Gold World News Flash |
- 2010-09-23 Quick update: gold price, gold dealers review, RichardsonHeritage Group
- Sinai Says Fed’s Sept. 21 Statement Means ‘Gotta Buy Gold’
- Foreign Currency Wars fuel Gold’s Rally to $1,300 /oz
- The US dollar is ready to plummet
- Gold Jumps to $1295 as US Feds "QE2 Shocker" Undoes 1/2 of Japans Yen Devaluation
- PHYS price to NAV not bad at all…
- Doug Casey: America Should Default On Debt Now
- Hourly Action In Gold From Trader Dan
- Crude Unchanged, Gold Forges Yet Another Record High in FOMC's Wake
- Chinese Duality: Fast Economic Growth or Social Stability?
- Daily Dispatch: America’s Last Great Asset
- More Forensic Evidence of Gold & Silver Price Manipulation
- Fed Opens Pandora’s Box
- Grandich Client Abacus Mining
- Drew Clark: Adding Value Through Growth
- Otis Gold Corp: Kickin’ It at Kilgore
- How High Will Gold Go This Fall?
- Currency Crisis Has Begun
- Gold/Silver Ratio Analysis
- Gold Focus is on Trendline
- Quantitative Easing - The Next Chapter
- LGMR: Gold Jumps to $1295 as Feds QE2 Shocker Undoes 1/2 of Japan's Yen Devaluation
- Grandich Client Update – Oromin Explorations
- Crude Oil Falls Ahead of Inventory Report, Gold Continues to Fly
- Mining Shares Lag Compared To Precious Metals, Perform Admirably Versus Broader Market
- 2010-09-22 Extensive new summary of 96 analysts' gold price forecasts
- James Turk: Dollar is ready to plummet
- Mike Maloney: $10 Oil? Currency Collapse Coming
- Gold Seeker Closing Report: Gold Marks New Record High and Silver Scores a New 30-Year Closing High
- Gold and Silver Charts; US Dollar
- The Top 10 Reasons For Surging Asset Correlations
| 2010-09-23 Quick update: gold price, gold dealers review, RichardsonHeritage Group Posted: 22 Sep 2010 11:04 PM PDT Gold price near $1,300This week, gold touched the $1,295 mark and set a historical record high. There is a wind of change in the market, we are seeing highly unusual phenomena such as stocks, bonds and gold moving in the same direction.
|
| Sinai Says Fed’s Sept. 21 Statement Means ‘Gotta Buy Gold’ Posted: 22 Sep 2010 09:44 PM PDT The Federal Reserve's statement yesterday that inflation is below levels consistent with the central bank's mandate for price stability means it's time to buy gold, said Allen Sinai, chief global economist at Decision Economics Inc. in New York.
|
| Foreign Currency Wars fuel Gold’s Rally to $1,300 /oz Posted: 22 Sep 2010 05:45 PM PDT
|
| The US dollar is ready to plummet Posted: 22 Sep 2010 05:41 PM PDT
|
| Gold Jumps to $1295 as US Feds "QE2 Shocker" Undoes 1/2 of Japans Yen Devaluation Posted: 22 Sep 2010 05:36 PM PDT
|
| PHYS price to NAV not bad at all… Posted: 22 Sep 2010 05:30 PM PDT Source: Biiwii.com.blogspot.com…at least relative to anything it has seen thus far in its short lifetime. Looks like gold bugs are afraid to bid this up. Looks like gold bugs know the CoT stinks and the evil manips are going to target gold. Looks to me like sentiment may not yet be ready for top making. The source for this graph is the very excellent CEF Connect, where I was just researching a global bond fund (yup, it may be time to tweak the big picture global view up another small notch, diversifying into some relative quality on the income side to go along with a few on the equity side). What does this contraction in the spread between PHYS price and NAV mean? Well, it doesn't indicate froth. However, for perspective also included is the Central Fund of Canada (w/ its silver component) not looking so sedate sentiment wise.  
