Gold World News Flash |
- “Gold is moving toward backwardation.”
- GoldSeek.com Radio Gold Nugget: Kevin Kerr & Chris Waltzek
- “Following the announcement of “Operation Twist”, US dollar strengthened, equities sold off, and the US dollar rallied. Suffice to say, those are not reactions the Fed wanted.”
- Long-Term Resource Investing Tips
- Prepare for a Dollar Strongly on the Rise
- The Next Selling Wave Is About to Begin
- James Turk - There’s a Raging Battle in Gold Below $1,800
- Don Coxe's Fascinating Take On Why The Time For The US To "LBO" The Gold Market Has Arrived
- Don Coxe's Fascinating Take On Why The Time For The US To "LBO" The Gold Market Has Arrived
- Why Goldman Is Surprised By The Market's Reaction To The Twist, And What's Next For The Fed?
- Why Goldman Is Surprised By The Market's Reaction To The Twist, And What's Next For The Fed?
- Schiff - Central Banks Waging War, Expect Higher Gold Prices
- Nevada's gold capital is hesitant about metal's boom
- Swiss People's Party proposes ban on central bank's gold sales
- IMF to Bernanke: Thanks For Nothing, As Threat To International Monetary System Looms
- Kerry Lutz Interview with Bob Chapman
- Follow Me As I Model The First Pan-European Bank Run In Damn Near Real Time
- Collapse Roundup #6: The European Bank Run Has Begun – This Is What a Collapsing Global (Ponzi) Banking System Looks Like
- Gold Surge Fuels Inflation, Vexes Asia Officials
- Markets Digest FOMC Statement - develop a case of Nausea
- Why Gold Stocks Have Not Performed…Yet
- Fed Notes Significant Downside Risk To Economic Outlook
- Can You Guarantee That the Dollar Won’t Go Down?
- Watch that $1,770 Gold Price Support - If that Breaks, Look for $1,705 Next
- Why Gold Stocks Have Not Performed…Yet
- Advances in Display Technology Are on the Way
- Market Snapshot: What's Left?
- Market Snapshot: What's Left?
| “Gold is moving toward backwardation.” Posted: 21 Sep 2011 07:06 PM PDT James Turk – There's a Raging Battle in Gold Below $1,800 All of this, of course, relates to yesterday's Fed announcement, which confirms they are going to keep dollar interest rates exceptionally low through mid 2013. In this present low … Continue reading
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| GoldSeek.com Radio Gold Nugget: Kevin Kerr & Chris Waltzek Posted: 21 Sep 2011 07:02 PM PDT GoldSeek.com Radio Gold Nugget: Kevin Kerr & Chris Waltzek
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| Posted: 21 Sep 2011 06:47 PM PDT Canadian Dollar, Australian Dollar Not Safe Havens; Expect Continued Rally in US Dollar
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| Long-Term Resource Investing Tips Posted: 21 Sep 2011 06:05 PM PDT Downgrades for U.S. debt, austerity programs across Europe and political uncertainty all point to a continued uptrend in gold prices according to Brien Lundin, publisher and editor of Gold Newsletter. For long-term investors, Brien Lundin says in this exclusive interview with The Gold Report, small-cap, precious metals equities are one place to take advantage of the coming upward gold price trend.
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| Prepare for a Dollar Strongly on the Rise Posted: 21 Sep 2011 06:02 PM PDT The dollar looks primed to move significantly higher, implying that U.S. stocks and precious metals will remain under pressure for the foreseeable future. That doesn't necessarily mean Gold and Silver cannot continue to rise against all currencies nonetheless, since the global monetary blowout that has caused them to ascend for more than a decade shows no sign of abating. However, whatever strength bullion musters in the weeks and months ahead will in dollar terms be tempered at least somewhat by a resurgent greenback.
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| The Next Selling Wave Is About to Begin Posted: 21 Sep 2011 05:48 PM PDT Gold Scents
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| James Turk - There’s a Raging Battle in Gold Below $1,800 Posted: 21 Sep 2011 04:20 PM PDT  The bull/bear battle near the $1,800 level in gold is raging, so today King World News interviewed James Turk out of London to get his take on where gold and silver are headed. When asked about the fierce action taking place just below $1,800 in gold Turk responded, "We have an interesting battle going on, Eric, there is a lot of pressure to get gold under $1,800 an ounce. Every time we go into the $1,700s, there is extraordinary underpinning of the market because of massive physical demand, just as your London source related to you yesterday."
This posting includes an audio/video/photo media file: Download Now |
| Posted: 21 Sep 2011 04:17 PM PDT A few short weeks ago we described the transition of America from a government "on behalf of the people" to one "in control of the people" catalyzed, as Bill Buckler, put it simply, by one simple event: the confiscation of America's gold, and the ushering in of the welfare (or "promise") state, the same welfare state that now is supported by a system that no matter how hard one denies, is nothing but a ponzi scheme. Today, we follow up that article, with a very thought-provoking observations by BMO's Don Coxe, in which he describes that just like in the time of FDR, for whom the creation of a "mild" inflation was a prime prerogative to offset the depressionary deflation gripping the land, the moment for a brazen gold revaluation by none other than the US government has arrived. Unfortunately, it likely also means that any scheme in which the government opens a buy/sell gold window at a substantially higher price point, will mean that very soon, either by guile or by force, the US government will once again be the prime and sole owner of all the gold. As Coxe says, "The gold bugs have long proclaimed their own version of the Golden Rule: "He who has the gold makes the rules." By that standard, Barack Obama could become the leader of the world overnight." And while it is described in much more succinct detail below, in summary, Coxe's point is that the time for a government "LBO" of the gold market, one in which every last ounce is extracted from the skittish public, in exchange for pseudo-equivalent assets such as gold-backed bonds, has arrived. The only question is what the acquisition price of the risk-free alternative to fiat would be, and hence how much higher will investors push the price in anticipation of the inevitable 25% take out premium. Once the public realizes that this is the endgame, and that the buyer of only resort will be none other than Uncle Sam... then look out above. As for the context of Executive Order 6102.2, Coxe notes: "When nearly all OECD economies are running huge deficits at a time of near-zero interest rates, and nearly all governments are looking for ways to raise revenues without imposing economy-unfriendly taxes, why don't the big holders revalue their gold to, say, $2,200 an ounce and declare themselves willing sellers at that price—in bars or in bonds backed by gold—and willing buyers at, say, $2,000? Roosevelt revalued gold from $20.67 an ounce to $35 and declared that the US was a buyer and seller at that price. He also made it illegal for US citizens to own gold. By the end of the Depression, most of the world's visible gold reserves were in Fort Knox." Most importantly, Coxe observes that "now is a good time to lock in the gold bull market by monetizing the nation's holdings through various strategies and vehicles forty years after Nixon uncapped gold and 78 years after Roosevelt boosted it 70%. Why don't the governments bring out their gold and use it to back their bonds? Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We're sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls." Must read. Governments, Central Banks, and Gold Perhaps the most enduring paradox in all finance is the way major governments and central banks treat their gold holdings: they ignore them. When nearly all OECD economies are running huge deficits at a time of near-zero interest rates, and nearly all governments are looking for ways to raise revenues without imposing economy-unfriendly taxes, why don't the big holders revalue their gold to, say, $2,200 an ounce and declare themselves willing sellers at that price—in bars or in bonds backed by gold—and willing buyers at, say, $2,000? Roosevelt revalued gold from $20.67 an ounce to $35 and declared that the US was a buyer and seller at that price. He also made it illegal for US citizens to own gold. By the end of the Depression, most of the world's visible gold reserves were in Fort Knox. Apart from all the jobs created in Nevada and other gold-mining states, this attempt to introduce controlled inflation at a time of surging deflation was at least mildly salutary. Having most of the world's gold also proved extremely useful in helping to finance the recoveries in war-torn Western Europe. Gold's roaring run to $1800 must be a huge embarrassment to the central bankers. Why should investors be rushing out of government bonds into bullion? Don't they believe us when we tell them that printing all this money isn't going to debauch the currency? The best way to take gold out of its newfound role as moral arbiter of governments' fiscal and monetary policies may be to cap it. Yes, captious critics would say that this is the equivalent of buying a bathroom scale whose highest reading is three pounds above the buyer's current weight. But desperate times call for desperate measures. The gold bugs have long proclaimed their own version of the Golden Rule: "He who has the gold makes the rules." By that standard, Barack Obama could become the leader of the world overnight. Proclaiming a cap on gold and making all the gold in Western central banks' vaults available for sale—or as backing for convertible bonds—would be a blow to speculators. Ironically, it would be good news for most gold mining stocks. And