Morning Call [7:45am ET] The story of the day has to be the break-out in the dollar-denominated gold price at the same time the US Dollar index is soaring. I think there is an explanation – several actually – and that traders are making the mistake in thinking long-term when in all likelihood this has been a rather short-term four to six-week phenomenon, and one that may last another week at best.
I think it’s prudent to adopt the adage Sell in May and Go Away – until August-September or possibly October, which is the time it will take for the likely outcome of the US mid-term elections to be known. Yes, I am referring to precious metals as well as equities.
Here’s my thinking. Gold has become, for the short-run at least, a currency play; a reserve currency if you will, a place of refuge in a sea of central banks and governments who have lost control, if only momentarily, over monetary stability.
By far the biggest currency trading in the world is done in London, mostly by capital managers in Europe and the Middle East, perhaps as much as 40% of the estimated $4 trillion or more daily turn-over. London also happens to be the biggest market in the world for the exchange of physical gold and silver, or bullion, which is a market that is also largely controlled by central bankers who lend precious metal, like they lend currency, at a cost.
But the gold and silver market is tiny compared to the currency market. In London, it’s roughly one-hundredth the size of the currency turn-over, the upshot being that when currency markets get agitated, there is a spill-over effect on the gold market.
The currency market has moved from a state of nervousness to outright panic in the past six months, all starting with Greece, believed from the beginning to be only the first thread that could unravel the Euro unless stability was brought to bear.
Let’s follow the timeline.
• From the summer of 2009 through October, following immense new debts taken on by most governments of the world, the price of gold lifts from about $920 to about $1050 and traders and monetary authorities start to focus on the weakest links in the sovereign debt ring. As the debt roll-over problem of Greece hits everybody’s radar screen the European finance ministers start to discuss this matter. Gold then pops from $1050 to $1180. Traders then sense that the ratings agencies will downgrade Greece, and the price of gold lifts to over 1210.
• On December 8, Fitch downgrades Greece's credit rating from A- to BBB+, which immediately lifts the government’s cost of borrowing. With sovereign default on the minds of traders, as few believed in the reform package being discussed by Greece’s Prime Minister Papandreou – a plan to cut the government deficit by four percentage points, as a proportion of GDP, in 2010-2011 -- the workers rebel in the streets. Standard & Poor’s ratings for Greece also drop. Traders figure that the Eurozone members will force a tightening in Greece and elsewhere, so traders, perhaps with the help of the European Central Bank, drop the price of gold in just three weeks about $130/oz to $1085. Simultaneously, the US Dollar soars and the Euro drops from 150 to 142. Markets are in sync at this point just before Christmas.
• During early January, traders are focused on the spread between the interest charged on Greek and German debt, which widened to 4% (i.e., 400 basis points), and thinking that Greece may default, they lift the Euro and lift the price of gold again. Gold lifts to 1150, and the Euro to about 145. Markets are still in sync in mid-January.
• Then, for a few weeks, it looks like the situation is controllable. Gold drops to $1065 as the Dollar strengthens. But the Euro drops to 136 and Europeans are starting to get worried that inflation and higher interest rates are on the way.
• On February 10, Papandreou announces a plan to freeze public sector pay and impose higher taxes for low and middle-income households of Greece, and of course the public sector workers revolt. Riot police fire tear gas on demonstrators. European leaders are called into emergency session on February 11 to consider a bail-out. The Euro is stabilized for about a month, but the price of gold lifts from $1065 to $1140. The pressure is now on German Chancellor Angela Merkel, whose people are now polling over 80% against a bail-out of Greece and her party is facing an important regional election.
• On March 3, Papandreou advises his people to either accept lower bonuses and higher taxes or risk bankruptcy. The next day, there is a successful sale of Greek bonds. In the following week, the Greek Prime Minister traveled to Washington to ask President Obama for help.
• But, behind the scenes, March was not a good month for Papandreou and the whole affair unraveled on March 29 when investors no longer had an appetite for Greece’s bonds. Gold then went soaring from about $1090 to the yesterday’s all-time record close of $1239. During the interim, the spread between the yield on Greek and German bonds lifted to 469 basis points (bp) by the third week of April. Then the rating’s agencies stepped in with further downgrades, giving Greece’s credit rating junk status, which was enough to cause the Euro to crater from about 135 to 126. Not even a $1 trillion Euro stabilization plan, supported in part by the IMF, was enough to satisfy traders.
• It was the failed Greek bond auction at the end of March that caused Europeans to flee the Euro and go into gold, which this chart clearly shows.
The moment the European Central Bank raises the borrowing cost for bullion, the price of gold will sink. Moreover, as and when Europeans see that their Euro is far over-sold on a short-term basis, I think they will start selling Gold, Dollars and Yen and buying Euro.
This process can be expected to start shortly, I believe. Gold could quickly drop back to $1100. A couple months from now, I expect California will start a similar process in the USA as what happened in Greece. Well before then, I think the $USD and $GOLD relationship will be back in sync. Then, as and when the US Dollar drops, the workers’ and taxpayers’ riots start, forcing a massive Fed bail-out of bankrupt state and municipal governments, I think that $GOLD will soar again.
In the past several hours, the equity markets in Asia-Pacific and now Europe have strengthened. Spot gold has settled back from about 1248 yesterday afternoon to 1233, so I anticipate relative weakness this morning in the goldminers.
Have a great day.
CTA Trading Desk Post-Close Report
This will be a short report tonight. The S&P topped several weeks ago near our projected resistance zone of 1220 to 1230, subsequently falling 154 points to a low of 1066 last Thursday. The .618 retracement of that sell off, (1061), the April low (1070), prior support –now resistance (1080) and the 50 day moving average (1074) form a tight little resistance band which should contain the rally IF the trend has truly changed from up to down.
Any opening range breakdown tomorrow morning on increasing volume will be additional evidence the tide has turned-first support would be around 1120, a 50% retracement of the recent bounce from the low of last week.