|
| Doug Casey: America Should Default On Debt Now Posted: 22 Sep 2010 05:12 PM PDT As the world sinks deeper into what he calls the Greater Depression, Casey Research Chairman Doug Casey sees default on the U.S. national debt as inevitable -- albeit probably in the guise of currency destruction. He anticipates further contraction in real estate, particularly on the commercial front. As long as stocks remain overpriced, he'll shy away from equities -- except perhaps in favored sectors, such as gold. In fact, in this exclusive interview with The Gold Report, Doug posits that gold juniors might "go up by an order of magnitude or more, even while most other stocks are going down." The Gold Report: Doug, at a recent conference you said that the U.S. ought to default on its national debt now. Why that rather than letting it play out? Doug Casey: Several other things almost equally radical should be done besides defaulting on the debt. I recognize that an outright default is most unlikely, but the national debt should be defaulted on for several reasons. To start with, once the U.S. government defaults on its debt, people will think twice before lending it any more money; giving politicians the ability to borrow is like giving a teenager a bottle of whisky and the keys to a Corvette. A second reason is that the debt is an albatross around the necks of the next several generations; it's criminal to make indentured servants out of people who aren't even born yet. A third reason would be to overtly punish those who have been lending money to the government, enabling it to do all the stupid and destructive things that the government does with that money. The debt will be defaulted on one way or another. The trouble is they're almost certainly going to default on it through inflation, by destroying the currency, which is much worse than defaulting on it overtly. That's because inflation will wipe out the relatively few people who are prudent in this country, those who are actually saving money. Because they generally save in the form of dollars, they're going to wipe them out financially. More Here..
|
| Hourly Action In Gold From Trader Dan Posted: 22 Sep 2010 05:08 PM PDT View the original post at jsmineset.com... September 22, 2010 10:11 AM Dear CIGAs, If the FED wanted to give the Dollar the kiss of death with yesterday's FOMC release, they certainly managed to accomplish their task. It continued its descent which began as soon as the statement hit the wires yesterday and has not looked back since. As it has done so, it has resulted in once again another huge inflow of funny money into the commodity sector in an exact replay of what was occurring in early 2008. There were very few individual commodities that were lower today as billions more were jammed into hard assets in an attempt to shield wealth from the depredations of a currency that has broken through support levels in a manner that is frightening for its intensity. Cotton in particular is on an awesome tear into the stratosphere. Get ready to see the price of your cotton clothing moving higher at the retail stores soon. One more reference to the Dollar – it is clawing its way back above cr...
|
| Crude Unchanged, Gold Forges Yet Another Record High in FOMC's Wake Posted: 22 Sep 2010 05:08 PM PDT courtesy of DailyFX.com September 22, 2010 04:08 PM The dovish interpretation of the FOMC’s policy commentary continues to reverberate across the capital markets. However, the impact for the dollar and gold is very different than for speculative commodities like equities and crude. And the difference shows. North American Commodity Update Commodities - Energy Oil Posts a Positive Performance on the Technicality of Rollover Crude Oil (LS Nymex) - $74.71 // $1.19 // 1.62% When we are looking at the performance of crude, it is important to differentiate what we are actually looking at. Are we looking at US or UK crude? Is it spot, a particular futures contract or a continuous contract? If we look at the continuous US futures contract (which we usually do for consistency), we see that oil put up a meaningful performance close to close Wednesday. However, this is strength on a technical basis only. This climb was fully the result of a switch from the expiring October t...
|
| Chinese Duality: Fast Economic Growth or Social Stability? Posted: 22 Sep 2010 05:08 PM PDT I finally managed, for about two minutes, to stop worrying about the coming ascendancy of the Chinese to overwhelm the planet – a welcome respite! – after I read Rick Mills of Aheadoftheherd.com quoting some Chinese doofus named Xiang Songzuo, who unbelievably is deputy head of the International Monetary Institute at Beijing's Renmin University, and who said, "Export industries employ so many people, and a drop in exports would mean a rise in unemployment which could cause very serious social unrest." Huh? I am surprised that he thinks that a drop in exports would necessarily mean a rise in unemployment, unless he is saying that there is no possibility of compensating pickup in internal demand for anything China! Hahaha! He probably heard me laughing at him, and that is why he quickly went on, "Social stability is Chinese leaders' top priority, and the way to achieve it is fast economic growth to keep people working," to which I responded with even more Sardonic Mogambo Laughter Of...
