Gold World News Flash |
- Interview: Jim Sinclair on Gold and the World Financial System
- $5,000 Gold and $300 Silver are Credible Numbers
- Gold: Ratio Molehill vs USD Photocopier Mountain
- Chartworks: Silver & Silver/Gold Ratio into Exhaustion Mode
- Gold Seeker Closing Report: Gold and Silver Rise To New Highs Once More
- Texas Teachers $109 Billion Pension Fund Needs A Whopping 21% Return In Current Year To Preserve Adequate Funding Ratio
- Faros - Foreign Dumping to Continue Sending US Dollar Lower
- Gold Price Closed at $1494.50 and the Silver Price Closed at 43.91
- The Casey Report’s David Galland: Major Policy Shift Ahead
- Why QE 3 is Guaranteed (the Alternative is Something Four Times Bigger than 2008)
- Gold and currencies: an historical perspective
- Riding the Silver Bull: Worry If It Gets to Triple Digits This Year
- Rob Kirby: The Amaranth kill shot
- Hogs + Corn + Silver = Diversification!
- Jim Rogers Comments On Triple Digit Silver And Issues Warning: "Parabolic Moves Always Collapse"
- The Animated S&P Downgrade Warning
- Northern Gold Mining (TSX-V: NGM): Advancing Discovery with Near-Term Production Potential
- The Desert Diggers
- Gold $1500
- Capital Context Update: Vigilance Vindicated Via Veritable Volume Vacuum
- Gold hits key level of $1,500 an ounce
- Options Risk, Manipulation, And The May Silver $40 Calls: An FMX Connect Special - Parts 1 And 2
- Gold tops $1,500 on U.S. debt outlook; silver surges to $44
- Geithner has approved plans for (IMF) to absorb the Fed ???
- Oil Price Battle of The Big Banks
- Guest Post: Amaranth Kill Shot: Collateral Damage In A 78 Trillion Dollar Derivatives Book Compliments Of JPM
- Gold Daily and Silver Weekly Charts - Goal Line Stand
- Jim Sinclair Will Speak at GATA?s Gold Rush 2011 Conference in London
- Jim?s Mailbox
- Tim Geithner Is A Complete Joke Of A Human
| Interview: Jim Sinclair on Gold and the World Financial System Posted: 19 Apr 2011 06:00 PM PDT By Ron Hera April 15, 2011 ©2011 Hera Research, LLC * The Hera Research Newsletter (HRN) is pleased to present an in-depth interview with Jim Sinclair, Chairman and CEO of Tanzanian Royalty Exploration and founder of Jim Sinclair’s MineSet, which hosts his gold commentary as a free service to the gold investment community. Jim Sinclair is primarily a precious metals specialist and a commodities and foreign currency trader. He founded the Sinclair Group of Companies in 1977, which offered full brokerage services in stocks, bonds, and other investment vehicles. The companies, which operated branches in New York, Kansas City, Toronto, Chicago, London and Geneva, were sold in 1983. From 1981 to 1984, Mr. Sinclair served as a Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position as a prerequisite for the $1 billion loan arranged by the Chairman of the Federal Reserve, Paul Volcker. He was also a General Partner a...
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| $5,000 Gold and $300 Silver are Credible Numbers Posted: 19 Apr 2011 05:56 PM PDT By James West MidasLetter.com April 19, 2011 Q: What do CNBC, George Soros, Warren Buffet and every other mainstream investment commentator on the price of gold have in common for the last ten years? A: They are all wrong. All the time, every year, ten out of ten years in a row. If you continue to pay attention to such disinformation, you will lose money. Definitely. No question. Guaranteed. Each and every year, their vapid comments on the future gold price prove to be complete bollocks, yet year after year, and day after day, millions of readers watchers and listeners tune in for another dose of horribly incorrect information. These days, the number of perpetually inaccurate predictions forecasting an end to the gold boom are thoroughly drowned out by the now multitudinous voices screaming from the rooftops for gold to go much higher. About 90 percent of that is the herd mentality at work. Early predictions for $1,000 gold, which seemed extreme and outlandish just tw...
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| Gold: Ratio Molehill vs USD Photocopier Mountain Posted: 19 Apr 2011 05:47 PM PDT Graceland Update
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| Chartworks: Silver & Silver/Gold Ratio into Exhaustion Mode Posted: 19 Apr 2011 04:48 PM PDT CHARTWORKS - Apr 11, 2011 Technical observations of [EMAIL="rossclark@shaw.ca"]RossClark@shaw.ca[/EMAIL] Bob Hoye Institutional Advisors Posted Apr 19, 2011 The following report was published for our subscribers April 11, 2011. As noted last week, silver was in a position to enter the exponential phase on the upside. It is now there. Both silver and the silver/gold ratio generated upside Exhaustion Alerts as of April 8th. It would be normal for silver to now peak relative to gold within five trading days (April 15th), even though both metals should continue to step higher for up to three weeks. The only Exhaustion Alerts that are concurrent with metals highs occur when the stocks (XAU, HUI & GDX) are failing to confirm the advance or there is an upside reversal in the US Dollar. (The US Dollar report of April 8th detailed the importance of monitoring any upside reversal through 75.75 this week.) ...
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| Gold Seeker Closing Report: Gold and Silver Rise To New Highs Once More Posted: 19 Apr 2011 04:00 PM PDT Gold rose to a new all-time high of $1498.05 by about 8AM EST before it fell back off a bit in late morning New York trade, but it then rose to a new high of $1499.40 by midday and ended with a gain of 0.16%. Silver climbed to a new 31-year high of $43.903 in the last minutes of trade and ended with a gain of 2.31%.
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| Posted: 19 Apr 2011 02:11 PM PDT
While the University of Texas made headlines over the weekend for disclosing it had taken delivery of $1 billion in gold (albeit in a Comex warehouse in New York), another Texas fund is making waves today however for all the wrong reasons. As Bloomberg announces, "The Teacher Retirement System of Texas needs an annual return of 21 percent in the year ending Aug. 31 to maintain an 80 percent funded ratio, the level actuaries consider adequate to cover liabilities, said its deputy director." Needless to say, as Brian Guthrie, the fund's executive director admitted, “We’d have to have remarkable investment returns for the rest of the year to reach 80 percent.” Considering that the fund’s investment return was 14.7% in 2010, the best among large public pension funds, it is more than obvious that a major portion of the fund's 109 billion in assets as of April 1 is already in stocks. Which is why should the market swoon following the end of QE1, the best performing fund of 2010 may well be the worst performing fund of 2011. And even if by some miracle stocks surge enough to fill the performance void for the rest of the year, it is still not guaranteed that the fund will make up for the performance shortfall, even as pensioners' capital is likely tied in with such bloated, overvalued garbage as 4x+ beta, triple digit forward earning multiple stocks (full list of key equity holdings below). From Bloomberg:
The pdf below shows the top 500 positions in the latest publicly disclosed stock holdings of Texas Teachers per Thompson One. Texas Teachers - h/t Mike
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| Faros - Foreign Dumping to Continue Sending US Dollar Lower Posted: 19 Apr 2011 02:06 PM PDT  With the S&P news regarding the US credit rating taking place, today Faros released a special report on the US dollar. "Yesterday, Standard and Poor's caught up with the Fitch rating agency when it described the US as having 'very large budget deficits and rising government indebtedness' relative to its AAA peers. Standard and Poor's revised its outlook to negative on April 18th, 2011. Fitch voiced their concern in January 2010. At literally the same time yesterday morning, Chinese Central Bank Governor Zhou Xiaochuan stated he believed Chinese reserves had exceeded a reasonable level (above 3 trillion USD in March), and that diversification should be improved."