Keep a close eye on the Euro (FXE-0.79%) which could only muster one giant opening bounce on the ECB quantitative easing announcement, before giving back all those gains, and now trading below pre bail out prices. If the Euro keeps falling capital markets will quickly become chaotic once again, and this time there will be no 600 point Dow rally to soften the blow.
An opening range breakdown in equities and further dollar strength alerts you stocks may be headed lower; combined strength in gold (GLD -0.54%) and US bonds (TLT+0.68%) will confirm institutional money is leaving the market quickly, and independent traders need to plan accordingly.
Have a great evening.
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Comments
+1
Thanks for your insight this morning Mr Cara. I for one appreciate it. Very interesting how all this played out. Does this apply to silver also?
Cara 100 Ratings Changes
Good morning.
CSCO - Downgraded to Neutral @ Davenport
NOK - Needham Initiates Coverage with a Hold.
SLB - Upgraded to Outperform @ Macquarie
--------
Note to 2nd:
I'm overnighting you a kevlar suit for use when the Governator announces his welfare cuts tomorrow. You might consider moving to higher ground or perhaps taking that vacation here to the Amish Country and stopping by for your free lunch. ;^)
BH
Re: +1
Silver bullion is traded just like gold.
To follow the money in Greece, watch the Greek banks
Credit Suisse has initiated coverage on eight banks in Greece. They call Greece “one of our least preferred regions for European banks due to the difficult macro environment.”
Here is today's CS review:
• The major banks in Greece are profitable, well capitalised and system loan/deposit ratios are a respectable 120%, and valuations now seem quite attractive after significant declines in share prices year to date. However, we see four potential risks: Wholesale funding is not an issue, in our view. Private-market wholesale funding represents just 9% of liabilities, and there is very low rollover in 2010. System deposit outflows of 4.1% to the end of March have been overstated by technical factors by a factor of 2: we believe that outflows will continue, but at a slow pace. We think it highly unlikely that the Greek government will default over the next 12 months. However, a 30% haircut on GGBs would take 4.8pp off Tier 1 ratios for the system, on our numbers. Government forecasts of "worse than -4%" GDP growth for 2010 imply a deep recession. We believe that the banks are in a no-win situation: either the austerity measures will be as severe as planned and NPLs will rise sharply, or public opinion will make the cuts difficult to achieve in full and the government will be forced back to the table with the IMF next March. We would turn more positive if the economy were to perform better than forecast or the deficit was reduced more than the government plan.
• Catalyst: Q1 results are due starting with NBG's on 26 May 2010.
• We rate BoC an Outperform due to its high returns and low L/D. We rate NBG Neutral owing to its dominant market position and exposure to high-growth Turkey. We rate EFG Neutral due to its strong management team and good historical returns, although we would caution on its relatively high gearing. We rate the remainder of the banks in this report-Alpha, Piraeus, ATE, Emporiki and Postbank-Underperform, as we believe the negative macro could swamp any internal improvement and that valuations are not yet low enough. NBG would be the winner in a better macro environment in our view.
Re: Cara 100 Ratings Changes
Thank you, BH, but I own two already and only need to decide whether to wear the blue or the black.
No Spin Zone
Thanks, Bill for your insight and for telling like it is. One question I have is the return of risk appetite in tech beta, DJT and RUT. If Europe's economy is slowing, and China is getting into (or at) a bear market. Where is the optimism coming from?
Carol Bartz does it again
After ripping Auto Desk shareholders for her grossly over-paid compensation, Carol Bartz is now doing the same thing at Yahoo, taking $47.2 million in pay. But, what's YHOO stock done for the past year? ZIP!!! This is just a ridiculous situation that has to be put under control.
Re: Cara 100 Ratings Changes
CSCO - PT Raised from $27.50 to $29 @ Canaccord Adams. Buy
-----
2nd,
On a more serious note, how do you see the potential for civil unrest in California if/when the Governator announces welfare cuts. I'm having visions of traders watching the riots and "fat fingers" appearing in the nth degree. What is the level of tension out there? Any cause for concern?
Thanks,
BH
Re: Cara 100 Ratings Changes
Wear black. It will give you that Ninja look. Will increase your "fear look factor" by at least a 1000.
Re: To follow the money in Greece, watch the Greek banks
I was curious as to how deep Swiss banks are in with Greece. It appears that CS is at least capable of providing straight analysis on the subject. This provides a little reassurance. Hopefully their sovereign debt operations are in snyc with their analysts.
Protesters in Bangkok cornered like rats
http://www.bloomberg.com/apps/news?pid=20601087&si...
The Thai army has 6000 protesters sealed off. What's going to happen now?
Wolfpack just won't let go
08:47 EUR/USD Sets fresh session lows, approx 30 pips from last week's low at 1.2518
Time for another trillion maybe? That'll show them
Re: Carol Bartz does it again
I met her at the bar in the frank Sinatra rest at the wynn encore. She was chatting with three other gentleman and she seemed very happy. I didn't even realize who she was during our small talk until mid conversation.
I'll qoute rap music, don't hate the player, hate the game. CEOs should be paid 95% equity/revenue/perf/growth. And the parachutes should be illegal. I never understood how bad CEOs went on to continue as bad CEOs.
Re: Carol Bartz does it again
Carol has managed to position herself above and beyond the compensation of all the banksters, and certainly above that of her peers.
Besides her ability to communicate with the same vocabulary skills as a drunken sailor, she gave away the search business to MSFT.
It's time to completely wipe out the board and fire the incompetent CEO.
Sold a very long position back in DEC and will never buy and hold yhoo again under this management!
http://www.thestreet.com/story/10743751/1/yahoo-ce...
may sound silly
but..... looking at the potential, need and governmental pressures, both now and in the future, Aone could parallel Cree's growth, with all the usual ups and downs.... I cannot see, at this time, any individual transportational device that will not need a power system to function.... maybe magnetic fields, etc., but for now ( next 50 years ? ) people will still want to go from point a to b. Perhaps with the continual flow of people from the rural to urban areas, mass transit will be ever increasing, but the evolution of ' alternative ' energy sources should match demand. jmhao.
