saveyourassetsfirst3 |
- Porter Stansberry: What every American needs to know about gold
- FXF vs. USD
- The Great Japanese Unwind and How It Will Play Out Globally
- Robert Shiller and the Fed's 'Credibility Trap'
- The Quantifiable Problem With Private Sector Salaries
- Silver Bullion Coin Premiums Rise…
- Gold, Silver and Mining Stocks Decline as Stocks Lead the Way
- Silver: Buy, Hold Or Sell? Update #20
- Interview With a Trading Legend, Part I
- Another Dollar Warning
- A World Unhinged!
- Beware the Ides of March
- Wall Street Conspirators Driving Spike in Silver
- The Great U.S. Collapse Nears: John Williams
- Gold Standard Institute letter cites another stunning admission by Fed Governor Warsh
- Gold & The Big Mkts: Sideways Action Ending!
- Sparta - Gold prohibition in a collapsing economy
- Gold Drop "To Be Expected" as Japans Nuclear Panic Hits Global Stock Markets
- Where are the insider admissions about gold? ...
- Housewives vs. Hedge Funds
| Porter Stansberry: What every American needs to know about gold Posted: 16 Mar 2011 06:20 AM PDT From Porter Stansberry in the S&A Digest: We suspect today's Digest might set a new, all-time high for response vitriol in the mailbag. So why kick the hornet's nest? Given what's happening around the world right now (monetary chaos, debt crises, soaring commodity prices, etc.), we think it's critical to understand the advantages (and drawbacks) of a gold-backed monetary system. In our view, if you don't understand gold, you probably don't understand what's happening to our money… and the world economy, as a result. One more thing… you're almost surely going to hear a lot more about gold-backed money over the next several months. The Utah legislature passed a bill this week allowing gold and silver coins to be used as legal tender in the state – for the value of their precious metal, not just the face value of the coins. By itself, this doesn't really mean much. Private businesses have always been allowed to accept whatever form of money they want for goods, including barter. But we think it's symbolically significant: The measure draws attention to the fact that the U.S. dollar isn't stable… and the government of Utah is encouraging its citizens to use gold and silver. The bill's sponsor, Brad Galvez, explained, "If the dollar continues to fall, what this will do will help stabilize the value of the dollar in Utah, so it helps stabilize the economy." That may be true in some limited way, but the real benefits of gold won't accrue until the U.S. Treasury and the entire banking system begin using it as a monetary reserve. If you want to learn why, please read on… So why do free-market types (like us), libertarians, lots of wealthy people… and some kooky conspiracy theorists… spend so much time talking about gold? Why do most government types and mainstream economists seem to hate gold so much? What's the real story? In general, people who favor more personal freedom (and responsibility), less government power, and more free markets tend to favor gold over paper (fiat) currencies, for the simple reason that gold can't be printed and its supply can't be easily manipulated by the government. Former Federal Reserve Chairman Alan Greenspan himself explained these issues in the conclusion of his famous 1967 essay Gold and Economic Freedom: In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value… The financial policy of the welfare state requires there be no way for the owners of wealth to protect themselves. The ability to protect your savings with gold from inflation is the first of several significant reasons to prefer gold as a currency. People will argue there are better ways to safeguard your savings – like investing for the long term in high-quality common stocks or owning real estate. I won't argue gold is the only way to protect yourself from inflation – or even the best way. (The best way to protect yourself from inflation is to own a capital-efficient business that's able to raise prices, but doesn't have to bear many of the additional costs. That's a lesson for another day…) But I would argue gold is the best way to protect yourself with money. Gold has retained its purchasing power for all recorded human history. It's a universally recognized and timeless store of value. Its natural properties have imbued the element with traits that humans find intrinsically valuable and well suited to use as money: It's portable, divisible, and doesn't corrode. If I were to hide 10 gold coins today and leave them for my grandchildren, I have no doubt that in 40-50 years, my grandkids would still be able to use them to purchase something around $14,000 in value. That certainty is gold's main appeal. It allows creditors to lend freely to debtors without having to worry about the real value of the money they'll be repaid. But in my opinion, as important as this factor is, it's not the real reason you should care about gold. Gold-backed monetary systems accomplish two other things that are even more important to an economy and to society. I'll explain these two secret benefits to gold below. But first… Most Americans don't realize a gold-backed currency is one of their birthrights as American citizens… Traditionally, the United States backed its banking system with gold. It did so because during the colonial period several experiments with fiat currency collapsed. Starting around 1750, King George's government forbade the issuance of paper money and America's economy came to function almost exclusively using silver Spanish coins for small transactions and gold as bank reserves. This system remained in place, in one form or another, with only short interruptions between 1750 and 1971. That's why the U.S. Constitution doesn't mention the Federal Reserve or fiat currency. Article 1, section 8 of the Constitution only empowers Congress: "To coin Money, regulate the value thereof, and of foreign Coin, and fix the Standard of Weights and Measures." This authority was never intended to permit the use of fiat (paper) money. It was intended to ensure that sound money – gold and silver coins whose measures would be regulated by Congress – were used. The system worked remarkably well. Before the big devaluation of the dollar in 1933 (when FDR seized all of the private gold in the country), prices during the gold standard period were remarkably stable. For almost 200 years (1750-1933), the purchasing power of the U.S. dollar (which was defined as 1/20th an ounce of gold) was nearly unchanged. Think about that in light of this fact: Since 2001, the value of the U.S. dollar has fallen 50% against a basket of commodities (the CRB index). Which system do you think is better for the economy, a system that holds together for nearly 200 years… or a system that loses half of its value in one decade? The gold standard's powers shouldn't be exaggerated. A gold-backed monetary system doesn't prevent bankers from making bad loans. It won't stop investors from paying too much for lousy investments. And it doesn't work to prevent bubbles when debts outside the banking system are created, as occurred with the various trust companies prior to the Great Depression. The gold standard only works to the extent that it's enforced, just like any other standard. What about the secret advantages to gold-backed monetary systems? The first little-understood advantage is that gold-backed monetary systems are almost completely immune from any large-scale boom or bust. That's because the supply of credit is strictly regulated by the size of the economy. Bankers are limited by their gold reserves from making too many loans. Let me show you what this means… In the U.S., under the various forms of the gold standard we used from the 1750s until 1971, you'll notice a curious coincidence. The total debt-to-GDP ratio in our country was remarkably – almost perfectly – stable. Yes, there are some exceptions, like during World War II. But except for these temporary anomalies, the ratio of debt (both public and private) to GDP was remarkably stable at around 1.6 times GDP throughout most of U.S. history. Why? The size of our gold reserves limited our debt burdens. Reserves could only grow in correlation with the overall economy. Bankers couldn't build up onerous amounts of debt. That all changed in August 1971. Rather than cut the government's spending and raise interest rates to slow demands from our trading partners for bullion, President Nixon took us off the gold standard. From that point, our creditors had no legal claim to our gold reserves. And the banking system had nothing but the Federal Reserve to limit the creation of additional credit and money. Check out the charts below to see what happened next – debt began to explode. .gif) David Stockman, the director of the White House Office of Management and Budget under Ronald Reagan, explained why credit exploded last month at Jim Grant's conference in London: American lawmakers have been freed of the classical monetary constraints. There is no monetary squeeze, and there is no reserve asset drain. The Fed always supplies enough reserves to the banking system to fund any and all private credit demand at rates which are invariably low. Freed from any requirement to acquire new reserves through industry or trade, the size of our banking system exploded. By 1990, the total debt-to-GDP ratio in the U.S. had grown substantially to 2.6 times GDP. It reached 3.6 times by 2007 – even before the financial crisis. Today, total debt in the United States stands at $56 trillion – 3.8 times GDP. That equals $180,000 in debt for every man, woman, and child in the United States. That's nearly $700,000 of debt per family in the United States. The interest on these debts is more than $3.5 trillion per year. To give you some idea how much money we're spending on interest alone, just consider… the total budget of the U.S. federal government is also $3.5 trillion. Again, $3.5 trillion just covers the interest. These debts are completely unaffordable. How many families in America do you know that can afford to finance and repay $700,000 in debt? Not many… certainly not the "average" family. And that means the value of our currency is now in peril because, to politicians, the only way out of this crisis is to print trillions of new dollars, something that's underway right now at the Federal Reserve. This will greatly devalue our currency… and, sooner or later, lead to an even bigger debt burden. (Ironically, this cycle of debt, devaluation, inflation, and then more debt is exactly why the King of England finally forbade fiat currencies in the American colonies in 1750.) A stable credit environment over the long-term isn't the only poorly understood benefit. There's one more big advantage to gold that's almost been completely forgotten. I don't recall these ideas being written about anywhere else. (That means most of you will simply think I've lost my mind and made up this part…) Paper currency systems – with their inevitable booms, busts, inflations, and devaluations – discourage the public from saving. Instead, they inspire consumption and speculation. One of the main reasons the housing boom got so bad was people learned from the inflation of the 1970s and 1980s that buying a home (using a fixed-rate mortgage) was a "great investment." Most people didn't account for the fact that much of the rise in home prices during this period was attributable to inflation. People just knew if they'd kept the money in the bank they wouldn't have done as well. This kind of steady inflation leads people to prefer spending over saving. It also leads to more speculation. People realize they can't trust paper money, so they're willing to take more financial risks, consume, and borrow. Now imagine if our money was sound. Imagine if, instead of feeling like you better buy something or make an investment in something right away, you knew you could hold on to your money for decades and it would be worth at least as much as it is right now. Your perspective on risk and investing would change overnight. You'd be more willing to save and more cautious with your investment choices. You'd have the option of merely saving for retirement. You won't have to worry about trying to invest for retirement. As our current system collapses, there will be many discussions about what should replace the dollar. As part of my Project to Restore America (you can see our website here and visit us on Facebook here), I'm lobbying for a Constitutional amendment that will require banks and the U.S. Treasury to keep their reserves in gold. Believe me, you are going to hear all kinds of rhetoric about why this is a terrible idea, how it's not feasible, etc. It's certain the government and the bankers will oppose gold with all their might. Under a gold-backed system, they will lose tremendous power. They won't be able to create credit with a computer or a printing press. They won't be able to control the money supply. They won't be able to tax with unlimited power through inflation. (If you like these ideas, please join our Project to Restore America e-mail list… We'll keep you updated on our plans and progress to move these ideas forward.) The foes of sound money will argue – as they always do – there isn't enough gold to back the currency. That's complete nonsense. The U.S. government is the largest holder of gold in the world (or at least it claims to be). We have 263 million troy ounces. The Fed's monetary base is $1.7 trillion and will soon be $2 trillion. Divide $2 trillion by 263 million ounces… and you get a gold price of $7,604 to have a currency that's 100% backed by gold. It's that easy. Now… there's one last part of all of this that might greatly interest you. Because the U.S. dollar has seen so much of its value wiped out over the last decade, it has become unreliable as an arbiter of prices. If you look at the price of stocks as measured in gold, instead of as measured in dollars, you will have an entirely different outlook on the real trend in stocks. See for yourself.  Does this look like a bull market to you? The above chart shows stocks have steadily lost ground to gold over the last 10 years. The reason why is obvious: Our currency is falling apart. But not one investor in 100 understands what this chart means... Crux Note: In the latest issue of Stansberry's Investment Advisory, Porter and co-editor Braden Copeland are sending an urgent warning to subscribers: "The stock market is setting up for a big correction. It's time to be incredibly cautious with your investments." In this must-read issue, they reveal their three proprietary indicators for accurately timing the markets... indicators that will let you know when it's safe to buy stocks again. Click here to learn more about SIA. More from Porter Stansberry: Porter Stansberry: Wake up now, before it's too late Porter Stansberry: You must prepare for a crisis NOW This could be the most important thing Porter Stansberry has ever written |
| Posted: 16 Mar 2011 06:04 AM PDT Jose C. Ramirez submits: About the Swiss franc situation vs. the U.S. dollar: I agree that, if the U.S. resolves its fiscal situation, the dollar will retain its position as the reserve currency. I agree that the U.S. debt resolution is the real question. I don't think the U.S. will resolve its fiscal situation. It can't. Its not politically possible. Both political parties are unwilling to make any real cuts to solve the problem, which is not a few billion in this or that program, but hundreds of billions in Medicare, Medicaid, Social Security, and defense spending. The real issues have yet to be addressed. I've been watching this closely. The Republicans are trying to appease their base by cutting small programs everywhere; they offered a bill to cut spending $40 billion this year. The Democrats are rejecting it, and counter-offered with a $4 billion tax cut for this year. The government is running Complete Story » |
| The Great Japanese Unwind and How It Will Play Out Globally Posted: 16 Mar 2011 05:57 AM PDT My last crystal ball reading of market aftershocks from the tragedy in Japan has been mostly correct, in retrospect, with one big mistake: the Yen keeps surging. Apparently I underestimated the extent of Japanese repatriation, which has probably been sustained by the worsening of the nuclear situation. Complete Story » |
