Bill Cara’s Blog for February 8, 2010 [See post-close report]

dont be fooled by her looks,
lady gold is barfing back stage to keep that slender figure,

what people fail to grasp is that their fixation on america's problems become so engrossing, they forget that ultimately people are people, and while we get caught up in self-congratulatory diatribes about how smart the chinese are or how shrewd money people are "moving into gold" and other myths, there is an entire world out there made of up people in different countries doing the same thing our american cousins are: behaving badly.

the problems in Greece and other EU members are not singular, nor are they easily fixable. problems in a single state or Provence such as California are not the same as problems with a sovereign entity. we are talking about nations, large western nations that are inextricably tied to other large western nations diplomatically, culturally, economically and now monetarily that form one massive Jenga tower, and the pieces are being pulled away.

the USD is still the reserve currency because it is the lesser of many evils. there is a reason why people still do not pile into gold alone during these crisis events, and probally wont in the near future as the USD still remains the safe haven, like it or not.

we are seeing it now, and will continue to so long as the US has the capacity to outbid the EU, which it does, and the EU will be long gone before the US is because the US is a nation, while the EU is an idea which has never existed in this form accept for short periods during roman rule... and we all know how that turned out.

Thought this was interesting:

Monday, February 08, 2010 6:59:33 AM
(US) Economist Joseph Stiglitz: US needs a second round of stimulus measures
- US housing scars will last for decades
- First US stimulus measures prevented a bigger economic downturn
- Giving into banks has not led to US economic revival
- China's strength partly based on education investment

8:56:40 AM
Analysts at Goldman Sachs comment on US Budget Deficits; State that US lawmakers must use restraint in stimulus as soon as private sector is strong enough to drive growth (update)
- See US budget deficit rising to $1.64, this figure is ahead of Oct 2009 estimates
- See 10-year budget total of $10.8T v $10.5T prior
- See further risks to further expansion of deficit levels as tax receipts are expected to be light and calls for more stimulus will be heard

Goldman ball anyone? :@)+goldman+canned comment=shaping of financial opinion.

But the original source is for the article on zerohedge is The Observer at guardian.co.uk.

But they are more credible than CNBC. And improvement is always welcome.

And any foe of GS + HB&B is a welcome read as well.

I categorize reading ZH the same as any other "news" site. comes with some slant and information you can't trade on.

Time for FXP?

Does that chart include todays open?

Are you playing break of support? I have a strange phobia to dragonflies right now.
Bob

I've already started building positions. Not heavy. but yes, closer to $716 i will go in heavy.

Markets are hiding their cards in these mini rallys into 10k. in my view.

Sadly, i have to resort to watching Eur/USD, EUR/JPN, and ES mini overnight in addition to daytime price action.

Financials have been under pressure since the opening bell.

Dr. Cosa - Are you tracking any metrics on physical delivery, storage and the paper market in gold?

Cuz i am tired of hearing about it on the internet. :)

During last year fake, HB&B computers traded, and FEDS controlled fake rally, we used to notice after every up move a choppy trading sideways then another up move until we hit over 10760 on the DOW on Jan 19 then the slide began. Are we going to see a similar pattern here but on the down side instead??. Meaning choppy trading sideways then Down then another choppy trading session then DOWN and so on until a real bottom is established and determined??

So far this is what it looks like from looking at the charts from a TA prospective.

NYUGrad! any thoughts??

Thanks.

Do you think it will happen? :)) If we close below 10,000 then watch out tomorrow and the rest of the week...

I don't believe it will, and I can't view Fri bounce as just that... bounce.