This posting includes an audio/video/photo media file: Download Now | ||
| Gold Price Closed at $1494.50 and the Silver Price Closed at 43.91 Posted: 19 Apr 2011 02:01 PM PDT Gold Price Close Today : 1,494.50 Change : 2.20 or 0.1% Silver Price Close Today : 43.91 Change : .96 or 2.2% Platinum Price Close Today : 1,782.60 Change : -3.20 or -0.2% Palladium Price Close Today : 730.80 Change : -8.00 or -1.1% Gold Silver Ratio Today : 34.04 Change : -0.71 or 0.98% Dow Industrial : 12,266.75 Change : 65.16 or 0.5% US Dollar Index : 75.06 Change : -0.44 or -0.6% Editors Note: Franklin Sanders commentary will be posted later today. 
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| The Casey Report’s David Galland: Major Policy Shift Ahead Posted: 19 Apr 2011 01:51 PM PDT http://www.caseyresearch.com/editorial.php?page=articles/casey-report-s-david-galland-major-policy-shift-ahead&ppref=TBP405ED0411A In terms of the larger trends, the fundamentals that have caused so much pain and economic woe over the last ten years or so remain intact. If anything, they've gotten worse. We've gotten currency debasement, not just in the U.S., but especially in the U.S. dollar, which is not just any currency, but the [...]
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| Why QE 3 is Guaranteed (the Alternative is Something Four Times Bigger than 2008) Posted: 19 Apr 2011 12:42 PM PDT
The financial world is awash with a debate as to whether the Fed will engage in QE 3 in the future. To me this debate is pointless.
Indeed, the Fed HAS to engage in more QE 3 if it doesn’t want the entire market to collapse. Given the breakdown in Europe, the IMPLOSION in the Middle East, and the ongoing nuclear disaster in Japan, the removal of Fed liquidity would kick off a MASSIVE systemic Crisis.
Remember, we had a full-scale market breakdown when QE 1 ended and that was because of Greece: a country with a GDP of $329 billion. Removing liquidity from the markets when Japan, the fourth largest economy in the world (if you count Europe as one economy), the largest Oil exporting region in the world (the Middle East), and Spain and Portugal are all breaking down would lead to an absolute market DISASTER.
The Fed will not risk this. Besides it HAS to keep the liquidity going if it’s to continue supporting the TBTF banks in the US. Remember, 99% of what the Fed’s done in the last two years has been aimed at supporting the large, Too Big To Fail (TBTF) Wall Street banks. The reasons for this are:
1) The Fed is in fact CONTROLLED by these banks via the Primary Dealer network 2) Fed leaders are all front-men for Wall Street
In order to understand these, you need to know that the REAL power of the Fed lies in its primary dealer network, NOT stooges like Ben Bernanke.
If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.
The Primary Dealers are:
1. Bank of America 2. Barclays Capital Inc. 3. BNP Paribas Securities Corp. 4. Cantor Fitzgerald & Co. 5. Citigroup Global Markets Inc. 6. Credit Suisse Securities (USA) LLC 7. Daiwa Securities America Inc. 8. Deutsche Bank Securities Inc. 9. Goldman, Sachs & Co. 10. HSBC Securities (USA) Inc. 11. J. P. Morgan Securities Inc. 12. Jefferies & Company Inc. 13. Mizuho Securities USA Inc. 14. Morgan Stanley & Co. Incorporated 15. Nomura Securities International Inc. 16. RBC Capital Markets 17. RBS Securities Inc. 18. UBS Securities LLC.
Of this group four banks in particular receive unprecedented favoritism of the US Federal Reserve. They are:
1. JP Morgan 2. Bank of America 3. Citibank 4. Goldman Sachs
You’ll note that these are the firms deemed “Too Big To Fail.” The Fed not only insured that they didn’t go under during 2008, but in fact allowed these firms to INCREASE their control of the US financial system.
Consider that JP Morgan took over Bear Stears. Bank of America took over CountryWide Financial and Merrill Lynch. Citibank and Bank of America were the only two banks to have their liabilities directly backed by the Fed ($280 billion for Citi and $180 billion for BofA).
Then there’s Goldman Sachs which was made whole from all AIG liabilities, received $13 billion in direct funding from the Fed, and was supported while ALL of its investment bank competitors either went under or were consumed by other entities, granting Goldman a virtual monopoly over the investment banking business (the firms that were merged with larger firms all laid off large portions of their employees and closed down whole segments of their business).
My point with all of this is that we NEED to ignore what the Fed says and instead focus on what it does. And in the last two years, the Fed has done everything it can to support these four firms. Indeed QE’s 1, 2, and the coming 3 are nothing but an attempt to funnel TRILLIONS into these firms (and the other primary dealers).
The reasons the Fed is engaging in QE rather than simply dishing out the funds are:
1. Political outrage would be EXTREME if the Fed just gave the money away 2. The Fed needs to support those firms with the largest derivative exposure
The reason that the 2008 debacle happened was very simple. The derivatives market, the largest, most leveraged market in the world.
Today, the notional value of the derivatives sitting on US banks’s balance sheets is in the ballpark of $234 TRILLION. That's 16 times US GDP and more than four times WORLD GDP.
Of this $234 trillion, 95% is controlled by just four banks. Those four banks and their derivatives exposure (in $ TRILLIONS) are charted below:
The above picture summates two things:
1) Who REALLY controls the US financial system 2) Why QE 3, 4, etc are guaranteed
The Fed HAS to continue pumping money into the system to support these firms’ gargantuan derivative exposure. Failing to do so would mean a disaster on the scale of four to five times that of 2008.
Remember 2008 was caused by the credit default swap market which was $50-60 trillion in size. The interest-rate derivate market is $200+ TRILLION in size.
So I am certain QE 3 will be coming. If it doesn’t come in June we’ll get hints of it until it’s finally announced. The Fed cannot and will not stop the money printing. Bernanke will be forced to resign long before he takes the paperweight off the print button.
So if you’re not preparing for mega-inflation already, you need to start doing so NOW. The Fed WILL continue to pump money into the system 24/7 and it’s going to result in the death of the US Dollar.
If you’ve yet to take steps to prepare your portfolio for the coming inflationary disaster, our FREE Special Report, The Inflationary Disaster explains not only why inflation is here now, why the Fed is powerless to stop it, and three investments that absolutely EXPLODE as a result of this.
All in all its 14 pages contain a literal treasure trove of information on how to take steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.
Good Investing!
