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- Who launched the rocket?
- 30 Lowest Priced Stocks Lost 36% This Year
- LISTEN: Greg McCoach Interview From Silver Summit
- Analysis of GDX & Argonaut Gold 10-24
- WATCH: James Turk interviews Ralf Flierl in Vienna
- Gartman: EU Debt Plan to Hurt Currencies - Buy Gold in USD, GBP and EUR as “Is a Currency”
- India's gold ETF trade volume exploding
- This amazing chart could change how you think about investing
- The U.S. dollar is back at a critical level
- Eurozone Deal
- Gold's True Value is Above $11,000 Per Ounce, Turk Tells King World News
- Gold bugs bruised but buoyant (again): Gold manipulation thesis goes mainstream
- Gold Paying Dividends
- Recent sell-off sets up next gold rally
- Governments manipulate currencies, so why not gold too? - Lawrence Williams
- Jeff Christian now just makes it up as he goes along
- Fed manipulates with propaganda, dollar is at risk, Rickards tells King World News
- Dominic Frisby interviews Nick Laird
- Gold & Silver Market Morning, October 25, 2011
- Investing Risks
- BrotherJohnF: Silver Update – “Petrodollar Seignorage”
- British Gold Sovereigns - The Preserve of Collectors, Savers and Smart Investors
- Bullion or Mining Stocks – Do You Have the Right Mix?
- Europe Readies Its Rescue Bazooka
- La Vie En Rouge
- Satyajit Das: Central Counter Party Politics
- Purchasing Power Of Gold During Cycles Of Inflation And Deflation
- Back Up, Empire!
- What Would Happen if Goldman Sachs Disappeared?
- Silver Pullback Is A Gift
| Posted: 25 Oct 2011 03:24 AM PDT Anybody see any news? Gold up fiddy buckaroos, above $1700 Silver up $1.35, above $33 (Kitco site is down) |
| 30 Lowest Priced Stocks Lost 36% This Year Posted: 25 Oct 2011 03:16 AM PDT Billion Dollar companies dragging down portfolios. |
| LISTEN: Greg McCoach Interview From Silver Summit Posted: 25 Oct 2011 03:00 AM PDT
Kerry Lutz interviews Greg McCoach of Amerigold.com at the Silver Summit in Spokane Washington. Greg is an adherent to the Austrian School of Economics and foresees a monumental collapse in the offing. He understands what's going on and helps us to gain insight into what steps to take to protect our families and our wealth. He's an accomplished and highly polished speakers and we were fortunate to catch him for an interview. Much more @ KerryLutz.com or @ 347.460.LUTZ |
| Analysis of GDX & Argonaut Gold 10-24 Posted: 25 Oct 2011 02:04 AM PDT |
| WATCH: James Turk interviews Ralf Flierl in Vienna Posted: 25 Oct 2011 01:58 AM PDT Ralf Flierl, Editor of Smart Investor Magazin, and James Turk, Director of the GoldMoney Foundation, talk about investing in today's uncertain world. They talk about precious metals, stocks, real estate, commodities and how tangible assets are the best protection in a currency crisis. They explain how people feel that something is wrong with our financial and monetary system, but can't explain what or how. Ralf Flierl explains that without understanding how our fiat money system works, it is difficult to know how to protect your wealth, let alone find solutions to the monetary troubles ahead. They talk about the Austrian economics content of Smart Investor Magazin. They talk about the Cantillon effect and how the monetary system affects distribution of wealth, increasing the divide between rich and poor. This interview was recorded on October 1st 2011 in Vienna. ~TVR |
| Gartman: EU Debt Plan to Hurt Currencies - Buy Gold in USD, GBP and EUR as “Is a Currency” Posted: 25 Oct 2011 01:28 AM PDT |
| India's gold ETF trade volume exploding Posted: 25 Oct 2011 01:00 AM PDT The auspicious day of Dhanteras has ushered in this year's festival season in India. Dealers and analysts are confident that gold and silver sales will break new records in the course of the 2011 ... |
| This amazing chart could change how you think about investing Posted: 25 Oct 2011 12:58 AM PDT From The Big Picture: Several readers have inquired about the seasonality factor when it comes to equities... Let's take a quick look at the history of the seasonal advantages. "The Best Six Months of the Year" was first described by Yale Hirsch in Stock Traders Almanac decades ago. The historical chart below via Investech Research reveals the surprising degree of seasonality for investors, going back 50 years. Here are the specifics of seasonality: Imagine we start with two $10,000 accounts, and use them to make investments in an S&P 500 Index fund. One account invests in one six-month period, the other invests in the remaining six-month period. Account A is invested from November 1st through April 30th each year, while Account B is invested from May 1st through October 31st. Here are the numbers: • Account A portfolio grew from $10,000 to... Read full article (with chart)... More on investing: Porter Stansberry: Don't invest another dollar before reading this Four reasons David Einhorn is shorting one of world's most popular stocks... Must-see: One of the world's best entrepreneurs reveals his three secrets to success |
| The U.S. dollar is back at a critical level Posted: 25 Oct 2011 12:53 AM PDT From The Stock Sage: As $EURUSD (58% of the U.S. dollar index) approaches a major resistance level at 1.40 and U.S. equities ($SPY) approach a previous level of major support (which should now offer some not so insignificant resistance), the U.S. dollar ($DX_F, $UUP) is flirting with an important level of support. Should the dollar break through this area of support... Read full article... More on the dollar: It's all about the dollar and Ben Bernanke now Whatever you do, don't forget about the dollar Doug Casey: How to prepare for the death of the dollar |
| Posted: 24 Oct 2011 09:29 PM PDT Markets as of October 18 because of travel plans. The issues in Europe are the biggest factor that is moving the markets and only time will tell when the leaders there get some sort of a deal that will kick it all down the road to deal with again. Dow Jones Industrial Average: Closed at 11577.05 +180.05 after trading down early in the session but rebounding near the close when it was announced by the London Guardian Newspaper, that Germany and France will provide $Two Trillions of credit help to the battered European nations. It was obvious earlier that the Sunday event might not turn out so hot so the markets were pumped on this tricky bit of news released just before the NYC close to (1) Rally USA stocks; (2) go into the weekend on a positive note in case something goes awry during the Sunday Euro-land meetings. This clearly demonstrates the power of media on markets. The close was above the 20 and 50 day averages but is resisting just under the 200-day moving average at 11,644.66. New support is 11,500 and the close was in the top 1/3rd of the daily trading range, saying stocks will buy again this week and probably in faster rally markets. S&P 500 Index: Closed at 1225.38 +24.52 on 90% of normal volume and rising momentum. This market is faster than the Dow and jumped through a hard resistance channel line then closed very high in the trading range. Support is today's close at 1225 and next resistance is 1234.37, and then the price of 1250. We would not be surprised to see 1250-1265 by this Friday evening's close. S&P 100 Index: Closed at 554.59 +10.49 rising proportionally even higher than the Dow and S&P 500. This is big fund buying on rising momentum and 90% of normal volume. The close was on the top of the trading range as fund managers could see a big, fast bull coming straight at them. The close was right on the 200-day at 554.82, which is now both support and resistance. By this Friday evening, the 100 index could be 560 or better. Nasdaq 100 Index: Closed at 2364.87 +30.49 on 90% of volume and rising momentum. The Nasdaq has jumped-up so fast this month there were numerous price gaps in the chart. Today, early selling took the price back, filled a major gap and then took off in a new rally on the London Guardian bailout news. As a leading indicator on trends, the Nasdaq did not disappoint us today. The close was above all moving averages, ran through 2350 hard price resistance and finished near the top of the daily trading range. Next higher resistance is 2400-2450. Last year's rally at this time was nearly 200 points in just four weeks. Expect more buying ahead this week. 30-Year Bonds: Closed at 139.59 +0.28 on falling momentum. With stocks in new rallies, the bonds should sell but keep in mind the global bond markets are watching and waiting to see what happens in Europe on Sunday. If bond traders anticipate a credit resolution, and I think they will, the bonds should sell off as stocks rise. Next lower support is 138.32 on the 50 –day average. More selling would touch 137.50-136.50. If we were trading bonds, we would be very careful of the next three days in all of this confusion. Look for side to down markets in the bonds. GDXJ Junior Gold Miners And XAU: The GDXJ closed at 30.47 +0.80 after selling down earlier in the session but then rallied on 120% of volume and rising momentum later in the day. The close was at the top of the trading range just under resistance on the 20-day average at 30.79. The price remains under the three moving averages but as the broader markets rise along with gold and silver, price should rise to 32.76 resistance on the 50-day average. Gold has broken support today but bounced back to finish in the top 1/3rd of the trading range. The trend is up on the GDXJ but I remain cautious until gold is over 1695. The XAU had an open and close in the top of the trading range at 193.13 +0.30. Momentum is moving up slowly. The all important metal to shares ratio is saying "Not Yet." Further, there is a hard channel line resistance just above today's close that can hold back buyers. Also the 20-day moving average is just above that at 194.97 making more resistance. Look for a precious metals shares rally to begin near the end of this month. Gold: Closed at 1663.00 -9.60 on basing and rising momentum. Gold's recent rally has been tepid at best and today it was a seller with a -$50 drop in the futures than bounced back showing only a minor loss. This chart is in stalling mode right now and trying to guess the very short term trend is not smart. After some corrective moves today, gold should be a buyer later next week. Resistance is 1665 and support is 1628-1650. I see no hard selling, this week, but buyers are on hold for a few days. Silver: Closed at 32.09 +.23 on rising momentum but trading under all moving averages. Next resistance is 33.00 on the 20-day; 35.53 on the 50-day and 34.84 on 200-day average. To break out and through all these impediments we need a hard solid rally of at least +$5.00. On the cycles and calendar, it should begin next week or later on Monday October 31. The price of $38.50 is our objective in about one month. US Dollar: Closed at 77.01 -0.13 on peaked and falling momentum as the markets sense that Euro-land will be spared, at least for now, along with the Euro currency. The Euro is the inverse dollar trade and went into the green this afternoon at 137.45 on The Guardian news. Resistance is the 20-day average at 77.45 and the 200-day is support at 76.46 with the 50-day at 76.68. All moving averages and the close are congested in a tighter trading range. We think that when the Euro-land supporting credit news is fully released on Sunday or next week, the dollar could sell back to 75.50 and the Euro might rise to 139.50-140.00. Crude Oil: Closed at 86.39 -0.89 rising momentum with the price up against hard resistance on a channel line. On a positive note the price is above the 50-day moving average at 86.05. Higher hard resistance is 90.68 where we see the price going next month. On the cycles and calendar, energy normally rallies from now through the first of February when we see peak prices for the heating season. Also on the plus side we expect more inflation but a softer demand from commercial users. The price of $88.50 to $92.50 could be the higher trading range for oil for the next three months barring an unforeseen event. CRB Index: Closed at 314.91 +0.35 on rising momentum. The price opened and sold down to fill a gap. Later in the session, we got a rally and closed near the highs for the day. Keep in mind this is an index group and grain, metals, softs and energy are included in the index composition. Resistance is the 50-day average at 320.03 with support on the 20-day at 311.91. While oil and energy dominate the index, a rally is just ahead, which could take us to 330 near the 200-day moving average. -Traderrog         This posting includes an audio/video/photo media file: Download Now |
| Gold's True Value is Above $11,000 Per Ounce, Turk Tells King World News Posted: 24 Oct 2011 09:09 PM PDT ¤ Yesterday in Gold and SilverThe gold price was up about ten dollars or so during the late afternoon in Far East trading...but an attempt to break through the $1,660 spot level shortly after the start of Comex trading got sold off. Gold then traded sideways for the rest of the New York trading session. The gold price finished at $1,653.30 spot...up $11.30 on the day. Net volume was a pretty light 101,000 contract. Nothing to see here.
Silver traded about 25 cents either side of $31.50 spot for all the of the Far East trading day...and most of London's as well. A smallish rally that developed at the Comex open made it just above the $32 spot price, before a not-for-profit seller showed up. Once that seller disappeared around 12:50 p.m. Eastern time, silver rallied a bit into the close of the New York Access Market, finishing up 34 cents on the day at $31.74 spot. Net volume was a very subdued 25,000 contracts.
It would have been nice to see gold and silver up as much as platinum, palladium, copper...or oil on Monday. They were up 2.25%...4.41%...6.29% and 4.72% respectively. The gold and silver stocks certainly acted like the metals prices did better than they did...as shares in both did very well for themselves...with the HUI almost finishing on its high of the day...up 3.95%.
Most silver stocks did even better...particularly the junior producers...but the 'large cap' silver stocks were no slouches yesterday either. Nick Laird's Silver Sentiment Index was up a chunky 4.83%.
(Click on image to enlarge) The CME Daily Delivery Report for yesterday showed that 241 gold and exactly one silver contract were posted for delivery on Wednesday. The big short/issuer was JPMorgan in its proprietary trading account...and they were also the big long/stopper in their client account, with Merrill a distant second. The report is worth a quick look...and the link is here. The GLD ETF took in some gold on Monday...194,598 troy ounces to be exact. There were no reported changes in SLV. Over at Switzerland's Zürcher Kantonalbank for the week that was, they reported big withdrawals from both their gold and silver ETFs, as it was obvious that a unit holder redeemed their shares and had their metal shipped elsewhere, as there was nothing in the price action of the previous week that could have led to such a massive draw-down in both metals. Their gold ETF declined by 213,209 troy ounces...but their silver ETF declined by an eye-watering 6,173,934 ounces. I thank Carl Loeb for providing these numbers for us. There was no sales report from the U.S Mint on Monday...and no action of consequence over at the Comex-approved depositories on Friday, either. Here is a free paragraph and a half from silver analyst Ted Butler's weekend commentary to his paying subscribers... "Conditions in the physical silver market still appear tight. Turnover, or the actual physical movement of metal into and out of the COMEX-approved silver warehouses, continues active even though the total amount remains fairly constant (at around 106 million oz). This silver turnover is much different from years' past and not at all present in any other NYMEX/COMEX metal. The most plausible conclusion for this unusual silver turnover is that the wholesale market is tight and operating on a hand to mouth basis." "There was an outflow this week from the big silver ETF, SLV, of around 3.6 million ounces. With price action and trading volume fairly subdued, I'm inclined to conclude that much of this week's metal withdrawal was not plain vanilla investor liquidation, but rather removal of metal because it was needed more urgently elsewhere. Obviously, if I am correct, this would be another indication of physical tightness. I'd like to raise another point regarding SLV. Back during the first 30% manipulated price smash in May, some 50 to 60 million ounces were liquidated by investors and removed from the Trust. (Yes, I still believe that metal remains in strong hands). During the recent 30% price smash of a month ago, there has been no net reduction in metal holdings in the SLV." Reader John Bastian sent me an very interesting cartoon from 1912...the same year that the outline for the Federal Reserve system was being hatched on Jekyll Island, Georgia by JPMorgan et al. Here are a few sentences from his e-mail to me. "Look at the US National Farmers Holiday Association draft resolution sent to my father-in-law in 1933. The problem was obvious at the time already...The letter shows though how desperate the situation was then...and how the banks enriched themselves at the expense of the population. Seems like today the octopus grip has gotten even tighter." [Looks like a giant vampire squid to me. - Ed]
Here's another chart for you today. This one was sent to me by Nick Laird over at sharelynx.com. His comments were as follows..."Here we can see the fractural pattern repeating itself almost perfectly. The big question is, what follows the top of this short-term bullish rally? A couple of weeks should show the picture."