CA BROKE
Ask the unemployed in CA what it is like trying to get their check on time. Claims are backed up and people are living from their cars.
http://recentlylaidoff.com/unemployment-benefits-t...
Thanks Bill for having the guts to say the Truth.
Awesome Analysis
Bill,
Thank you for this analysis.
While it may not have taken you a lot of time to write this piece, I can easily see hours spent to analyze the price movements and plot them against the events that unfolded.
Your post brings to the forefront the need for small investors like me to do some home work before taking investment decisions.
Thank you for all you do !
excellent thesis, some very
excellent thesis, some very bright people are coming to this conclusion. timing will be key.
hard assets, including arable farmland. does anyone have insight on how the arable land idea can be played via liquid markets?
John Chambers said
' It doesn't get any better than this ' ( recent Qt. )... I wonder if he means that.... is this as good as it Will get ?
Quick, heavy drop on Mon
reversal set-up in sight, for now
AMBAC Financial
ABK delays quarterly filing again.
Last quarters delay produced a surprise profit and ABK went up 70%.
Bought a small position at close yesterday. Pure gamble, no fundamentals.
Making pocket change with C, order for 4.10 hasn't filled, getting closer though..........short positions in C are on the increase again.
Cara 100 Update (Final)
CSCO - estimates tweaked at Barclays. CSCO 2010 and 2011 EPS estimates trimmed to $1.59 and $1.78, respectively. Barclays maintained Overweight rating and $31 price target.
CSCO - estimates increased at Morgan Stanley through 2012. Company seeing higher other income and a lower tax rate. Growth appears to be peaking. Equal-weight rating.
CSCO - estimates, target boosted at UBS. Shares of CSCO now seen reaching $29. Estimates also upped, given better margins and a lower tax rate. Neutral rate.
IBM - estimates upped at Morgan Stanley through 2012. Company should see higher sales growth and a better margin mix. Equal-weight rating.
WFMI - target, estimates boosted at Barclays. WFMI price target jumped to $34 from $30 on strong 2Q10 results. 2010 and 2011 EPS estimates lifted to $1.37 and $1.63, respectively. Maintain Equal Weight rating.
WFMI - numbers raised at UBS. Shares of WFMI now seen reaching $45. Estimates also increased, as the company is seeing a return of middle-income shoppers. Neutral rating.
Re: excellent thesis, some very
"does anyone have insight on how the arable land idea can be played via liquid markets?" - mcgro2
POT - Soil enhancer to the globe
UNP - Railroad that owns the western half of the United States
CAT - Farm and mining heavy equip manufacturer to the globe
FUD - ETF with broad exposure to soft commodities
Disclosure: Position in UNP
Cheers.
Re: Cara 100 Ratings Changes
BH- Honestly, I can't say I've noticed anything out of the ordinary in terms of sentiment. Once the State starts cutting welfare checks, that may change.
Good morning
tobyt... arry has done well... keeping an eye on the $ 4.25 area, as that was the top of the spike from a few weeks ago.. volume speaks volumes ! ( can't fight the press... will wait for Mon to show evidence of life.. was waiting for the $ 55.50 - $ 55.75 range, but Barrons has joined the masses, so who knows... $ 48.00 ?? )... best of trades...
Re: Cara 100 Ratings Changes
Thanks for your input, 2nd.
Neil Cavuto was making a big deal about this on Fox yesterday:
http://video.foxbusiness.com/v/4193316/schwarzeneg...
Regards,
BH
baz22/AONE
OK, you convinced me...sold some of the AONE 10 puts on next friday expiration for $.45.... 4% for the week cash on cash. I do not trust this market...1170's SPX seems very pivital and will ask my wife to say extra prayers for the next week.....I will cross my fingers, toby
Re: baz22/AONE
Well, as long as you have your health !!... seriously, I expect aone to do the tango, but will keep my origional position, and trade around it... good luck in all you do (though you are pretty damn good... I really appreciate you put/call strategies )...
Abu Dhabi ATM swaps cash for gold
Hi guys,
check this link out...
http://bit.ly/c3U7nX
wait until we see these ATMs all across the world in years to come.
Re: excellent thesis, some very
thanks strangelove, i appreciate it.
i'm curious to see what the board thinks about the time frame and extent of deflation we have left before the (what i believe) immediate switch to hyperinflation.
Gold ATM Debuts
Is this the equivalent of the shoe shine boy recommending stocks?
Remove Card and Take Bullion; Gold ATM Debuts
Amid fears over the strength of nearly every major currency, Abu Dhabi's top hotel has come up with a new type of ATM for their most risk-averse guests. The Emirates Palace is giving those staying there the chance to withdraw gold from the world first ever gold dispenser.
http://tiny.cc/8flxz
Re: Gold ATM Debuts
Sure Grym,......
...........sort of "buy high, sell low" liking buying stocks, land etc at all time high. HB&B love sheeple !
Re: excellent thesis, some very
mcgro2 -
Martin Armstrong has an excellent piece on deflation, inflation, stagflation, and hyperinflation this week:
http://www.martinarmstrong.org/files/The-Money-5-4...
"...undertanding INFLATION that is much like ice cream and comes in a 1,000 different flavors, is not always easy ... a label that inflation is the rise in the price of goods and services is the official line because it shifts the responsibility from the government to the people." - Armstrong
He explains, with fascinating historical context, how velocity is the trigger to hyperinflation. Well worth the read.
Cheers.
Re: baz22/AONE
Thanks for putting AONE on the radar yesterday. Opened a position at 9.85 and looks to be having a great rebound day. $12-13 within a couple weeks seems a possibility. All of the negative news seems to have been absorbed in the recent earnings report and lots of weak hands taken out. I think that we could see some ncie momentum build from here.