wonderful news for gold mine prospects that are barely more than a hole in the ground. Why? Back in the 1930s, gold mining stocks were stock market darlings. Who else could sell everything they produced to the government at a guaranteed price? Roosevelt was a hero to miners, prospectors and stock pushers. It was the golden age for penny gold stocks. Anyone could take a flutter on them. There were no lotteries, and the only legal gambling was church basement bingo games. Anybody with a dream and a drill hole was able to peddle his shares, and securities regulation ranged from lax to nonexistent. A story about an unexpected side effect of all the prospecting in that speculative era. Management of Gunnar Gold, one of the numerous speculative stocks of the early 1940s, thought it had a promising gold deposit in the Yukon. There was some funny impurity in the ore, but it didn't seem to worry management. Suddenly, the Canadian government nationalized the company—paying the stock market price, which was less than $2 a share. Only after the war was over did the surprised shareholders learn that Gunnar's ore was radioactive. The uranium it contained went to a hush-hush US government operation in Los Alamos and some of it ended up in the bomb bay of Enola Gay to be dropped on Japan. Without the guaranteed price for gold, that mine might never have been discovered. We believe a new era in which gold was back into the very centre of central banks' operations would be a great time for gold prospecting and gold mine development. As for the strong, well-financed producing gold mines with huge, politically-secure reserves—the Goldcorps, Barricks, Newmonts and their brethren— they would no longer be white chips: they'd be blue chips, paying secure dividends which, at a time of low-low interest rates, would be prized. The upward revaluation would permit some of the better-endowed PIIGS to issue gold-backed bonds at minuscule interest rates. As for the US, which has more gold than anybody else, and doesn't seem to have the faintest idea why it has it—or what to do with it—Obama could apply net sales proceeds directly to the deficits. The cap on gold would take a major bearish investment medium out of the stock market—gold bullion. For months, on the days stocks have gone down, gold has gone up. If gold were capped and governments combined their willingness to sell gold with a ban on naked short-selling of bank shares, and on naked Collateralized Debt Swaps, governments and banks might get a breathing spell. Why ban naked Collateralized Debt Swaps? Because they violate the centuries-old rule for insurance products—an insurable interest. When life insurance was first created in England, companies let anyone buy a life insurance policy on anyone else. Then they found that those lives insured by people who weren't personally related to the life insured tended to die violently. So the concept of insurable interest developed—just as the fire insurers had never let people buy insurance on dwellings in which they had no ownership interest. AIG would never have gone down (at a cost to taxpayers of more than $100 billion), if it hadn't violated its insurance principles by going gung-ho into Collateralized Debt Swaps. As the eminent Paul Volcker has said so often, why should economies and taxpayers be at risk for banks that get deeply into newfangled financial products? Western economies grew satisfactorily in the decades before all these monstrosities were developed, and the bank failures that happened were easily managed. Today's announcement that UBS has apparently blown $2 billion in its trading operations is a perfect case in point: UBS had to be bailed out by Swiss taxpayers because it was levered more than 40 to one and had monstrous holdings of putrescent US mortgage paper. A great bank that had survived for more than a century as a pillar of Swiss prudence and rectitude had tried to become Goldman Swiss—and it lacked both the smarts and the capital for that remake. Less than three years later, it's due to report a quarterly loss it blames on a rogue trader. Axel Weber of Bundesbank fame is due to take charge next year of this organization whose financial structure in recent years seems to have been modeled on Swiss cheese. As the chart shows, he's needed now. Why do we devote so much space to making political proposals? Because we are deeply worried that another financial crisis is coming, at a time when governments' bailut budgets are seriously constrained. President Obama's long-awaited speech about his great plans for creating jobs was greeted with reactions ranging from boredom to disdain. It was a highly-energized and well-delivered rouser. However, all he could do is promote a new batch of "shovel-ready" projects and jobs for teachers that would be financed by higher taxes on the rich. He is seen as someone who spent $800 billion on stimulus that didn't work, and he's now largely devoid of both ideas and money. Obama and his European counterparts look at the performance of shares of the big banks and must feel that, (as we put it in Basic Points), Naught's Had, All's Spent. The government-owned gold that could provide such support to the leaders in the US and Europe is a nuisance to them, because its strong performance in the marketplace is a daily reminder of the futility of their seemingly endless crisis meetings and new acronymic rescue mechanisms backed by..........what? Bernanke has expressed a yearning for some inflation (but not in foods or fuels) to help the hapless housing market. Obama has failed to put the economy on a growth path. Most of his Republican opponents are as doctrinaire as he—while mouthing different dated dogmas of equivalent futility. As Reagan put it, when the nation faced similar crisis, "If not us, who? And if not now, when?" (He also summed up the Democrats' economic program pithily, "If it moves, tax it; if it still moves, regulate it; if it fails, subsidize it." That perfectly distills today's Demodogmatism. But the Republicans' dogmatic refusal to permit any tax increases—even on the carried interest of hedge fund managers who create few jobs—is equally unhelpful. If there were ever a time to start accessing the gold Roosevelt bought at $35—and reducing endogenous risk in the global banking system—this is it. Gold-backed bonds and gold for sale at $2,200 to all bidders would, of course, be selling off "the family silver." But desperate times call for desperate solutions. The biggest and most obvious asset Obama has is the one asset that he supposedly can't touch. Why not? Long-duration Gold-backed Treasurys paying, say, .5% interest would be one way of selling off much of the Treasury's hoard without swamping the cash gold market. Those with long memories will recall when Jacques Rueff, DeGaulle's gold guru, convinced France to issue some gold-backed bonds as proof that the nation didn't face serious inflation risk. Then came stagflation and the runaway gold market and those gold-backed bonds became fabulous investments. Most central bankers know that embarrassing story, which may preclude their willingness to make any recommendations now. To be remembered as the guy who sold gold at $2,000 in a long-term bond and gold went to $5,000 would be ghastly. But the reason why Rueff lost so big was that Nixon closed the gold window in 1971 and then oil prices quadrupled and stagflation—which had never existed before—took charge. Under this tentative scenario, the US would transfer all bullion needed to back the bonds, and Congress would pass legislation guaranteeing those gold bond conversions until the bonds matured. Finally, the wise, witty folk at the Leuthold Group have published the Chart of the Year showing the cumulative total return on gold vs. the cumulative total return on the S&P since Nixon closed the gold window, repealing the cap on gold imposed by Bretton Woods. Remarkably, gold's bull market in this millennium has meant that its annualized return has caught up with the S&P—9.9% vs. the S&P's 9.8%. If you'd put a bar of gold in a vault and left it there for 40 years, you'd have slightly outperformed most equity investors. The S&P has been long proclaimed as proof of the triumph of American capitalism with its business schools, management training, and superb collection of so many of the world's greatest companies. Buy and hold the S&P and you're going to be rewarded by the very best wealth-generators. Buy and hold gold and you're as outdated as believers in the phlogiston theory. This statistic could be used by Obama to argue that now is a good time to lock in the gold bull market by monetizing the nation's holdings through various strategies and vehicles forty years after Nixon uncapped gold and 78 years after Roosevelt boosted it 70%. The same strategy would apply to some of the more desperate European nations. They have gold; they need to sell bonds and the market doesn't want them; their deficits are scary and they're all supposed to retrench simultaneously. Issuing long-term bonds with a fixed call on gold would make their bonds marketable. Most of the gold sitting in vaults in the US and Europe was accumulated at significant cost to the taxpayers of the time. It is performing no usual function at a time when it seems as if all governments—notably Switzerland—want the value of their currencies to decline. The reason nations wanted and needed gold was to back their currencies. Pawn shops and jewellery stores report high levels of gold cashouts from middle class people who are having trouble getting by. The point of gold is that for all of history, it has been the one certain thing that can be used to buy goods and services or discharge debts. Why don't the governments bring out their gold and use it to back their bonds? Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We're sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls.