(Click on image to enlarge) Considering the state of the world, particularly in Europe...and the fact that three days have past since my last column...I have a fair number of stories for you today. I would find it surprising if the bullion banks jumped right back into the lion's mouth after spending the last five months trying to extricate themselves from that very situation. Governments manipulate currencies, so why not gold too? - Lawrence Williams, mineweb.com. Gold bugs bruised but buoyant [again]: Gold manipulation thesis goes mainstream - Peter Brimelow, marketwatch.com ¤ Critical ReadsSubscribeAnother US Debt Downgrade Is Coming In Just A Few Weeks: Bank of America/Merrill"The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes." This is quite a stunning prediction, mainly because nobody is talking about this. And though the experts were 100% wrong in thinking that a downgrade would increase borrowing costs, it did cause a major market jolt when it happened, leading to a major blow to confidence in August and September. This story was posted over at the businessinsider.com website...and I thank our own Nick Laird for providing this story. The link is here. Reuters picked up this story on Sunday as well...and put their spin on it. I thank Washington state reader S.A. for that one, which is linked here.  Fed's Yellen: QE3 May Be WarrantedFederal Reserve Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil. The central bank should also give "careful consideration" to Chicago Fed President Charles Evans's proposal to tie the near-zero interest-rate pledge to specific levels of unemployment and inflation, Yellen said in a speech in Denver on Friday. It's just a matter of when, not if, the printing presses get shifted back up to high speed. This Bloomberg story from last Friday was sent to me by Australian reader Wesley Legrand...and the link is here.  Is Bank of America preparing for a Chapter 11?The move to put the derivatives exposures of Merrill Lynch under the lead bank could be preparatory to a Chapter 11 filing by the parent company. The move by Fannie Mae to take a large junk of loans out of BAC, the efforts to integrate parts of Merrill Lynch into the bank units earlier this year, and now the wholesale shift of derivatives exposure all suggest a larger agenda. I don't have any access to inside skinny, but what I see suggests to this investment banker that a restructuring may impend at Bank of America. In the event, that is good news in a sense that this continuing distraction to the financial markets will be headed for a final resolution. This Reuters story is from a week ago...and I thank Washington state reader S.A. for sending it along. The link is here.  US States Are Facing Total Debt of Over $4 TrillionThe total of U.S. state debt, including pension liabilities, could surpass $4 trillion, with California owing the most and Vermont owing the least, a new analysis says. The nonprofit State Budget Solutions combined states' major debt and future liabilities, primarily for pensions and employee healthcare, unemployment insurance loans, outstanding bonds and projected fiscal 2011 budget gaps. It found that in total, states are in debt for $4.2 trillion. The group, which follows state fiscal conditions and advocates for limited spending and taxes, said the deficit calculations that states make "do not offer a full picture of the states' liabilities and can rely on budget gimmicks and accounting games to hide the extent of the deficit." It will either get inflated away...or it will all crash and burn. This Reuters story was posted over at cnbc.com yesterday...and I thank West Virginia reader Elliot Simon for sending it my way. The link is here.  China signals irritation as Europe stares into the financial abyssEurope's grotesque debt crisis rumbles on. France and Germany are at daggers drawn, the eurozone's two largest economies still a million miles away from agreeing on how they intend to patch-up what is, and always has been, an utterly incoherent economic construct. The euro was never going to work. Yet the eurocrat elite – which includes Mr. Juncker down to the tip of his Mont Blanc pen – arrogantly ignored all the signals. Those of us who objected to monetary union on technical grounds, who warned of bitter conflict, who recalled the lessons of history, were dismissed as "xenophobes" and "cranks". On Friday, in a rare public outburst, China's Wen Jiabao said Europe's leaders should "turn their political will into action". Beijing wants to see decisive measures to prevent Europe's debt crisis from spreading, with all the global market turbulence that would bring. This Roy Stephens offering was posted in The Telegraph late Friday night...and is well worth the read. The link is here.  David Cameron vows to reclaim EU powers amid looming Tory rebellionBritain will seek to claw back powers from Brussels during negotiations for a new rescue deal for the euro, David Cameron said as he attempted to undermine a Conservative rebellion over calls for an EU referendum. The Prime Minister is to demand more British control over employment and social laws in return for supporting a new European treaty to shore up the single currency. Although British taxpayers' money will not be used for the new multi-trillion euro bail-out, it is expected to require a rewriting of EU treaties, which needs Britain's backing and may prompt a referendum in this country. Mr. Cameron's "repatriation of powers" offer came as the Conservative leadership was making a last-ditch attempt to stop at least 60 Tory MPs voting for a referendum on leaving the European Union in the Commons today. This story was from the Sunday Telegraph...and is another Roy Stephens offering. It's definitely worth skimming...and the link is |
| Gold bugs bruised but buoyant (again): Gold manipulation thesis goes mainstream Posted: 24 Oct 2011 09:09 PM PDT  Another tough week for gold bugs. But they've survived tough weeks before in this decade-long bull market. And now they see vindication [from] unexpected quarters. This week saw unprecedented commentary from unusual sources on gold's behavior. Most astonishing of these: a column in Saturday's London Financial Times by U.S. Editor Gillian Tett. She recently listened to a speech by radical gold bug Gold Anti-Trust Action (Gata) Committee leader Chris Powell. I say "ah ha!" to this. I've been writing about the gold conspiracy theory on Market Watch since I started here 2002. [Greatly to the credit of the MW editors — other employers balked]. |
| Posted: 24 Oct 2011 09:09 PM PDT  Gold mining investors got two interesting pieces of news to chew on this week. One demonstrated why equities have largely underperformed the gold price over the last few years, and the other showed one way that trend could potentially end. The bad news came from Agnico-Eagle Mines Ltd., which stunned the street on Wednesday by shutting down its Goldex mine because of rock stability problems. As Agnico shares tumbled 18%, investors couldn't help but wonder: Why buy gold stocks when the exchange-traded funds have much less risk? The Goldex debacle seemed to embody everything wrong with the miners, who are creating little shareholder value despite record profits. |
| Recent sell-off sets up next gold rally Posted: 24 Oct 2011 09:09 PM PDT  When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally. "I can tell investors don't sell off your gold," says Martin Murenbeeld, the chief economist at DundeeWealth. "We're at a crossroads here." "Have the countries around the world solved the debt crisis?" asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. "Have the bailouts ended? Have their currencies stopped tanking?" With the world already worried about Greece's fiscal problems, gold summer's rally was sparked by fears that the U.S. might default on its debt. |
| Governments manipulate currencies, so why not gold too? - Lawrence Williams Posted: 24 Oct 2011 09:09 PM PDT  MineWeb's Lawrence Williams today comments on the recent exchanges between GATA and CPM Group executive Jeffrey Christian and goes on to wonder why gold price manipulation should be so surprising. Williams writes: "If one assumes that governments as a matter of course manipulate currency exchange rates, then there is logic in their manipulating the gold price too, as many throughout the world consider gold as money (currency) and a rise in the gold price thus equates to a depreciation in currencies -- notably the U.S. dollar." |
| Jeff Christian now just makes it up as he goes along Posted: 24 Oct 2011 09:09 PM PDT  Here's a GATA dispatch from Saturday...and I'm pretty much going to leave it to Chris Powell to do the introductions...as he has lots to say. But here's the first paragraph... "Debating GATA Chairman Bill Murphy on Friday at the Silver Summit in Spokane, Washington, CPM Group executive Jeffrey Christian graduated from his usual distortions to outright contrivance." The rest of his preamble, plus all the associated reading material, is linked here. |
| Fed manipulates with propaganda, dollar is at risk, Rickards tells King World News Posted: 24 Oct 2011 09:09 PM PDT  Geopolitical analyst James G. Rickards told King World News that the Federal Reserve increasingly is trying to manipulate markets with mere propaganda and that the United States risks the collapse of the dollar if it doesn't drastically change its fiscal, monetary, and tax policies. Rickards says he buys the dips in gold. I posted the blog to this Rickards interview in my Saturday column. Here's the full audio interview posted over at KWN. It runs about 20 minutes...and the link is here. |