MON
This one is just continuing to get blown to smithereens. Bought 2 Jul60 Calls for $1.54 each. Wanted to get the upside exposure and avoid the downside.
Re: excellent thesis, some very
MOS putting a billion into expansion.
http://www.live-pr.com/en/mosaic-company-to-begin-...
ECB Meeting in 1 Week
20/05/2010 Governing Council meeting of the ECB in Frankfurt
No comment, really
May 13, 2010 12:15:39 PM
(US) Administration Advisor Volcker: Argument can be made for a 'stiff' carbon tax; must start to discuss topic of higher taxes in the US
- says US recovery going better than anticipated, could continue if there are no external shocks
Re: baz22/AONE
Yeah the company has $4 in cash, too. Revenues of $91M valuation of $1B means it's pretty pricey. Its one of those "hope and promise" companies, but from what I understand, it's good battery technology.
Long AONE as well.
XLU: our fearless leader
Says to me the market is nervous today...and we all know Friday has a down bias. If the buck comes off its high, as Bill suggests (assuming a short term euro rebound), will that also take down US equities? Its an odd set of relationships right now, almost the reverse of what it was last year.
Mr Cara
Thanks again for the write up on gold this morning. Got a really good entry on a gold short ETF earlier today and already [at the time of this post] I am up 2.3%.
:-)
View from Deutsche Bank's perch
Deutsche Bank AG CEO: Euro Zone rescue package helps stabilize Spain and Italy, warns Portugal is a different issue
- Notes that there is some doubt that Greece can repay debt over a period of time; Italy, Spain are strong enough to service their debt.
- Comments that there is no risk of inflation in the Euro Zone over the next 2-3 years.
- Portugal will have more trouble servicing its debt than Spain or Italy.
RE: Mr Cara
Ditto!
Re: View from Deutsche Bank's perch
Hmm. Shall I translate?
DB's position:
* long greek bonds, but covered with CDS
* long italian, spanish bonds
* net short portgual
Credit Ratings
Senate just passed some legislation minutes ago setting up a Credit Rating Agency Board within the SEC that will assign a specific credit rater to a security to "avoid conflicts of interest". MCO was trading at aabout $22 when the news of the Senate approval came out, quickly crashed to $20.77 and bounced immediately back to $22.40+.
Market seems to be viewing this as a favorable outcome since it implicity allows the raters to continue their existence, which seemed to have been put into question by the Wells notice Moody's received.
From marketwatch - http://tinyurl.com/2a7ac9u
TAXING PLAN
ALOHA!!
I saw a blip about Chile raising its mining tax. Australia has set in motion yet another "band aid" that will continually deplete the most productive sectors of the global economies in order to prop up the most unproductive sectors. Funds diverted by Bush and Hank Paulson to save banks have taken on a domino effect that will impact on every person in the World who works for a living, unionized or not.
Now I look at Nevada and there is a petition to rewrite the State Constitution to tax mining companies on a "gross revenue" basis not "net". Who is backing such a petition?
"The coalition of teachers' unions, labor unions and conservationists seek a constitutional amendment that would make mines pay taxes before instead of after deducting their expenses."
So if you are a State worker who is thinking about getting axed due to budget cuts then it would only be wise to back such a petition that may save your job. This is all short term thinking, which is what the World seems to be afflicted by at the moment.
If anyone wants to see what America would look like under the same political, social and financial stress that Greece suffers then look no further that the unions of America. In fact the unions of America are already taking to the streets in protest and, like this Nevada Mining article points out, pushing to tax the most productive sectors more and more.
So if you thought Australia's country risk was made worse due to the 40% increase on mining then what will happen to Nevada with a 300% tax increase?
MINING TAXATION TO INCREASE 300%
Nevada mining tax hike drive continues after judge changes petition language
An initiative petition would hike Nevada hardrock mining taxes by 300% can still be circulated, a Nevada court ruled, but only if some changes in language.
Author: Dorothy Kosich
Posted: Tuesday , 23 Mar 2010
RENO, NV -
A Carson City Nevada district court judge has ruled a petition drive to place a ballot initiative to change Nevada's constitutional language to tax "net proceeds" of mines to "gross proceeds" of mines may continue only if the petition language is changed.(more)
LINK: http://tinyurl.com/28wrzfa
Now the one loophole I see in all these tax initiatives is they somehow either leave out or provide huge credits to "steam" ... geothermal. After reading numerous global government mining taxation proposals I see clearly that geothermal will benefit(if you can benefit from more taxation as a company). I have two companies I like NEVADA GEOTHERMAL(TSE:NGP) and SOUTHERN GOLD(ASX:SAU).
Taxation has never solved any monetary crisis. Increased taxation by heavily indebted government and entrenched political monopolies is only a way to make good on promises in order to retain power in the short term. The debt never goes away because the global monetary system we now have will not allow it. Show me any government debt anywhere in the entire World that has been paid off ...
Who will buy US Treasuries when the rest of the World is too busy funding their own crisis? China and the UK are not in a position to keep throwing money at the US DEBT MACHINE. On the other side of the CDS coin who is backing all this CDS when the PIIGS collapse? Is it AIG again? Is it the AFL-CIO? Who? Once again ... who will bailout the US Treasury?
gold @EUR 986 just under major round number EUR 1000
gold (futures) in $USD just under major fib projection targets at 1250.
Next fib targets I see are 1293, 1337, and then up around 1500.
Some backing & filling or even a major retracement would certainly be in character short term at resistance levels like these, though it could also just gap past and run on up.
Seasonality if I recall correctly says gold is weak during the summer, rallies from August into November or so.
Looking at channels & forks and assuming gold could remain in continual bull mode until midsummer, then $USD 1400 is doable at a stretch.
Re: TAXING PLAN
Kaimu,
wont this mean less gold being mined globally. thus rise in per ounce?
also bad for all miners yet good for the prices?