Graham Summers
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| Gold and currencies: an historical perspective Posted: 19 Apr 2011 12:32 PM PDT by David Levenstein … in their confused state, these analysts have failed to make the important distinction between gold mining shares and the reason why someone would want to buy physical gold. And, the majority of these advisors are only familiar with the modern day fiat currency system with some vague understanding of gold. Yet, it is these individuals who proffer advice on investing in gold. If you break your leg, do you go to the nearest library and ask the librarian on duty to help you by looking up the relevant procedure from some medical journal? Or do you go to your doctor? The same applies with investing in precious metals. If you want to know more, go the people who are the experts in this field and not someone who has no idea of what is going on. When it comes to understanding gold it is important to have a knowledge and understanding of money… [source]
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| Riding the Silver Bull: Worry If It Gets to Triple Digits This Year Posted: 19 Apr 2011 12:01 PM PDT | ||
| Rob Kirby: The Amaranth kill shot Posted: 19 Apr 2011 11:56 AM PDT 7:56p ET Tuesday, April 19, 2011 Dear Friend of GATA and Gold: The use of derivatives as essentially infinite naked short positions in the commodity markets to divert inflationary money creation away from real things whose purchase would be seen to drive up their price was perhaps first noted by the British economist Peter Warburton in his 2001 essay, "The Debasement of World Currency: It Is Inflation, But Not as We Know It": Today GATA consultant Rob Kirby of Kirby Analytics in Toronto describes in detail how derivatives were brought to bear against the hedge fund Amaranth Advisers LLC in 2006, when Amaranth was amassing a huge position in natural gas that was driving commodity prices in the prohibited direction, upward. The assassin was the U.S. government, acting through its usual agent, J.P. Morgan Chase & Co., which has access to essentially infinite amounts of government money and whose own grotesquely disproportionate positions in the bond and commodity markets will never be officially challenged by any regulatory agency, as they are really government positions. At GoldSeek, Kirby's analysis is headlined "Amaranth Kill Shot: Collateral Damage in a $78 Trillion Derivatives Book Compliments of J.P. Morgan Chase" and you can find it here: http://news.goldseek.com/GoldSeek/1303221043.php At 24hGold, it's headlined "$78 Trillion Derivatives Book Compliments of J.P. Morgan Chase" and you can find it here: CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Company Press Release, October 27, 2010 VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include: -- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres. -- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres. -- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre. Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface. "The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest." For the company's full press release, please visit: http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf Join GATA here: An Evening with Bill Murphy and James Turk World Resource Investment Conference Gold Rush 2011 https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or 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: http://www.gata.org/node/16 ADVERTISEMENT Prophecy Resource Spins Off Platinum/Palladium Venture: Company Press Release, January 18, 2011 VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy. PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding. Following the transaction: -- Prophecy will own approximately 90 percent of PCNC. -- PCNC will consolidate its share capital on a 10 old for one new basis. -- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp. -- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings. Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000. For the complete announcement, please visit: http://prophecyresource.com/news_2011_jan18.php
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| Hogs + Corn + Silver = Diversification! Posted: 19 Apr 2011 10:58 AM PDT The dollar's rally against the Euro lasted all of one day. On Tuesday, the greenback reversed most of its Monday gains, providing a boost for commodities and TIPS alike. Bonds continued to float slightly upward (lower in yield) ... Read More...
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| Jim Rogers Comments On Triple Digit Silver And Issues Warning: "Parabolic Moves Always Collapse" Posted: 19 Apr 2011 10:47 AM PDT
Jim Rogers commented on the recent move by the University of Texas to take delivery of $1 billion in gold, saying the decision is long overdue, and has only occurred because everyone else is now buying thereby taking metal out of circulation. He adds: "But where were these guys five, ten years ago? That’s when they should have been doing all of this." Indeed the momentum chasers never show up until it's too late. Then Rogers had some words of caution for silver bulls: "If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year. And then we’ll have to worry. It’s not parabolic yet. I hope something stops it going up in the foreseeable future and we have a correction. " There is one caveat: "maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver. It would be the US dollar which is collapsing. But if silver goes up the way you’re talking about without currency collapse, I would be very worried." So as usual, those long Precious Metals should not hate the Chairsatan but to urge him on to continue doing what he is doing so well: converting that once valuable combination of 75% cotton and 25% linen into "confetti." From Financial Survival Radio Financial Survival Radio: We just read that the second-largest university investment fund here in the US is buying physical gold. The University of Texas, which is where I live, is putting aside $1B worth of gold in a New York vault. Some have called this move a tipping point for the precious metals market. Do you agree?
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| The Animated S&P Downgrade Warning Posted: 19 Apr 2011 10:24 AM PDT
For anyone who is still confused by what the S&P warning of a debt downgrade means, here comes the NMA TV signature animation explanation which cuts right to the chase. And as some may be out of Aderall to comprehend even this 1 minute cartoon version, we are confident that the bears will show up and put the topic to rest. And if that fails, there are always sock puppets and claymation dollar bill printers missing an OFF switch. h/t HedgedIn
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| Northern Gold Mining (TSX-V: NGM): Advancing Discovery with Near-Term Production Potential Posted: 19 Apr 2011 10:18 AM PDT I believe that Northern Gold Mining (TSX-V: NGM) is in an excellent position to attract higher valuations as the ongoing successful drill results turn into compliant resources. This combined with the current market valuations makes Northern Gold Mining a compelling risk-reward opportunity which is why I have included it as one of my top investments in my portfolio.
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| Posted: 19 Apr 2011 10:00 AM PDT syndicate: 1 Author: Vedran Vuk Synopsis: Jeff Clark about a prospecting weekend with his dad, and what we can learn from gold diggers. Also in this edition: Alex Daley comments on the amazing possibilities of glass, and Vedran Vuk about the S&P's changed outlook on the U.S. Dear Reader, Sometimes, the market seems just plain wacky. Consider the market's reaction to the recent U.S. consumer price index data. The CPI rose 0.5%, setting the last 12-month inflation rate at 2.7%. This is quite a pick-up, and it should mean bad news for the dollar. But what did the market do in response? The dollar strengthened. The same thing occurred with the Canadian dollar. With the March data out, the Canadian dollar also felt creeping inflation at a 3.3% year-over-year rate. And what happened to the Canadian dollar on the new...
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| Posted: 19 Apr 2011 10:00 AM PDT The 5 min. Forecast April 19, 2011 12:36 PM by Addison Wiggin – April 19, 2011 [LIST] [*]More debt and deficit dismay? Gold touches $1,500 [*]Turk, Faber, Mayer weigh in on the dollar, the debt, precious metals and how to play the coming volatility [*]"Sorely disappointed"… What retirees can expect out of both the Obama and Ryan budget plans [*]Aging rapper announces huge expansion plans for his business… as soon as he can make payroll [*]Expensive wars, fear of foreigners, lack of accountability… lessons from a 17th century shipwreck [/LIST] From Standard & Poor's skepticism yesterday that Congress can compromise by 2012, we turn today to populism expressed by a 14-year-old girl in Wisconsin: And just like that, gold hit $1,500 for a nanosecond this afternoon. "The warning from S&P is unlikely to change the spending habits of Washington's politicians," writes James Turk of goldmoney.com. "Given the willingness of the Feder...
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| Capital Context Update: Vigilance Vindicated Via Veritable Volume Vacuum Posted: 19 Apr 2011 09:58 AM PDT
From Capital Context
S&P futures managed to creep up to the pre-USA outlook change lows of early yesterday amid the lowest volume day in over two weeks and while HY and IG credit also managed gains on the day, we note some interesting shifts under the surface that should be considered less sanguine. Stocks bucked a recent trend by outperforming credit on the day but the headline 'risk-on' is not appropriate given the relative underperformance of HY credit to IG, considerable flattening in 3s5s curves, and continued up-in-quality theme playing out in credit-land. S&P futures managed to creep back to pre-announcement levels from yesterday morning but volume was incredibly light and unconvincing. Goldman's earnings (for whatever they are worth given the total opacity of any bank's balance sheet) seemed to disappoint the equity crowd and the better-informed also noticed (as we pointed out to you in the Midday Movers ) that CDS were compressing modestly in the face of this equity weakness. While this seems slightly odd at first glance, we note two things: 1) 3Y CDS notably underperformed in most of the US and European financials today - suggesting a derisking in closer maturities and perhaps growing concerns over the ability to roll their debt (TLGP included) without impacting earnings; and 2) relative underperformance of financials fundamentals suggests less ability to be 'shareholder-friendly' via dividends/buybacks (even though GS obviously did both) and perhaps that is relatively improving the credit outlook. Either way, there was little positive to take away and while EU financials did better on a quiet day across the pond, they remain at extremely wide levels relative to any new normal.