|
| Daily Dispatch: America’s Last Great Asset Posted: 22 Sep 2010 05:08 PM PDT September 22, 2010 | www.CaseyResearch.com America’s Last Great Asset Dear Reader, As I write, the price of gold has responded, as expected, to the Fed’s confirmation that it’s actively considering turning back on the monetary taps. While I can’t know what sound money will be trading at by the time you read this, as I write it’s at $1,294 in the spot market. According to Bloomberg, the reason for gold’s run-up is a bit of a mystery, and I quote… [LIST] [*]Prices have gained this year even as U.S. inflation slowed. Bullion is traditionally bought as a hedge against rising consumer prices. Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 1.82 percent from 2.19 percent six months ago. [/LIST] There are a couple of problems with that bit of conventional wisdom. First, I take issue with the idea that, in the current context, the 10-year U....
|
| More Forensic Evidence of Gold & Silver Price Manipulation Posted: 22 Sep 2010 05:08 PM PDT In two recent articles "The Gold Market is not "Fixed", it's Rigged" and “The Failure of the Second London Gold Pool”. I showed how the gold trading between the London AM Fix and the PM Fix was unnaturally related in an inverse way to the trading between the PM Fix and the following AM Fix. I calculated that the probability of such a counter-intuitive correlation existing by happenstance was one in 2.6 times ten raised to the power 31. This is almost irrefutable evidence that some one is continually and deliberately dumping gold into the PM Fix to suppress the price of gold. In this article I have unearthed even more forensic evidence in the form of a correlation between the gold...
|
| Posted: 22 Sep 2010 05:08 PM PDT The 5 min. Forecast September 22, 2010 01:07 PM by Addison Wiggin [LIST] [*] Two little sentences propel gold near $1,300, push dollar index below 80 [*] “Opening Pandora’s box”… Chuck Butler parses Fed’s latest statement [*] Silver busts through $21… James Turk on where it goes from here [*] Oil on the rise… and the oil play that prompted five exclamation points from Byron King [*] “America: Love it or leave it?” Readers react… [/LIST] Today may be the day gold breaks through to $1,300. That thought kicked off our writing process this morning. Let’s get to the action… Two key sentences from the FOMC press release at 2:15pm yesterday got gold traders all lathered up… “Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price s...
|
| Posted: 22 Sep 2010 05:08 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! September 22, 2010 01:17 PM ABACUS Mining of Vancouver and Europe's second largest copper producer KGHM A Partnership of Relative Strengths On May 4, 2010, Abacus Mining & Exploration Corp. of Vancouver confirmed market speculation that its wholly-owned Afton-Ajax copper-gold project near Kamloops, B.C. had been identified by Europe's second largest copper producer and the world's third largest silver producer, KGHM Polska Miedz S.A., as meeting the criteria to be their first significant investment outside of Poland.* KGHM, a relatively unknown name outside of Europe, announced that it was looking to expand its current copper production of 500,000 tonnes to 700,000 tonnes per annum over the next decade, its own production subject to rising costs with mining at increasing depths. Abacus' Afton-Ajax project, three past producing open-pit ...
|
| Drew Clark: Adding Value Through Growth Posted: 22 Sep 2010 05:08 PM PDT Source: Brian Sylvester of The Gold Report 09/22/2010 Drew Clark is a relatively new analyst with Byron Capital Markets, but that doesn't mean he doesn't espouse his fair share of wisdom. In this exclusive interview with The Gold Report, Drew provides an in-depth look at gold companies in all categories that he believes are respectable investment opportunities. The Gold Report: Drew, please tell our readers about your coverage sector and why you're covering precious metals. Drew Clark: I am one of the two analysts covering the mining space at Byron Capital Markets. My counterpart, Jeff Wu, is located in our Vancouver office. My coverage universe breaks down into two groups: producers and developers. All of the companies in those spaces have growth prospects, either through production growth or the development of new operations. Our goal is to provide a universe of companies that present investors with proven management teams, economic projects in their pipelines and ul...