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| Don Coxe's Fascinating Take On Why The Time For The US To "LBO" The Gold Market Has Arrived Posted: 21 Sep 2011 04:17 PM PDT
A few short weeks ago we described the transition of America from a government "on behalf of the people" to one "in control of the people" catalyzed, as Bill Buckler, put it simply, by one simple event: the confiscation of America's gold, and the ushering in of the welfare (or "promise") state, the same welfare state that now is supported by a system that no matter how hard one denies, is nothing but a ponzi scheme. Today, we follow up that article, with a very thought-provoking observations by BMO's Don Coxe, in which he describes that just like in the time of FDR, for whom the creation of a "mild" inflation was a prime prerogative to offset the depressionary deflation gripping the land, the moment for a brazen gold revaluation by none other than the US government has arrived. Unfortunately, it likely also means that any scheme in which the government opens a buy/sell gold window at a substantially higher price point, will mean that very soon, either by guile or by force, the US government will once again be the prime and sole owner of all the gold. As Coxe says, "The gold bugs have long proclaimed their own version of the Golden Rule: "He who has the gold makes the rules." By that standard, Barack Obama could become the leader of the world overnight." And while it is described in much more succinct detail below, in summary, Coxe's point is that the time for a government "LBO" of the gold market, one in which every last ounce is extracted from the skittish public, in exchange for pseudo-equivalent assets such as gold-backed bonds, has arrived. The only question is what the acquisition price of the risk-free alternative to fiat would be, and hence how much higher will investors push the price in anticipation of the inevitable 25% take out premium. Once the public realizes that this is the endgame, and that the buyer of only resort will be none other than Uncle Sam... then look out above. As for the context of Executive Order 6102.2, Coxe notes: "When nearly all OECD economies are running huge deficits at a time of near-zero interest rates, and nearly all governments are looking for ways to raise revenues without imposing economy-unfriendly taxes, why don't the big holders revalue their gold to, say, $2,200 an ounce and declare themselves willing sellers at that price—in bars or in bonds backed by gold—and willing buyers at, say, $2,000? Roosevelt revalued gold from $20.67 an ounce to $35 and declared that the US was a buyer and seller at that price. He also made it illegal for US citizens to own gold. By the end of the Depression, most of the world's visible gold reserves were in Fort Knox." Most importantly, Coxe observes that "now is a good time to lock in the gold bull market by monetizing the nation's holdings through various strategies and vehicles forty years after Nixon uncapped gold and 78 years after Roosevelt boosted it 70%. Why don't the governments bring out their gold and use it to back their bonds? Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We're sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls." Must read. Governments, Central Banks, and Gold Perhaps the most enduring paradox in all finance is the way major governments and central banks treat their gold holdings: they ignore them. When nearly all OECD economies are running huge deficits at a time of near-zero interest rates, and nearly all governments are looking for ways to raise revenues without imposing economy-unfriendly taxes, why don't the big holders revalue their gold to, say, $2,200 an ounce and declare themselves willing sellers at that price—in bars or in bonds backed by gold—and willing buyers at, say, $2,000? Roosevelt revalued gold from $20.67 an ounce to $35 and declared that the US was a buyer and seller at that price. He also made it illegal for US citizens to own gold. By the end of the Depression, most of the world's visible gold reserves were in Fort Knox. Apart from all the jobs created in Nevada and other gold-mining states, this attempt to introduce controlled inflation at a time of surging deflation was at least mildly salutary. Having most of the world's gold also proved extremely useful in helping to finance the recoveries in war-torn Western Europe. Gold's roaring run to $1800 must be a huge embarrassment to the central bankers. Why should investors be rushing out of government bonds into bullion? Don't they believe us when we tell them that printing all this money isn't going to debauch the currency? The best way to take gold out of its newfound role as moral arbiter of governments' fiscal and monetary policies may be to cap it. Yes, captious critics would say that this is the equivalent of buying a bathroom scale whose highest reading is three pounds above the buyer's current weight. But desperate times call for desperate measures. The gold bugs have long proclaimed their own version of the Golden Rule: "He who has the gold makes the rules." By that standard, Barack Obama could become the leader of the world overnight. Proclaiming a cap on gold and making all the gold in Western central banks' vaults available for sale—or as backing for convertible bonds—would be a blow to speculators. Ironically, it would be good news for most gold mining stocks. And wonderful news for gold mine prospects that are barely more than a hole in the ground. Why? Back in the 1930s, gold mining stocks were stock market darlings. Who else could sell everything they produced to the government at a guaranteed price? Roosevelt was a hero to miners, prospectors and stock pushers. It was the golden age for penny gold stocks. Anyone could take a flutter on them. There were no lotteries, and the only legal gambling was church basement bingo games. Anybody with a dream and a drill hole was able to peddle his shares, and securities regulation ranged from lax to nonexistent. A story about an unexpected side effect of all the prospecting in that speculative era. Management of Gunnar Gold, one of the numerous speculative stocks of the early 1940s, thought it had a promising gold deposit in the Yukon. There was some funny impurity in the ore, but it didn't seem to worry management. Suddenly, the Canadian government nationalized the company—paying the stock market price, which was less than $2 a share. Only after the war was over did the surprised shareholders learn that Gunnar's ore was radioactive. The uranium it contained went to a hush-hush US government operation in Los Alamos and some of it ended up in the bomb bay of Enola Gay to be dropped on Japan. Without the guaranteed price for gold, that mine might never have been discovered. We believe a new era in which gold was back into the very centre of central banks' operations would be a great time for gold prospecting and gold mine development. As for the strong, well-financed producing gold mines with huge, politically-secure reserves—the Goldcorps, Barricks, Newmonts and their brethren— they would no longer be white chips: they'd be blue chips, paying secure dividends which, at a time of low-low interest rates, would be prized. The upward revaluation would permit some of the better-endowed PIIGS to issue gold-backed bonds at minuscule interest rates. As for the US, which has more gold than anybody else, and doesn't seem to have the faintest idea why it has it—or what to do with it—Obama could apply net sales proceeds directly to the deficits. The cap on gold would take a major bearish investment medium out of the stock market—gold bullion. For months, on the days stocks have gone down, gold has gone up. If gold were capped and governments combined their willingness to sell gold with a ban on naked short-selling of bank shares, and on naked Collateralized Debt Swaps, governments and banks might get a breathing spell. Why ban naked Collateralized Debt Swaps? Because they violate the centuries-old rule for insurance products—an insurable interest. When life insurance was first created in England, companies let anyone buy a life insurance policy on anyone else. Then they found that those lives insured by people who weren't personally related to the life insured tended to die violently. So the concept of insurable interest developed—just as the fire insurers had never let people buy insurance on dwellings in which they had no ownership interest. AIG would never have gone down (at a cost to taxpayers of more than $100 billion), if it hadn't violated its insurance principles by going gung-ho into Collateralized Debt Swaps. As the eminent Paul Volcker has said so often, why should economies and taxpayers be at risk for banks that get deeply into newfangled financial products? Western economies grew satisfactorily in the decades before all these monstrosities were developed, and the bank failures that happened were easily managed. Today's announcement that UBS has apparently blown $2 billion in its trading operations is a perfect case in point: UBS had to be bailed out by Swiss taxpayers because it was levered more than 40 to one and had monstrous holdings of putrescent US mortgage paper. A great bank that had survived for more than a century as a pillar of Swiss prudence and rectitude had tried to become Goldman Swiss—and it lacked both the smarts and the capital for that remake. Less than three years later, it's due to report a quarterly loss it blames on a rogue trader. Axel Weber of Bundesbank fame is due to take charge next year of this organization whose financial structure in recent years seems to have been modeled on Swiss cheese. As the chart shows, he's needed now. Why do we devote so much space to making political proposals? Because we are deeply worried that another financial crisis is coming, at a time when governments' bailut budgets are seriously constrained. President Obama's long-awaited speech about his great plans for creating jobs was greeted with reactions ranging from boredom to disdain. It was a highly-energized and well-delivered rouser. However, all he could do is promote a new batch of "shovel-ready" projects and jobs for teachers that would be financed by higher taxes on the rich. He is seen as someone who spent $800 billion on stimulus that didn't work, and he's now largely devoid of both ideas and money. Obama and his European counterparts look at the performance of shares of the big banks and must feel that, (as we put it in Basic Points), Naught's Had, All's Spent. The government-owned gold that could provide such support to the leaders in the US and Europe is a nuisance to them, because its strong performance in the marketplace is a daily reminder of the futility of their seemingly endless crisis meetings and new acronymic rescue mechanisms backed by..........what? Bernanke has expressed a yearning for some inflation (but not in foods or fuels) to help the hapless housing market. Obama has failed to put the economy on a growth path. Most of his Republican opponents are as doctrinaire as he—while mouthing different dated dogmas of equivalent futility. As Reagan put it, when the nation faced similar crisis, "If not us, who? And if not now, when?" (He also summed up the Democrats' economic program pithily, "If it moves, tax it; if it still moves, regulate it; if it fails, subsidize it." That perfectly distills today's Demodogmatism. But the Republicans' dogmatic refusal to permit any tax increases—even on the carried interest of hedge fund managers who create few jobs—is equally unhelpful. If there were ever a time to start accessing the gold Roosevelt bought at $35—and reducing endogenous risk in the global banking system—this is it. Gold-backed bonds and gold for sale at $2,200 to all bidders would, of course, be selling off "the family silver." But desperate times call for desperate solutions. The biggest and most obvious asset Obama has is the one asset that he supposedly can't touch. Why not? Long-duration Gold-backed Treasurys paying, say, .5% interest would be one way of selling off much of the Treasury's hoard without swamping the cash gold market. Those with long memories will recall when Jacques Rueff, DeGaulle's gold guru, convinced France to issue some gold-backed bonds as proof that the nation didn't face serious inflation risk. Then came stagflation and the runaway gold market and those gold-backed bonds became fabulous investments. Most central bankers know that embarrassing story, which may preclude their willingness to make any recommendations now. To be remembered as the guy who sold gold at $2,000 in a long-term bond and gold went to $5,000 would be ghastly. But the reason why Rueff lost so big was that Nixon closed the gold window in 1971 and then oil prices quadrupled and stagflation—which had never existed before—took charge. Under this tentative scenario, the US would transfer all bullion needed to back the bonds, and Congress would pass legislation guaranteeing those gold bond conversions until the bonds matured. Finally, the wise, witty folk at the Leuthold Group have published the Chart of the Year showing the cumulative total return on gold vs. the cumulative total return on the S&P since Nixon closed the gold window, repealing the cap on gold imposed by Bretton Woods. Remarkably, gold's bull market in this millennium has meant that its annualized return has caught up with the S&P—9.9% vs. the S&P's 9.8%. If you'd put a bar of gold in a vault and left it there for 40 years, you'd have slightly outperformed most equity investors. The S&P has been long proclaimed as proof of the triumph of American capitalism with its business schools, management training, and superb collection of so many of the world's greatest companies. Buy and hold the S&P and you're going to be rewarded by the very best wealth-generators. Buy and hold gold and you're as outdated as believers in the phlogiston theory. This statistic could be used by Obama to argue that now is a good time to lock in the gold bull market by monetizing the nation's holdings through various strategies and vehicles forty years after Nixon uncapped gold and 78 years after Roosevelt boosted it 70%. The same strategy would apply to some of the more desperate European nations. They have gold; they need to sell bonds and the market doesn't want them; their deficits are scary and they're all supposed to retrench simultaneously. Issuing long-term bonds with a fixed call on gold would make their bonds marketable. Most of the gold sitting in vaults in the US and Europe was accumulated at significant cost to the taxpayers of the time. It is performing no usual function at a time when it seems as if all governments—notably Switzerland—want the value of their currencies to decline. The reason nations wanted and needed gold was to back their currencies. Pawn shops and jewellery stores report high levels of gold cashouts from middle class people who are having trouble getting by. The point of gold is that for all of history, it has been the one certain thing that can be used to buy goods and services or discharge debts. Why don't the governments bring out their gold and use it to back their bonds? Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We're sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls.
