CTA Trading Desk Morning Report
[8:45am ET] Good morning, Geoff here.
A number of good economic reports combined with a lack of bad news from Europe helped the stock market finish up strong last week. A small increase in both personal consumption and personal income along with a strong 3.8% advance in durable goods orders lifted the market on Friday. Most of the recent economic data releases have been positive, but not strong enough to allow traders to breathe a heavy sigh of relief or take the possibility of QE3 off the table.
We also received the positive news that Washington found compromise and passed a temporary extension of the payroll tax cut and long term unemployment benefits.
Futures are slightly lower this morning. Sears Holdings said that it will be closing between 100 and 120 Sears and Kmart stores. After losing more sales to stores like Macy’s and Target, the retailer will be focusing on the cash generating stores moving forward.
In a shortened trading week with historically low volume, we shall see if Santa can deliver his last presents before New Years Day. Consumer Confidence and pending home sales are about the only real economic data releases that could notably move the market this week.
Have a great trading day!
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
| Symbol | Name | Last Trade | Change | Related Info |
|---|---|---|---|---|
| ^ATX | ATX | 1,892.20 |
 5.80 (0.31%) |
Components, Chart, More |
| ^BFX | BEL-20 | 2,057.15 |
 2.70 (0.13%) |
Components, Chart, More |
| ^FCHI | CAC 40 | 3,114.78 |
12.69 (0.41%) |
Components, Chart, More |
| ^GDAXI | DAX | 5,903.90 |
24.97 (0.42%) |
Components, Chart, More |
| ^AEX | AEX General | 310.27 |
2.48 (0.81%) |
Components, Chart, More |
| ^OSEAX | OSE All Share | 442.02 |
2.04 (0.46%) |
Components, Chart, More |
| ^OMXSPI | Stockholm General | 304.89 |
0.23 (0.08%) |
Components, Chart, More |
| ^SSMI | Swiss Market | 5,895.41 |
1.52 (0.03%) |
Components, Chart, More |
| ^FTSE | FTSE 100 | 5,512.70 |
55.73 (1.02%) |
Components, Chart, More |
| FPXAA.PR | PX Index | 901.70 |
3.10 (0.34%) |
Chart, More |
| ESI500000000.MA | IGBM | 855.81 |
0.83 (0.10%) |
Components, Chart, More |
| MICEXINDEXCF.ME | MICEX Index | 1,384.90 |
5.14 (0.37%) |
Chart, More |
| GD.AT | Athex Composite Share Price Index | 665.99 |
0.93 (0.14%) |
Chart, More |
http://finviz.com/futures.ashx
http://finviz.com/fut_chart.ashx?p=m5&t=ES
http://finviz.com/fut_chart.ashx?p=m5&t=ZB
http://finviz.com/fut_chart.ashx?p=m5&t=DX
http://finviz.com/fut_chart.ashx?p=m5&t=GC
http://finviz.com/fut_chart.ashx?p=m5&t=SI
http://finviz.com/fut_chart.ashx?p=m5&t=CL
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Vad's Catch of the Day
Kaimu's Sound Money
Stephen Wellman
First off … Mele Kalikimaka me ka Hau'oli Makahiki Hou - Aloha Kakou!!
TREASURIZED
Who here remembers the many economists in the USA proclaiming economic “GREEN SHOOTS”?
“It’s too early to get excited, but I think there are a couple of green shoots that say we’re not going down as heavily in the first quarter as we were in the fourth quarter,” said Bruce Kasman, chief economist at JPMorgan Chase(Feb 16, 2009)
Look at that mainstream media propaganda foisted on us by the likes of JP Morgan. That statement is incredibly vague. Break it down.
- “It’s too early to get excited …”
- “… I think …”
- “… a couple of green shoots …”
- “… as heavily …”
What sort of “fraudspeak” is that?
"If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions." – Winston Churchill
On February 16th the DOW was at 7365 it bottomed at 6626. The DOW was at 10310 the start of the 2008-Q4 in October. It was not until over a year later that the DOW regained the 10300 level in November 2009. The DOW historically peaked in July 2007 at 13895. Bruce Kasman left the employ of JP Morgan in June 2009 and is now at the American Bankers Assoc. By June 2009 it was clear “green shoots” was not the ultimate propaganda economists and politicians had hoped for to turn the tide. Where did Bruce Kasman start his career as an underperforming economist? At the New York Federal Reserve, the same place Tim Geithner came from. Maybe we should consider the source first rather than the headlines and the content.