|
| Otis Gold Corp: Kickin’ It at Kilgore Posted: 22 Sep 2010 05:08 PM PDT A Monday Morning Musing from Mickey the Mercenary Geologist [EMAIL="Contact@MercenaryGeologist.com"]Contact@MercenaryGeologist.com[/EMAIL] September 20, 2010 In late July I flew from Albuquerque to Salt Lake, had a one hour layover, and was in Twin Falls, Idaho in less than four hours. That's about as short a jaunt as it gets with my Mercenary lifestyle of countless days and nights on airplanes and in airports. The hardest part of the trip was getting the hotel shuttle to pick me up. That took four phone calls and 45 minutes. The purpose of my trip was to complete due diligence on Otis Gold Corp's (OOO.V) flagship Kilgore project, located in east-central Idaho. I first reported on the company in early March during the PDAC. At that time Consulting Geologist John Carden and I had a one hour face-to-face meeting to discuss Otis' various projects and in particular, the Kilgore deposit. I urge you to read my earlier musing to get a good understanding and background ...
|
| How High Will Gold Go This Fall? Posted: 22 Sep 2010 05:08 PM PDT By Jeff Clark, Senior Editor, Casey's Gold & Resource Report The gold price has been hitting ever-new records over the past couple weeks, now closing in on the $1,300 mark. Some gold followers are saying this is extremely bullish for the near-term price since it broke so decisively through its June 28th high of $1,261. If they're right, how high might this particular surge go? While the endgame for gold is far off in my opinion, it's worth looking at short-term surges, especially if you're trying to determine to buy at a particular level. Plus, it's just darn fun. I looked at all major surges in the gold price since 2001. What constituted a "surge," in my opinion? Any large jump or uptrend that's clearly visible on an annual chart. So instead of looking at yearly gains or seasonal tendencies, I simply measured the percent gain of all big upswings that were the most obvious, regardless of when they occurred. I put the findings to a chart. You can see...
|
| Posted: 22 Sep 2010 05:08 PM PDT It's been my position for a while that Bernanke's monetary policy would eventually create a currency crisis in the world's reserve currency. I warned that crisis would begin as soon as it became apparent the dollar was caught in the grip of the 3 year cycle decline. I had three conditions that had to be met before I was willing to call the beginning of the end. The first condition was for the dollar to move below `82. That was the warning shot that problems were developing. The second and third conditions were a move below long term support (80) and a failed intermediate cycle. The drop below 80 this morning has now completed the final two conditions. I've marked the last three intermediate cycles with the blue arrows. The move below the last intermediate cycle low this morning initiates a failed intermediate cycle. This is also an extremely left translated cycle. Left translated cycles tend to produce the worst losses as they have a long time to...
|
| Posted: 22 Sep 2010 05:08 PM PDT The Gold/Silver ratio has just broken in favor of Silver. In other words, the ratio has broken to the downside. This development along with persistent strength in Gold has prompted the mainstream gurus and “experts” to talk up Silver. We’ve been writing about the potential in Silver on more than one occasion. See here and here. There are some important points to take away from the Gold/Silver ratio. We show the Gold/Silver ratio in Silver in the chart below. Take a look and think about what you see. The positive is that breakdowns in the Gold/Silver ratio tend to be an accelerant for Silver. However, such breakdowns often occur at about the midpoint of a move. Note that Silver has made an important top after each major breakdown in the Gold/Silver ratio. Should we expect that soon? The chart shows there is plenty of room for the ratio to fall. A fair target looks like 57. Our target of $24-$25 for Silver looks well on track after the breakout pas...
|
| Posted: 22 Sep 2010 05:08 PM PDT courtesy of DailyFX.com September 22, 2010 06:36 AM Daily Bars Prepared by Jamie Saettele Sights remains on round figures such as 1300, 1400, 1500, etc. Watch channel resistance going forward. The line is at 1309 today and increases about $3 a day....