| Robert Shiller and the Fed's 'Credibility Trap' Posted: 16 Mar 2011 04:53 AM PDT  Tim Iacono submits: On perusing US Dollar, FOMC, and the Japan Crisis: The Dog That Didn't Bark at Jesse's Cafe earlier today, there were two items of interest that seemed worth sharing here, the first being more ominous warnings from Yale economist Robert Shiller, he being one of those rare dismal thinkers who can actually spot asset bubbles in real time. Shiller recently noted, "the housing bubble was the largest asset bubble in US economic history, since at least 1895″ which is as far back as his records could go and, anyone wanting more details on this subject might want to have a Complete Story » |
| The Quantifiable Problem With Private Sector Salaries Posted: 16 Mar 2011 03:47 AM PDT I was particularly interested in this week's ubiquitous newspaper insert, Parade magazine, as its cover featured the interesting article "What People Earn. Our Annual Salary Survey." Knowing that the average government worker makes an astounding twice as much in wages and benefits as the average private-sector worker, I was hoping that I could use something in the article to take to my boss, as part of my new Mogambo Income Enhancement Plan (MIEP), and say, "Hey! Look at all the money these people make! I deserve more money to work at this crappy job! And I deserve more because I am probably as good an employee as at least one of these guys! I want a raise! Big fat one!" Well, the problem was that the article was of no use, as the survey was hopelessly skewed, and out of the 47 people and their salaries, it included no government workers except one; an Air Force captain who makes $103,000. But other than that guy, not one! Since 1-out-of-6 employees work for a government or school system, I was surprised that the survey had no other clearly-identifiable government worker, education system worker, non-profit worker or other tax-supported private agency employee, which employs half of all employees in the Whole Freaking Country (WFC). "Hmmm!" I said to myself. "Obviously, the Parade magazine is a lying, leftist, dirtbag rag, and purposely omitted showing the salaries of government workers and other union goons due to the current debate over that very subject, but made more significant when we private-sector workers have Warren Buffet and Bill Gates, multi-billionaires who rake in billions more, skewing the 'average income' of private sector workers." One bizarre result is that, once you get down to the summary provided in their "By The Numbers" column, which is way, way, down, down next to the bottom of the page, in the smallest print of anything on the Whole Freaking Page (WFP), down to the teensiest, tiniest two lines of the whole thing, that you get to the illuminating statistic "Median Annual Salary," which is only $28,580. Yow! This seems to account for the median household income being, as I recall, somewhere around $53,000, a statistic which DOES include government workers, which I hastily conclude means that the median household income of private-sector workers, according to this sample population, can only be $53,000 if almost every household has two full-time workers in it! Wow! This was so interesting that I brought it up when I was casually talking to my boss, trying to find a way to bring up the issue of my paltry salary as a Highly-Valued Employee (HVE) who almost won the Worker of the Week award one time about 5 years ago. Instead of commenting, she just slowly, silently leaned forward and looked right at me, staring deep into my eyes, transfixing me to the spot. She said, her face cold and hard, her voice an icy monotone of malice, "Let me tell you a joke. A man walks through the building and asks me, 'How many people do you have working here?' I told him, 'About half.'" Well, it was an old joke, and I conjured up an appreciative chuckle, and wondered what she was up to with such an odd segue. Never one to pick up on this kind of subtle interpersonal "vibe" crap, I figured that she was just trying to lighten the mood, given the horror of the notion that the average gross salary of a private-sector worker is less than the average price of a new car, PLUS a year's comprehensive insurance. It was her continued silence and her unearthly stare that finally unnerved me so much that it dawned on me what was going on, whereupon I went back to my cramped little office to do a little work, just to make her happy and to show what a terrific employee I am, always working, working, working. Of course, she will get over it in time, just as, over time, things and people would adjust if price inflation was zero, as it would be under a gold-standard, which was the beauty of having a gold-standard money. On the other hand, I can see where a family consisting of, say, a man, his wife and a couple of kids could live in their cars, or under a bridge, and still manage to live on less than $28,580. Of course, the man would not be there much of the time, except to eat and sleep, so that he would not have to get into that same old argument with his family about why we have to live in the cars when we make enough to live in a house or an apartment like normal people, and I have to explain for what seems like the thousandth time In A Freaking Row (IAFR) that we have to economize so we can buy as much gold and silver as is humanly possible because of the inflation, and higher inflation, and more inflation and The Freaking Hyperinflation From Hell (TFHFH) that will necessarily result from the Federal Reserve creating so unbelievably much excess money, day after day, week after week, month after month, year after year, so that, mostly, the Obama administration can deficit-spend it, and then the morons that come after the Obama morons can deficit-spend it. And then that always leads to the little nuclear family turning on their leader, like a pack of snarling wolves, and asking why the cost of my playing golf is not part of the "new economizing," which leads to that whole thing about "priorities," one of which is keeping the breadwinner healthy and happy so that he can continue to work and provide for his loving family. And since playing golf makes me both healthy and happy, it is a two-fer, as far as I am concerned, so shut the hell up. The other interesting thing about the article is that of the 47 people surveyed, only 9 made less than $28,580, and the other 38 made more. So you are wondering how it is that the median salary is $28,580 if 80% of the people surveyed made more than that? I don't know. I don't care. I don't know why I even brought it up. All I have to know is that the Infallible Mogambo Investment Theory (IMIT) says to be all in gold and silver when excess money is being created to such an astounding degree, and it says it with such elegant simplicity, with the weight of the evidence of 4,500 years of history behind it, and so what could be simpler? Whee! This investing stuff is easy! The Mogambo Guru The Quantifiable Problem With Private Sector Salaries originally appeared in the Daily Reckoning. The Daily Reckoning now provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. |
| Silver Bullion Coin Premiums Rise… Posted: 16 Mar 2011 02:23 AM PDT
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| Gold, Silver and Mining Stocks Decline as Stocks Lead the Way Posted: 16 Mar 2011 02:00 AM PDT |
| Silver: Buy, Hold Or Sell? Update #20 Posted: 16 Mar 2011 01:06 AM PDT In 1980, the price of one ounce of silver reached $ 50. Today, the purchasing power of the US dollar is substantially less than in 1980. The price of one ounce of silver would have to rise to $ 135 to reflect the value of the US dollar thirty years ago. |
| Interview With a Trading Legend, Part I Posted: 16 Mar 2011 12:34 AM PDT
Peter Brandt, author of Diary of a Professional Commodity Trader, may be the greatest trader you've never heard of. We consider him a legend thanks to his stunning performance – a thirty-year track record (audited) of 41.6% compound returns.
Just as impressive is the manner in which those returns were achieved. Over a multi-decade span, Peter's best year topped 600 percent… and yet his worst losing year (of which there were only four) was a single-digit decline of less than 6 percent! (How did he do it? That's one of the questions he'll answer.)