| Dominic Frisby interviews Nick Laird Posted: 24 Oct 2011 09:09 PM PDT  Dominic Frisby interviews Nick Laird, of www.sharelynx.com, for the GoldMoney Foundation. They talk about the gold price and gold charts in detail and Nick mentions his time frame and price targets for the gold bull market. |
| Gold & Silver Market Morning, October 25, 2011 Posted: 24 Oct 2011 09:00 PM PDT |
| Posted: 24 Oct 2011 08:56 PM PDT An iceberg is much bigger than it appears. Most of it lies below the surface. Using this image, IceCap Asset Management (yes, that is apparently a real name) presents a perfect graphic of what investing is like in today's world: Likely Related Posts Gold or Common Stocks From Here? After The Collapse Investment Observations Russell Caution [...] |
| BrotherJohnF: Silver Update – “Petrodollar Seignorage” Posted: 24 Oct 2011 08:09 PM PDT Brother John discusses silver ands the following in the (10.25.11) Silver Update:
~TVR |
| British Gold Sovereigns - The Preserve of Collectors, Savers and Smart Investors Posted: 24 Oct 2011 04:45 PM PDT |
| Bullion or Mining Stocks – Do You Have the Right Mix? Posted: 24 Oct 2011 04:30 PM PDT |
| Europe Readies Its Rescue Bazooka Posted: 24 Oct 2011 03:35 PM PDT It's one thing to fail to recall relevant events that are genuinely historical, quite another to refuse to learn from recent failed experiments. Remember Hank Paulson's bazooka? The Treasury secretary, in pitching Congress to give him authority to lend and provide equity to Fannie and Freddie, argued, "If you have a bazooka in your pocket and people know it, you probably won't have to use it." but the Treasury's new powers did not do the trick. Less than two months later, Treasury and OFHEO put the GSEs into conservatorship. If the latest rumors prove to be accurate, the latest Eurozone machinations make Paulson look good. The Financial Times reports that the Greek deal is being reworked, with bondholders being "asked" to take 60% haircuts. The critical bit is the word "asked". Recall this restructuring is supposed to be voluntary to avoid triggering a credit event under credit default swaps. The old deal with a mere 21% haircut, had a takeup below the 90% sought and the 80% deemed the minimum acceptable. With haircuts this deep, how pray tell will the authorities force banks to go along with an allegedly voluntary deal? Any party that was hedged is going to want to see a bona fide default so he can cash in his credit default protection. But Greek banks were big protection writers (why anyone would accept them as counterparties is beyond me), so breaking them (which is what I assume would happen) would necessitate bailouts by the broke Greek state, which would worsen the national insolvency, which is what the deeper haircuts were supposed to avoid. And some parties are concerned about even worse outcomes, since no one knows who the CDS protection writers are. Per the Financial Times:
This is what you get when you let banks innovate to their hearts' content: more cleverly designed minefields, and the taxpayer picks up the damage inflicted on innocents or greedy chumps who wander into them. The next element of the rescue apparatus being wheeled into place is a trillion euro facility. That sounds great, until you understand that a trillion euros is probably too light by at least 50%, and the bloody scheme probably won't work anyhow. The details are still hazy, but it is largely along the lines of an idea floated earlier, that of having the EFSF leverage up to expand the total bailout authority. From Der Spiegel (hat tip Joe Costello):
Note that these machinations are to avoid the one route that clearly will work and will not involve political approvals, which is having the ECB monetize debt. Instead, the EFSF, and any of its son of Frankenstein spawn ultimately rely on guarantees of member states. Let's see, this vehicle will bailout out Italy when Italy is a guarantor of its own bailout? As Satyajit Das wrote when this idea was first mooted:
Paul Krugman last night focused on the same fatal flaw, the circularity of the scheme, invoking an old song, "There's a hole in my bucket." The only possible deus ex machina, given that Germany is insistent that the ECB not ultimately provide the firepower for this vehicle, is that outside parties provide very substantial support. The IMF will participate, but it will not do heavy lifting. China in theory could, but given how controversial its US dollar holdings have become, a major role in a fragrant scheme is likely to prove even more controversial. The Eurozone has managed to keep its desperate financial legerdemain going far longer than I thought possible. But its insistence on implementing self-defeating austerity policies and the impossibility of Germany continuing to want large trade surpluses yet refusing to finance its trade partners means an ugly end is inevitable.
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| Posted: 24 Oct 2011 03:09 PM PDT Ah, to be miserable in Paris! Here we are prattling on about the moral failings of the Europeans and their impending economic doom...and there is Diggers and Drillers editor Dr Alex Cowie sending us the following note from the City of Lights on Sunday:
After months of headlines focused on Europe's demise, it is good to get over here and have a look from street level. Frankly, you'd never know anything was wrong. The shops in Paris were busy, nothing was reduced in price, and service was just as snooty as it has always been. Grand French dames were walking down the street with enough pearls to pay off the Greek debt. Everyone was so dolled up that when I saw my reflection in the mirror I thought I was looking at a homeless person. Hmm. Paris is NOT burning. And according to the Financial Times, "Risk appetite firms on hopes for Eurozone deal." The FT reports that, "Risk assets are strongly in positive territory as traders bet that European leaders are making progress on a plan to resolve the region's debt crisis and after China data countered fears that the world's second-biggest economy faced a 'hard landing.'" We'll get back to China in a moment. But the FT is not wrong, at least about traders betting the house that Europe will get its own house in order. The best example is copper, the red metal, or rouge if you're a resource analyst enjoying the countryside in Normandy. Life in red - or la vie en rouge - was pretty good yesterday for metals traders. Copper was up 7%. That makes two big days in a row. After two shocking days in which traders seriously considered what a Greek default might mean (world recession), copper traded in New York is trying to cross over its 50-day moving average. Alex would be pleased with this. He's been banging on about copper since his trip to the Kalahari desert last year. It's one of the commodities he's bullish on for 2012. Gold, potash, and tin are some of the others. If you want to read the method behind his resource stock picking, have a look here. We should pause to make a quick point. How can it be that one of our analysts has a view on copper that's diametrically opposed to our own? Not only is it confusing to a new reader of the Daily Reckoning, it can seem like the height of inconsistency. Allow us to quickly explain... We don't tell our analysts what to write or think. As a publisher of independent and unconventional ideas, it wouldn't make any sense for us to only hire analysts who already agreed with us. We pay them to think for themselves and all that we really ask is that they're not lazy or conventional. In fact, we really only have four criteria for editors we hire: they must be capable of (and prefer) independent thought, they must be handy with a spreadsheet, the must know their way around a balance sheet and cash flow statement (income statements are increasingly worthless), and they must be able to write to you about sometimes complex subjects without using financial jargon. The marketplace decides who's right and who's wrong. Either an investment idea works or it doesn't. All of our editors are comfortable putting their names and ideas on the line. And because we accept no advertising income from companies or third parties, everyone is free to say exactly what they think without worrying about upsetting an advertiser. This, by the way, is why our e-letters only have ads for our own products and this is why our advertising is probably harder hitting than what you're used to seeing in Australia. We don't have corporate sponsors paying the bills. But producing financial research, hiring independent analysts with their own ideas, and writing the Daily Reckoning and Money Morning five days a week is not cheap. Our sole source of revenue is the price you pay for your subscription. If you don't like the advertising, just ignore it. And as always, if it really bothers you, we're happy to refund the price of your free subscription, in full, no questions asked. Now, back to China. Part of the reason copper was up so much on Monday is that the HSBC China Purchasing Managers Index was in positive territory for the first time in three months. This must mean that China is going to save the world after all and that a slowdown there is not possible. Mustn't it? We'll see about that! Of 30 economists surveyed by Reuters, not a single one thinks China will grow at less than 8% in 2012. Based on our own research and Greg Canavan's monthly report of Sound Money. Sound Investments, which we peaked at this morning, we're willing to say all 30 of those economists are complete morons!! There is huge "tail risk" from the Dragon right now. That is, the risk of a statistically improbable Chinese bust is probably a lot higher than conventional economists are capable of imagining. Not only that, these economists are probably wrong about human nature, just as the Europeans are. And to compound their error, they're completely wrong about economics. How? All will be revealed tomorrow. Until then... Dan Denning