This afternoon saw a slow grind up to that pre-rating outlook change level - which seemed inevitable (as is clear in the upper chart) but remained notably below the best levels pre-announcement. Investment grade credit (IG) however did manage to fill the gap and traded to yesterday's tightest levels at 94.5bps bid - but held at those levels for much of the afternoon. High yield credit (HY) was a different picture as it never managed to quite fill the gap from yesterday's move (around $102.375 or 441bps) making it to $102.325 (443bps) today before actually selling off a little into the close, ending at around $102.175 (447bps -3bps on the day). For much of the day we also saw 3Y HY actually wider close-to-close which was against its fair-value move (slightly tighter) again showing that 3s5s flattening that we have been keeping an eye on (note that 3s5s in HY index is 143bps and 3s5s intrinsics is 120bps for an idea of the flow into that trade that has yet to push back into the underlying single-names). Compare that 'skew' to XOver (high yield EUR credits) which are 100bps and 102bps for the index and intrinsics and you see clearly where liquidity is the potential for single-names to decompress at the short-end (as idiosyncratic fundamentals start to become important again). HY remains (aside from yesterday) at its wides of April while IG is back within the range quite easily. This HY underperformance and 3s5s flattening was evident in the cash markets today. Secondary bond trading saw HY bonds net sold and IG bonds net bought quite aggressively. Some points of interest in this mumbo jumbo were the focus on low-quality IG names (BBB+ to BBB-) as the center of attraction for buyers, a focus on selling the 1-3Y bonds and buying 7-12 and 12+ maturities, and a modest flattening in the TSY curve (again notable given equity's strength). So it would appear that corporate bond players were willing to extend duration in quality names to grab some yield as they withdrew from riskier names - an interesting action given recent fund flows and once again bear in mind the ongoing macro overlay-to-idiosyncratic unwind positioning that we feel is happening under the covers. 10Y Treasury rallied today along with S&P futures even as the USD lost ground against most majors - seems like the arb compression drove it? As far as the TSY complex today goes, three things stand out: 1) they rallied along with stocks (even as DXY fell notably); 2) 2s10s30s re-synced perfectly with S&P futures confirming our view that it is the carryt trade du semaine; and 3) perhaps most notably, 10Y TSY yields converged handsomely back to their relationship with S&P futures. The latter point we discussed yesterday as a possible arb and was pointed out by our friends at Zerohedge providing a handsome $6400 profit (delta-hedged) for a $1mm notional 10Y TSY position. These relationships within and across asset classes are critical in the context of juding investment positions and we hope some of this is useful in vindicating our vigilance (as the wonderful post title would suggest). In vol land , we continue to consider the selling short-dated vol and buying long-dated OTM vol the trade-du-jour but grossly crowded given the incredible skews and term structure moves we have pointed out to you for a few weeks now. These pennies-in-front-of-steamroller trades are great carry generators until you lose an arm and with single-name vols tending to leak higher among the lower quality names (as we have been pointing out recently), we suspect the short implied correlation trade is a little less risky here (if possible for investors). VIX ended the day sub 16% but still above Friday's closing level (and intraday lows) and we note that the 1m to 3m vol term structure steepened back towards Friday's steeps again today. Skews remain elevated and implied correlation was very flat today. Contextually , a healthy 46% of all names we track agreed in credit and equity improvement today (and 6% agreed on deterioration). Divergences were well balanced with 24% in each (debt up, equity down and vice versa). Sectors were mostly in agreement on aggregate that things improved but we note Media saw credit compression and equity losses today on average while Tech saw the opposite with credit decompression and equity gains. Basic Materials and Healthcare saw equity outperforming the most over credit (on a beta-adjusted basis) while Financials, Media, and Utilities saw credit benefitting the most today. The picture was slightly mixed across quality cohorts with equity seemingly underperforming at the very best and very worst levels (financials and HY?) and therre was little systemic theme within and across single-name vol today. Some names to keep an eye on include Omnicom, DTE Energy, MGM Resorts, and Altria (all of which saw notable credit outperformance relative to equities today) and at the other end of the scale (credit decompression and equity improvement) we notice Dynegy, Hovnanian, Dover Corp, Praxair, and Pride International. Bottom Line for us is that not much has changed today - some relationships have been dragged back into line and so tomorrow we may see some more realistic action in equities and Treasuries but credit certainly was not buying back into the positivity en masse today and the risk-on charge back into higher beta assets does not seem as hot and heavy as it has been on these dips in the past. Europe All was quiet on the Eastern front (well East of me anyway) as we seemed to take a pause in the frantic selling/unwinding today. European investment grade non-financials managed to stabilize (though no real compression) as financials rallied modestly (on the back of some let up in spread decompression for sovereigns). Main and XOver did see 3s5s flattening also (similarly somewhat negative to US IG and HY). The sovereign moves today looked a lot like index arb against SovX as we had got quite a way ahead of the index based on the underlying components and similarly CEEMEA sovereigns are trading notably tighter than the index on an individual basis (perhaps more compression is due in CEEMEA - though there is the oil-factor to mix into that little quandary). All-in-all relatively quiet but we do note that high beta credits underperformed low beta credits today - perhaps indicative of the same up-in-quality shift we are seeing in the US. Asia Dollar Strength is positive in this chart and it is evident that Asian FX has seen the largest outperformance relative to the Majors and Trade-Weighted index. Gold and Silver continue to surge. Most of the Australian and Asian credits caught the flu from the European and US snafu's yesterday and were almost all wider. Asian banks underperformed non-financials thorughout but in AUS we saw modest outperformance by their banks (though both widened on the day). Asia ex-Japan managed to creep 2bps tighter in US and European hours (recouping around half of yesterday's losses) but ITRX Japan contonued its slow leak wider as did Australia. As an interesting aside, the USD has lost most ground relative to the Asian currencies this week but clearly (from the chart opposite), the largest benefactors of a concern regarding USD has been gold and even more so silver as it broke $44 today (and gold stalled just below $1500). While the dollar is actually up on the week, we note the very considerable drop post USA-outlook-change and the considerably higher beta moves in Silver versus Gold. Index/Intrinsics Changes CDX16 IG -1.16bps to 94.59 ($0.05 to $100.2) (FV -1.01bps to 93.23) (14 wider - 92 tighter <> 67 steeper - 54 flatter) - No Trend. Spreads were tighter in the US as all the indices improved. IG trades 3.1bps wide (cheap) to its 50d moving average, which is a Z-Score of 1s.d.. At 94.59bps, IG has closed tighter on 142 days in the last 592 trading days (JAN09). The last five days have seen IG flat to its 50d moving average. HY trades 18.3bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.2s.d. and at 446.75bps, HY has closed tighter on 68 days in the last 592 trading days (JAN09). Indices typically underperformed single-names with skews widening in general. Comparing the relative HY and IG moves to their 50-day rolling beta, we see that HY underperformed by around 2.2bps. Interestingly, based on short-run empirical betas between IG, HY, and the S&P, stocks outperformed HY by an equivalent 6.7bps, and stocks outperformed IG by an equivalent 1.2bps - (implying IG underperformed HY (on an equity-adjusted basis)). Among the IG names in the US, the worst performing names (on a DV01-adjusted basis) were News America Inc (+2.33bps) [+0.02bps], Black & Decker Corporation (+1.5bps) [+0.01bps], and General Mills Inc. (+1bps) [+0.01bps], and the best performing names were MDC Holdings Inc (-5.67bps) [-0.04bps], Toll Brothers, Inc. (-4.42bps) [-0.03bps], and Altria Group Inc (-3.73bps) [-0.03bps] // (absolute spread chg) [HY index impact]. Among the HY names in the US, the worst performing names (on a DV01-adjusted basis) were Iron Mountain Incorporated (+9.86bps) [+0.1bps], Dillard's, Inc. (+6.75bps) [+0.07bps], and DISH DBS Corporation (+4.8bps) [+0.05bps], and the best performing names were MBIA Insurance Corporation (-80.39bps) [-0.54bps], Community Health Systems Inc (-36.7bps) [-0.35bps], and Parker Drilling Co. (-31.67bps) [-0.33bps] // (absolute spread chg) [HY index impact].