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| Posted: 21 Sep 2011 04:13 PM PDT After spending the last few weeks 'helping' the Fed with its agenda, Goldman Sachs' Andrew Tilton seems a little disappointed by the market's reaction - reasoning that the FX and equity-investing plebeians will take longer to comprehend the less familiar 'twist' operation that has already been wholly discounted into the TSY curve. While he did not get all he wanted from this meeting (even though the 'twist' was larger than expected), Hilton wastes no time in looking to the future and the chance of further economic weakness leading to more dramatic Fed actions. From Goldman Sachs US Daily : Fed Does the Twist, Though Not Everyone Dances
And for good measure here is the continuing saga of pricing in the TSY curve 'Twist' as 30Y is now -27bps from Tuesday's close!!
Chart: Bloomberg
So it seems that we are all but fully discounting the impact on TSY markets and the slower growth outlook and non-expansionary balance sheet effects seem unlikely to cause significant portfolio rebalancing effects given no LSAP this time - or maybe as Andrew notes, we are slow on the uptake.
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| Why Goldman Is Surprised By The Market's Reaction To The Twist, And What's Next For The Fed? Posted: 21 Sep 2011 04:13 PM PDT
After spending the last few weeks 'helping' the Fed with its agenda, Goldman Sachs' Andrew Tilton seems a little disappointed by the market's reaction - reasoning that the FX and equity-investing plebeians will take longer to comprehend the less familiar 'twist' operation that has already been wholly discounted into the TSY curve. While he did not get all he wanted from this meeting (even though the 'twist' was larger than expected), Hilton wastes no time in looking to the future and the chance of further economic weakness leading to more dramatic Fed actions. From Goldman Sachs US Daily : Fed Does the Twist, Though Not Everyone Dances
And for good measure here is the continuing saga of pricing in the TSY curve 'Twist' as 30Y is now -27bps from Tuesday's close!!
Chart: Bloomberg
So it seems that we are all but fully discounting the impact on TSY markets and the slower growth outlook and non-expansionary balance sheet effects seem unlikely to cause significant portfolio rebalancing effects given no LSAP this time - or maybe as Andrew notes, we are slow on the uptake.
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| Schiff - Central Banks Waging War, Expect Higher Gold Prices Posted: 21 Sep 2011 03:15 PM PDT  With gold hovering near $1,800, silver above $40 and mining shares moving to the upside, today King World News interviewed Peter Schiff, CEO of Europacific Capital. When asked about the action in gold Schiff stated, "It's a bull market and you can see why when you look at the monetary policies that all of these central banks are pursuing, it's all about monetary debasement. Zero percent interest rates, stimulus, it's all about debasing your money. With all of the major countries the problems are too much debt."
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| Nevada's gold capital is hesitant about metal's boom Posted: 21 Sep 2011 03:04 PM PDT By Ashley Powers http://www.latimes.com/news/nationworld/nation/la-na-nevada-gold-2011092... ELKO, Nevada -- This far-flung capital of Nevada's Gold Belt is booming — very, very reluctantly. With the price of gold in the stratosphere, the mine-chiseled corner of northeastern Nevada is scrambling to fill thousands of jobs, while newcomers to the barren region beg for somewhere to sleep. The motels: sold out. The apartments: good luck. The RV parks: get in line. Nevada churns out more gold than all but four nations. The Elko area's 7.4% jobless rate is about half that of the once-thriving Las Vegas region. But you'll find little of the gold-rush euphoria here that has long defined the American West. These days, Elko knows better. ... Dispatch continues below ... ADVERTISEMENT Prophecy Platinum Drills 49.5 Meters Grading 1.27 g/t PGM+Au at Yukon Wellgreen Project Company Press Release Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) announces results from its 2011 drilling program for its first completed hole on the Wellgreen Project in the Yukon Territory, Canada. Borehole WS11-184 encountered 472.6 meters of mineralization grading 0.43% nickel equivalent from surface to the footwall contact. Within this larger swath of mineralization the hole encountered 49.5 meters of 1.27 grams per ton platinum group metals plus gold, 0.71% nickel, and 0.45% copper (or 1.11% nickel equivalent). The geology transitioned from blebby disseminated to net-textured to massive sulphide approaching the footwall contact grading 6.3% nickel, 1.7% copper, 2.7 grams per ton platinum, 1.6 grams per ton palladium, 0.17 grams per ton gold, and 3.4 grams per ton silver. The drilling zones and results are tabulated here, with more information: http://www.prophecyplat.com/news_2011_aug22_prophecy_platinum_wellgreen_... Nevada is stippled with so many mining camp ruins -- more than 100 in Elko County alone, locals say -- that "ghost-towning" is a weekend pastime. Only a decade ago, tanking gold prices saddled the region with abandoned homes and shredded dreams. Now the Elko city government is mostly socking away cash and putting off hiring, even for a police force strained by a transient population. Even among workers who feel blessed to cash paychecks, there is a sense of unease. Why buy a home here if the gold rush could vanish tomorrow? That feeling is palpable at the Iron Horse RV Resort, where Ron and Judy Fletcher have been parked in Lot 70 for more than a year, ever since Ron's company told him: Move to Elko. Now. Ron, 67, sells pump seals to mines. So the Fletchers squeezed their lives into an RV and motored from Spokane, Wash., to this mountain-ringed swath of cattle, alfalfa and cowboy poetry enthusiasts. "This is where the work is," Judy, 61, said inside their 38-foot trailer, their black poodle-Chihuahua mix, Izzy, sprawled on her lap. "As much as we don't want to be here, we want to be employed." A city born as a transportation hub in the 1860s and possibly named by a railroad official with a fondness for elk, Elko has survived a roller-coaster history. Its fortunes are tied to the seesaw industries of mining, ranching and tourism, though gold is clearly king. Elko serves as the center of Nevada's mining industry, which churned out 5.34 million ounces of gold last year valued at $6.54 billion. It's not unusual to see yellow-flagged mining vehicles puttering around town and bumper stickers that taunt: "Earth First -- We'll Strip Mine the Other Planets Later." "If you work in Elko and don't think you work for the mines, you're crazy," said developer Pedro Ormaza, who grew up here. "The mines bring people here." Because of its isolation -- Salt Lake City, the closest big city, is 230 miles of scrub brush away -- Elko has struggled to lure much else. "The federal government owns 90% of this land, and most of it is useless for anything except weapons testing and poison-gas experiments," scoffed Hunter S. Thompson in his essay "Fear and Loathing in Elko." Still, Elko is widely admired for its Wild West charm. Its downtown includes a custom saddle shop, Basque restaurants and a casino whose mascot is a stuffed polar bear named White King. There's also a legal brothel in a residential neighborhood whose neon sign promises "dancing and diddling." After 1980, when the average annual gold price more than doubled to $615 an ounce and new technology lowered processing costs, so many people streamed into Elko that some camped in a gulch and showered at a truck stop. The county population soared from about 23,000 in 1986 to 44,000 a decade later. Onetime ranchland whirred with home and apartment construction, while the school district rolled in temporary classrooms to cope with all the new pupils. But by the late '90s, gold prices had sagged to about $300 an ounce, less than the cost of extracting the metal. The mine workforces shrunk, as did local government payrolls. Gold eventually rebounded -- from 2009 to 2010, its average annual price jumped 26%, to $1,225 an ounce -- partly because