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| Satyajit Das: Central Counter Party Politics Posted: 24 Oct 2011 03:05 PM PDT By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010) This four part paper deals with a key element of derivative market reform – the CCP (Central Counter Party). The first part looked at the idea behind the CCP. This second part looks at the design of the CCP. The key element of derivative market reform is a central clearinghouse, the central counter party ("CCP"). Under the proposal, standardised derivative transactions must be cleared through the CCP that will guarantee performance. The design of the CCP provides an insight into the complex interests of different groups affected and the lobbying process shaping the regulations. To SEF or Not To SEF… The CCP proposals do not encompass full standardisation or listing of derivative contracts, due to significant resistance from the industry. Proponents argue that the OTC format is essential to enable users to customise solutions to match underlying financial risks. They also argue that the flexibility of the OTC market is essential to financial innovation. On 10 July 2009, Timothy Geithner, the U.S. Treasury Secretary, testified to the U.S. Congress that: "To force clearing of all derivatives would ban customised products and we don't believe that's necessary…. [They] provide an important economic function in helping companies and businesses across the country better hedge against their risk. I think our responsibility is to make sure those benefits come with protections." Critics argue that without full standardisation markets will remain opaque and lack transparency. They allege that the lack of formalised trading and poor price discovery allows dealers to earn substantial economic rents from trading. The debate reflects Walter Bagehot's observation about the English monarchy: "We must not let daylight in upon the magic". Regulatory proposals require that derivatives eligible for clearing must be traded on a regulated exchange or through an alternative swap execution facility. There are exceptions where no designated contract markets, national securities exchange or alternative swap execution facility makes the derivative available to trade. To try to make the derivatives market more transparent, regulators have recommended new exchange-type trading systems for derivatives – swap execution facilities ("SEFs"). The aim is the familiar one, beloved of theoreticians – increasing transparency to improve the functioning of financial markets, narrowly measured in terms of liquidity, competition and lower transaction costs. The US Financial Reform legislation defines an SEF as "a facility trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system". It is not clear what type of trading systems will qualify as SEFs as regulators are still developing the applicable rules. One clear area of interest is the interpretation of "multiple participants". US regulators originally envisaged a system similar to that used futures markets for eligible trades with "material transaction volume" based on a centralised limit order book model. Trades that do not have material transaction volume would be trade on a centralised limit order book system or a transparent platform that makes requests for quotes visible to all participants. Request-for-quote or other trading systems utilising limited liquidity providers would only be permitted for block trades, illiquid or bespoke transactions or those non-standard contracts not required to be cleared. Fierce criticism from industry forced a change, with a SEF required to provide basic functionality to allow market participants to make executable bids or offers, provide indicative quotes and display them on a centralised screen that can be seen by multiple parties. Existing exchanges, electronic trading platforms and inter-dealer brokers are already seeking to establish accredited SEFs. In the oligopolistic world of OTC derivatives trading, less than 10 dealers probably control at least 95% of trading activity (nicknamed "The Derivative Dealers Club" by Robert Littan of the Brookings Institute). As they provide the bulk of trading volume that will dictate the success or failure of individual ventures, these dealers are positioning to control trading through ownership or influence over platforms. As a result, a few SEFs, directly or indirectly controlled or heavily influenced by existing OTC derivates dealers, are likely to dominate. This will mirror the experience of markets in other financial products. Regulators have generally tolerated concentrated ownership and oligopolies in market infrastructure, such as SEFs, citing economies of scale and scope as well as limited anti-competitive effects. While true in standard, simple debt and equity securities, it is not clear that this is the case with OTC derivatives. In particular, OTC derivative markets are already exhibit high concentration, more complex instruments (frequently with non-transparent values), greater information disparities between participants and the nature of trading. The likely outcome -a few dominant SEFs- will concentrate market power under the de factor control of the Derivative Dealers' Club. This is inconsistent with the regulatory objective of greater competition, low barrier to entry and minimising potential conflicts of interest. What's on First … The CCP is intended for "standardised" derivatives. On Capital Hill in 2009, when asked what was to be included, Timothy Geithner said that he would have to get back to his interlocutor on that point. In a curious circularity, standardised now means anything that is eligible for and can be "cleared". Interesting inclusions and exclusions – both in terms of products and parties that must trade through the CCP – are evident. In the Orwellian framework, swaps accepted for clearing are presumed to be "standard". Big brother, the Commodity Futures Trading Commission ("CFTC") and the Securities Exchange Commission ("SEC"), can designate specific derivatives for clearing. European legislative proposals on OTC derivatives published by the European Commission ("EC") establish a bottom-up and top-down approach to establish contract types to be cleared through CCPs. The new European Securities and Markets Authority ("ESMA") is tasked to establish instruments to be subject to mandatory clearing. Foreign exchange ("FX") swaps and forwards were originally mysteriously excluded from the definition of "swap" and exempted from clearing. Then, the exemption was removed. Subsequently, there was renewed debate as to whether FX should once again be exempted. In late 2010, US Treasury Secretary Geithner, with the backing of the New York Federal Reserve, indicated that they were considering an exemption. In November 2010, the US Treasury completed an industry consultation on the possible exemption of FX swaps and forwards from the mandatory clearing requirement under the Dodd-Frank Act. Other legislators globally, especially Europe, are likely to adopt the US position. Under US legislation, the Treasury Secretary must consider the following in deciding whether to grant the exemption for FX:
Where an exemption is granted, the Treasury Secretary is required to submit specific information to Congress on the following:
The well rehearsed and well financed banking lobby's case in favour of exemption focuses on the following:
While the above may be true, there are substantial reasons for FX contracts not to be exempted:
It is far from clear why an exemption for FX was entertained. But in late April 2011, the US Treasury opted to exempt foreign exchange swaps. In effect, debates about standard derivatives and asset classes mean that the type and range of derivative contracts to be cleared through the CCP remains uncertain. Who's on Second … If you know "what" is to be cleared, then you can move onto the question of "who". The CFTC and SEC are developing elaborate rules that specify included and excluded entities. Derivative or Swap dealers are required to deal through the CCP. US legislation defines ''swap dealer'' as a person that (i) holds oneself out as a dealer in swaps or security-based swaps; (ii) makes markets in swaps or security-based swaps; (iii) Regularly enters into swaps as an ordinary course of business for one's own account, or (iv) Engages in activity causing oneself to be commonly known as a dealer or market maker in swaps. The unhelpful vagueness of the definition is clarified by the rules exempting entities engaged in de minimus trading on behalf of clients. It seems that a "swap dealer" is anybody dealing swaps with (i) gross notional amount exceeding $100 million; (ii) deals with more than 15 counterparties; and (iii) entering into more than 20 swap deals in the course of a year. There are also provisions to deem entities to be swap dealers where they interact with "special entities" such as some governmental entities, where the threshold notional amount is reduced to $25 million. Major market participants who are not dealers must also clear standardised derivatives through the CCP. The term "major participant" is defined as any person not a swap dealer who