EURO EXPERIMENT: EU Bullied into $1T Banking Bonanza
EURO EXPERIMENT: EU Bullied into $1T Banking Bonanza
http://home.comcast.net/~lcmgroupe/2010/Article-Eu...
Like a chess game, the bankers called ‘checkmate’ against the EU political leaders on Friday May 5th, 2010. Two days later in an urgently called weekend meeting the EU finance ministers hurriedly announced the biggest bailout in history.
Most people take more than two days to buy a car, but the frightened EU officials were pressured into reacting before the Asian markets opened Sunday evening. This is eerily the same scenario we saw on the eve of the US $700B TARP ratification, the Bear Stearns takeover, Fannie /Freddie Conservatorship, AIG Bailout etc.. A coincidence – Yeh right!
How was this pressure applied? Who has such power? Who won and who lost? As I explained in “Extend & Pretend: Shifting Risk to the Innocent”, it is all part of the dynamic new market strategy of Regulatory Arbitrage. You had better learn how the game is played or you will be toast.
. . .
Re: XLU: our fearless leader
Dave,
I can only speak for myself — nervous is a pretty good one word description.
Sold my bond funds last week.
Sold my GLD this AM.
Took what equity profits I had in between.
I'm going to be able to sleep better even if I miss an up move.
Re: Protesters in Bangkok cornered like rats
So the situation in Bangkok is not as cut and dried as it sounds. Many of the soldiers doing the "cornering" come from the same area of the country as the protesters. The army is full of leaks from so-called "watermelon soldiers" (green on the outside, red on the inside - red being the color of the protesters). While there are no doubt units of the Army that can be counted on - and perhaps these troops have been carefully selected by the high command - but few in the Army want to be responsible for some massive bloody event that, if the red shirts actually come to power, they will be held responsible for.
The general in charge of the Thai army is retiring in a few months, and he has definitely not been eager to crack down. People speculate he'd like to be actually safe from harm after he leaves the service. At some point, there will be another election, and people in the red shirt movement will likely be in the government. Who wants to spend retirement in court, in jail, or - being shot while trying to escape?
Both sides seem to be jockeying for the support of the people in the middle, which would definitely be alienated by images of unrestrained military operations on protesters. Certainly folks in Bangkok are beyond tired of the whole thing, but I'm guessing the mood would change if a lot of people were killed. That, and the particular area is one of the nicest shopping districts in Bangkok, and I'm guessing the owners of said area are well connected to the current government.
The protesters themselves are not unified either. Some actually did go for the government's solution, while others (probably) threw bombs and shot police officers in order to disrupt the talks that were going too successfully. One of the most hardline protesters (a mid-ranking Thai Army "Red" general) was just shot in the head today on site.
Who was he shot by? Some Yellow (pro-government, sort of) protesters actually want a serious army crackdown. In the past few weeks, that general had his Red gang storm a hospital looking for non-existent Army snipers and then later (probably) one of his teams killed a bunch of police officers. And another team of his fired 5 M79 grenades into a group of shop-owners (wounding 75 and killing one) who were protesting the Reds (probably) because they didn't like Reds interfering with business.
Complicated enough? Its hard to know who is cornered, and how things will ultimately end up.
Transocean petitions to limit liability in oil spill at $27M
http://bit.ly/aygUFS
That's only 54,000 ipads, 1,420 Prius', or 1-5 homes in Greenwich Ct.
Re: TAXING PLAN
This reminds me of the 'excess profits tax' on the oil companies back in the 70's when crude went from $2 to $25 dollars a barrel. Back then they differentiated between 'old' oil and 'new' oil to keep an incentive for additional exploration. Stripper wells (less than 12bbl/day) were also exempt. There were some deep pocket Okies that I knew that went so far as to shut in production til the tax was lifted.
But yes, if you tax something you will get less of it. Marginal production will be closed.
At least BP has gotten serious about RECYCLING
via the Atlantic
Re: Transocean petitions to limit liability in oil spill at $27M
Wrote some more RIG short puts (Jun 60s) at close of market today.
Still think it's a buy.
Oil Spill Cleanup
This is a short video on a clean up method that probably has good potential.
I doubt it gets a chance because it makes too much sense.
Clean Up the Oil Spill
http://www.wimp.com/solutionoil/
Re: Oil Spill Cleanup
If that can scale they should use this method in addition to others.
That is also assuming they can close the oil rupture. otherwise it will be non stop hay vs oil.
Thanks for sharing.
EUR/USD
Euro new low 1.2517....could set up for ugly day tomorrow.
Re: Mr Cara
"Thanks again for the write up on gold this morning. Got a really good entry on a gold short ETF earlier today and already [at the time of this post] I am up 2.3%." - QT
"As Jesse Livermore once said, never short a stock simply because it has gone up." from Jesse's Cafe regarding the gold short.
Risk/reward ratio looks poor when considering how many potential time bombs are out there to grind the metals higher. Meanwhile, PMs are holding their own as the US$ moves up. That's very bullish for the PMs.
Long PMs.
Re: Protesters in Bangkok cornered like rats
Here is an e-mail from my son. His wife
is from Thailand and her parents live there now.
From what I have been told by Kris and other Thai people here following things is that the "red shirts" are the group of Thai citizens actively protesting the current government and prime minister. This kind of thing has happened many times before by groups of different names. In late 2008 protests from some peoples democratic group closed the airport. Earlier this year the group that later became the "red shirts" held the airport "hostage". Apparently this is what happens when the current government is disliked. This time the prime minister in exchange for the red shirts backing down offered to hold elections this Nov (a year earlier than they were supposed to be held next) and sent his deputy to hear what the families of those killed by the government wanted. The red shirts say all of this is unacceptable and they want the prime minister and his deputy arrested which they think they can get accomplished on May 21st when the parliament takes a recess and the prime minister and deputy no longer have immunity (ie they can be arrested by the police while the gov is on vacation...weird)
From what I have read Thailand should be experiencing the same type of economic recovery as the rest of Asia and the US but political unrest may be slowing this recovery, if you look at the chart for the Thai ETF and compare it to the chart of SPY or SPX you will see that for the most part the thai SET index mirrors the US indexes accept for no big crash in feb-march '09 they had their big crash in late Oct '08 perhaps coinciding with the protests and the subsequent shutting down of the airport at that time. Over all the chart of TTF looks a lot less scary than the chart of US indexes and ETFs. Kris says the Thai people are used to this political crazyness and it doesn't effect the markets for very long. She says that if the Prime Minister and his deputy get arrested after May 21st (which Kris says may happen if the the red shirts get the backing of the police and military) their will basically be a coup and for a little while there may be chaos but things will return to "normal".