In addition to the above, Peter is relaxed, down to earth, and an all-around great guy. Mike McD and I had the privilege of hanging out with him over a snowy weekend in Reno/Tahoe, and conducting the following interview.
In part I of this multi-part Mercenary Vault series, you'll find out all about how Peter got started in trading… how he handled his early "going bust" experiences… and the first big move (in the Swiss Franc) that really put him in business as a trader. JS
JACK SPARROW: So, just to get things started, this is the Mercenary Trader interview with Peter Brandt, author of Diary of a Professional Commodity Trader. Why don't you start off by telling us a little bit about how you got interested in trading, and just how your journey in markets began. PETER BRANDT: Sure. I lived in Chicago… we moved to Chicago in 1972, right out of college. I went to work for a big advertising agency, living in a suburb just north of Chicago – Evanston, Illinois. I had a young son who played hockey. And so it ended up that a father of another hockey player living just down the street from us was a soybean trader. And I really liked the man, he was a good guy. He'd invite me down to lunch, "Come on down to the Board of Trade and have lunch with me." And so I would visit him, and then there was a Board of Trade members' dining room, which overlooked the trading floor. At the time it overlooked the Wheat pit… and he took me on the floor and I was captivated. These guys are yelling and screaming, shouting matches, pushing people… I thought "This is crazy." But I was really entrepreneurial. I had earned my own way in life since I was quite young. I had parents who split up, and I was raised by my mom and we were a welfare family… so from the time I was young I was figuring out ways to make money. And the Chicago Board of Trade was captivating. These floor trader guys had freedom, they didn't report to anybody, they made their own way in life… they knew how they did at the end of every day… that to me was ideal, and it was a question of just "How do you break into that business?" JACK SPARROW: So how did you actually break into the business? PETER BRANDT: I just went literally door to door at the Board of Trade asking people "How do I get into this business?" And it ended up that Continental Grain, owned by a European family, which at the time was the second largest grain exporter in the world next to Cargill, were starting to look to do commercial business with individual farmers and grain users: food companies, smaller exporters, and so on. And so they wanted to do more on the floor than just their own trading, and they were looking for "customer's men." You know, people who could learn the grain business and bring in other customers who could also do the grain business. They had all the memberships so they figured they might as well take the commission, and work the commission side of the business. So I went to work for Conti, the futures market division of Continental Grain, and at the time I think I was making $28,000 a year in advertising. And so I went to the president of the advertising agency and said "Look, I'm doing this. I'm going down to the Board of Trade, and I'm going to try it out. If I blow it – if I screw up – can I come back in a year and get my job back at a fifty percent raise." And he said yes! And so I had the "license to fly." I went to the Board of Trade, started learning the business, learned the grain business primarily… a little bit of livestock… and my big client in advertising was the Campbell Soup Company (although I also worked on the McDonald's account). I knew the president of Campbell's really well. He was kind of a rebel guy, had been president of Campbell's Canada and now was heading Campbell's USA, John Morris, and so I went to him and said: "Why don't you send a purchasing guy out to Chicago and work with me to determine whether Campbell's ought to be using futures?" Which they did. A guy came out for a few months. And the premise was we would go back to the top management team and tell them the truth – either there's nothing here for you (in respect to futures) or there is something here. And it was just a layup. Campbell's use of futures was just a no-brainer. JACK SPARROW: What made it a layup? Why was it such a no-brainer? PETER BRANDT: Oh, because they used cocoa, they used soybean oil, they used sugar… although sugar is funny, the sugar #11 contract is all the sugar nobody has bought under a long-term agreement. It's the non-wanted sugar in the world, and that's why it's so crazy. Most sugar in the world trades under long-term agreements. It's called contract sugar. And then you have the #12 Sugar contract in the US which is domestically protected sugar. The #11 sugar is basically the sugar that's not spoken for. That's why it vacillates so much, because it only represents about 10 percent of the world's sugar production. But that portion of the world's production can disappear quickly. Or it can glut quickly. So Campbell Soup used sugar, they used beef, they grew 150 million chickens a year from scratch… they contracted with corn growers and bought soybean meal for their grow-outs… and we ended up really working out some fascinating hedges for them. For example we worked out hedges on the feed ratio, the cost to produce cattle, chicken or pork per pound. We'd look at the price of the live pig or cattle on the hoof compared to the different cuts they were using, and so they might buy forward on some of their needs, or they might sell short against their inventory depending on what the spreads were. Or they might sell their chicken production to the Board as iced broilers if it made economic sense to go out in the free market and buy their chickens. So we really got creative in how Campbell Soup used the futures. And they became a big commission client of Continental Grain. JACK SPARROW: When did the focus shift to your own personal trading? PETER BRANDT: I knew then that I wanted to start trading for myself. So I started dabbling a little bit, accumulating a little bit of money, starting in '78, doing some trades… and I didn't really know what I was doing. One of the first trades I did came from my friend in Evanston who was the bean trader. I was just learning the business, and he had told me he was really bullish on soybeans: "Peter, I'm REALLY bullish on these beans." And so I watched them for a few days – I think they were around $5.50 or so – and I'd saved up a few thousand dollars to speculate. And they crept up like ten cents, and so I bought a contract, and they went up like five more cents – and then they went down twenty cents. And so I got out with my loss, and eventually saw John again and said: "John, so what about those beans?" And he said "Yeah, was that a magnificent move or what?" JACK SPARROW (laughing): Oh no… PETER BRANDT: Yeah, and I said "What are you talking about?" And so it ends up that John is a scalper. He never takes a position home at night. He trades the beans for half a cent to a penny, and he had such a conviction on beans that he had a position he was willing to carry for three or four days. Well I find this out after the fact. He takes ten cents out of the bean market, which for him is a gigantic move, and I wasn't even thinking that way! And that was a good lesson. Traders at the Board of Trade would constantly say they were bullish or bearish, and it was a good lesson that the words "bullish" or "bearish" did not mean anything. I would have to ask, "What's your timeframe? How long do you hold trades? How much money are you looking for in a trade? Where are you wrong – what will tell you that you're wrong? Why are you bullish or bearish, what do you know?" And so I learned really early on that bullish or bearish didn't mean squat. JACK SPARROW: So was that your "going bust" experience? Or did you have a going bust experience early on, as so many professional traders do? PETER BRANDT: Sort of, but I went bust in little bits. You know, break open the cookie jar, take two or three thousand bucks out, and trade until I was forced to just trade oats! JACK SPARROW (laughing): So you kept getting bumped down the ladder on contract margin. PETER BRANDT: I did. But