"Substantial position" is defined as a daily average current uncollateralised exposure of $3 billion for interest rate or foreign exchange swaps and $6 billion for other swap positions, with specific limits (between $1 billion and $2 billion) for swaps in different asset classes. Aggregate uncollateralized exposure means the sum of the current exposure, obtained by marking-to-market using industry standard practices, adjusted for the value of the collateral the person has posted in connection with those positions. ''Highly leveraged'' is defined as a ratio of total liabilities to equity in excess of [8 to 1 or 15 to 1]. The definitional framework is far from clear. The concept of "hedge" is unhelpful. Accountants have billed vast fees advising on the meaning of a "hedge" for accounting standards. Lawyers and lobbyists will delight in the repeated use of "substantial". The use of counterparty credit risk is puzzling. Exposure in derivatives is dynamic in nature, not easily quantified ex ante and prone to change sharply and quickly. AIG didn't have a problem, until it did. The combination of rising mark-to-market losses on its derivative positions and its own deteriorating credit ratings were crucial in its financial problems. It is not clear who will monitor the counterparty risk and how often it will be tested. The concept of net exposure also places unquestioning and unwarranted reliance on enforceability of netting and set-off agreements. The use of counterparty risk is also inconsistent. A counterparty that poses systemic risk because of its ability to cause large potential loss is included in the CCP proposal. However, a non-standardised product that may pose an equal systemic risk does not need to be cleared. Fellow Travellers… The debate on clearing has created interesting "fellow" travellers. Banks have been joined by their clients in fighting the proposals. Rolls-Royce, Lufthansa, Delta Air Lines, Cargill, Ford, Procter & Gamble, Boeing, Walt Disney and various utilities have expressed opposition to clearing derivatives through the CCP. Only those who believe that JFK and Marilyn Monroe are living happily in Cuba with Fidel Castro in a trois de menage suspect conspiracy rather than coincidence. Companies argue that OTC products are needed to hedge their risks. They also argue that the CCP is complex and would place uncertain liquidity demands on their cash flows. Companies want the CCP to be applicable only to derivative dealers. Companies trading with dealers would be exempted from the clearing proposal. It is not clear how excluding companies will affect the level of market coverage. Dealers claim that excluding companies may reduce coverage by as much as 60% of total volume, which is somewhat at odds with estimates (from the same dealers) that corporate volumes constitutes only around 10 to 20% of activity. Exemption of instruments, asset classes (such as foreign exchange) and participants reduces the effectiveness of the CCP. Exemption of non-standardised instruments may prove problematic. A large loss on even a small portfolio of these instruments may imperil large entities creating counterparty risk problems within the system. In the early 1990s, a German energy company Metallgesellschaft collapsed and had to be restructured as a result of losses from derivative contracts used in hedging. A mismatch between OTC contracts hedged with exchange traded derivatives was a contributor to its problems. Enron, another energy company, was active in derivative hedging and trading. It is not clear whether under current proposals such firms would be treated as "major participants" and required to clear trades. The system of exclusions and exemptions sets up complex loopholes, begging to be exploited. Standardised contracts may be restructured into non-standard instruments that do not require clearing. Dealers may be able to restructure organisationally to avoid clearing requirements for parts of their business. Large derivative users, not classed as swap dealers, but systemically significantly, may be excluded. To the extent that products are not routed or counterparties are not obligated to trade through the CCP, existing problems remain and new unanticipated risks may emerge. But as American radio and television commentator Charles Osgood observed: "There are no exceptions to the rule that everybody likes to be an exception to the rule." –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Earlier versions of this piece have been published as "Tranquillizer Solutions Part I: A CCP Idea" and "Tranquilizer Solutions: Part 2 – CCP Risk Taming" in Wilmott Magazine (May and July 2010)
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| Purchasing Power Of Gold During Cycles Of Inflation And Deflation Posted: 24 Oct 2011 03:03 PM PDT http://seekingalpha.com/article/3013...n?source=yahoo October 23, 2011 Michael Filighera Purchasing Power Of Gold During Cycles Of Inflation And Deflation Gold Remains In a Correction Within a Longer Term Bull Market Fact or Fiction Discussions on gold usually center on its "bubble status." Is it in a bubble? Has the bubble burst? Is it reacting to inflationary pressures? Deflationary pressures? Is it really a trusted storehouse of value? What do I get from owning gold? Many questions and just as many opinions are given as answers. Bitten by the gold bug back in 1979, I have observed first hand the parabolic rise to $850 in 1980 and have researched through years of historical data charting gold prices (by hand for many years) ever since. I watched as the Central Banks of England, Germany, France, Ireland and several other countries sold their gold reserves at the 1990 lows ($253) in preparation and acceptance of the European Rate Mechanism (ERM), a fiat currency based system. The ERM was put in place to establish monetary equality amongst EU member states in preparing for the arrival of the euro as a unified currency. Inflation or Deflation – the Who, What, Where, and When A major sea change has been and remains underway in the global investment markets since the late 1990s. I am not attempting to stir the hornets' nest or play devil's advocate, but it is a plain and simple fact. One that some have embraced and others continue to deny. The deadly combination of financial and currency declines (collapses) that began in Thailand in 1997 and more recently in Iceland, Greece, Ireland, Spain, Portugal, and Italy, – has punched holes into the economies of the countries involved. Debt defaults, banking problems and deflation – yes deflation – scar and change the global economy moving forward. It is the primary reason behind the bull market in gold and the primary reason it will continue to support gold's upward momentum. What is true inflation and true deflation? One would be hard pressed to find an established industry wide accepted definition. According to Robert J. Barro and Vittorio Grilli from their 1994 publication, 'European Macroeconomics'', "deflation is a decrease in the general price level of goods and services." Simple enough right – I don't think so. Deflation results as well when a shift in the supply and demand for goods and services happens. A friend and valued colleague Dan Ascani has written volumes on what true deflation and true inflation are. To begin to understand these terms, acceptance that both are monetary phenomena is important and should be viewed within the context of a fiat currency system. From the report "Gold In A Deflationary Economy" Dan explains: Inflation is a monetary phenomenon and occurs… when too much money is created and prices rise. Money can be created not only by an expansion of the monetary base by a central bank through its open market operations, but through an increase in bank lending. In other words, every time a bank lends money, the total money in circulation in that country increases since, in the U.S., for example, Federal Reserve-dictated bank reserve requirements typically require a bank to have on deposit in its vaults only 10% to 15% of the amount of a loan that is created. When long-term prosperity has been experienced, overly optimistic banks tend to lend too much money to customers. Thus, inflation is not just a situation in which commodity prices rise, but a situation that occurs within the monetary base of a country. On the other hand, deflation occurs after too much money has been created by excess lending and borrowers cannot pay back their loans. The resulting defaults are, therefore, deflationary because the money that the bank created through its loans was not paid back, and money circulating in the monetary base is destroyed. Thus, bank loans and inflation create money, and debt defaults and deflation destroy money. When money is destroyed, it is literally taken out of circulation – the opposite result from that of loan creation. Whatever the case, the definition, or the esoteric monetary conditions, one thing is true throughout the over four centuries of wholesale price and gold data: gold is absolutely a long-term store of value that survives periods of inflation and deflation alike…"the only item that has survived all of time, all governments, all types of economies, all economic conditions, all panics, collapses, and crashes, and all wars, while still maintaining its long-term purchasing power. This is not to say that there haven't been periods where gold has lost value, on the contrary history reveals long periods of sinking gold prices, but through each of them gold always returns to its relative value as expressed in terms of a basket of commodities. Roy Jastram's 1977 book 'The Golden Constant ' has become the authoritative research book on gold. Spanning 438 years of economic up and down cycles this classic is now available in PDF format after being out of print for many years. Jastram's influence in transforming many from speculative thought to factual information is undeniable and his work(s) are quoted and used to support various theses worldwide. Jastram's study is a masterwork demonstrating with clarity the behavior of the