|
| Quantitative Easing - The Next Chapter Posted: 22 Sep 2010 05:08 PM PDT Gold jumps to new high on Fed news. Inflation and hyperinflation on the way? SLV ETF has a big day! Central Bank Gold Agreement has broken down... and much more. YESTERDAY IN GOLD AND SILVER Well, what excitement there was at the London open on Tuesday morning, vanished shortly after the London a.m. gold fix was in at 10:30 a.m. local time. From there, gold began a slow decline that lasted until the FOMC meeting ended at 2:15 p.m. Eastern. The news from that caused gold to spike up over $20 during the next few hours... and the bullion banks had to throw a fair amount of paper at it to prevent it from blasting through $1,300 spot. As it was, gold hit a new high price [$1,292.00 spot] during electronic trading in New York yesterday. Tuesday's silver price action looked very similar to gold's... with silver blasting through $21 shortly before 4:00 p.m. yesterday afternoon... and it took a bit of work for 'da boyz' to get the price back under th...
|
| LGMR: Gold Jumps to $1295 as Feds QE2 Shocker Undoes 1/2 of Japan's Yen Devaluation Posted: 22 Sep 2010 05:08 PM PDT London Gold Market Report from Adrian Ash BullionVault 09:25 ET, Weds 22 Sept. Gold Jumps to $1295 as US Fed's "QE2 Shocker" Undoes 1/2 of Japan's Yen Devaluation THE PRICE OF GOLD in wholesale dealing leapt to fresh record highs vs. the Dollar at $1295 an ounce early Wednesday, after the US currency fell hard following the Federal Reserve's new policy stance, pointing to fresh "money printing" ahead. Silver prices also rose, hitting new 30-year highs at $21.20 an ounce, as world stock markets fell. Major-economy government bonds rose. The Dollar lost half of the ¥2.5 gains injected last week by the Bank of Japan, which sold its own currency to depress the Yen from 15-year highs."The Fed said exactly the opposite of what the market had been expecting," the Platts news service quotes Afshin Nabavi at Swiss refiners MKS today."Gold went up more than $15 in less than five minutes." Repeating its vow to keep interest rates "exceptionally low [for an] extended period"...
|
| Grandich Client Update – Oromin Explorations Posted: 22 Sep 2010 05:08 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! September 22, 2010 07:09 AM I’ve often said that Grandich client Oromin Explorations Ltd likes to drill for ore and not investors. Management has never fitted the “A-Typical” Vancouver play. While this may have led a handful of people to think they somehow weren’t doing their job due to what they perceived as lack of promotion, management was spending most of its efforts drilling for gold in rocks – not among investors. The results of that effort are evident in today’s release. These results support a notion that has been in the market of late that OLE could be a worthy takeover/merger target. Stay tuned. [url]http://www.grandich.com/[/url] grandich.com...
|
| Crude Oil Falls Ahead of Inventory Report, Gold Continues to Fly Posted: 22 Sep 2010 05:08 PM PDT courtesy of DailyFX.com September 21, 2010 10:51 PM The trends that have been in place for the past couple of weeks were maintained on Tuesday, as crude oil sank and gold soared. Traders will be taking a close look at Wednesday’s oil inventory figures for directional guidance. Commodities – Energy Crude Oil Falls Ahead of Inventory Report Crude Oil (WTI) - $75.06 // $0.09 // 0.12% Commentary: Crude oil fell for the fifth time in six sessions on Tuesday, shedding $1.34, or 1.79%, as the October contract rolled off the board. November now takes the reign as prompt, but other than the $1.45 boost in prices, nothing has changed. Crude oil continues to underperform under the burden of multi-decade high inventories. The API survey is indicating that we will get another bearish inventory report from DOE on Wednesday (API: Crude oil +2.2 million, Gasoline +2.4 million, Distillate +2.5 million), but it is worth repeating that in recent weeks the API survey has not been a ...
|
| Mining Shares Lag Compared To Precious Metals, Perform Admirably Versus Broader Market Posted: 22 Sep 2010 04:59 PM PDT Dear CIGAs, Click either chart to enlarge today's HUI-Gold Ratio and HUI/S&P 500 Ratio action in PDF format with commentary from Trader Dan Norcini
|
| 2010-09-22 Extensive new summary of 96 analysts' gold price forecasts Posted: 22 Sep 2010 04:59 PM PDT Those who bought gold in 2009 have so far made a dollar profit of up to 59% ($813 to $1,295). Gold's appreciation in euros is similarly impressive—gold gained 58% since January 2009 (€612 to €965). The same applies to the British pound, where we have witnessed a plus of 50% (&ound;551 to &ound;825).