Re: Mr Cara
QT,
re: "... Got a really good entry on a gold short ETF earlier today and already [at the time of this post] I am up 2.3%."
Well so did I. While the GDXJ was down -2.35% (abetted by a couple phony late trades that pumped the price and made the loss look better), I too took a 20% weighting in the inverse gold and silver ETFs, and made money in the Select Junior Gold Portfolio today.
In addition to being a good hedge, trading these inverse ETFs will give you a better sense of the direction of the market, which helps your trading of the company stocks. But they are volatile!
Re: Mr Cara
I have to agree. Shorting gold right now may very well work, but it wouldn't help me sleep at night knowing I am betting against a long-term trend. Sell on strength, buy on weakness, the trend is your friend.
Re: Mr Cara
Billy,
Your comment about sleeping well at night is appropriate. In the Select Accounts (but not my regular Concept Accounts), I may be in and out of an inverse ETF before the end of the day. In the Select Accounts I don't have the usual risk management tools available to me, like put and call options, which I typically use as a risk averse trader, and I cannot short stock either; so I have to use those inverse ETFs. In that case, as you point out, I need to be nimble, and often I am in and out in hours. So, at the end of the day, I too can sleep.
gold here
if the USD goes down gold generally goes up
if the USD goes up and gold moves paradoxically up....
why would gold continue to go up should the USD go down?
things change, concepts and relationships change.
we know gold has often spiked during periods of uncertainty such as the current one.
we also know gold has a habit of crashing hard after such periods of irrational enthusiasm.
the miners have thus far not performed as hoped. im sorry to say, you can measure their move from the most recent low of 2 months ago and say it went up more than gold % wise but we all know that miners remain, and have remained well undervalued relative to gold for several years.
as someone noted, the same way we wouldnt short a stock simply because it has gone up, we wouldnt invest in a sector simply because it has lagged for so long.
what has happened to the miners is multi-year and for all intents and purposes the start of a long standing lag behind gold. there is simply too much risk, cost and financial sabotage from those involved in mining outfits to make this sector as a whole successful. choose your winners, no easy feat, but to take the group and consider if they can as a group return to past glory, you must consider how exactly they could have fallen so far behind.
miners have become the bio-tech of the investing world. potentially explosive but as a group a mess to invest in. imho.
miners will continue to fall w/ any serious market crashes, regardless of how gold moves. the GDX is back to where it was over 2 years ago, the same price when gold was about $1050 and oil was $110 a barrel. what else to do the miners, as a group need to move forward and regain past glories with the metal?
i dont know, and im happy to be holding the metal in these conditions. some cash in hand in the case of a dump, but solidly in the money on gold.
projections of $1400, $1500 are just noise. who knows....
if history is our guide, this bull will leave many a gold bug broke, holding miners of nothing but well written press releases and kitco newsletters.
steady as she goes...
Wow
Just got around to reading the blog for today and was blown away by Bill's insights in the Morning Call. I'm a part time dabbler in the financial markets and this kind of insight is hard to find.
Thanks so much Bill for all you do for the regular guy.
KC
Re: Carol Bartz does it again
nauseating
Banks selling homes they don't legally own!
We've heard of Banks foreclosing on homes they no longer own. In some cases the homeowners are in bankruptcy proceedings or good faith attempts to restructure their loan terms to prevent foreclosure.
This auction (link) was for a home had been recorded as sold the previous day in Santa Clara County. The new lien holder and new owner turned up at the auction to stop Cal Western Reconvenyance (Wells Fargo's agents) 'fraudlent sale'.
http://www.youtube.com/watch?v=yV6NeHoq1wA&feature...
Re: Oil Spill Cleanup
Bird feathers do the same thing as well as a few EPA approved methods that are much better than the product currently used. Although bird feathers are a little difficult to harvest (I believe chicken feathers work as well).
Re: gold here
The RSI on the proxy GLD is 82-79-77 repectively. Could be wrong, often am but that's a lot of MoJo contrary wise.
Re: gold here
Ross -
GLD RSI can stay high for a while longer when you consider this short report from Reuters:
http://www.reuters.com/article/idUSWEA209820100512...
That's more than 7.5 tonnes and $300 million worth of velocity in two weeks from one major vendor that may be confirmation of a hyperinflating euro (rapid shift to hard assets). MoJo contrarian indicator? We shall see.
Stay thirsty, my friend.
Re: gold here
dr cosa -
It's not about the past half century of gold and goldminer pricing but about deficits, prop desks, and fiat currencies. Carry trades, central banks and SDRs. Lions, tigers and bears. Oh my. LIONS TIGERS and BEARS! Oh my! LIONS, TIGERS and ...
http://www.youtube.com/watch?v=NecK4MwOfeI&feature...
new analysis, 70,000 barrels are gushing out every day
That is at least 10 times the U.S. Coast Guard's original estimate of the flow, and "the equivalent of one Exxon Valdez tanker every four days."
http://bit.ly/aalsyr.
As a result, some scientists suspect that a lot, if not most, of the oil is lurking below the surface rather than on it, in a gigantic underwater plume the size and trajectory of which remain largely a mystery.
http://huff.to/cOyBEa
And nobody really knows where it is, or where it's headed.