Bert asked:

"Dr. Cosa - Are you tracking any metrics on physical delivery, storage and the paper market in gold?"

thx for asking, no i dont. the reason being because none of these "metrics" are actually metrics at all.

we have no real idea how much is delivered, how much is stored or how much is misrepresented.

yes we can examine comex data and claim that any time now it will be emptied, and it will prove time and time again to be useless data. people who cite such numbers (typically to make a bullish case) do so under the pretense that their data is reliable, or that a few months of delivery actually means something. unfortunately it doesnt until its too late.

one day of course the COMEX will suffer some sort of crisis, but does anyone really believe they will get a heads up via a newsletter writer or GATA and their so-called "inside sources" that always seem to indictate something taht never actually comes true?

i have no interest in how many people take delivery on their gold simply because if the COMEX is engaged in levels of unprecedented fraud, then they certainly wouldnt publish honest data about their warehouses being emptied.

we know that a host of people often repeat the same old tired incantations of "diminishing supply" or "increased demand" or my favourite: "asian buying", what i find interesting is taht one mans purchase is another man's sale. so one man's delivery of gold from the comex can quickly become the london markets gains.

if there was a true mass shortage of physical gold, tehn i would have problems buying gold via bars, shares or stocks. last time i checked i can get all of them quite a bit cheaper than i could about 3 months ago. i dont consider that diminishing supply.

gold market is weak at the moment but wont be forever. gold stocks are acting very poorly, which is usually (but not always) a good sign of further weakness. physical delivery is nota tradeable metric in that sense, and i have yet to see anyone predict gold's price action via these numbers, adn there is a reason for that: you cant.

asian buying is western selling. tell me again why this is bullish?

LOL- As EEMTRADER used to day, 'Busy making money, not friends.'

Did anyone bookmark the site that identified banks in your area that are 4 or better on a scale of 1-5? It was mentioned a month or so ago. I had it...just cant find it. was going to do some research into regional banks in good ag areas that had lower unemployment and wanted to use that as a second screener after finviz.
TIA

Better a small loss early. Wish I had sold the open and taken the profit instead, though.

Dr. Cosa -

"asian buying is western selling. tell me again why this is bullish?"

Because it puts more pressure on the paper gold delivery quagmire at the Comex while JPM and GS think they can put the squeeze on Greek debt without consequence. Don't you think this may irritate the ECB? Is that why there's a secret central banker meeting in Oz?

Just how do you protect your capital, Dr.? I'm curious. None of use are ever privy to these global money games. I hear you loud and clear regarding short term bearishness on gold. You're bound to be right on this from time to time. But don't you fear an overnight event like the Khimenei's promise to deliver a 'punch' to the West on Feb 11 that could set off a strong run into something other than short-term U.S. debt? I read that threat as detonation of a nuke to join the club. Get your oil. Ahh, but you can't trust inventories on that commoditiy either ... since the 1050s. Should we avoid that too? I happen to believe GATA extracts the truth as best as it can be surmised from extensive research. As a naysayer, are you saying hold your USD for now? If so, is the USD based on greater truths than can be found for the gold supply?

I'm with secular trends over short-term reversals but it can only hurt me now, not later.

Cheers.

herr dr.,

1. how would one person buying from one person who is selling cause pressure anywhere? do asians not have accounts with GS and JPM?

really, id like someone to explain to me how an asian person buying $10 mil in gold is bullish while an american doing the same is not? lets stop using this term "asian buying" as a symbol of bullishness without some actual proof.

so Paulson has a gold fund. really, what does this mean? we know there was no shortage of news about his fancy fund... buying gold that clients could buy into... if he was clearly bullish on gold he would have simply bought gold. but no, he started a gold fund because his prospects for a gold buying public were more bullish than the metal itself. hence his money, not from gold going up but from eager buyers hoping to piggy back off his success.

Faber, Rogers, buffet, Taleb... all of these men made more money during their high-flying hedge fund days or from selling books. their more easily accessible funds are for suckers like us who think if they say abc is bullish then it will be so.

if you remember anything i ever say on this site it must be this:

these men will be proven drastically wrong one day and they will never admit, apologize or discuss it, they will simply obfuscate and pick a new subject to draw in new money.

2. there is no objective evidence to suggest that iran is going to do anything on February 11. what we would be led to believe is that somehow listening to the rantings of their religious leaders can be taken at fact... its not.

these leaders call for the end to isreal and america continually and have done so for decades. they have done virtually nothing to follow through on these dire warnings. politicians arent just for americans.

do you really believe there will be an actual attack against isreal or america on this date? if so by all means buy gold in anticipation of a sudden event.

though if you believe that then you would be at any given time a holder of virtually only gold bullion in your possession along with a cache of weapons and canned food as you would believe the constant threats coming from a nuclear north korea, russia and alqueda.