|
| James Turk: Dollar is ready to plummet Posted: 22 Sep 2010 04:51 PM PDT 12:48a ET Thursday, September 23, 2010 Dear Friend of GATA and Gold: As commentator at the Free Gold & Money Report, GoldMoney founder and GATA consultant James Turk has written "The U.S. Dollar Is Ready to Plummet." You can find the essay here: http://www.fgmr.com/us-dollar-is-ready-to-plummet.html Meanwhile, gold and silver dealer Mike Maloney of GoldSilver.com interviews Turk on video for four minutes, giving him a chance to elaborate on the theme he raised at GATA's Gold Rush 21 conference in Dawson City, Yukon Territory, Canada, in August 2005: that gold isn't the "barbarous relic" of Keynes' phrase; central banking is. You can watch the interview here: http://www.goldsilbervideoinfo.com/james-turk-central-banks-not-gold-are... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Join GATA here: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * 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: To contribute to GATA, please visit: ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth
|
| Mike Maloney: $10 Oil? Currency Collapse Coming Posted: 22 Sep 2010 04:43 PM PDT |
| Gold Seeker Closing Report: Gold Marks New Record High and Silver Scores a New 30-Year Closing High Posted: 22 Sep 2010 04:00 PM PDT Gold continued yesterday's post-fed rally in Asia and London and rose to a new record high of $1295.80 a little after 9AM EST in New York before it fell back off into the close, but it still ended at a new record closing high with a gain of 1.4%. Silver climbed to a new 30-year high of $21.15 before it also fell back off a bit, but it still ended with a gain of 1.99%.
|
| Gold and Silver Charts; US Dollar Posted: 22 Sep 2010 03:29 PM PDT |
| The Top 10 Reasons For Surging Asset Correlations Posted: 22 Sep 2010 03:26 PM PDT
"Wax on, Wax off", "risk on, risk off", whatever you want to call it, the most prevalent phenomenon in capital markets over the bear market rally of the past year has been the gradual yet relentless rise in cross asset correlations. As we reported earlier, hedge funds are now openly returning capital due to their inability to properly hedge positions and execute on traditional long/short strategies, which in turn is wreaking havoc on the entire 130/30 or 130/70 model (which also means gross leverage for most rational hedge funds is reduced as those who do gross up, are effectively betting the farm on market moves with an increasingly shorter and more volatile even horizon). Long before this became a daily topic on CNBC, we were warning about the dire implications of alpha extinction, and the impact it would have on hedge funds. And with the opportunity to diversify away risk increasingly taken away from investors, we expect that this trend will result in ever more capital fleeing the stock market. Yet the question remains: what has caused correlations to surge to current levels? If these reasons can be identified, it should be easy to eliminate them one at a time until some semblance of a rational market returns (at least on paper). Luckily, Nicholas Colas of BNY has once again beaten us to the punch, and has compiled a list of the top 10 reasons for increased asset price correlations. So without further ado... 1) Index-based, rather than active investing. Investing capital by index rather than stock picking is the financial version of “Why buy the cow when you are getting the milk for free?” After all, IF the stock market regularly returns +10% (which it did from the early 1980s to the late 1990s) AND most active equity managers underperform their benchmarks, then just putting money into a low-cost product that tracks a broad market index makes all the sense in the world. What a difference a lost decade for equities should have made, but evidently didn’t. The largest Exchange Traded Fund is the SPY, engineered to mirror the S&P 500. Other popular ETF products anchor off international stock market indices (EFA, EEM, for example), the spot price for precious metals (GLD, IAU, and SLV among others), and even unmanaged bond indices (AGG, BND, and SHY, just to name a few). And, of course, many of the largest mutual funds are index-based as well. Index-based investing has only grown in popularity during the “lost decade” for equities. The troublesome feature of this trend is that indexing makes no differentiation among companies that merit capital and those that don’t. That’s not an indictment, per se: it’s what the funds do and investors have every right to make that investment choice. But when capital flows to a company for no other reason than it is in an arbitrarily created index, the purest function of markets – allocating capital to its best possible use – will by necessity not work as well, and correlations will also tend to increase. Money that goes into an indexed product will be put to work across the board, not into the sectors and companies that offer the best risk-reward. That is the recipe for higher sector correlations. 