Morningstar heads-up on Monsanto....
http://quicktake.morningstar.com/stocknet/san.aspx...
Re: gold here
My point exactly Dr. S. Those 2 weeks ending May 8th when when the 'Old Country' went stupid........again was the time of most danger and angst amongst the old guard. It would have supprised me if demand wasn't overwhelming. You could be absolutely correct, my friend. Perhaps in the next few weeks we will know.
I'm not an 'againer' when it comes to the PM's. The parabolic move could come at any time but I suspect Valhala may take a few more years. Gold by my reckoning has had a very temperate and measured move over the last 10 years or so. I try to establish fair value parameters and trade with or against. Gold was clearly undervalued by half at $250. At $1,200? Could be fair value. Clearly the Bull market is and will remain intact until there is a positive yield over inflation in the 10 year T-Note. Again I would suggest that that rate today should be closer to 8% and trending higher. How bout dem money market yields??? A good arguement against those who say gold pays no interest. NEITHER does FIDO!!!
Who knows when the Ag sector will ever level off...
Whenever the market reaches its next retracement level, I would not doubt for a second, that the same rebound will happen to it, as did the semiconductor's ( re double-ordering, stuffing the channel etc.. !! ) but I found this to be interesting. I would think the expansion is not just to have something to do in their spare time.. also will look very attractive to someone, at some point in time... http://www.live-pr.com/en/mosaic-company-to-begin-...
Re: gold here
"A good arguement against those who say gold pays no interest. NEITHER does FIDO!!!"
And every central bank is trying desperately to devalue their debt. Not that I'd increase my metal holdings, but I think I'll hang onto what I have. It will still be shiny next week, next month, next year, and when I'm long dead and gone...
Re: gold here
"The parabolic move could come at any time but I suspect Valhalla may take a few more years." - Ross
CFTC targeting JPM's monster silver short, SEC challenging GS to a duel, public hoarding of gold in Europe, Conan the Barbarian preparing to slash and burn California's public obligations, primary dealers buying most of this week's 30-year auction: But you are probably right. These things take time.
Cheers.
Had mentioned VRNM to Ron
last night, and their partnership with BP ( enzyme/cellulosic biofuel ).. very good science... Another company involved with BP, just for thought... http://www.bp.com/genericarticle.do?categoryId=201...
Strategic Default Calculator
At the risk of being seen to promote this company (not my itention) or the idea of walking away from your home (also not my intention), this walk away calculator may be useful to someone wanting to look at how their mortgage payment stacks up against renting. You can adjust the years you intend to stay in your home and plug in your actual values, payments, to see the potential cash value of your decision:
http://tinyurl.com/cjvtob
T2 partners preso on the housing market
Also known as: why you should continue shorting homebuilders:
http://www.businessinsider.com/t2-partners-housing...
Re: Strategic Default Calculator
Thanks for the calculator, loannetter. It makes perfect sense in a linear world. It probably does apply to 50% or so of the 'semi' unwashed. But as you people say, all real estate is local. Sorry not YOU as in you people but the NAR and the other shills.
Down to brass tacks, everyone has to live somewhere. I truely believe that buying a house at or under replacement cost is a great deal for families. Replacement cost is the keyword here. Replacement cost accounting is very difficult when deciding to purchase a company's stock. There are a host of variables. Not so much so with a house. One need only consider the 'hard costs' and the rest is lot price/location... If you live in a unionized part of the country, your hard labour costs will be twice as much compared to 'good ole boy' country. Maybe the quality is better but I doubt it. I had a Mexican stone and brick crew once that I actually gave a 10% bonus to because of their quality. Those guys were magic with masonary!
It really isn't such a difficult calculation. Figure $100 a square foot hard cost in say Texas and add the lot cost. If you want a lot near downtown Dallas, it may set you back $750,000. If you want to push out 25 miles, it can be had for $75,000. We're talking simple arithmatic here. Let me do the math. Build a McMansion close to downtown Dallas and it will cost you $450,000 for the hard build and $750,000 for the privilage of building on the lot. Net, $1.2 million. But buy a lot in exurbia for $75K and your all in cost is $525,000. So how do you determine a fair price. Well, all real estate is local and also customary. But in the end, it is the dirt/location that decides and a lot of that calculation is pride and hubris.
There is a super ton of REO's that will hit over the next 18 months. Banks have been bailed out such that they can probably absorb the hit but Let's Not Forget Who Was Screwed Repairing Their Balance Sheets! Savers and future taxpaying suckers who haven't a clue...
Re: Strategic Default Calculator
loannetter - if the calculator were true to life, it might also add in the cash benefit from continuing to stay in your home, not having to pay your mortgage, while not even receiving a foreclosure notification, simply because of the banks' strategic non-foreclosure strategy.
This would allow you to fill in whatever value you expected to have. How long will the banks ignore you? One year? Two? Three? T2 partners suggests 25% of NPA haven't made a payment in at least a year. Net benefit nationwide: 100-150 billion annually. Being underwater is claimed to be a much bigger driver of a home going into foreclosure than is the unemployment rate. Makes sense logically - if you have value in your house, you'll work hard to avoid losing it.
As I mentioned before, this is "stealth stimulus" - another 100-150 billion a year.
Re: Strategic Default Calculator
Ross: people do have to live somewhere, but they can make do with less. Two families can share the same house. CHildren can live with parents, sisters with brothers. This shrinks the available number of bodies to put into houses, which shrinks the aggregate housing demand.
If there are fewer families than there are houses, housing prices must fall - below build cost. Likewise, if build cost exceeds the ability to service the debt on that house, nobody will be able to buy it. Building will eventually stop, and population growth will correct that situation, eventually. (We all die eventually, too)
What I'm saying is, home demand is elastic, not inelastic. People make do with less home when things get tough. If times remain tough, I'm guessing homes could continue to sell for less than build cost for quite some time. If rates rise, it will continue. The overhang of not-yet-REO will keep it going longer. Will it go on forever? Depends on population. Tokyo real estate is still not back to its pre-bubble value.