then I'd build up a little bit, you know, put some money away from Campbell Soup… I also had some money from other customers that came in. One of the things that helped was that I had the nerve to approach Homestake Mining in South Dakota. I knew nothing about gold, and they didn't do any hedging. But I went and pitched them and they ended up hedging some gold with me. And so they became a gold client. And again, I know nothing about gold. But I was the guy that went and pitched their business. JACK SPARROW: This was before hedging was a common practice. PETER BRANDT: Right, nobody hedged. Except for grain merchandizers, companies didn't hedge. The tax implications of corporate hedging hadn't been clarified… most commodity-connected companies just didn't do any hedging. But I picked up a few valuable clients. I ended up getting another customer that just traded tons of copper – a giant copper user. They made paint for the Navy. You know the gray paint? The paint used on Navy ships had a very large copper content. And that's what kept the metal from rusting. All that paint that they put on ships contains something like 15 percent copper. So the company was a huge copper user. And so I had those three clients and that was mainly it. And I would save a couple thousand and I would trade it. I didn't know what I was doing. I was listening to different people with different ideas, and one guy even had this plastic thing he used to identify cycles. I tried many approaches such as cycles… and seasonals… point and figure charts… fundamentals… I didn't know what I was doing, and I kept losing money. To answer your original question, yes, I went broke, but I went broke many times in little amounts. I would save up five grand, save up ten grand, blow it. And I just constantly was losing, not knowing what to do next. MIKE McDERMOTT: A lot of people would have given up at that point. What made you convinced that you could learn this? PETER BRANDT: I was in the business and I knew I was going to be there. The commission side of the business was covering my expenses, and I was not risking huge amounts in the trading account. A year had passed and I had stayed… I had come to the point where I was making a lot more than I was making in advertising… so I was making a fairly good living. This was 1978, and I was making sixty or sixty-five thousand dollars a year, which was a lot of money back then. JACK SPARROW: So you could basically fund your trading experiments. PETER BRANDT: I could fund the losses, but I still had expenses. I had bought a home, I had a family to support, and I even bought a BMW — the worst car I've ever owned, I'll never own German again.
MIKE McDERMOTT (laughing): Ouch, don't say that. JACK SPARROW: What led to the breakthrough? PETER BRANDT: Well I met this guy who said, "I trade these patterns. I buy these chart books each week and I draw these lines and look for geometric patterns. You ought to go down to the Board of Trade bookstore and buy this book by Robert Edwards and John Magee. Buy the book and read it." Which I did – the book had a yellow and blue cover. And so I started reading this book, and I felt like "Okay, I'm at home now. I understand this. I can do this." It just made sense to me. It was clear, it wasn't mechanical – because at the time people were starting to play with mechanical approaches – JACK SPARROW: And again this was around 1978? PETER BRANDT: Yeah, '78 or '79… and so I consumed this book, gathered some more money, and figured I really liked this approach, and I could trade the approach without going bust again. But I wanted to trade the approach with the proper amount of capital. So I accumulated a pretty good amount to start with compared to previous attempts when I would fund an account with only a few thousand dollars – and then lose the money. I decided I would put a better chunk of change together so that I could actually hold a position and not get knocked out, and I was going to try and trade it the right way. So I can't remember the exact amount, $20,000 I think it was. And I started to make a little money. Lose a little, make a little… and I started to make enough that I felt comfortable. Then it was "I just have to make a decision to do this. I can't be a customer's guy and a trader." And so I left Continental Grain and went off on my own. I still kept a relationship with Campbell Soup to cover expenses, but started trading. And it went well. I made money the first year, made a lot of money the second year… and so my account was growing, but I didn't feel like "I've arrived," that I had enough where I could say I'm REALLY a trader. I'm still kind of hanging on by my fingernails. But my account was growing. And then something happened in the currency markets in 1982 that changed the game for me. Foreign currencies were trading at the International Monetary Market divison of the Chicago Mercantile Exchange. And the European currencies set up in a way that just sang a song for me based on the charts. And I felt so strongly, that "this is it…the time to bet the farm." And it was Wednesday, the day before Thanksgiving – Thursday was Thanksgiving, Friday the markets were closed in the U.S., Saturday and Sunday the markets were closed. And on Wednesday the Swiss Franc broke out. MIKE McDERMOTT: The day before Thanksgiving. PETER BRANDT: Yes, the day before Thanksgiving. And I bought ten contracts, which for me was a lot. That was equal to $1,250,000 Swiss francs, which for me at the time was a huge position. I bought late in the day when the market was already up about 50 points – the market ended up closing something like 70 points higher. And I called London on Thursday, and the currency traders there just didn't care what had happened on Wednesday in Chicago. It was "Who cares what the IMM did." The value of the Swiss Franc did creep higher in London on Thursday, but was still way below where the IMM had finished on Wednesday. I talked a banker into selling me ten contracts of deutschemarks on that Thanksgiving Thursday. So now I'm long ten Swiss, I'm long ten deutschemarks, it's Friday… London was still not a believer of Wednesday's strength at the IMM and the Swiss Franc opened lower in Chicago. But despite Europe's hesitation, the U.S. took the lead on Friday to strongly rally the European currencies. By the end of the trading day at the IMM on Friday I had a significant profit in both the D-Mark and the Swiss Franc. I had a feeling that on Monday London would again not be a believer of Friday's rally in the U.S. Yet, I slept well over the weekend. I just felt like "London's wrong. The U.S. is right." By Monday morning the tone in Europe had changed to be in line with the strength in Chicago. The European currencies opened higher at the IMM and didn't look back. The Swiss Franc and D-Mark just went straight up for the next five weeks. With that trade, all of a sudden I had a serious amount of money in an account. And from that point on I could seriously consider myself to be a trader. JACK SPARROW: You reached that critical mass. PETER BRANDT: I reached that critical mass. I was like the other guys I knew at the Board of Trade who really were traders. All of a sudden I had the capital to "be a trader." I could hold onto positions, I could build big positions, and I could trade enough to where I didn't have to triple my money every year to provide living expenses. To be continued…  |
| Posted: 15 Mar 2011 10:21 PM PDT Another warning regarding the fate of the US and its currency. Possibly the Last Time to Get Out of the Dollar by Simon Black March 15, 2011 Dallas, Texas, USA It's no secret that the United States government owes a pretty penny to foreigners. Certainly, what America owes to foreigners pales in comparison to what [...] |