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| Gold hits key level of $1,500 an ounce Posted: 19 Apr 2011 09:58 AM PDT By Claudia Assis and Sue Chang … Gold for June delivery ended up $2.20 an ounce, or 0.2%, at $1,495.10 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, gold rallied as high as $1,500.50 an ounce, according to the CME Group website, an intraday record for the metal. Prices had dipped in and out of the red before floor trading began and continued to waver early in the session. But investors, particularly long-term buyers, have shown a tendency to take advantage of short-term pullbacks, noted Bill O'Neill, managing partner at Logic Advisors. "On every dip, trade is consistently buying on weakness," said O'Neill. … For some buyers, a main reason to invest in gold is the fear that government debt is spinning out of control, lowering the value of the dollar or other major reserve currencies, such as the euro. … Silver continued to rally to 31-year highs, with the May contract adding 96 cents, or 2.2%, to $43.91 an ounce. [source]
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| Options Risk, Manipulation, And The May Silver $40 Calls: An FMX Connect Special - Parts 1 And 2 Posted: 19 Apr 2011 09:38 AM PDT
From Vince Lanzi of FMX Connect Options Risk, Manipulation, and the May Silver $40 Calls The purpose of this series is to help the reader better understand the risks and pitfalls of trading options and having a position at expiration. We will try to describe exactly what happens at expiration. The concepts here apply to all options markets, but we chose to focus on Silver because an interesting expiration is setting up presently. The upcoming expiry gives us an opportunity to discuss all the pieces of the option puzzle: the Greeks, market manipulation, Pin risk, and other factors. Lesson #1 In futures markets where major participants are absent, options players dictate market movement for short periods of time. During this time the market may flat line, or it may have large, impulsive moves in either direction. What happens is determined by the strong-handed player, and sometimes his inclination to “game” the market. The Easter Egg Observe if you will, the 6 days prior to expiration of Comex May Silver options. April 21st, Holy Thursday: day before a holiday April 22nd: Good Friday: CME Closed April 23rd,Easter Saturday: Markets Closed April 24th,Easter Sunday: Markets Closed April 25th, Easter Monday: LME Closed (Largest Physical Bullion Exchange Worldwide) April 26th, Tuesday: May Options Expiration CME One may ask, what does the above imply? The above implies that normal liquidity will not be present for the last 5 days before expiration. Sunday Evening US time is usually quite liquid during London hours, but will not be this week. Monday will also be a liquidity ghost town, as LME players will be out. It is doubtful that many US futures liquidity providers will be in the day after Easter either. This is a market ripe for an event. Throughout this week and next, we will attempt to break down the factors influencing the outcome of this expiration as a proxy for understanding commodity options risk in general. It will include: &iddot; The players and their biases &iddot; Option Greeks demystified &iddot; How to spot when a market is ripe for “management”, like above. &iddot; Regulatory factors enabling this behavior. In any single trade, the option buyer and seller are fundamentally at odds. Both types of player (referred to as options long and options short) make their money in opposite ways, and at the expense of the other. The long players expect to make more money scalping Gamma than they lose in Theta over the option’s life. The Short players bet that the Theta they collect will outweigh the market movement and the negative Gamma they incur, most poetically described as “wishing for death”. To understand how and why markets sometimes get “managed” at expiration it would make sense to first understand the Option Greeks. This combined with who the players actually are, and understanding the regulatory inconsistencies will tell the full tale on why markets are ripe for manipulation near options expiration.
Keeping Score Managing Options risk is a complex task. We are going to focus here on only three of the “Greeks” used to quantify and manage risk, Delta, Gamma, and Theta. These are the most important ones affecting an option trader’s behavior as expiration approaches and the market is hovering near a strike. We’ll attempt to explain them plainly and simply through examples. For these explanations we must assume that all other Greek parameters: like volatility, rho, etc remain static to better isolate the effects of delta, gamma, and theta on risk. Delta In physics Delta means rate of change. In calculus Delta is the tangent of the trajectory. But Delta actually has 3 definitions in the practical trading world. These definitions largely overlap but are not necessarily the same for the whole life of the option. 1. Correlation with the underlying: a Call has a 20 delta. The model generating that delta assumes the Call’s value will change by 20% of what the underlying changes. E.g. Crude Oil goes up by $1.00. The Call will go up by $0.20 assuming other Greeks remain the same. 2. Hedge Ratio: The long 20 delta call would be directionally neutralized if it had a hedge of short 0.20 futures per long options contract. E.g. I am long 100 Crude Oil calls with a 20 delta. I will sell 20 futures to hedge myself directionally. Therefore I will (theoretically) neither make nor lose money in either direction due to underlying movement. I am directionally “flat” 3. Probability of Expiring in-the-money: according to the model, said 20 delta call has a 20% chance of expiring in-the-money. e.g. an option with 30 days to expiry at this volatility has an implied probability of a 20% chance of expiring in-the-money.[1] Gamma is the second derivative of the option. In physics, it is the rate-of-change of the rate-of-change. In calc it is the tangent of the velocity. For our purposes it is simply how much a delta itself will change (Correlation, Hedge ratio, or Probability), given a change in the underlying price. Using our Crude Oil 20 delta call option again: Crude rallies from $90.00 to $91.00. In our example, the option has a 20 delta and its correlation/hedge ratio/probability all point to a change in the option’s value of $0.20. But that cannot be entirely correct if one measures the option’s value at the end of the $1.00 move in crude. Because the market has moved higher, the option has an increased probability of going in the money. Therefore its Correlation, Hedge Ratio and In-The-Money Expiration Probability must increase. In our example, we use our model to re-calculate the delta of the call and find that its delta has gone from 20 to 25. This difference of 5 deltas over a $1.00 move is its Gamma. Therefore we now have the ability to sell 5 more futures against our 100 calls if we wish to rebalance our directional risk. We get to “Sell High”. And if the market drops back down to $90.00, the option’s delta will once again become 20. We will get to “Buy Low”. Such is the virtue of being long Gamma. The ability to sell when something goes up, and buy it back when it comes down. Provided of course your model is right, and as we’ve said multiple times other Greeks don’t change. Gamma however comes with a cost called Theta. Theta The rate at which an out-of-the-money option loses its value over time is Theta. In short, it is the rate at which your long lottery ticket wastes away. As time goes to zero, your out-of-the-money option’s chances of expiring in the money go to zero as well. It is not unlike having tickets to an event that you wish to sell. If interest is tepid in the event (Jethro Tull : Bore ‘em at the Forum) and you can’t get face value for them from someone, you are said to be out-of-the-money. You will lower your price as we get closer to the event itself in the hopes of unloading them. That is an imperfect example of Theta. Using our 20 delta call again: if it has a Theta of .05. That means it will lose 5 cents of value per day from the march of time, again assuming all those other Greeks we are not talking about remain the same. So as a holder of that Crude Oil call with a 20 delta, you are in a race against time. If you cannot make more than 5 cents per day from delta readjustments (aka Gamma) after the underlying moves, you will be a net loser of money. Put another way, you must “scalp your Gamma” to profit by 5 cents daily just to break even on your option investment. More than 5 cents and you profit, less than that and you lose. Options Yin and Yang Gamma and Theta are opposite sides of the same coin. These risks and how they are managed by opposing counterparties, combined with the asymmetric setup in the system are the key to the reasons for why so many option expirations get “pinned” at a strike with large open interest. And also why rarely but more sensationally, markets blow through strikes with big open interest. [1] So, we can say that given no changes in implied volatility or any other Greek, and assuming that markets are random in their movement 100% of the time, that information is disseminated in these markets instantaneously, and finally that liquidity is deep and continuous in the option itself those 3 definitions above should overlap 100%. But we know that none of the above is true, that markets are not efficient and that the playing field is not level due to economic, regulatory, and technological differences in participants. This is over and above the different skill of players involved.