purchasing power of gold in periods of inflation and deflation and in a historical context judging as to what extent gold served as an inflation hedge or as a means to conserve wealth in periods of deflation. It covers the English experience from 1560 (the year of the Great Re-coinage in England) and the American experience from 1800 (the beginning of consistent data in America). The entire 438 year study can be categorized into periods of inflation and deflation. Although Jastram's study takes us through 1976 several respected analysts have updated Jastram's work through current times. Period 1: Deflation of 1814 – 1830 Lasting 16 years the purchasing power of gold increased 100% while commodity prices declined 50%. Imports flooded the domestic markets creating widespread unemployment. By 1818 credit had contracted to extreme levels forcing landowners to sell their properties. The gold standard was the monetary system in use. Period 2: Deflation of 1864 -1897 Lasting 33 years the purchasing power of gold increased by 40% as commodity prices declined 65%. The U.S. Civil War not only divided the country but sent prices sharply higher as severe inflation gripped both the north and south. The south saw a complete collapse of its currency and government financial system which brought the entire country into depression until 1879 when the Gold Standard was re-established after being abolished at the start of the war in favor of a fiat system. Period 3: Inflation of 1897 – 1920 Lasting 23 years saw commodity prices increase by a staggering 232% while the purchasing power of gold dropped 70%. Within this period, from 1897 -1914, was a smaller period that many economists called "the classic gold standard." During this time, institutions that issued money were required to hold sufficient gold reserves to meet any and all redemption demands. As with the Civil War, the beginning of World War I and increasing inflation proved that gold is not always the best inflation hedge. Period 4: Deflation of 1920 – 1933 Lasting 14 years the purchasing power of gold increased 251% and commodity prices fell 69%. Global stock market crashed beginning with Europe in 1920. Although it took an additional 9 years to finally hit the United States, the devastating deflationary aftermath threw the world into the Great Depression. A careful study of this period reveals that while gold shares began to appreciate in 1930 it wasn't until 1933 that gold and silver began their respective advances. The monetary system in place was the Gold Exchange Standard. Period 5: Inflation of 1933 – 2007 (1976 – 2007 updated by Dan Ascani ) Lasting 75 years this period includes some unprecedented times for commodity prices as well as gold and silver prices. Overall commodity prices increased by 1456% and the purchasing power of gold increased by 147%. The monetary system in place was the Gold Exchange System until 1971 when the Bretton Woods Act ushered in government managed fiat currencies. Post Bretton Woods both inflation and gold moved substantially higher. Many feel that this period remains unresolved and its resolution depends on the depth and severity of the deflationary cycle currently in force since 2008. Period 6: Deflation of 2008 - ?? The chart below dates back to 1861 just prior to the start of the deflationary Period 2 and shows in graph form the purchasing power of gold during Periods 2 – 5. Interesting to note; when adjusted for inflation the current bull market (and record highs basis the U.S. dollar) has yet to exceed the highs seen in 1980 when the unadjusted high was $850. [Click all images to enlarge] Source: www.thechartstore.com Expectations for the near to midterm: Plucked from the Seeking Alpha headlines on Thursday, October 20, 2011: The next big bubble: The amount of student loans taken out last year crossed $100B for the first time, and total loans outstanding will exceed $1T for the first time this year. And just like in the last subprime bubble, lenders have been "pushing loans to people who can't afford them." When borrowers are tapped out, and lenders plead ignorance, who will again be forced to pay for the bailout? If you were thinking it was safe to get back in the water – think again! It only gets more confusing from here as we move from bubble to bubble. From deflation to inflation and back to deflation again. As the middle class is vilified and penalized for attempting to gentrify broken down inner city neighborhoods devastated by years of neglect. Many unsuspecting people paid inflated prices only to see the value of their home versus what was owed to the banks go in reverse as the subprime debacle sent real estate prices into a downward spiral. Foreclosures skyrocketed destroying for many the dream of achieving financial security through home ownership. Corporate greed moved to unprecedented levels as C-level egos justify accepting and paying out multi-million dollar contracts and tens of thousands of lower level employees are laid off and the government (local, state, and federal) turns a blind eye to all as it sinks deeper into the dark cesspool of empty promises and corruption. The global economic problems so long ignored and swept under the rug have come home to roost. I don't believe there are any quick painless solutions. It took decades to arrive at this point – solving the problems and implementing solutions should not be expected to miraculously turn everything around in a month or two. It will take years. Accepting reality and being prepared removes fear from the equation. Making solid and fact based investment decisions has become paramount in creating and protecting wealth. The bottom line here: It's YOUR money! Who do you think is going to care more about it? The Near Term Picture for Gold I do not see the current deflationary cycle ending anytime soon. Interest rates are near zero and expected to remain at current levels into 2013. Inflation worries have evaporated for now and won't likely resurface until solutions are put in place for the US, UK, and European Union to fix the broken economies. Unfortunately we are likely to see many more defaults (sovereign, municipal, corporate and consumer), bank failures, and currency declines as central banks attempt to "print" their way out of their respective problems. Gold will remain a major hedging source. Within the precious metals and commodity markets, bull markets normally end with a parabolic thrust into the stratosphere. The monthly chart for gold (below) reveals that thus far the advance has been strong but steady without the parabolic nature to suggest the move is finishing. The fundamentals support the advance continuing. The technical picture, while near term revealing a much needed correction, remains underway that additional upside is likely before the larger bull market is exhausted and complete. Near term then, expectations would be for an additional decline into a cluster of support beginning at 1556.40 through 1535/1534. If this area contains additional selling, look for a smaller rally phase (several days to a couple of weeks) followed by another leg down likely pushing prices towards the next support cluster at 1482 to 1452. The stochastic, MACD and MFI oscillators have all turned lower confirming the current drop off of the 1826 high. The stoch and MFI oscillators are pointing more sharply down giving support to an additional down leg occurring. SPDR Gold Trust (GLD) Expectations for GLD are the same as in gold. There is a cluster of support beginning at 153.60, 148.80, 142.55 and 137.35. Look for downside to be contained at the upper end of the zone before a small rebound rally takes place. An additional down leg should follow and drop prices deeper into the support zone before the larger advance picks up again. Gold Mining Shares Year– to–date gold mining shares have seen stronger selling. After producing strong returns on a 2 and 3 year basis, it appears that the correction underway in physical gold has produced some profit taking and portfolio reallocation within gold mining shares. The revere data hierarchy includes 101 companies (international and US based) within the gold sector, including companies involved in mining as well as exploration. The graph above reveals that versus the S&P 500, gold mining shares have outperformed the S&P 500 over the long term with an impressive 152% return on a 3 year basis vs. 28% for the S&P 500. However, as noted, the S&P has outperformed this sector on a 3 month and year-to-date basis. I suspect though, that this will again reverse once the larger advance is again underway in gold. Choosing which companies to invest in requires some due diligence. From the 101 companies included within the revere gold mining sector, I narrowed the field to seven. All have a current market cap of greater than $1 billion. The graph below reveals that while most outperformed or kept pace with the S&P 500 the list includes both leaders and laggards. Kinross Gold Corp (KGC) Kinross is engaged in the exploration, acquisition and development and operation of gold bearing properties. Clearly a laggard, Kinross remains somewhat of an anomaly. With strong cash reserves and medium to low debt the market continues to hold down prices. Tangible book value is 7.61 (current stock price 13.70 as of October 21st). Market cap is $15.6 billion and Kinross has strong holdings in the U.S., Chile, Russia, and Africa. What may be working against KGC is its relative low dividend yield of 0.89. Newmont Mining (NEM) Newmont is a gold producer and as of December 2010 had gold reserves of 93.5 million ounces with mining operations in North and South America, Asia Pacific and Africa. Newmont also has copper mining operations