3. i have for years on this site preached the need to consider not just the bearish side on the short term but the constant threat of an explosion in the POG that will destroy those in cash hoping to jump in. my theme for some time now has been to keep the bullish camp honest, hence my constant calling out of any nonsense bullish case in order to distill the bull side and remove the impurities of baseless fear-mongering and pointless unproven statistics

3. GATA gets considerable respect from many people whom i respect, so i will simply say that much of what they say has its basis in verifiable fact, but some small but significant portions simply do not. their constant claims of people in the "inner sanctum" of gold is unproven and has not stood the test of time.

gold has been in a bull market for some 9 years, does that mean that GATA was right, or just good loooog term timing. show me actual evidence taht they are given inside info from people who are in possession of information that is otherwise unaccessible and could contribute to your trading of gold and i will gladly consider it.

until then its no different from the onslaught of modern media lazyness that constantly cite "unamed sources" and "insiders" without ever giving a name, we have no way to verify what they are saying.

4. how do i protect my capital? i have so little to protect, im a clown who posts on message boards about gold. i buy gold and hold. trading bits and pieces here and there.

but most of my money goes to my biggest asset: a mortgage. barf!!

Who is surprised at this news?

Example: If you had an Indymac mortgage, the FDIC sold your loan for 70% of the value to One West Bank aka Goldman Sachs. So if they short sell it for less they actually get reimbursed (again) for their 'loss' based on the ORIGINAL VALUE of the note and make a bundle.

Watch the first segment and see red!
http://www.thinkbigworksmall.com/mypage/archive/1/...

I suspect that we've had similar reults over the year, or so, teamfuego. However, unlike you I'm right now sitting 85% IN. Of course that includes a fair amount of non-equity securities.

At this time my eyes are firmly fixed on Europe. C$:Euro is looking silly-strong. I'm starting to drool a bit at the likely dividend yields I can obtain in European equities. In C$ terms, prices have almost retraced to their Jan 2009 levels. For 2009, when dividends were slashed and burned, that broad Euro equity investment still yielded 3.5% ex-capital gains. Dividends have been recovering for months now and are likely to continue so during 2010. Bodes well for 2010 yields at these prices. A Greek Gift? Maybe...

100%? ummm, no. I was in too early (Dec 2008-Feb 2009) and held way too much cash for too long. I suppose if you look at just the slice that I invested, it was decent, but for the overall portfolio - certainly not +100%. Like the rest of us, just muddling along.

Greece's Domestic Stock Market has almost completed giving back it's 100% gain since March 2009. Wild!

that chart you just posted, may be our fortune cookie!

This is the scarey part. comments more than welcome... http://finance.yahoo.com/echarts?s=AUY#chart1:symbol=auy;range=2y;compare=aa;indicator=split+volume+mfi(99)+volumema;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

http://www.cnbc.com/id/35297662

That would make sense. Anytime I sell everything goes up.

PS: i had the same problem when i created a new posting as i did putting in a reply

What Do Rising Sovereign Credit Default Swaps Mean?
Submitted by George Washington on 02/08/2010 17:20 -0500

Ben Bernanke Central Banks Credit Default Swaps David Rosenberg Dubai Equity Markets Eurozone Federal Deposit Insurance Corporation Global Economy Greece Gross Domestic Product Housing Inventory India International Monetary Fund Ireland Italy Larry Summers Lehman Markit Meltdown Merrill Lynch Mexico Niall Ferguson Portugal Reality Rosenberg Simon Johnson Sovereign Debt Sovereign Default Sovereign Risk Sovereigns Tim Geithner Volatility Wall Street Journal

Here are the CDS of Greece, Portugal, Spain and the U.S.:

[click here for full image]

Rolfe Winkler argues that - in the short-run - the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) will slash their budgets and get bailed out by the EU.

Simon Johnson thinks that the weakening Euro caused by the PIIGS' woes will hurt American exports (weaker Euro equals stronger dollar), and could lead to problems for leading global banks.

Other commentators fear that the PIIGS' crisis has as much potential as a financial "contagion" as the subprime meltdown and the failure of Lehman.