2) Artificially low interest rates/ lack of a rate cycle. The business cycle and its interplay with interest rates is a bedrock driver of stock and other asset prices globally. During periods of slowing economic growth, central banks lower interest rates. That brings down the cost of capital and spurs investment and hiring. On the upside of a business cycle, the reverse action takes place as central banks raise rates to lower the chances for inflationary pressures to build. The rate cycle drives historically drove the out – or – under performance of many equity market sectors, including financials, consumer durables and housing. Throw all that out the window now. Central banks in developed economies have pinned short-term rates near zero and purchased longer dated sovereign debt in order to keep rates low across the yield curve. Their economies and banking systems are just too fragile to absorb the shock of “market” rates, especially as the governments of the U.S., Europe and Japan are issuing incremental debt to fund deficit spending. But without the normal rate cycle, investors are missing cues that have historically given them reasons to rotate among different industrial sectors. That makes the traditional sector rotation of typical cycles a thing of the past, and it should be no surprise that correlations rise in the absence of a “normal” investment cycle. 3) Heavier regulatory/taxation overhang. Chief executive officers like certainty. There isn’t much around in the best of times, including the security of their own jobs if things go awry. The U.S. has seen two large-scale pieces of legislation passed – financial services regulatory reform and health care – since the 2008 financial crisis. No matter where your political leanings may be, it is easy to see how +4,000 pages of new laws might put a bit of a chill in the C-level office suites of the country’s large companies and outright fear in the kitchen offices of small businesses. When combined, the two new laws touch both access to capital and labor cost structures in ways even the most politically connected enterprises on the planet– multinational banks – have trouble quantifying. Those fears create higher correlations across financial markets because, as with the prior point, they tear up the traditional “playbook” for economic recovery. Companies are especially reluctant to hire new workers since they worry about what incremental health care expenses may be associated with this hiring. Combine that with shaky final demand in many sectors and it should come as no surprise that unemployment is so sticky. Financial regulatory reform faces another round of headline-grabbing uncertainty as the new Consumer Financial Protection Bureau kicks into gear. Can banks fulfill their key role in the U.S. economy when regulatory uncertainty litters the front page? It seems a tall order. 4) Globalization of economies and financial markets. There is an old saying to the effect that “data is not the plural form of the word anecdote.” Still, the financial crisis yielded a rich trove of stories about how the meltdown in the U.S. housing market touched everyone from Icelandic herring fisherman to Maine’s lobster business to Norwegian pensioners to Chinese factory workers. There can be no doubt that the world’s economies are more closely knit together than ever before. Geographic diversification is one important access point for investors to buy less-correlated assets. Economic co-dependence may yield benefits from trade during good economic times, but it also increases the correlation of financial assets across the world’s markets. 5) A still fragile U.S. housing market. Most Americans own their primary residence – something over 66% of them at last count. But for +90% of them – maybe even 99%, we suspect – their house is also their largest financial asset. House prices therefore drive a lot of most Americans’ “wealth effect’ – the portion of their spending that is driven by how well-off they feel rather than how much they make. Prior to the 2008 financial crisis, house prices had not gone down on a national basis since the 1930s. That rubric was the intellectual anchor for much of the stupidity in the housing market during its bubble. Even with the pullback in residential real estate prices since 2007 no one can be sure that the troubles are not over for this market. That is yet another reason why the domestic recovery has been sluggish and choppy. And yet another reason why markets tend to correlate, as the domestic consumer is responsible for 70% of the economy. When one input – house prices – can swing consumer spending patterns for much of the economy, it is understandable that many stock market sectors will behave similarly. 