of global economic jitters. Investors view gold as a safe haven when there is uncertainty in the financial markets. Lately, it has topped $1,800 an ounce. That explains why the state's two major mining companies, Barrick Gold and Newmont Mining, are poised to hire hundreds of people in the coming years, economic development officials said. That's in addition to the 12,000 or so engineers, geologists and other workers employed in mining statewide, who make an average salary of $83,000, according to the Nevada Mining Assn. When the Las Vegas economy was flourishing in the 1990s and early 2000s, governments binged on new city halls, developers on gated cul-de-sacs and casinos on multibillion-dollar expansions. But in Elko, the bust-time prudence has mostly lingered. Construction is modest -- a new Ross clothing store is the talk of the town -- partly because developers are hard-pressed to get loans. For a decade Elko has yearned to build a $15-million recreation center, said City Manager Curtis Calder. But when officials recently crunched the numbers, they concluded the city wasn't flush enough, though it is patching up some streets. Down the road from City Hall at the police station, Chief Don Zumwalt's roughly three dozen employees have been overwhelmed by a surge in calls for service, and his detectives are plowing through a backlog of at least 200 cases. "There's just not enough of us to take care of this boom cycle," said Zumwalt, who's nonetheless reluctant to hire. "Whenever the downturn comes, I don't want to lay off a bunch of people." For several years, the region's most vexing problem has been housing. Available homes are snatched up in days, and vacant apartments are rare. "I'll get people screaming at me: 'Where the hell are we supposed to live?' " said Cathy Rich, manager of the Parkway apartment complex, which has had a waiting list for five years. At the Iron Horse RV Resort, the well-manicured park where the Fletchers live, most people seem prepared to stay a while, unlike the vacationers who visit a few days and move on. More than three-quarters of guests pay monthly rent. On a recent sunny afternoon, kids happily pedaled their bikes past the Flectchers' RV. "You try to establish a home, but it's hard to do in a trailer," Judy said. Some of her neighbors haul in potted plants and decorative benches typical of gated communities and wrap squat trees in Christmas lights. But the Fletchers still miss Spokane, where their house has been up for sale for more than a year. Judy hasn't given up her Washington driver's license or officially changed their address to Nevada. That's too big a psychological hurdle. "Maybe I won't have to," she said with a sigh. Join GATA here: The Silver Summit http://cambridgehouse.com/conference-details/the-silver-summit-2011/48 New Orleans Investment Conference http://www.neworleansconference.com/ Support GATA by purchasing gold and silver commemorative coins: 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: 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
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| Swiss People's Party proposes ban on central bank's gold sales Posted: 21 Sep 2011 02:54 PM PDT By Catherine Bosley http://af.reuters.com/article/metalsNews/idAFL5E7KK34V20110920 ZURICH, Switzerland -- Members of the right-wing Swiss People's Party (SVP) want a law to prevent the country's central bank -- currently struggling to tame a super-strong Swiss franc -- from selling its gold reserves, according to a proposal published on Tuesday. The proposal, dubbed "Save our Swiss Gold," would be put to a referendum if it won enough initial support. It would not only ban the Swiss National Bank from selling its gold reserves, but would also force it to hold at least 20 percent of its assets in gold, the text published in an official register said. ... Dispatch continues below ... 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 Switzerland has sold no gold since August 2008, according to figures from the International Monetary Fund. At the end of 2010, the SNB's gold holdings were valued at 43.3 billion francs -- about 16 percent of its total assets of 274 billion Swiss francs (currently $310 billion). Referendums are central to Switzerland's political system of direct democracy, and have been held on topics ranging from health insurance to smoking bans. Interest in the SNB's balance sheet has intensified with the sharp appreciation of the franc, which has absorbed policymakers on and off since the 2008 financial crisis heightened the currency's attractions as a traditional safe haven. The SNB's latest move was to announce a cap on the Swiss franc against the euro on Sep. 6, pledging unlimited currency interventions if needed, as the franc's strength threatened the competitiveness of Swiss exports and the tourist industry. SVP leading light Christoph Blocher had previously called on Chairman Philipp Hildebrand to resign after the SNB ran up its biggest annual loss ever in 2010 because its euro holdings, accumulated during interventions in 2009-10, sank in value in Swiss franc terms. The initiative states the SNB's gold would have to be stored in Switzerland. Swiss newspaper Neue Zuercher Zeitung quoted the text of a speech by SVP parliamentarian Ulrich Schluer who said the Swiss public was being robbed of its "wealth", with gold reserves a symbol of "each person's hard work, inventive talent, pioneer spirit, motivation and economic power." Schluer is backing the measure along with SVP members Luzi Stamm and Oskar Freysinger. In 2009 the party spearheaded a referendum in which voters approved a ban on building new minarets. The initiators of the gold proposal will now have 18 months to collect the 100,000 signatures required to call a referendum. Switzerland is a signatory of the third Central Bank Gold Agreement, which runs from Sept 2009 to Sept 2014. Under the agreement gold sales from signatory central banks will not exceed 2,000 tonnes, or 400 tonnes in any one year of the deal. Join GATA here: The Silver Summit http://cambridgehouse.com/conference-details/the-silver-summit-2011/48 New Orleans Investment Conference http://www.neworleansconference.com/ Support GATA by purchasing gold and silver commemorative coins: 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: ADVERTISEMENT Prophecy Platinum Drills 49.5 Meters Grading 1.27 g/t PGM+Au at Yukon Wellgreen Project Company Press Release Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) announces results from its 2011 drilling program for its first completed hole on the Wellgreen Project in the Yukon Territory, Canada. Borehole WS11-184 encountered 472.6 meters of mineralization grading 0.43% nickel equivalent from surface to the footwall contact. Within this larger swath of mineralization the hole encountered 49.5 meters of 1.27 grams per ton platinum group metals plus gold, 0.71% nickel, and 0.45% copper (or 1.11% nickel equivalent). The geology transitioned from blebby disseminated to net-textured to massive sulphide approaching the footwall contact grading 6.3% nickel, 1.7% copper, 2.7 grams per ton platinum, 1.6 grams per ton palladium, 0.17 grams per ton gold, and 3.4 grams per ton silver. The drilling zones and results are tabulated here, with more information: http://www.prophecyplat.com/news_2011_aug22_prophecy_platinum_wellgreen_...
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| IMF to Bernanke: Thanks For Nothing, As Threat To International Monetary System Looms Posted: 21 Sep 2011 12:32 PM PDT We suspect the world was placing a little more 'hope' in Bernanke's willingness to print-and-save-us-all as the IMF just announced the activation of its "New Arrangements to Borrow" for a further six months. Obviously, given the quota subscriptions and the nature of the NAB, we suspect the rest-of-the-world will get pound of flesh (or USD bailout) implicitly.
And from Dow Jones (via Global Finance)
This is not completely unexpected as we have been discussing the rise in borrowing arrangements/facilities at the IMF for a while - what is notable is the timing - given constant chatter out of Europe that all is 'satisfactory'. No reaction whatsoever in ES so far, a small tick up in EUR and Gold...but mostly noise.