| Posted: 15 Mar 2011 08:58 PM PDT After these crisis is there a worldwide rise in unrest? "In authoritarian states, protesters want more freedom. Financial adjustments bring anger in Western economies. A vicious cycle of inflation and unrest are in escalation. With the Middle East in turmoil, other authoritarian states are jumpy and in post-crisis economic pain prompting protest in Western Europe and elsewhere. Some suspect a systemic rise in worldwide unrest might just be beginning. Instability in the already volatile oil-producing Middle East could produce a feedback loop where unrest pushes-up energy prices, fueling inflation and deepening discontent both in the region and around the world." (Editor agrees with these statements.) "In most countries, the so-called "misery index;" an aggregation of unemployment and inflation long seen as a warning of protest and instability is pushing higher. After an extended period of economic growth and political apathy across the developed and emerging worlds, we may have reached a new political cycle; one where populations take out their grievances on their leaders and their associates," wrote Citi political analyst Tina Fordham. "This won't be limited to the emerging world." "In democracies, elections provide a release valve — Ireland has seen some of the worst post-crisis economic pain but minimal unrest in part because voters knew they could oust the government they blame for the crisis in elections this weekend. But Greece, Britain and others have seen anger expressed in the streets as their governments push through austerity, arguing they have little choice but to rein in unsustainable deficits even if it means cutting services, pay and benefits." "Most analysts agree North Africa's demographic "youth bulge", relatively high unemployment, long-serving leaders and recent internet penetration made it particularly volatile. But strains are clearly visible elsewhere. Almost without exception, authoritarian states around the world appear to have seen at least a modest up-tick in protest following the ousting of presidents in Egypt and Tunisia." "Even China, whose breakneck growth has long been seen limiting discontent, has blocked terms such as "Egypt" on social networking sites and stepped-up arrests at small demonstrations. Two crises are happening "Crude oil prices have risen by up to a fifth on recent unrest in the Middle East and North Africa, enough to act as a potential brake on already fragile economic growth. Libyan oil production has slumped as companies withdraw foreign staff and oil markets have begun to look much more nervously at largest producer Saudi Arabia." "Most still expect the Saudi royal family to ride out the storm with the help of colossal oil wealth, but the cost of insuring the kingdom's debt against default in the credit default swaps market has doubled since January as worries mount. The rising power and influence of social media sites such as Face-book and Twitter is also seen as common factor between emerging and developed world protests, acting as a powerful accelerant that can bring masses swiftly onto the streets. Twitter was central to student protests in London late last year that ended in the city's worst street violence in decades." 'Some also see a wider anti-establishment backlash to the global financial crisis, with anger directed not just at politicians of ruling parties but also whole systems of government and wider economic and market structures. In the United States, analysts say that sense of disillusion is also clear and manifesting itself in different ways. Some turn to the right-wing populist "Tea Party", arguing too much government intervention is the problem." As individual U.S. states move to cut spending to stave off bankruptcy, some see occasional signs of the kind of backlash seen in Europe — including recent protests against union reform in Wisconsin as it tries to push through its austerity package. 'The crisis is the connective tissue that binds these events together, particularly in the West,' said Jonathan Wood, global issues analyst for Control Risks. 'In North Africa, what we're seeing I think has more to do with the recent spike in food and commodity prices, although you can also link that to the loose monetary and fiscal policies we have seen since the crisis." "The speed with which Tunisia's revolution sparked unrest across the region suggests its leaders were already on much thinner ice than they or others had appreciated. 'Revolutions happen when regimes suffer a collapse of legitimacy,' said John Steinbruner, director of the Center for International and Security Studies at the University of Maryland. 'The problem is, there's no way of measuring legitimacy. You can only tell with hindsight it's gone." "In Western states in particular, legitimacy might as we seem to in part come from providing certain key services. In more authoritarian nations, it may in part come from fear, and the sight of autocrats being ousted may be undermining that. In China, most appear to believe that rapid growth and job creation has been key to securing the state's legitimacy in the two decades since the Tiananmen Square crackdown." "Certainly, the ability to guarantee food has long been core to regime survival and many analysts see governments ramping up purchases since Tunisia's revolt, again pushing prices higher. 'Food hoarding may continue as the general public and governments try to build inventories to protect against future shortages due to political upheaval or even a war,' said Ana Armstrong, chair of fund manager Distinction Asset Management.' ')She) warns that this could also cut growth and leave policymakers with difficult choices over interest rates." In Western democracies, few see unrest ousting whole systems; but it could bring down governments, make structural economic reforms impossible and drive populist policies. In others, as in Egypt can Tunisia, if attempts to placate with handouts and increased openness fail, it may come down to how harshly security forces are willing to crackdown. In either case, predicting outcomes is far from easy." -Peter Apps, Political Risk Correspondent, Thompson-Reuters 2-28-11         This posting includes an audio/video/photo media file: Download Now |
| Posted: 15 Mar 2011 08:24 PM PDT ¤ Yesterday in Gold and SilverThe gold price was in the red right from the open in the Far East on Tuesday morning. The New York bullion banks yanked the rug out from under the gold price on the Globex trading system starting around 11:15 a.m. Hong Kong time on Tuesday morning. The price subsequently recovered some of those loses going into the London open, but about an hour in, the selling pressure renewed...and JPMorgan et al pulled their bids shortly after 12 o'clock noon in London and that was the end of it...as the tech funds had their sell stops hit. By the time JPMorgan placed a bid under the market, gold was down another $30 in less than seventy-five minutes of trading. Gold's low of the day [$1,380.10 spot] was around 8:30 a.m. Eastern. From there, the price recovered about $23 of those losses...with the high N.Y. price of the day [$1,404.80 spot] coming just moments after the close of London trading at 4:00 p.m. GMT...11:00 a.m. Eastern. From that high, gold got sold off about eight bucks...and then more or less traded sideways for the rest of the New York session.
Of course it was silver that JPMorgan et al were really after...and did they ever do a number on it. I'm not going to waste my time [or yours] describing the action...as it was almost the same as gold...except the price was more 'volatile'. The graph tells you all you need to know. Silver opened Tuesday trading at $35.94 spot...hit its low [$33.56 spot] just after 8:30 a.m. in New York...a $2.40 spread. Silver recovered some of its loses after 8:30 a.m...but the subsequent rally ended at the close of London trading at 11:00 a.m. Eastern...the same as gold. I'm sure the fact that the 'long knives' were out for silver on the Ides of March was only a coincidence.
The dollar opened in the Far East around 76.35...and hit its high of 77.04 at 11:00 a.m. in London right on the button. From there, the dollar rolled over and lost all it's gains...and closed the New York trading session pretty much where it started twenty-three hours prior. Only at the very beginning of the trading day in the Far East was there any co-relation whatsoever between the dollar's price activity...and the price activity in the precious metals. As I've said before, it matters not what the other markets are doing when the bullion banks are on the hunt for tech long positions in the silver and gold markets.