About the Author: Vincent Lanci is a 22-year veteran of the commodity option markets. He started on Wall Street at Lehman Brothers and is a former floor trader and energy fund manager. He currently manages Echobay Partners, a private equity firm specializing in commodity and exchange related investments.
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| Gold tops $1,500 on U.S. debt outlook; silver surges to $44 Posted: 19 Apr 2011 09:35 AM PDT By Pham-Duy Nguyen … "The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets," said Lim Chae Myung, a Seoul-based trader with Hyundai Futures Co. Read more: http://www.theage.com.au/business/markets/gold-touches-record-as-debt-worries-drag-on-us-dollar-20110420-1dnr1.html#ixzz1K0ZORywy The greenback dropped against the euro on speculation that the European Central Bank will continue to raise borrowing costs as some nations struggle to contain sovereign debt. … The ECB this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation. The U.S. Treasury Department projected that the government may reach the $14.3 trillion debt-ceiling limit as soon as mid-May and run out of options for avoiding default by early July. The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and has pledged to buy $600 billion in Treasuries through June to stimulate growth. … "There certainly has always been that lingering concern over U.S. debt and the S&P people are finally identifying the threat," said Stephen Platt, an analyst at Archer Financial in Chicago. "The world is awash in liquidity. Gold's slow, grinding action upward shows the deterioration in the dollar, excess liquidity and deficit problems are still in force." [source]
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| Geithner has approved plans for (IMF) to absorb the Fed ??? Posted: 19 Apr 2011 09:29 AM PDT There is word on the street that Secretary of the Treasury, Timothy Geithner, has approved plans for the International Monetary Fund (IMF) to absorb the Federal Reserve System with an eye to the IMF becoming a global central bank. A "basket of currencies" (which includes the Chinese renmenbi/yuan) is to be created to replace the dollar as the international currency of trade. Plans are for "the basket" to become America's new currency. Is it true? There's no way to confirm the rumor. The same spark that lit the fire under the rumor also suggests it will not be long in coming. If true, I believe it is an act that borderlines Treason. I'm no lawyer, but it seems to this citizen of the United States that my Constitution (which defines government's limitations) says the only authority for currency and coinage in this country is the United States Congress. More Here.. 50 Factors Launching Gold 
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| Oil Price Battle of The Big Banks Posted: 19 Apr 2011 09:25 AM PDT
By Dian L. Chu, EconMatters Continuing its downward shift from the week before, crude oil fell sharply on Monday, April 18 after S&P lowered its U.S. credit outlook to negative, and OPEC said high crude prices could pressure global economy. ICE Brent crude for June fell $1.84 to settle at $121.61 a barrels, while WTI (West Texas Intermediate) for May delivery also fell $2.54 to settle at $107.12 on NYMEX. Crude oil dropped 2.8% in the week ending April 15, which marked the first weekly decline in a month. The sell off could be partly attributed to Goldman Sachs telling clients on Monday April 11 to sell, sell, sell "CCCP" commodities basket for a 25% profit, which prompted a broad selloff in commodities not just limited to crude oil. CCCP is a commodity basket Goldman first recommended to clients in December 2010. The weight of the CCCP basket is allocated as 40% in crude oil, 20% in copper, 10% soybeans, 10% cotton and 20% in platinum. Goldman - Brent to Correct Towards $105 Goldman's primary thesis for its new found bear is centered around crude oil citing the similar market fundamentals observed in my WTI correction to $90 call about two weeks earlier:
Goldman believes the confluence of these factors could begin to offset some of the upside owing to "potential contagion risk in the Middle East and North Africa (MENA)." Furthermore, Goldman predicts Brent would correct towards $105 a barrel in coming months. As discussed in my analysis on April 11, demand is starting to show weakness in Europe as gasoil storage reached a 3-month high boosted by imports, and a lack of demand from the agricultural sector. As such, Goldman also recommends clients to close long positions in the ICE gas oil (diesel and other distillate fuels) contracts. BofA – Brent to Top $140 in 3 Months However, not all agree with Goldman. BofA Merrill Lynch, for example, has a total opposite view on crude. Bloomberg quoted a Merrill report dated April 12 that BofA expects Brent futures to top $140 a barrel in the next 3 months "as consumption expands rapidly" and "armed conflict curbs supplies from Libya," there even was a 30% chance Brent Crude could hit $160 a barrel. Gloves Off at Barclays Barclays also took a shot at Goldman suggesting that the call for a top of the oil and commodities market was not only "too early" but also "simplistic." From FT.com:
FT also quoted Paul Horsnell at Barclays as saying:
This is not the only occasion that the two investment houses have diverging views on market outlook and portfolio positions, but it certainly marks a rare head-on confrontation between the two heavy weights in the commodity trading business. This also has left investors in a quandary - Which way goes oil, Goldman or Barclays/BofA? IEA - High Prices Dent Demand Coincidentally, Goldman’s crude oil bear call came around the same time that the IEA (International Energy Agency) warned that high oil prices could hurt global economy. Although it maintains world oil demand outlook, in its monthly oil market report, the IEA notes "Preliminary January and February data suggest that high prices are already starting to dent demand growth," and that "The surest remedy for high prices may ultimately prove to be high prices themselves." Saudi Arabia – "Market is oversupplied" Meanwhile, Saudi Arabia’s Oil Minister Ali al- Naimi said the global "market is oversupplied," and confirmed the Kingdom had cut output by more than 800,000 barrels per day in March because of weak demand. Saudi’s production in February was 9,125,100 barrels a day, and dropped to 8,292,100 barrels in March, but April levels are expected to be a bit higher than that of March. Reduced Demand from Japan & Europe The drop in Saudi March production coincides with a decrease in demand from Japan as the country lost 29% of its refinery capacity after the 9.0 earthquake on March 11. Vice Minister of International Affairs Hideichi Okada also indicated that "The Japanese economic growth rate will decrease to some extent, and that means our demand will slow down." Moreover, al-Naimi said that Saudi Arabia sold 2 million barrels of new blends of oil it has developed to help replace Libyan barrels withheld from the market, "and there is plenty left." Even Barclays acknowledges that the new Saudi blends have seen a "lukewarm response" from European refiners in an investor note on April 14. U.S. Swimming in Crude The demand destruction is clearly manifesting in the U.S. Crude oil inventory is now sitting at 359.3 million barrels as of April 8, up 1.6 million barrels from just a week ago and 5.3 million barrels from a year ago. Demand for gasoline over the four weeks ended April 8 was 1.6% lower than a year ago, averaging nearly 9 million barrels a day, an 8-year low. U.S. refineries run also drastically dropped to 81.4% of total capacity on average, a 3% decline from the prior week. What’s Wrong With This Picture? Now, what’s wrong with this picture regarding the U.S. WTI crude oil?
? 