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| Kerry Lutz Interview with Bob Chapman Posted: 21 Sep 2011 12:29 PM PDT from The Financial Survival Network:
Bob and [Kerry] continue the dialogue about the best ways to buy gold and silver and get the best deal. When buying anything, it almost always makes sense to get three prices. Get them quick and make sure the market isn't moving quickly. Also discussed is why man's best friend is becoming ever more important in this depression. You can no longer take your security for granted. Start thinking about securing your financial fortress and your family and home. Click Here to Listen to the Interview
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| Follow Me As I Model The First Pan-European Bank Run In Damn Near Real Time Posted: 21 Sep 2011 12:18 PM PDT I urge everyone to download your respectve models (contingent upon your subscription level) from The BoomBustBlog BNP Paribas "Run On The Bank" Models Are Available For Download and plug in your respective assumptions BEFORE Europe's Lehman Moment arrives - for if when it does, most nations will be powerless to do anything about it. "Why?" you ask! Well, as so adroitly articulated in Reinhart and Rogoff's "This Time Is Different: Eight Centuries of Financial Folly", for 800 years one of the primary reason for monumental structural indebtedness of nations is the bailing out of their respective financial systems. This massive debt then becomes too much to service, and bang! Default! This time around, it really just may be different, though. I say this because the developed nations of the world and their leading economic superpowers (EU/China/US) have either goosed their financial systems (China) or allowed them to leverage out of control, collapse, then bailed them out by breaking the taxpaying populace either now or by mortgagin their future. The problem is that in each case of the "Kick the Can Triumvirate Three" [BBB trademark], none of the core, structural or even nominal banking problems have been rectified nor addressed, despite the fact that the massive depreciatng toxic assets, leveraged to the hilt and massively mispriced due to regulatory capture. For more on this topic, reference How Regulatory CaptureTurns Doo Doo Deadly and Lehman Brothers Dies While Getting Away Wiht Murder: Introducing Regulatory Capture. Since the problem has not been cured, it's literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional), read the balance of this article for perspective, then populate the assumptions and inputs with what you feel is realistic. I'm sure you will come up with conclusions similar to ours. Below is sample outout from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)
Bloomberg reports: Lloyd's of London Pulls Euro Bank Deposits Lloyd's of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution. "There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with," Luke Savage, finance director of the world's oldest insurance market, said today in a phone interview. "If you're worried the government itself might be at risk, then you're certainly worried the banks could be taken down with them." European banks and their regulators are trying to reassure investors and customers that lenders have enough capital to withstand a default by Greece and slowing economic growth caused by governments' austerity measures. Siemens AG (SIE), European's biggest engineering company, withdrew short-term deposits from Societe Generale SA, France's second-largest bank, in July, a person with knowledge of the matter said yesterday. Lloyd's, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe's peripheral economies, Savage said, declining to name the countries or institutions. Simply fuel to the fire... As excerpted from my bank run post yesterday: Most Headlines Now Show French Bank Run … Siemens shelters up to €6bn at ECB: Siemens withdrew more than half-a-billion euros...matter told the Financial Times. In total, Siemens has parked between €4bn ($5.4bn) and...to deposit cash directly with the ECB. Siemens' move demonstrates the impact of the eurozone... By Daniel Schäfer in London and Chris Bryant and Ralph Atkins in Frankfurt... ... As excerpted from "The Fuel Behind Institutional "Runs on the Bank" Burns Through Europe, Lehman-Style": The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today's fiat/fractional reserve banking system is the run on counterparties. Today's global fractional reserve bank get's more financing from institutional counterparties than any other source save its short term depositors. In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!
...The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks. If the panic doesn't stem from the US, it could come (or arguably is coming), from the other side of the pond. The Telegraph reports: UK banks abandon eurozone over Greek default fears UK banks have pulled billions of pounds of funding from the euro zone as fears grow about the impact of a "Lehman-style" event connected to a Greek default. Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to euro zone banks, raising the prospect of a new credit crunch for the European banking system. Standard Chartered is understood to have withdrawn tens of billions of pounds from the euro zone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks. Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal. In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m. One source said it was "inevitable" that British banks would look to minimise their potential losses in the event the euro zone crisis were to get worse. "Everyone wants to ensure that they are not badly affected by the crisis," said one bank executive. Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more. Make no mistake - modern day bank runs are now caused by institutions!Make no mistake! And just for those who cannot catch the hint... Reuters reports: Bank of China halts FX swaps with some European banksThe European banks include French lenders Societe Generale (SOGN.PA), Credit Agricole (CAGR.PA) and BNP Paribas (BNPP.PA), and Bank of China halted trading with them partly because of the downgrading from Moody's, the sources said. Another Chinese bank said it had stopped trading yuan interest rate swaps with European banks. The sources declined to be identified because they were not authorized to speak with the media. Contacted about this move by the Chinese banks, spokespeople for Societe Generale, UBS and BNP Paribas declined comment. Credit Agricole was not reachable for comment. One of the sources said that Bank of China's decision may apply across its branches, including the onshore foreign exchange market. "Apart from spot trading, all swaps and forwards trading (with the European banks) have been stopped," one source who is familiar with the matter told Reuters. A step by step tutorial on exactly how it will happen....
Again, I believe the next big thing, for when (not if, but when) European banks blow up, is the reverberation through American banks and how it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.
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| Posted: 21 Sep 2011 12:18 PM PDT from AmpedStatus.org:
Next time you come across someone still deluded enough to think that things will turn around economically, send them here. Stick this in your economic recovery propaganda pipe and smoke it:
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| Gold Surge Fuels Inflation, Vexes Asia Officials Posted: 21 Sep 2011 11:38 AM PDT The surging price of gold is fueling inflation from India to Indonesia and forcing statisticians to decide whether jewelry made of the metal still belongs in consumer-price indexes. In South Korea, gold rings will be dropped from the inflation basket for the first time since 1975 as part of a scheduled reweighting in December, Bang Tae Kyoung, deputy director of the statistics agency, said in an phone interview from Daejeon. "People are now buying gold mostly for investment purposes, and so it should be classified as an asset, rather than spending," Bang said. Gold has climbed 27 percent this year as turbulence in equities and currencies, money printing by central banks, and a decade-long bull market in the metal lure investors to an alternative store of value. Bullion vaults such as the Swiss Precious Metals facility in Singapore are nearing capacity, and Tiberius Asset Management AG warns that gold is in the final, overheated phase of an upswing. "It's more of an asset — it's not a consumption item," said Prasanna Ananthasubramaniam, Mumbai-based chief economist at ICICI Securities Ltd., a unit of India's biggest private lender. As a "speculative asset class," gold should be dropped from India's basket in the next reweighting, he said.
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| Markets Digest FOMC Statement - develop a case of Nausea Posted: 21 Sep 2011 11:30 AM PDT [url]http://www.traderdannorcini.blogspot.com/[/url] [url]http://www.fortwealth.com/[/url] The long anticipated prognostication finally arrived today as the markets, with bated breath, eagerly poured over the entrails of the FOMC press release to scour for clues to the future. The oracles of Delphi, descended from their lofty tower, uttered their prophecy, and then returned to their temples to observe their handiwork. Meanwhile, the stock markets having digested the contents, soon began to experience an uncomfortable sensation which worsened as the meal settled. Down collapsed the equity markets and then down went the commodity markets and up went the Dollar. The Fed announced $400 billion worth of purchases of longer dated Treasury debt. One would think that hte markets would be pleased but alas, 'twas not meant to be. What stuck in their craw was the fact that these purchases were sterilized and not fresh purchases. In other words, there would be no increase in the Fed's balance sh...
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| Why Gold Stocks Have Not Performed…Yet Posted: 21 Sep 2011 10:38 AM PDT It's one of the great mysteries of the market this year. For the first half of the year, the HUI Gold Bugs Index — made up of gold mining stocks — was down 9%, despite the fact that the price of gold was up 30%. What gives? Normally, gold stocks give its investors some leverage to the gold price. Historically, gold stocks move 2-3% for every 1% move in gold. Not so in 2011. There are some reasons for this. In order of importance, I rate them as follows: 1. The cost of production is up a lot. Energy costs represent 20-35% of costs. Then there are steel costs, chemicals and labor — not to mention declining grades, which mean chewing through more rock per ounce of gold mined. As a result of these rising costs (and the next bullet), cash profit margins for the industry are not much higher than they were three years ago, even though gold is much higher. There is little relief coming here, though the retreat in the price of oil helps. This can also be turned around, however, as a p...
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| Fed Notes Significant Downside Risk To Economic Outlook Posted: 21 Sep 2011 10:24 AM PDT My Dear Extended Family: The key element in this statement is "significant downside risk to the economic outlook" followed by "introduction of operation Twist, an ineffective strategy that will lead back to QE." This is basically pro-gold, anti-dollar regardless of how the market has reacted. That is an undeniable reality as the accordion shaped chop in the price of gold continues. The third skier illustration is the final result of the "significant downside risk to the economic outlook" contained in today's Fed statement. (FED) FOMC Statement September 21, 2011 Written by Federal Reserve | Sep 21 11 18:23 GMT Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in...
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| Can You Guarantee That the Dollar Won’t Go Down? Posted: 21 Sep 2011 10:18 AM PDT by David Schectman, MilesFranklin.com:
I keep reading about "deflation", but you can't prove it by my checkbook. Down here, in South Florida, it costs a fortune to go out to eat. I am still paying between $70 – $90 to fill up the gas tanks in my cars. And trust me, our new condo was not cheap. Real estate in general may be in decline, but the prime properties still command a premium. At least our business at Miles Franklin is robust and we will have a record year. My portfolio is doing fine, but unlike most people, I am totally invested in gold, silver and mining shares. In the next year, if it doesn't double, I will be surprised and disappointed. Well, a 50% rise wouldn't be so bad, and I may have to wait for two years to get the double, but I am patient.