6) Worries over deflation as an existential threat in the US. Central banks around the world know how to fight inflation. Raise interest rates, cool the economy, and watch expectations for inflation fall. If there is an “Easy button” in the central banker’s toolbox, this is it. In contrast, there is no effective playbook for deflation. Theories, yes. Plenty of those. Drop money from helicopters, to borrow from Fed Chairman Ben Bernanke’s oft-quoted speech. Japan, which must have more monetary policy helicopters than the world’s armies have real ones, is proof that deflationary expectations are pernicious and much harder to beat back than inflationary ones. Oh, and don’t tell me that deflation is not a realistic threat just because of the acres of cash hovering around the banking system. If it were not, why would the Fed be talking up the possibility of another round of quantitative easing? That lack of a recognized “cure” for deflation causes higher correlations because there are so few investment classes that actually benefit from lower prices. Sovereign debt is pretty much the only item on that menu, even as the credit-worthiness of most developed economy issuers is the lowest since World War II. All this contributes to the “twitchiness” we have noted in other points here since deflationary environment is not usually a good one for most risk assets. Just look at Japan. 7) Structurally higher US unemployment. Past U.S. recession – think 1973/4, 1979/80, 1982, 1990, and 2001/2002 – saw quick spikes in unemployment followed by a gradual but perceptible return to more normal levels. Auto workers are laid off when demand drops, for example, and then called back in 6-12 months as demand recovers. This time the contours of the recovery in labor markets are more difficult to predict. Much of the drag seems to come from the persistently high unemployment among less-educated workers, where unemployment rates are all higher than national averages. The U.S. has a clear surplus of construction workers and a clear shortage of affordable software engineers. It seems unlikely that workers can migrate from one vocation to the other, however. Capital markets are all-too-aware of this problem and cognizant of the fact that this means structurally higher unemployment, a sloppier recovery and greater risks to another economic downturn. And all that means, as with so many points outlined already, a “twitchier” hair trigger sensibility to investing in risk assets. 8) Memories of recent financial markets turmoil. Clever market watchers have called this the “Jason Bourne” market, because you don’t make an investment without first planning several exits in case your expectations don’t play out. That’s a hard to quantify observation, but neatly encapsulates the skittish “risk on, risk off” nature of the markets. 9) High frequency trading. By most widely quoted estimates, high frequency trading is some 60-70% of all daily activity in U.S. equity markets. HFT is a catch-all name for a range of strategies, from ETF arbitrage and statistical arb to trying to sniff out and front run large orders. But what almost all HFT trading has in common is a studied ignorance of company and sector fundamentals and an effort to allocate investor capital along those lines. And the few strategies that do still only hold stocks for a fraction of the time usually required to close the gap between aberrant perception and reality. HFT doesn’t add correlation as much as it seems to drive money away that has historically put money to work in less correlated methods. Retail investors have fled actively managed U.S. equity mutual funds since the “Flash Crash” of May 6th. How much of this is due to the volatility of that day is impossible to know. It does not seem to be performance driven – U.S. stocks are up on the year and essential flat from May 6th. Those who know far more about HFT than I do say “You cannot turn back the clock on technology.” Fair enough. But when technology becomes the end rather than the means it should be no surprise that other market participants will pack up and look for greener, less trampled pastures. And when those market participants are the ones that are better equipped by virtue of fundamental research and investment horizon to set rational prices, equity markets do run the risk of becoming a rodeo with no riders. 10) Upcoming U.S. elections. We’ll close out this list on a note of optimism. The entire House of Representatives and 37 Senate seats are up for grabs in a few weeks. If the primaries are any guide, there will be a lot of fireworks on Election Day 2010. No doubt the market is waiting to see the outcome of this event. Gridlock by dint of a Republican win in the House will almost certainly bring some change to Washington. Markets, like those CEOs we mentioned, like certainty – even if certainty means “nothing done.” And that could be enough to begin the thawing of corporate confidence and a more “normal” playbook for economic recovery. Source: BNY ConvergEx
|
| You are subscribed to email updates from Gold World News Flash To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 20 West Kinzie, Chicago IL USA 60610 | |
No comments:
Post a Comment