The gold stocks got crushed on the open...recovered a bit...and then traded sideways until around 1:15 p.m. Eastern. From there a rally developed...and the HUI only finished down 2.25%...cutting its earlier losses by more than half. It was obvious that there were some bargain hunters about later in the trading session. It would be an understatement to say that the silver stocks did poorly. But whoever was selling in a panic yesterday, was selling to strong hands. Please don't forget the expression that one should buy while there is "blood in the streets". Yesterday was a good day to do that.
The CME's Delivery Report showed that 3 gold, along with 57 silver contracts, were posted for delivery tomorrow. Ted Butler pointed out that there are only eleven more days left in the March delivery month...and only 847 silver contracts [less than half of the contracts that are standing for delivery] have actually been delivered. In the many decades that Ted has been involved in trading or observing the commodity markets, he's never seen a situation such as this develop in any delivery month for any commodity...ever! The link to yesterday's action is here. The GLD ETF showed another small decline. This time it was 29,259 ounces. Over at the SLV...they reported a more substantial withdrawal...1,610,776 troy ounces. Considering the price action, that's not really a lot in the grand scheme of things...and it will be interesting to see what further withdrawals may be forthcoming during the rest of the week. For the second day in a row, the U.S. Mint did not have a sales report...and over at the Comex-approved depositories, a very tiny 3,989 ounces of silver were withdrawn from their collective warehouses on Monday. With the U.S bullion banks marking the silver price down yesterday, my bullion dealer did a roaring business right from the moment he opened the doors, as all the dip-buyers that were sitting in the bushes just waiting for such an event, turned up in force. I was one of them...and I want to take this opportunity to personally thank Jamie Dimon and Blythe Masters for this wonderful gift. Please pass my thanks along to your opposite numbers over at HSBC USA. I'm sure the fact that the 'long knives' were out for silver on the Ides of March was only a coincidence. Wall Street Conspirators Driving Spike in Silver. Gold Standard Institute letter cites another stunning admission by Fed Governor Warsh. The Great U.S. Collapse Nears: John Williams ¤ Critical ReadsSubscribeIf Market Keeps Falling, Fed Will Keep Printing: 'Dr. Doom'Today's first story is from reader Scott Pluschau...and is a posting from cnbc.com yesterday. Falling stock prices will be met only with more money injections from the Federal Reserve, Marc Faber, the so-called "Dr. Doom," told CNBC. "We may drop 10 to 15 percent. Then QE 2 will come, [then] QE 4, QE 5, QE 6, QE 7—whatever you want. The money printer will continue to print, that I'm sure," said the author of the Gloom, Boom and Doom Report. Later in the interview, he added, "Actually I made a mistake. I meant to say QE 18." It's a short read that's worth your time...and the link is here.  Big banks investigated over LIBOR rate manipulationThis is a Financial Times story from yesterday that I found posted in a GATA release. Regulators in the United States, Japan, and UK are investigating whether some of the biggest banks conspired to "manipulate" the benchmark interest rate used to calculate the cost of billions of dollars of debt. The investigation centres on the panel of 16 banks that help the British Bankers' Association set the London interbank offered rate, or Libor -- the estimated cost of borrowing for banks between each other. Well, every other market in the world is being propped up or held down...so why should LIBOR be any exception. I was horrified by the story, but in hindsight, I guess I shouldn't have been surprised, as the entire world's economic, financial and monetary system is now such as scam, it's only a matter of time before the whole thing collapses into a smouldering ruin. This is definitely worth your time...and the link to the GATA release is here.  The Great U.S. Collapse Nears: John WilliamsEric King sent me the link to this blog posted over at his website yesterday. With the dollar remaining weak, John Williams of shadowstats.com had this to say in a special report, "The U.S. economic and systemic-solvency crises of the last four years only have been precursors to the coming Great Collapse: a hyperinflationary great depression. Such will encompass a complete collapse in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system as we know it; and a likely realignment of the U.S. political environment." I'm a huge John Williams fan...and if you have the time, this short blog is worth reading. The link is here.  Commentary: Perfect Global StormRoy Stephens first offering of the day is this UPI story that was filed from Washington yesterday. If you were looking for one of Nassim Taleb's "Black Swan" events...then Japan's earthquake might just be one. UPI Editor at Large, Arnaud de Borchgrave, discusses that very scenario in this short piece...and it's worth the read. The link is here.  Outside View: Japan: The economic consequences of disasterHere's another UPI piece on the catastrophe in Japan. This piece was filed from College Park, Maryland yesterday...and Roy Stephens gets my thanks for sharing it with us. The toll in human misery wrought by the tsunami and earthquakes in Japan test the imagination of economists but the effects on Japan's gross domestic product and wealth are a different matter. As estimates of the damage emerge, those totals are real deadweight losses to wealth. To the extent Japan must run down financial assets and bring home foreign investment to rebuild, the net wealth of Japan is permanently reduced. This short piece is also worth reading...and the link is here.  Twin threats of Japan and Gulf stalk global recoveryRoy's next offering is this Ambrose Evans-Pritchard piece that was posted late last night over at The Telegraph. We are discovering once again that the country is the world's top creditor by far with nearly £2 trillion of net assets overseas. As catastrophe at home prompts Japan to repatriate chunks of its vast wealth, it is pulling the rug from under stock and bond markets thousands of miles away. This story is similar to the previous UPI story...but from a different perspective. For that reason alone, it's worth your time...and the link is here.  Nikkei Surges As BOJ Injects Another ¥3.5 Trillion: Just Add It To The Existing ¥23 Trillion Plunge Protection TabWashington state reader, S.A. provides our last Japan-related story today. This is a posting over at zerohedge.com. The Bank of Japan on Wednesday pumped another 3.5 trillion yen ($43.3 bln) into the financial system, adding to the trillions spent Monday and Tuesday to soothe shaken markets. In the last three days, the BoJ has injected $325 billion worth of financial heroin into the veins of the Japanese banking system. This story will take less than one minute of your time...and is a must read. The link is here.  Wall Street Conspirators Driving Spike in SilverHere's a foxbusiness.com video that was in my in-box when I turned my computer on late yesterday morning...and I thank reader V.M. from the great state of Texas for sending it along.&a |
| Wall Street Conspirators Driving Spike in Silver Posted: 15 Mar 2011 08:24 PM PDT  Here's a foxbusiness.com video that was in my in-box when I turned my computer on late yesterday morning...and I thank reader V.M. from the great state of Texas for sending it along. It also showed up in a GATA release shortly after. The person interviewed was William Cohan...and I believe he also wrote about this in either The New York Times or The Wall Street Journal within the last month or so...because I remember the name, plus I ran the story when it first came out. |