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| Watch that $1,770 Gold Price Support - If that Breaks, Look for $1,705 Next Posted: 21 Sep 2011 09:50 AM PDT Gold Price Close Today : 1,805.50 Change : -1.10 or -0.1% Silver Price Close Today : 40.42 Change : .34 or 0.8% Platinum Price Close Today : 1,788.20 Change : 6.30 or 0.4% Palladium Price Close Today : 711.10 Change : -4.90 or -0.7% Gold Silver Ratio Today : 44.67 Change : -0.41 or 0.99% Dow Industrial : 11,408.66 Change : 7.65 or 0.1% US Dollar Index : 77.03 Change : -0.06 or -0.1% On Thursday and Friday, 22 and 23 September, I will be travelling and so will not be sending out commentaries. God willing, I will return on Monday, 26 September. TODAY something odd happened to the US dollar. It reached support at 76.80, then Comrade Chairman Ben Bernancubus announced that the Fed will shift its US treasury debt holdings to longer term bonds. The Nice Government Men will buy $400 billion of 6 to 30 year bonds over the next 9 months, while selling an equal amount of 3-year or less debt. Object of this manipulation is to push down long term interest rates, flooding the market with artificially cheap money which under their Keynesian thinking means that business will flourish. It won't, as even this natural born fool from Tennessee could tell them, it will only prolong the waste and pain and waste more precious resources. These people ain't got the brains God gave a screwdriver. The Fed's announcement -- or alien messages from outer space -- sent the dollar index gapping up and it is now trading at 77.304, up 27.4 basis points but most important of all, tapping on that 77.40 resistance that has stymied it this week. Dollar is going higher, count on it, hard as the NGM try to keep it down. Naturally the Euro dropped 0.42% to 1.3659, on its way to 1.3000. Yen gained 0.36% to 130.58c/Y100 (Y76.58/$1). Fed's move hasn't helped the program of raising the euro very much. What a bunch of goofs. It's like watching the movie, "Three Stooges Run the Central Bank." And the Three Stooges helped the stock market today, too. Dow lost a modest 283.82 (2.49%), holding on most of the day but then sinking like a rock in a churn after the Fed announcement. Dow closed 11,124.84, while the S&P fell even further, 2.94% (35.33) to 1,166.76. If every doctor was as skilful as Dr. Ben, we'd have a building boom in this country -- building cemeteries. I don't know why the GOLD PRICE fell today -- dollar up, gold down? Technically it's already in a decline, so most likely it's merely following through to the downside. Gold closed down $1.10 at $1,805.80 on Come, but in the aftermarket has lost nearly $20 to trade at $1,786.90. Gold's five day chart has strong support at $1,780 and stronger still at $1,770. Picture's not as clear as you might think, as yesterday's action looks like an impulsive move up, and today's might be merely a correction to yesterday. Awww, stop over-complicating things! Watch that $1,770 support. If that breaks, look for $1,705 next. Overhead GOLD would have to earnestly challenge $1,920 to reverse course. No point in talking about upside, though, until and unless gold first clears its 20 day moving average at $1,822. SILVER backtalked gold today, rising 33.6c on Comex to 4042.3c while gold fell. Never quite know what to make out of those bi-metallic closes, because sometimes they foretell a strong up day. Yet that usually comes after they've been attacked for a few days and dropped. Just staring at the chart, today struck silver a deep wound. Since Monday's 3900c low the SILVER PRICE has climbed all the way to 4068c, but after that Fed announcement silver just fainted dead away, dropping to 3957c. Keep you eye on silver's behavior at 3900c. If it falls through that, we have to reckon with 3700, even 3675c. Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger The-MoneyChanger.com © 2011, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't. Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures. 
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| Why Gold Stocks Have Not Performed…Yet Posted: 21 Sep 2011 09:30 AM PDT It's one of the great mysteries of the market this year. For the first half of the year, the HUI Gold Bugs Index — made up of gold mining stocks — was down 9%, despite the fact that the price of gold was up 30%. What gives? Normally, gold stocks give its investors some leverage to the gold price. Historically, gold stocks move 2-3% for every 1% move in gold. Not so in 2011. There are some reasons for this. In order of importance, I rate them as follows: 1. The cost of production is up a lot. Energy costs represent 20-35% of costs. Then there are steel costs, chemicals and labor — not to mention declining grades, which mean chewing through more rock per ounce of gold mined. As a result of these rising costs (and the next bullet), cash profit margins for the industry are not much higher than they were three years ago, even though gold is much higher. There is little relief coming here, though the retreat in the price of oil helps. This can also be turned around, however, as a positive for some low-cost, high-margin gold miners. It makes their properties all the more valuable and gives you a good cushion investing in them. 2. Taxes have gone up huge. CIBC notes, in a recent report, that cash taxes per ounce mined have gone up 1,200% in the last six years! Put another way, taxes are up to about $200 an ounce from under $20 an ounce six years ago. This is a statistic that went from practically meaningless to heavy anchor in just six years. Again, there is little relief coming on No. 2. Political risks will probably play a bigger role in gold mining as gold prices rise, giving politicians incentive to take more. Nationalization? Confiscatory taxes? These are concerns. Again, this can be turned around as a positive for gold stocks in safer jurisdictions. 3. There is much skepticism about the price of gold holding its big gains this year. As a result, there is reluctance on the part of investors to give gold mining shares the full benefit of the price increase when they think about what they are worth. You can see this in Wall Street research in which analysts assume lower gold prices going forward. Only time will take care of this skepticism. The longer gold sticks around at $1,700-1,800 an ounce, the more the market will believe it is here to stay. This is the way markets work. Every bull market must overcome disbelief and skepticism as it unfolds. Bull markets die when there are no more disbelievers. They die when there are no more skeptics. We are a long way from that with gold. Notwithstanding all of the above, gold stocks are fundamentally cheap based on cash flow. One of the most remarkable charts I've come across is the nearby one showing the collapse in the cash flow multiples of gold stocks. They've gone from over 20 times in 2008 to about 10 times this August! The last time gold stocks got this cheap, on this basis, was back in 1979, when the group touched 8.5 times cash flow. This preceded a parabolic move in gold stocks in which they ultimately ran up four-fold. The 1970s is an interesting period to look at because gold stocks also lagged the price of the metal all the way up.
The chart above is a beauty from CIBC, which clearly shows how the 1970s unfolded. I can certainly see some scenario like that — in which cash flow multiples hit a floor and then spike — playing out in the 2011-12 timeframe. Which means you don't want to sell gold stocks right here. At worst, you hang on to them, even the dogs. (The old saying is, "In a hurricane, even turkeys will fly.") When that rush comes for gold stocks, they will all go up. Moreover, looked at in terms of price to net asset value, gold stocks are trading about where base metal stocks are. This has never happened before. Gold stocks have always traded at significant premiums to base metal stocks. So this is another value metric that favors gold stocks and their investors. If you don't own gold stocks yet, now is a great time to buy them. And if you already own them, you should certainly hang on, or add to your favorites. Regards, Chris Mayer, Why Gold Stocks Have Not Performed…Yet originally appeared in the Daily Reckoning. The Daily Reckoning provides 400,000+ readers economic news, market analysis, and contrarian investment ideas. The 5 Best Ways to Invest in Gold was previously featured in the Daily Reckoning.
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| Advances in Display Technology Are on the Way Posted: 21 Sep 2011 08:49 AM PDT Synopsis: Higher-quality and more durable displays are on the horizon… and they'll be available in sizes ranging from the very small to enormous, even by today's giant-TV standards. Learn more about the new technologies underpinning them. Dear Reader, If you haven't seen the video of Congressman John Fleming arguing about the Buffett Rule, check it out. Essentially, Fleming complains about making only $600,000 per year. The MSNBC host goes after him, saying that his view isn't sympathetic to those making forty, fifty, or sixty thousand a year. Is complaining about earning $600,000 really that unsympathetic? I certainly don't make anywhere close to this amount, but I can sympathize with his position. Instead of dealing with Fleming's fuzzy math, I'd rather use myself as example to prove the point. First let me ask: Do you know why I'm not a medical doctor? Based on my personal preferences, it doesn't pay enough. I don't mean to sound narcissistic, but if I spent as much time studying medicine as I have economics and finance, I could probably have been accepted into medical school. Of course, things just aren't that simple. There's the nine years of pursuing a subject that doesn't interest me in the slightest. Let's not forget about sacrificing one's youth to medical school and the residency program afterward. On top of that, I much rather prefer staring at my computer screen all day than staring at patients' insides. I prefer my daily work to involve as little blood as possible. Does that mean that I would never think about working in the medical field? No – at some price the proposition would be worth it. A salary of $300K just isn't enough to bring me into the medical profession. Thankfully, that's enough money to attract plenty of other people, but it's not enough for me. Perhaps $1 million per year would have me hitting the books and forgetting all about finance. The same calculation is true for most people. We evaluate our career paths on a number of things: the hours, our interest in the field, the salary, the geographic location, the lifestyle, etc. Most of us could have picked some higher-earning career, but everyone finds a balance. Furthermore, the vast majority of us could take second part-time jobs to earn even more money. But for most, the additional effort isn't worth it. Despite what the media like to portray, the number of two-job holders is very small. For the majority of people, working another 20 hours on top of a 40-hour week isn't worth the extra cash. And this takes us all the way back to Fleming. Is $600,000 not enough money? I don't know, and neither do the folks making forty, fifty, or sixty thousand a year. This is a question that only John Fleming can answer. Other people's opinions really don't matter here. It's his money; and only he can say whether it's worth his effort or not. He can keep thinking about expanding his businesses, or he can still make a very nice salary of nearly $200K as a congressman. The problem with the Buffett Rule is that it imagines the rich as some sort of robotic work machines rather than people. Supposedly the state can reduce their rewards, and they'll keep working the same amount. And the excuse seems to be, "Well, they'll still make a bunch of money." That's true, but is this money worth it to them? Believe it or not, the rich are actually human beings. Many of them would rather work less and spend some time with their families too. When one already has a pile of money, an additional tax might be just enough to make some take time off rather than expand the business. Now, this doesn't apply to every single rich person… or even most. Warren Buffett noted that his rich friends won't stop investing money into the economy with a slight tax increase. He's absolutely correct: Most will likely keep chugging along – but policy impacts shouldn't be measured by what most will do. Aggregation is the key. Take 100 rich people and increase their taxes. I bet the majority will keep investing and expanding their businesses as usual. However, three or four from the 100 might decide to choose leisure over expansion. After the tax, the lower profits simply aren't worth the trouble. Add up these three or four guys across the whole economy, and we'll see a negative effect. The key to understanding this issue is seeing the tax through someone else's eyes – not one's own – and realizing that the rich are human beings who also value leisure. They are not Homo economicus profit maximizers who will grab any profit opportunity before them. Up next, the Casey Research technology team tells us about the future of display technology. First there were plasma screens, then LCDs… Be prepared for the future OLEDs (Organic Light-Emitting Diodes).