Re: Strategic Default Calculator
davefairtex, I've not found a squatter's calculator yet :)
Unfortunately, most people I've met who are not making payments are living in fear of foreclosure and don't sleep well. 'Living' is a relative experience. The fact is that while banks might not be foreclosing you can bet on daily phone calls and embarassing notices on your door from the collections department, which is different from the mitigation or foreclosure department. As things progress you can get calls and letters from all three departments at once. Then there are the fake appraisers turning up at all hours wanting to see your home (public notices get stapled to the courthouse bulletin board alerting investors of your plight). Most people do value their homes (and sleep) even if the financial stats defy logic.
Re: Strategic Default Calculator
davefairtex,
To use Kaimu's oft heard reasoning, things just cost too much these days. Is killing housing our government's way of going back to the good old days when we could afford to buy homes on lower salaries? Since lower wages do seem a fact of many two income families perhaps whittling down home values is a long term strategy. Reading as much as one does about market manipulation I have my suspicions. Oh and when I heard about ex Countrywide CEO Angelo Mozillo buying up foreclosures with his early retirement stocks...just doing what comes naturally?
Re: Strategic Default Calculator
So let's see. If I live in one of those McMansions, let's say my payment is $6000/month. How do we fix the problems?
1) annoying phone calls. Cost to change my phone? Paid in one day. (6k/month = $200/day)
2) annoying notices stapled to my door? Pay the neighbor kids $5 for each one they take down and put in a box by the garage.
3) annoying fake appraisers. Post a "BEWARE: DANGEROUS DOG" sign, along with "STRICTLY NO TRESPASSING or SOLICITING" with a suggestive "I'll give you my gun when you take it from my cold, dead, hands"" bumper sticker right at the front door. Purchase a tape recorder and wire it to a movement sensors pointed at the front step. When the evil appraisers come to the door (your friends know to come around the side) the tape recorder trips and a really mean sounding dog sounds like he's trying to tear down a nearby fence - perhaps successfully - to come at the visitor and tear them limb from limb. Adding in voices that suggest that "I'm gonna shoot that prowler this time Martha" along with the sounds of a shotgun being racked are good for extra drama. Cost: $200, maybe.
Total cost: $400. Peace of mind: priceless. Money saved after the riff-raff are kept away: $72,000 per year!
I hear what you're saying, loannetter, and so I'm joking, but only half-joking. You can buy a lot of retail therapy for $72,000 a year...
Re: Strategic Default Calculator
Ross I look at house values the same way, but frankly due to the bubble the houses in the Mc-mansion range can be had for much less then cost to build them. You should be able to get at least a 25% discount. Say $75 a square foot. Entry level have probably held at 100 a square foot + lot. Due to tighter credit restrictions and unemployment the pool of people that can afford Mc Mansions has shrunk considerably which of coarse puts more pressure on the price of these behemoths. The headline story just two days ago in our paper stated in large bold letters. 40% OF HOMES HAVE MORTAGES UNDERWATER. THIS NEWS CAN ONLY CREATE MORE DOWNWARD PRESSURE ON PRICE. Hard to like Home builders in these conditions after their sharp run up from their bottom I predict they will be heading back there real soon.
Bob
Re: Strategic Default Calculator
davefairtex,
Love your anaylsis of default avoidance. Don't forget the video surveilance to capture responses to your methods for fun. My idea of retail therapy is travel and $72K will buy a lot of downtime in the Seychelles!
Oil spill
This is some cool stuff, real video of the underwater leak, and some robotic repair work that actually worked. This is a massive leak, a huge pipe throwing oil out at high velocity.
And also visit roughneckcity.com. Awesome pictures of the burning platform and attempts to put it out.
http://oahutrading.blogspot.com/2010/05/underwater...
This is not a fire drill
Everyone finding the emergency exits today. I think the wolfpack is hungry today.
Correction to Thursday's post-close report
I had to pull down the post-close report and have it replaced. Sorry. The problem occurred when Patrick, who writes the post-close report sent it to Jack, who edits it, sent Jack the wrong file, which was done in haste as Patrick left early for a family celebration. The readers queried me and I passed along a message to Jack and Patrick to check their work, then departed myself. When I checked in this morning, my mail had the correct version, which I posted.
While sometimes there are screw-ups, teamwork is essential at this point or else I could not get out all the material I do plus do my regular work. At this point, I write and publish (without edit) the daily morning call and the Week In Review. I also do the Select Briefs and Jack does some edits on those. Patrick writes the post-close report and Geoff writes the Monthly Client Report, and Jack edits those. Matt puts up the daily tables, and Jeff backs up all the technology.
I am frequently asked by new clients what the succession plan is. The Number 2 is Geoff, who manages the trading desk and is primary liaison with Interactive Brokers. About 70% of our regular business is in put and call options, which are managed by Patrick, who also does trade execution in Canadian listeds. I make all the trading decisions for the Select portfolio accounts and Geoff and Patrick do that for the Concept Portfolio accounts, following the strategies I lay out in our daily morning conference call. After the accounts reach a certain size, or in my long-term absence should that happen, we have two other traders lined up, both known to Geoff and Patrick who are presently managing directors at HB&B, wanting to join our trading desk. Whether we are writing or trading, I'll stack our team up against any at HB&B. The difference is that we don't have an unfair advantage; we actually make money the honest way, same as you. We have all worked for HB&B and left for many of the reasons we write about. To be able to do our jobs with zero conflict of interest, with people we care about, is why we are here.
Re: new analysis, 70,000 barrels are gushing out every day
Very interesting story.
Purely as a layman —
Since all my life I've heard oil and water don't mix, this has me wondering if anyone has ever attempted to vacuum oil from the surface or, in this case, could do so subsurface.
I've seen dredging equipment at work in shallow river water, but perhaps something similar could be accomplished in these huge, catastrophic events.
Is Hoover still an independent company ;)