But for the long-term view, we need a little more perspective. One of the world's leading economic historians - Harvard professor Niall Ferguson - says:

The economists are ill qualified to analyse the current economic situation since they lack the overview of historians such as himself.

"There are economic professors in American universities who think they are masters of the universe, but they don't have any historical knowledge. I have never believed that markets are self correcting. No historian could."

Ferguson warns of huge government debts threatening the solvency of entire nations:

"The idea that countries don't go bust is a joke... The debt trap may be about to spring ... for countries that have created large stimulus packages in order to stimulate their economies."

But whether or not large nations actually go bankrupt, one thing is clear . . . Larry Summers, Ben Bernanke, Tim Geithner and their foreign counterparts have failed.

As I noted in December 2008:

BIS [the Bank of International Settlements - the "Central Banks' Central Bank] points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.
In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don't have, central banks have put their countries at risk from default.
Nothing has changed. As former chief Merrill Lynch economist David Rosenberg writes this week:

First the governments bail out the banks who were (are) basically insolvent. Then these governments, especially in Europe, see their balance sheets explode and face escalating concerns over sovereign default. The IMF now predicts that the government debt-to-GDP ratio in the G20 nations will explode to 118% by 2014 from pre-crisis levels of around 80%.

Now, the ball is put back onto the banks because many have exposure to the areas of Europe that are facing substantial fiscal problems right now. According to the Wall Street Journal, U.K. banks have $193 billion of exposure to Ireland. German banks have the same amount of exposure and an additional $240 billion to Spain. Many international bond mutual funds also have sizeable exposure to sovereign debt of Portugal, Ireland, Greece and Spain as well. Contagion risks are back. Stay defensive and expect to see heightened volatility.

In a nutshell, toxic assets have basically been swept under the rug in the hopes that we will outgrow the problem. Leverage ratios across every level of society are still reaching unprecedented levels as the public sector sacrifices the sanctity of its balance sheet in its quest to stabilize the dubious financial position of the household and banking sectors in many parts of the world.

Whatever bad assets have been resolved have almost entirely been placed on the books of governments and central banks, which now have their own particular set of risks, as we have witnessed very recently in places like Dubai, Mexico, and Greece, not to mention at the state and local government level in the United States. We simply have not seen a reduction in the percentage of properties with mortgages that are “under water”, hence the FDIC has identified 7% of banking sector assets ($850 billion) that are in “trouble”, so how can it possibly be that the financial system is anywhere close to some stable equilibrium?

When accurately measured, including the shadow inventory from bank foreclosures, there is still nearly two year’s worth of unsold housing inventory in the United States, and commercial vacancy rates are poised to reach unprecedented highs, and this excess supply is bound to unleash another round of price deflation and debt defaults this year. The balance sheets of governments are rapidly in decline across a broad continuum, and it is particularly questionable as to whether Europe is in sound enough financial shape to weather another banking-related storm.

The global economy is set to cool off. Not only is China and India warding off inflation with credit tightening measures but most of the fiscal and monetary stimulus thrust in the U.S.A. and Canada is behind us as well. And, the fiscal tourniquet is about to be applied in many parts of Europe, especially the PIIGS (referring to Portugal, Ireland, Italy, Greece and Spain — these countries account for a nontrivial 37% of Eurozone GDP). Greece’s GDP has already contracted by 3.0% YoY, as of Q4, and is expected to contract 1.1% in 2010 and 0.3% in 2011 as a 13% deficit-to-GDP ratio is sliced from 13% to 3% (assuming this fiscal goal can be achieved politically). Portugal has a 9.2% deficit-to-GDP ratio that is in need of repair and Spain has a deficit ratio that is even worse, at 11.4% of GDP.

The bottom line is that even if the fiscally-challenged countries of Europe do not end up defaulting, or leaving the Union, the reality is that they will have to take draconian measures to meet their financial obligations. Devaluation was the answer in the past in Greece but it cannot rely on that quick fix this time around without leaving EMU and if it did, then that could make it even harder to service its Euro-denominated debts — at least not without a restructuring. And, if Greece did attempt at a debt restructuring, rest assured that Italy, Spain, Portugal and Ireland would be next — we are talking about a combined $2 trillion of potential sovereign debt restructuring that would more than triple the $600 billion direct cost of the Lehman bankruptcy.