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| Market Snapshot: What's Left? Posted: 21 Sep 2011 08:45 AM PDT What was already a relatively volatile morning leading up to the European close, paused for an hour or two until the FOMC statement was released with TSYs unch and ES at VWAP right before. Immediately, stocks ripped and dipped, the TSY curve started to flatten - pivoting around the 7-10Y, the USD took off, commodities and PMs dropped, and credit cracked wider. Somewhat interestingly, while all this chaos was occurring, ES remained relatively well behaved with regard a broad basket of risk assets - which while not a positive per se, did indicate that this was a very broad de-risking and not simply a US equity market prone to vicious dips, rallies, and retracements. It seems very obvious now, and fit with our indications of an exuberant equity market relative to the 2s10s30s fly, credit, and risk in general, that the rally in equities (which baffled anyone with common sense given the background of worsening macro data) was on pure hope and perhaps the sell-off's harshness today will have burned a few fingers as it seems the Bernanke Put strike just moved a lot further out-of-the-money.
Chart: Capital Context As we closed, ES was perhaps a little overdone relative to a broad risk-basket but it certainly showed no sign of pulling back right into the 415ET close - only 1pt off its lows. The Treasury complex was the story of the day (in terms of volatility-adjusted smash-mouth moves) with 30Y 30bps lower in yield from Friday and 19bps alone today. The whole curve flattened but it was the sell-off in the front-end that was notable with 2Y and 5Y +3.6 and 1bps higher in yield on the day respectively.
It was the highest beta sectors that obviously saw the most pain today with some of the major financials decimated. Financials wewre the hardest hit today -4.8% but Materials, Industrials, and Energy were also very weak. Tech outperformed and remains the only sector that is positive for the month of September now.
Financials are the worst performers for the month so far down around 11% - hardly surprising given the crutch of government support being taken away - BAC -7.4% today lone ending at its low around $6.39. The lack of LSAP-speak from Bernanke saw a relatively weak USD, as we went into the witching hour, take off - up over 1% today alone and of course this had a significant impact on the commodities and precious metals space. Gold, Silver, Copper, and Oil all fell after the FOMC statement with oil dropping the most and gold the least with oil and copper at the week's lows.
Credit markets were just as weak as equities with both the new IG index (which we noted was already relatively offered anyway) and the legacy HY index both losing significant ground on the day. In fact IG underperformed on a beta-adjusted basis as we suspect managers grabbed at whatever the cheapest hedge was in hope of saving some face on the day. Corporate bonds appeared relatively net bought reflecting almost perfectly the shift in TSYs with the belly being most bought and short and long ends of the curves being least bought. Most notably was the underperformance of CDS indices relative to their underlyings. Chatter was that today was very much a buyer's strike in corporates as opposed to too many sellers as it is increasingly clear to everyone in the HY market especially that too much selling will tip this market down fast. It was clear that managers were using index overlays as opposed to rushing for the exits in their bond funds today and as we have noted before - as the basis between index marks and underlying portfolio illiquidity increases (especially if we some heavy concessions in new issuance) then pressure will come on bond fund managers to liquidate as opposed to manage risk - we love the smell of BWICs in the morning. Charts: Bloomberg
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| Posted: 21 Sep 2011 08:45 AM PDT
What was already a relatively volatile morning leading up to the European close, paused for an hour or two until the FOMC statement was released with TSYs unch and ES at VWAP right before. Immediately, stocks ripped and dipped, the TSY curve started to flatten - pivoting around the 7-10Y, the USD took off, commodities and PMs dropped, and credit cracked wider. Somewhat interestingly, while all this chaos was occurring, ES remained relatively well behaved with regard a broad basket of risk assets - which while not a positive per se, did indicate that this was a very broad de-risking and not simply a US equity market prone to vicious dips, rallies, and retracements. It seems very obvious now, and fit with our indications of an exuberant equity market relative to the 2s10s30s fly, credit, and risk in general, that the rally in equities (which baffled anyone with common sense given the background of worsening macro data) was on pure hope and perhaps the sell-off's harshness today will have burned a few fingers as it seems the Bernanke Put strike just moved a lot further out-of-the-money.
Chart: Capital Context As we closed, ES was perhaps a little overdone relative to a broad risk-basket but it certainly showed no sign of pulling back right into the 415ET close - only 1pt off its lows. The Treasury complex was the story of the day (in terms of volatility-adjusted smash-mouth moves) with 30Y 30bps lower in yield from Friday and 19bps alone today. The whole curve flattened but it was the sell-off in the front-end that was notable with 2Y and 5Y +3.6 and 1bps higher in yield on the day respectively.
It was the highest beta sectors that obviously saw the most pain today with some of the major financials decimated. Financials wewre the hardest hit today -4.8% but Materials, Industrials, and Energy were also very weak. Tech outperformed and remains the only sector that is positive for the month of September now.
Financials are the worst performers for the month so far down around 11% - hardly surprising given the crutch of government support being taken away (and the removal of yet another source of easy money - the curve carry trade) - BAC -7.4% today lone ending at its low around $6.39. The lack of LSAP-speak from Bernanke saw a relatively weak USD, as we went into the witching hour, take off - up over 1% today alone and of course this had a significant impact on the commodities and precious metals space. Gold, Silver, Copper, and Oil all fell after the FOMC statement with oil dropping the most and gold the least with oil and copper at the week's lows.
Credit markets were just as weak as equities with both the new IG index (which we noted was already relatively offered anyway) and the legacy HY index both losing significant ground on the day. In fact IG underperformed on a beta-adjusted basis as we suspect managers grabbed at whatever the cheapest hedge was in hope of saving some face on the day. Corporate bonds appeared relatively net bought reflecting almost perfectly the shift in TSYs with the belly being most bought and short and long ends of the curves being least bought. Most notably was the underperformance of CDS indices relative to their underlyings. Chatter was that today was very much a buyer's strike in corporates as opposed to too many sellers as it is increasingly clear to everyone in the HY market especially that too much selling will tip this market down fast. It was clear that managers were using index overlays as opposed to rushing for the exits in their bond funds today and as we have noted before - as the basis between index marks and underlying portfolio illiquidity increases (especially if we some heavy concessions in new issuance) then pressure will come on bond fund managers to liquidate as opposed to manage risk - we love the smell of BWICs in the morning. This reach for macro hedges fits well with our recent discussions of the normalization in the volatility markets - i.e broad investor base is not/less hedged. Today we saw the VIX rise and skews steepen as they start to converge up to where we discussed implied correlation was betraying they should be. Charts: Bloomberg UPDATE: we have had a number of comments/questions on whether this sell-off has legs. Of ocurse we have no idea other than, as we mentioned above, the rally seemed based on more dollar devaluation and portfolio disequilibrium which Twist is far less than expected. However, based on the long-run relationships between credit and equity markets, the following chart shows that it appears equities have further to fall until they reconnect with credit's expectation. This is of course a relative-value perspective but does warrant concern over equities' current pricing.
This stock indiator is based on the Capital Context Corporate Index. While today's sell-off in stocks did push the indicator back towards the equilibrium, stocks remain notably expensive relative to credit market expectations on an empirical basis.
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Contagion Forensic Review - Retail
Here's a roundup of recent news reports on the collapse of the global (Ponzi) banking system. The European bank run has begun and it's just a matter of time before their Federal Reserve primary dealer cartel partners in the US go down with them. Thick as thieves!
Don't you get the feeling that everything is falling apart in slow motion? Europe's problems are worse than ours, and that is saying something. Japan is a basket case. China can't hold everything together by herself. Congress is in gridlock. The economy is not creating enough new jobs to reduce the unacceptable unemployment rate.
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