighting it out) but with only 335,000 ounces across all of them, it seems to confirm that India remains in love with physical rather than paper.

Disclosure: Long ASX:ZAUWBA

Likely Market Movers to Watch This Week: August 9 – 13, 2010

Posted: 08 Aug 2010 01:22 PM PDT

Cliff Wachtel submits:

Likely Market Movers To Watch This Week

Prior Week

Poor US Jobs Report Hits USD But Late Rally Keeps Stock Gains For The Week.

Stocks close higher for the week on combination of momentum from earnings, some positive PMI data.

Wheat Continues To Spike On Russian Export Ban, Poor Harvests In Black Sea Region and Canada, Though Near Term Likely Overbought.

Positive ECB Comments Contrast to Fed.

Next Week

Likely Market Movers to Watch This Week: August 9 – 13, 2010

Posted: 08 Aug 2010 01:22 PM PDT

Cliff Wachtel submits:

Likely Market Movers To Watch This Week

Prior Week

Poor US Jobs Report Hits USD But Late Rally Keeps Stock Gains For The Week.

Stocks close higher for the week on combination of momentum from earnings, some positive PMI data.

Wheat Continues To Spike On Russian Export Ban, Poor Harvests In Black Sea Region and Canada, Though Near Term Likely Overbought.

Positive ECB Comments Contrast to Fed.

Next Week

Incredible Threat

Posted: 08 Aug 2010 01:21 PM PDT

Last week, Mr. James Bullard was being both cagey and clairvoyant. The president of the St. Louis Federal Reserve Bank noticed what everyone else has seen for months; the US economic recovery is a flop. GDP growth was last measured pottering along at a 2.4% rate in the second quarter, less than half the speed of the last quarter of '09. At this stage in the typical post-war recovery, GDP growth should be over 5% with strong employment. Instead, the "Help Wanted" pages are largely empty. Homeowners are still underwater. And shoppers are still largely missing from the malls that once knew them. Whatever is going on, it is not the "V" shaped recovery that economists had expected. Many now worry that the recovery might have a "W" shape – a "double dip recession" form, with GDP growth dropping down below zero in this quarter or the next.

Mr. Bullard told a telephone press conference he worries that the US economy may become "enmeshed in a Japanese-style deflationary outcome within the next several years." That is exactly what is likely to happen.

But it is a little early for the Fed economists to throw in the towel. They still have some fight left in them. If they were really on the ropes, for example, they could throw their "widow maker" punch – dropping dollar bills from helicopters. This would make sure that the money supply increases, even if the normal distribution channel – bank lending – is broken.

In a celebrated speech on Nov. 21, 202, Mr. Ben Bernanke, then a recent addition to the Federal Reserve Bank's board of governors, explained why deflation was not a problem:

Like gold, US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost.

It was that technology to which Mr. Bullard referred when he ceased being prescient and began being cagey. He was not advocating dropping money from helicopters, not just yet. He was hoping he wouldn't have to. Instead, he was raising the menace of inflation, in the hopes that that would be enough.

"By increasing the number of US dollars in circulation, or even by credibly threatening to do so," Mr. Bernanke had continued, "the US government can also reduce the value of a US dollar in terms of goods and services, which is equivalent to raising prices in dollars of those goods and services... We conclude that under a paper money system, a determined government can always generate higher spending and hence positive inflation."

There's the problem right there. The threat must be credible. Ben Bernanke's speech title left no doubt about his intentions: "Deflation: Making sure it doesn't happen here." Back then, the reported consumer price measure stood at 1.7% – slightly below the 2% target. Perhaps it was that 0.3% undershoot that set Ben Bernanke to thinking about it. If so, we wonder what he must think now. Today, the Fed is off-target by 75%, which is to say, the measured inflation rate is just 0.5%. It is beginning to look as though Ben Bernanke's reputation as a deflation fighter is more boast than reality.

The Fed's Open Market Committee meets on August 10th. On the agenda will be more direct purchases of US Treasury debt – bought with money that didn't exist previously. This is what economists call "quantitative easing." It is a way of increasing the money supply. But quantitative easing is not the same as dropping money from helicopters. If you drop money from helicopters there is no room for ambiguity, and no doubt about what happens next. In a matter of seconds, your currency will be sold off, your loans called, and your credibility ruined for at least a generation. Quantitative easing, on the other hand, is a much more subtle proposition. It allows the central banker to maintain his credibility, at least for a while, because it doesn't necessarily or immediately work. When the private sector is hunkering down, the money doesn't go far. Prices don't rise. Japan has done plenty of quantitative easing, with no loss to the value of the yen or to the credibility of its central bank. Europe has done it too. And so has America. The US Fed bought $1.25 trillion worth of Wall Street's castaway credits in the '08-'09 rescue effort. But instead of losing faith in America's central bank, investors bend their knees and bow their heads. Incredibly, the US now announces the heaviest borrowing in history while it enjoys some of the lowest interest rates in 55 years.

A threat to undermine the currency, we conclude, is only credible when it is made by someone who has already lost his credibility. That is, someone with nothing more to lose. Bernanke, Bullard, et al, are not there yet.

Bill Bonner
for The Daily Reckoning Australia