The high gasoline prices are now costing the U.S. consumers about $360 million more per day at the pump than a year ago. According to AAA, six states now have gasoline prices above $4 a gallon, which is considered the price tolerance threshold for consumer behavior change. As nothing cures high prices like high prices, particularly for an economic commodity like crude, crude oil along with gasoline prices would have to come down, as the current U.S. economy and jobs situation could not support these irrational juiced-up price levels. Chindia Factor on Oil China's economy grew more-than-estimated 9.7% in the first quarter and inflation accelerated in March to a 32-month high, the fastest pace since 2008. China's consumer prices rose 5.4% from a year earlier while industrial output also increased 14.8% year-on-year. Chinese Officials inflation target is to hold at 4% for the full year. So, this suggests Beijing's efforts to rein in soaring costs are falling short, and more should be expected. The same goes for India. India's central bank has also been battling to bring prices under control. Rising food and fuel costs at double digit escalation is part of the problem, despite eight interest rate increases in the past year by the Reserve Bank of India. Goldman - Front Running The Inevitable Goldman has been one of the most bullish on commodities and was the first investment bank predicting $100 oil in the summer of 2007, more than a year prior to oil peaking at $147. Just five months ago, Goldman said the world's crude oil spare capacity could be wiped out by growing demand by the end of 2012. It is hard to tell what prompted Goldman's sudden and somewhat surprise bearish view. But based on supply and demand fundamentals discussed here, coupled with contract rollover pressuring WTI prices as Cushing storage is maxing out (by the way, Goldman's call came a week before the WTI May contract expiration on Tuesday, April 19), it seems Goldman’s bear call is just front running the inevitable, as there are very few excuses left to push up the price oil much further. BofA Merrill Lynch – Near Term Off Base Despite the slight drop in recent days, WTI price is still up about 25% from a year ago, and remains incompatible with the current global economic recovery progression. On that note, BofA Merrill Lynch’s call for Brent futures to top $140 a barrel -- a 15% rise from Monday's closing -- in three months seems way off base on supply and demand fundamentals, or even from a speculative point of view. Barclays – Long Term Reasonable FT reported that Barclays expects oil prices would reach $185 a barrel by 2020. With increasing market volatility and uncertainty, it is very difficult to make prediction almost 10 years down the road, but from the current vantage point, Barclays oil price target in the long term seems reasonable, based on diminishing ‘easy oil’ resources, global demand outlook and oil E&P project cost inflation. Marked Slowdown in 2nd Half of 2011 Amid rising food and oil prices, a lot more aggressive tightening could be expected from China and India, along with other emerging countries, and developed economies. Even the most dovish U.S. Fed would at least quit further stimulus after the completion of QE2 in June. This most likely could result in a marked slowdown in global economic growth and fuel demand, as early as the second half of 2011. Then, instead of if and when, it is a matter of how bad the world economy, commodities, and commodities related investments would get hammered. EconMatters, April 19, 2011 | Facebook Page | Article Alert | Blog on Kindle
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| Posted: 19 Apr 2011 08:28 AM PDT
Submitted by Rob Kirby Amaranth Kill Shot: Collateral Damage In A 78 Trillion Dollar Derivatives Book Compliments Of J.P. Morgan Chase (pdf) The purpose of this paper is to illuminate the real purpose of the obscene size of derivatives books amongst the world’s largest financial institutions. Derivatives in strategic markets are controlled by governments through proxy banks and agencies using these instruments. By sheer volume, the trading in paper “tails” wag the physical “dogs”. When market volatility negatively impacts these large institutions they are given a pass by regulators and accounting protocols in the interest of national security and preservation of the status quo. Moreover, this ensures the perpetuation of U.S. Dollar hegemonic power. The following accounts outline how these instruments are used to project this power.
Amaranth Advisors LLC went bankrupt in Oct. 2006. By mid 2007 the Committee of Homeland Security and Government Affairs released a document containing a detailed investigation of the Amaranth scandal entitled “Excessive Speculation in the Natural Gas Markets.” Amaranth, hedge fund, was launched in 2000 as a multi-strategy hedge fund, but had by 2005-2006 generated over 80% of their profits from energy trading.
Market circumstances surrounding Amaranth indicated that they were predominantly long natural gas. This is not surprising since “very easy money policies” by the Federal Reserve, a hot housing market along with rapidly industrializing Asian economies had created steadily increasing demand – and a bullish environment - for commodities in general and energy inputs in particular.
Juxtaposed against this inflationary backdrop, the U.S. Federal Reserve, the Bureau of Labor Statistics, and the U.S. Treasury ALL consistently fudged [lied about] economic data, always overstating economic growth and employment data and perpetually understating the effects of inflation. This has been well documented by John Williams of www.shadowstats.com.
Amaranth became a high profile entity employing leverage to push prices of a high profile strategic commodity like natural gas higher. This put Amaranth at odds with the 2 % inflation “kool-aide” illusion that the Fed and U.S. regulators were [and still are] trying to falsely sell the American people. In 2008, Ludwig Chincarini CFA, Ph.D, penned a paper chronicling Amaranth’s collapse titled, Lessons from the Collapse of Amaranth Advisors L.L.C. linked here. The report gave details regarding Amaranth’s management style and risk management practices as well as chronologically detailing the last days of the hedge fund.
Through the research provided to us by Ludwig Chincarini CFA, Ph.D., we get an accurate picture of Amaranth’s methodology for managing risk as follows:
“The Chief Risk Officer of Amaranth had a goal of building a robust risk management system. Amaranth was unusual in terms of risk management in that it had a risk manager for each trading book that would sit with the risk takers on the trading desk. This was believed to be more effective at understanding and managing risk. Most of these risk officers had advanced degrees. The risk group produced daily position and profit and loss (P&L) information, greek sensitivites (i.e. delta, gamma, vega, and rho), leverage reports, concentrations, premium at risk, and industry exposures. The daily risk report also contained the following:
1. Daily value-at-risk (VaR) and Stress reports. The VaR contained various confidence levels, including one standard deviation (SD) at 68% and 4 SD at 99.99% over a 20 day period. The stress reports included scenarios of increasing credit spreads by 50%, contracting volatility by 30% over one month and 15% for three months, 7% for six months, and 3% for twelve months, interest rate changes of 1.1 times the current yield curve. Each strategy was stressed separately, although they intended to build a more general stress test that would consolidate all positions.
2. All long and short positions were broken down. In particular, the risk report listed the top 5 and top 10 long and short positions.
3. A liquidity report that contained positions and their respective volumes for each strategy was used to constrain the size of each strategy. The risk managers also calculated expected losses for the individual positions. The firm had no formal stop-losses or concentration limits. Amaranth took several steps to ensure adequate liquidity for their positions. These steps are listed on the more detailed version of this section on the FMA website.”