in Indonesia. Current market cap is $34 billion. Newmont trades at a low P/E of 15 as compared to the S&P 500 with a P/E of approximately 23. Current dividend yield is 1.95. Randgold Resources Ltd. (GOLD) Randgold Resources Limited is engaged in gold mining, exploration and related activities. As of December 31, 2010, the Company's activities were focused on West and Central Africa. Thus far in 2011, Randgold has reported very strong year-over-year earnings. For the 2nd quarter 2011, they reported $1.24 vs. 0.38 in 2010 on revenue of $321 million vs. $102 in 2010. With a market cap of just over $9 billion, Randgold trades at a P/E of 44. Estimates are calling for FY earnings of $4.98 vs. $1.14 for FY 2010. A continued rally in gold prices should continue to benefit Randgold. In comparison to the S&P 500, Randgold has outperformed on a return basis across the board. Conclusion A discussion on deflationary or inflationary cycles should include a look at the Kondratieff Cycle theory based on Nikolai Kondratieff's studies of economic, social, and cultural life proving that a long term order of economic behavior was in place and could be utilized in looking forward towards future economic developments. The take away here is that the Kondratieff cycle is one of debt repudiation. A cycle where credit contracts and asset prices decline rapidly. Basically, the excesses of one cycle (the creation of too much money and credit) can not be sustained. The resolution being debt rep udiation, which in turn creates the collapse of asset prices and economies based on capitalism to drop into a deflationary spiral. The lessons of the past have been ignored and denied, which can only lead us to the inevitable destiny of repeating history yet again - mistakes and all. Fortunately though, while we don't have enough power to stop this runaway train, there are steps that can be taken to mitigate the effects and emerge from the cycle bottom, not unscathed but in better condition than the majority. Underestimating or ignoring the purchasing power of gold or its ability to hedge against deflation is akin to sticking your head in the sand at the beach to avoid being swept away by a tsunami. If gold is already a core holding in your portfolio, you understand the benefits. The opportunity to prepare presents itself almost on a daily basis. Take the time to review your assets and your portfolio, protecting and building on what you have earned is possible. An investment strategy that includes positions in dividend paying industry titans Microsoft (MSFT), Intel (INTC), Walmart (WMT), Coca-Cola (KO), and The Hershey Company (HSY) and deflation hedges (phsyical gold and silver, GLD, Silver ETFs, and gold mining stocks) are prudent and still available. Investors should do their own due diligence in determining what the correct investment is for them. Disclosure: I am long GLD, SLV, KGC, IAG, NEM. |
| Posted: 24 Oct 2011 03:01 PM PDT What's Bill doing in Cyprus...? We'll get to that. First, what happened in the markets? On Friday, the Dow rose 267 points. Gold went up too -- $23. A big move to the upside. And why? No apparent reason. Gaddafi bit the dust, almost literally. And the Europeans seemed to be stumbling to yet another solution...in which they borrow more money to help fund the troubles created by borrowing money in the past. Nothing new, in other words... Your editor brought his wife here to Cyprus on a weekend get-a-way. Besides, he wanted to see where Solon died. Whether or not Solon, the great Greek lawgiver, died in Cyprus or not is a matter of some dispute. And what he was doing here is unknown. But Herodotus says his body was 'consumed in Cyprian fire.' So this is the place he must have gone back to ash. Solon was in charge of Athens in the second part of the 7th century BC. Then, as now, the people had gotten themselves into a jamb. They owed too much money. The burden of debt was so great that the economy was apparently being crushed by it. But Solon was no dope. "The Athenians were in the habit of disguising the unpleasant aspects of things, giving them endearing and charitable names," wrote Plutarch. "They refer to whores as mistresses, taxes as contributions, garrison cities as guards and the common jail as a residence." So, according to Aristotle, Solon figured the thing to do was to organize a "shaking off of burdens." Solon "made a cancelation of debts, both private and public...they shook off the weight lying on them." The problem with today's solons is that they do not shake off the weight lying on the public. They add to it. The problem in Europe is government debt. But every government in the EU continues to go further and further into debt. And next week – on Halloween – the US is supposed to pass the point where it has national debt greater than 100% of its GDP. And at the present pace, each year's deficit adds about another $1.5 trillion. If we are really following in the footsteps of Japan – as we think we are – we'll see the feds double their debt over the next 7-10 years. But wait. Japan has an advantage. It has no military expenses of any consequence. The US has them up the kazoo. The cost of its wars and foreign meddling is more than $1 trillion a year. It cost a million a year just to maintain one soldier in Afghanistan. These expenses could be cut without much pain or suffering in the US itself. But empires don't back up. Certainly, the Greek empire didn't. After Solon sorted out their debt problems, they were soon back in the empire business and back in debt. That's why much of the history of Cyprus is the story of one Greek misadventure after another. Sometimes the Athenians were fighting the Persians and the Phoenicians. Sometimes they were fighting other Greeks. Sometimes they were fighting the Cyprians. Sometimes they were fighting alongside the Cyprians. Like the Americans, they had troops all over the place...making enemies wherever they went. A stele was discovered that recorded the names of the Athenians of the Erechtheid tribe who fell in the years 459-458 BC. "Of the Erechtheid tribe, these are they who died in war, in Cyprus, in Egypt, in Halieis, in Aegina, at Megara..." Inscribed are the names of 177 soldiers. Athens didn't back up. It kept going until it had gone too far. In 431 BC Pericles gave the kind of speech that Mitt Romney just gave at the Citadel. (No presidential candidate can talk openly about managing the process of decline....that would be political suicide.) Pericles praised his forefathers for their efforts:
"They dwelt in the country without break in the succession from generation to generation, and handed it down free to the present time... And if our remote ancestors deserve praise, much more do our own fathers, who added to their inheritance the empire which we now possess, and spared no pains to be able to leave their acquisitions to the present generation.... You may reflect that it was by courage, sense of duty and a keen feeling of honor in action that men were enabled to win all this..." . Then, he vowed to stay the course:
"You cannot decline the burdens of empire and still expect to share its honors." He should have backed up. Under his guidance, Athens continued to make war on just about everyone...until the Spartans invaded it, laid wasted to the city and enslaved its people. Pericles died of plague. Don't expect the US to back up either. Threatened with budget cuts, Defense Secretary Leon Panetta reacted not with thoughtful reflection, but with Greek-like lunacy. As to the budget cuts, he called them a "doomsday mechanism." They would be 'catastrophic.' We would be "shooting ourselves in the head," he went on. These would be the effects, said he, of spending only as much as the whole rest of the world put together. Of the people who propose to put on the brakes, they are like the Nazis at Bastogne, asking Patton to surrender. "Nuts," says he replied. Spending cuts are intolerable...so is any talk of "decline" or backing up. The armed zombies who run the defense industry won't permit it. But imperial decline doesn't have to be such a bad thing. Gideon Rachman, in the Financial Times, explains:
What the UK discovered after 1945 is that a decline in national power is perfectly compatible with an improvement in living standards for ordinary people, and with the maintenance of national security. Decline need not mean the end of peace and prosperity. But it does mean making choices and forging alliances. In an era of massive budget deficits, and rising Chinese power, the US will have to think harder about its priorities. Last week, Hillary Clinton insisted that America will remain a major power in Asia – with all the military expenditure that this implies. Very well. But what does that mean for spending at home? Few politicians are prepared to have that discussion. Instead, particularly among Republicans, they fall back on feel-good slogans about American "greatness". And here's another piece from the Financial Times, describing America's "Eclipse" :
...In this challenging new study, Arvind Subramaniam of the Peterson Institute for International Economics writes of the next transfer, that from the US to China. This one is surely closer. While Americans were prating of the "unipolar moment", its economic foundations were crumbling away. Properly measured, he argues, China is already its economic equal. Very soon it will be far more powerful, economically, and ultimately, also militarily. Regards, Bill Bonner,
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| What Would Happen if Goldman Sachs Disappeared? Posted: 24 Oct 2011 02:50 PM PDT Dollar Collapse |
| Posted: 24 Oct 2011 02:45 PM PDT |
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