This poses a hurdle over global growth prospects at a time when Asia will feel the pinch from the credit-tightening moves in China and India. And heightened risk premia will also exert a dampening global dynamic of their own in terms of economic decision-making by businesses and households alike. The intense sovereign risk concerns are not limited to Europe either. In the U.S.A. we saw CDS spreads widen out to their highest levels since the equity markets were coming off their lows last April. According to the FT, the Markit iTrax SivX [sic] index of CDS on 15 western European sovereign credits rose above 100bps on Friday for the first time ever.

cant expect a straight bungee jump. that would be too easy.

My if-then-scenarios for tomorrow will be based on a counter trend rally up to 10,000-10,050

dr. cosa,

I really enjoy your comments. You seem quite an erudite fellow who isn't afraid to take the other side of the arguement especially when it concerns gold. But to me, gold is just a price. Price movements in any commodity including derivities (financial instruements) are at the margin. Lack of an incremental buyer...disaster! Too many incremental buyers...Valhala!

I do take umbrage of your damning of Faber and Rogers as just shills trying to sell a product for profit. Ever looked at the economics of selling books? Not a pretty model. Yes they may have made their gazillions investing but that is a good thing! As far as I know, they have no 'masters' from which they need to kowtow for their lifes bread. True Jimmy has a commodities fund. It was started in 1999 I think when the world was agagaa for tech. Oopps. Who wanted copper, gold, wheat, sugar,or rice in 1999?

As for Marc. I have known him since the early 1970's and there is no finer man with a clearer head that I can think of. I do not know Buffet or Taleb so I have no comment except from what is written about them.

There are some very very smart investment people in this world that have the luxury of speaking their minds without fear of retaliation. Bill Cara is one of them. So is Fleckenstein, Saut, Manduca, and a host of others that do not get prime time CNBC. Bloomberg? Maybe the European and Asian sessions.

Keep paying that mortgage! The Mortgage Bankers Association will call you an amoral deadbeat if you don't!! Just kidding. We, each of us make financial decisions for the health of our families. To do otherwise would be disaster.

I do not know the proper citation but I've always remembered this. "What father whose son asks him for bread, would give him a stone!'

Thanks again and bon chance.

http://chart.ly/5d9fry

This may seem a little out of the mainstream, but not really. On visiting the website of Fabius Maximus, who writes about geopolitics, including economics and is one of the more interesting websites around(http://tinyurl.com/yanpvxv), I came across an article on "polywell" fusion. This is "hot" fusion--not the "cold" fusion of Pons and Fleischer--and has already gone through several prototype trials and shown that it is a feasible, low-cost approach to nuclear fusion that could be commercialized within possibly as little as five years. It is an alternative to the tokamut reactor design which, though it has been proven to work, is extremely expensive and would take a minimum of 30 years to implement. As you know already, nuclear fusion is _clean_ energy that leaves behind no radiactive or toxic waste. The company engaged in this research and development is called EMC^2. In the following paper, which is a PDF file that you must download to read, they show that this reactor design represents the end of fossil fuels and could represent free energy for all of humanity for the indefinite future if they use deuterium and tritium for the fuel. It is a small reactor and the company needs to raise $200M to bring it to the threshold of commercialization. A piddling sum, but our all-wise government has cut funding of speculative projects such as this that have long-term potential. Instead the govenment feels that their scarce monetary reserves should be thrown at TBTS banks, to the tune of trillions of dollars. This paper is a fascinating read and I think you will agree that this is the direction we should be taking. Perhaps the Chinese-or who knows, maybe even the Indonesians- have already gotten started on this as we here in the US watch our middle class go down. Sorry for the diatribe, but I'm revolted by our corruption and short-sightedness.

The download can be found at http://tinyurl.com/yzrtwo6.

New acronym ,new to me anyway, Spain ,Turkey,UK,Portugal,Ireland,Dubai
I am more worried about the Pound than the Euro.The Euro area GDP %proportion of Portugal and Greece combined is 3%.