In fact, the risk aversion procedures taken by Amaranth don’t really seem much different than the mandated risk management procedures practiced by J.P. Morgan, B of A, Citibank, Goldman Sachs and Morgan Stanley – ALL with derivatives books measuring from 42.1 to 78.6 Trillion at Dec. 31/10. Here’s how the U.S. Office of the Comptroller of the Currency [OCC] states these behemoths manage their risk [pg. 8]:
“Banks control market risk in trading operations primarily by establishing limits against potential losses. Value at Risk (VaR) is a statistical measure that banks use to quantify the maximum expected loss, over a specified horizon and at a certain confidence level, in normal markets. It is important to emphasize that VaR is not the maximum potential loss; it provides a loss estimate at a specified confidence level. A VaR of $50 million at 99% confidence measured over one trading day, for example, indicates that a trading loss of greater than $50 million in the next day on that portfolio should occur only once in every 100 trading days under normal market conditions. Since VaR does not measure the maximum potential loss, banks stress test trading portfolios to assess the potential for loss beyond the VaR measure. Banks and supervisors have been working to expand the use of stress analyses to complement the VaR risk measurement process that is typically used when assessing a bank’s exposure to market risk……..[more]”
And here is what OCC reports as VaR for these selected banks [pg. 9]:
The tables above show that J.P. Morgue had a 78.6 Trillion Dollar derivatives book [446 dollars in bets for every one dollar in equity] and estimates that the most they could expect to lose in any given day is $ 71 million. [Note: Amaranth, with an approximate 20 Billion Dollar Derivatives book – lost an average of $ 420 million for 14 days straight for total losses of approximately 6 billion at the beginning of Sept. 06]. As a housekeeping note: Years ago, circa 1998, J.P. Morgue’s management deemed their proprietary measure of assessing risk [VaR] so “brilliant” they “spun it off” in a separate company called RiskMetrics. “JP Morgan [had] developed a methodology for calculating VaR for simple portfolios (i.e. portfolios that do not include any significant options components) called RiskMetrics. The success of RiskMetrics has been so great that Morgan has spun off the RiskMetrics group as a separate company. RiskMetrics forecasts the volatility of financial instruments and their various correlations. It is this calculation that enables us to calculate the VaR in a simple fashion. Volatility comes into play because if the underlying markets are volatile, investments of a given size are more likely to lose money than they would if markets were less volatile.” RiskMetrics was successfully marketed to some of the most astute, successful risk managers in ALL THE LAND such as:
Bear Stearns Global Clearing Services and RiskMetrics Group to Offer Risk Management, Portfolio Analysis and Investment Planning Solution to Independent Investment Advisors.Publication Date: 25-JAN-06 Article Excerpt And
Lehman's prime brokerage to offer clients RiskMetrics tools onlinePublished online only Source: Risk magazine | 13 Dec 2002 Lehman Brothers' global prime brokerage unit will offer RiskMetrics' RiskManager tool to hedge funds, fund of funds and investors via its website, LehmanLive. The RiskManager service features value-at-risk, stress testing and 'what-if' scenario generation. Observations
Perhaps some of you might be wondering how J.P. Morgue et al really do it? How they can take such HUGE, LEVERAGED risk and seemingly NEVER lose? Well, here’s a clue: back in early 2006, B This posting includes an audio/video/photo media file: Download Now | ||
| Gold Daily and Silver Weekly Charts - Goal Line Stand Posted: 19 Apr 2011 08:28 AM PDT | ||
| Jim Sinclair Will Speak at GATA?s Gold Rush 2011 Conference in London Posted: 19 Apr 2011 08:21 AM PDT View the original post at jsmineset.com... April 19, 2011 07:43 AM Dear Friend of GATA and Gold: Gold mining entrepreneur Jim Sinclair — chairman of Tanzanian Royalty Exploration Corp., veteran gold and commodities trader, and proprietor of the free Internet site of financial market information for the gold community, JSMineSet.com — will speak at GATA’s Gold Rush 2011 conference in London on August 4-6. For a decade now Sinclair has fearlessly and steadfastly predicted gold’s ascent against the forces of price suppression and market propaganda, and he repeatedly has put his money where his mouth is in pursuit of gold’s renewed recognition as the international currency. Back in 2004, as gold climbed its wall of worry to reach $400 per ounce, Sinclair arranged for his readers what might have been called the "Sinclair put" on the purchase of 1-ounce Vienna Philharmonic gold bullion coins from Monex Precious Metals in Newport Beach, California. If gold sti...
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| Posted: 19 Apr 2011 08:21 AM PDT View the original post at jsmineset.com... April 19, 2011 07:40 AM Hi Jim, An amazing clock: [URL]http://www.usdebtclock.org/index.html[/URL] I wonder what it would like if Shadowstats.com's data was used! CIGA Tim Tim, Time would have ran out! Jim BRICS make move to shove dollar aside CIGA Eric This will become a market directed decision. China and four other leading high-growth economies have taken landmark steps toward lowering the importance of the dollar in international financial transactions — part of a seminal shift in the move towards a multicurrency reserve and trading system. Mind you, you wouldn't get an idea of anything dramatic from reading the official Chinese press on the conclusion of a summit meeting of the so-called BRICS economies (Brazil, Russia, India, China and South Africa) in the southern resort twin of Sanya in southern China last week. "Leaders call for peace and prosperity" was the front-page headline in the China Daily. Stirring ...
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| Tim Geithner Is A Complete Joke Of A Human Posted: 19 Apr 2011 08:13 AM PDT Now that everyone out there has had a chance to put their "spin" on the S&P ratings downgrade, let's talk about the truth. The truth is that the U.S. deserves a triple-A rating only because it can print enough money to guarantee debt repayment. So in a nominal sense, there's no risk of default. But in a "real" sense, the U.S. is effecting a "de facto" default because it is effectively guaranteeing debt repayment via dollar devaluation. And Obama is going around the country now giving "town hall" speeches designed to summons public support for his reckless spending and for Congress to increase the debt limit. As you'll note from this news report, LINK, he's trying to discredit the message being sent by S&P when, in fact, that message should be the PRIMARY focus of policy implementation. The fact of the matter is that our Government spending and deficit and debt level will continue to increase and the S&P warning will soon be forgotten. Until it's too late... The golden truth, if you will, is that I'm now wondering why the U.S. Government even bothers creating the facade of debt limit legislation. Seriously. What's the point? Has Congress ever failed ultimately to not raise the debt limit? I love the juxtaposition of statements coming from Geithner in this regard and with respect to the S&P action. This was a headline in Sunday's NY Times: Debt Ceiling Increase Is Expected, Geithner Says LINK and this was a headline from Geithner after yesterday's ratings downgrade: Treasury: S&P misreading political will to cut debt LINK Is this some kind of joke? How many of you actually believe that the Government will figure out a way to cut spending and raise revenues? The Congressional Budget Office, a non-partisan Federal agency - has prepared a report that shows the degree to which Obama's budget for 2012 will increase our deficit over the next decade. Anyone still wondering why S&P put the Treasury debt on downgrade watch? Apparently Geithner is still wondering. Here's a link to that a report LINK (source: zerohedge.com). For Geithner to spend his time and our money over the last 4 days trying to convince us that the Obama Government will be able to cut the deficit - when the CBO, a non-partisan part OF the Government, is issuing a report showing mathematically that the Obama Government is in fact substantially inreasing the deficit over the next decade - is analogous to Geithner telling us that he doesn't have to use the bathroom when in fact he's concomitantly deficating in his underwear. I haven't decided if Geithner is dumb enough to believe that the we are dumb enough to believe him or, worse, if he's dumb enough to believe himself. But I suppose that, when we're talking about someone who is as dumb as Geithner seems to be, degrees of relativity are irrelevant. At best, for Geithner to overlook such obvious back-to-back incongruity in his highly visible public statements reflects the sloppiness of a child. I guess he does strike me as the type of kid who's mom wiped his ass for him until he was about 10. And what does all this mean? It means that one would have be financially suicidal to invest in U.S. Government debt, or let their financial advisor invest their retirement funds in Treasury securities. I know of many advisers who are doing that for their clients now. It's absolutely stunning to me how many financial markets professionals are still ignoring or denouncing gold (it's actually great for me because it tells me we are a long way from the "bubble" phase in gold). But gold hit $1500 today for the first time in history. Why? Because gold is the ultimate arbiter of truth, of what's right and what's wrong. And when gold is going higher, like it has been for the last 10 years, something/many things is/are wrong in the sytstem. And the number one problem, first and foremost, is that the Government of the world's reserve currency is technically bankrupt. If that is not the case, then why has the value of the of the U.S. dollar - as measured against a basket of global currencies - been nearly cut in half since 2000 while the price of gold has increased 600% as measured in U.S. dollars over that same time period? 
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April 19, 2011 (MarketWatch) — Gold futures closed at a record Tuesday after bouncing off $1,500 an ounce, getting a lift from a weaker dollar and longer-running worries about debt-strapped developed markets.
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