| The Great U.S. Collapse Nears: John Williams Posted: 15 Mar 2011 08:24 PM PDT  Eric King sent me the link to this blog posted over at his website yesterday. With the dollar remaining weak, John Williams of shadowstats.com had this to say in a special report, "The U.S. economic and systemic-solvency crises of the last four years only have been precursors to the coming Great Collapse: a hyperinflationary great depression. Such will encompass a complete collapse in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system as we know it; and a likely realignment of the U.S. political environment." |
| Gold Standard Institute letter cites another stunning admission by Fed Governor Warsh Posted: 15 Mar 2011 08:24 PM PDT  Here's a GATA release from yesterday that's definitely worth a read. This fits in nicely with the story about the LIBOR manipulation that I posted further up in this column. The commentary in question is headlined "False Belief No.2: Risk-Free Investments"... and is to be found on page 3 and 4 of the pdf file that contains the entire Gold Standard Institute report. The link to the GATA release is here. |
| Gold & The Big Mkts: Sideways Action Ending! Posted: 15 Mar 2011 06:13 PM PDT |
| Sparta - Gold prohibition in a collapsing economy Posted: 15 Mar 2011 06:00 PM PDT
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| Gold Drop "To Be Expected" as Japans Nuclear Panic Hits Global Stock Markets Posted: 15 Mar 2011 05:41 PM PDT |
| Where are the insider admissions about gold? ... Posted: 15 Mar 2011 05:30 PM PDT |
| Posted: 15 Mar 2011 02:12 PM PDT --We're going to find out a lot about how durable demand is for Australian assets in the next few days. The prevailing narrative in the market is that the Aussie dollar—based on its high yield and underlying commodities demand from Asia—is in a long-term bull market. But in the next few days it's going to be a contest of Japanese housewives versus global hedge-fund traders. The result will determine how far the Aussie market falls. --The conventional wisdom is that the Aussie dollar is strong and perhaps at a new permanent level of strength against the U.S. dollar (which itself is in terminal imperial decline). The evidence to support this view is Australia's record terms of trade, where Australia gets more and more for what it sells to the world and pays less and less for what it imports. --That could be unwinding. But before we get to the effect on the global supply chain from Japan's earth quake, what's the latest from Japan? Honestly, we have no idea. The situation is fluid. That alone is going to keep markets nervous. There was apparently another explosion at a different reactor at the Fukushima nuclear plant this morning. Radiation is leaking and some people are leaving Tokyo for points south. --Since we have no reliable information about what's really going, we're going to confine ourselves to financial observations. The first and most useful one is that the correlation between the Aussie dollar/Japanese yen currency pair and the ASX is holding firm, and it's turned down. The last time this happened, the global "risk off" trade dominated the market, sent commodities down, and took the Aussie dollar much lower. See the chart below from our colleague Murray Dawes. "Risk Off" trade back on --Murray and your editor have been using this chart to determine how much of the strength of the Aussie market and the Aussie dollar comes from foreign "hot money". It's an important question. Australia has benefitted from the same kind of speculative bets that helped pump up the oil price in 2008 since the mid-point of last year. But what happens if the disaster in Japan crushes sentiment and terrifies traders back into cash and U.S. dollars? --It would mean the fundamental underpinnings of the Aussie's strength might not be as strong as they look. The Aussie gold price would go probably go up. And the yield-hunting money from the U.S. and Japan, where short-term interest rates are effectively zero, might pack up and go home for a bit. --The question of what Japanese housewives will do is an important one because it gets to how much of the demand for Aussie assets is from carry-trading investors in Japan. You can expect a massive repatriation of Japanese money back into the local economy, back into cash. How much of that money will come out of Australian assets? --Murray is tracking the technicals on this trade in Slipstream Trader. We'll keep you posted on his observations this week. In our discussion yesterday with him, we talked about a possible snap-back rally in stocks if the situation in Japan stabilises...and what key lines of support would see the market go a lot lower. --As we write, the Japanese market is up nearly 6%. But frankly without a better understanding of the price action, it's hard to know how much of this is program trading, speculation, or even short covering. Murray also pointed out that this could be a major catalyst for a correction that was coming anyway. --We also pow-wowed with editors Kris Sayce and Alex Cowie and their advice was the same: observe your trailing stops and then, when the time is right, look for a chance to re-establish your position in companies you know and like. Greg Canavan will take over the helm of the DR to give you his view on what to do over the next two days. ---There are two other financial market questions worth considering today. The first is whether Japan's crisis will lead to rising long-term U.S. bond yields. The Japanese are one of the largest holders of U.S. Treasuries and continue to buy them. That capital might be put to a lot better use in the coming years rebuilding from the quake and tsunami damage. --Of course in the short term, the "risk off" trade is bullish for U.S. bonds and the U.S. dollar. People are cashing in their chips and storing up their cash. But longer term, the U.S. may find it a lot harder to fund deficits without the help of at least one major foreign buyer. This will put more pressure on the Fed to monetise debt right away. --Finally, Japan is a big export market for Australian minerals, energy, and agricultural commodities. The table from ABARE's most recent quarterly report shows just how important an export market Japan is for Australia. So what will the effect of the quake and tsunami be?
--The answer is the effect will be mixed. If Japan's big exporters slow down production, it will reduce demand for commodity inputs. Of course no one knows yet what Japan's reconstruction effort will require in terms of base metals. It's way too early for that. --For now, the effect is going to be mixed. If Japan idles some of its nuclear plant, it will probably increase LNG and thermal coal imports. Also, if there is serious concern about the safety of Japan's food supply, agricultural exports from Australia could actually increase. The table below shows that when it comes to energy commodities, Japan is a bigger trading partner to Australia than China. --So what do we make of all that? --Well, for now, the Japanese quake is a catalyst for a big correction in the share market. It's the kind of event that could lead to a change in investor sentiment. That's negative for Aussie stocks and the Aussie dollar. But once the immediate panic subsides, you'd expect cash to be redeployed into some of the stocks that are now a lot cheaper, and into some of the precious metals. --The longer-term impact on the global economy and commodities demand is a lot more mixed. And of course the story is still playing out. Asset prices could stabilise if the situation becomes more stable. But if it doesn't...an even bigger market rout wouldn't be far around the corner. Dan Denning |
Peter's history is intertwined with the futures markets. He was one of the early hedgers for major commercial operations… an early adopter of Schabacker, Edwards and Magee in commodity trading… and even a trader for the legendary Commodities Corp., the birthplace of "Market Wizards" like Marcus, Kovner, Seykota and Jones.
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