As you will see in the next article I entitled “Controlled Bankruptcy” I would say that is how the US Treasury was designed. A long slow decline in transparency, honesty and value as if we have been living in a “controlled bankruptcy” that started back in 1913, when the first US central bank was legalized. Just so you get a big picture view you would have to be 98 years old today to be born the same year the US FED was launched. You would have to be born in 1901 to have just 12 years to recall how America was before our first and only central bank. That would make you 110 years old today. Are any Americans 110 years old and still alive today with a decent memory? Then again at age 12 how astute would you have to be on monetary matters to know anything? My point is that now there are virtually no Americans left on Planet Earth that can tell us how it was to live in America without a central bank. A central bank made of private bank members that have no stake in providing a currency with a long term store of value. If the US FED mandate was to preserve the value of our currency then they have accomplished the total opposite. We have almost no purchasing power left compared to what we could buy in 1913. So once again prices do not go up our monetary value decreases.
It is December 21st at the US Treasury and here are the total YTD gross outlays …
If you read that right the total is $2.194TRIL USD. Not bad for less than three months! In terms of market cap that is:
- 5.4 XOMs
- 5.9 AAPLs
- 4,937.8 UXGs
Remember that is less than three (3) months of spending! You need to times that by four (4) to see what a full year would look like. You get the idea in terms of malinvestments? It is a huge leap of faith to believe that the US Congress and the US President can be successful in creating jobs. They are very successful at destroying jobs and destroying present and future value here in America. With the aid of the US Federal Reserve they have succeeded at also destroying what is left of the purchasing power of our US Dollar.
Just as an FYI Exxon-XOM was listed on the Dow Jones Industrial Index in 1928, only General Electric predates Exxon as it was listed in 1907. By this info you can see that the US Treasury outspends market caps of the most prestigious and oldest and most venerable US corporations in literally days! It took the US Treasury only 16.6 days to spend XOMs market cap, a global oil company over 80 years old. That is a lot of monetary power consolidated in the US Congress. A large portion of that monetary power is leveraged using debt.
Here we see total “net debt” added to the US PUBLIC DEBT in less than three months time …
That’s $111BIL USD a month and Greece is near default over an $11BIL USD shortfall … But, hey, America has a central bank and Greece does not. Greece and its citizens decided “Brussels Knows Best”!
Total US Public Debt subject to limit is about $15.1TRIL USD … That’s 37.34 XOMs and we are “debt free”! According to the latest November 2011 Dow Jones Index data the total market cap of the entire index is $15.152TRIL USD. The US Treasury would have to sell off the entire DJI to be debt free. Of course America would be Zimbabwe after that, but, hey, no debt!
LINK: http://tinyurl.com/7oj7h2s
Now let me put the whole Super Committee into perspective for you …
The committee was charged with issuing a recommendation by November 23, 2011 for at least $1.5 trillion in additional deficit reduction steps to be undertaken over a ten year period. This would have been the second installment of deficit reduction measures. Possible areas to be examined by the committee included: revenue increases, including raising taxes; tax reforms, such as simplifying the tax code and eliminating some tax breaks and loopholes; military spending cuts; and measures to reform and slow the growth of entitlement programs, including Medicare, Medicaid, and Social Security. According to White House economics adviser Gene Sperling, "everything is on the table."
Well, as I predicted in my CTA Conference 2011 presentation at Whistler, November 23rd has come and gone and the committee fell flat on its face accomplishing nothing positive. Do the math, $1.5TRIL USD over ten years is only $150BIL USD annually. Does anyone in mainstream media see the complete lunacy and the huge political flaw in this Budget Control Act of 2011? We just looked at the US Treasury Statement for December 21st that showed net debt at $111BIL USD per month, so what is $150BIL USD per year in spending cuts? Then you have to factor in “political resolve” over a ten year period. It’s just not there, its not even there today much less ten years later in 2021 when 70 million baby-boomers retire and demand their Social Security and Medicare benefits become gold plated-diamond encrusted scared cows! That’s a big voting block to go up against and so far no US politician has dared take that cookie jar away. When put in the context of falling USD purchasing power a reduction in any benefits will be out of the question. Once again with no long term store of value in our money we can never afford fiscal responsibility. The absence of monetary value decays the moral and social fabric of America systematically. We see the same monetary value decay happening globally and it is especially pronounced in Europe now as Greece is just the tip of the iceberg. The main function of money should be “value”, without value money makes every exchange worthless. You never hear the US Federal Reserve or the US Congress speaking of ways to return a long term store of value to our monetary system. They are only experts at ways to manipulate the perception of value using legalities, accounting, rates and stimulus. There is not much difference between how Enron operated and how the US FED and the US Treasury operate.
CONTROLLED BANKRUPTCY
Politics always infests every part of human action, including the “markets” and especially the value of money. When it comes to the politics of “austerity” we see once again the struggle between the “haves” and the “have-nots”. In this case it is easy to visualize a return to certain Communistic ideology as workers are forced into less productive ventures, losing weekly hours or being completely displaced.
Here we have one such Communist workers organization and their ideas for Greece and the EU and the ECB. Austerity has always been a fervent ground for the growth of Communism, as there are many struggles that workers face to obtain a livable wage.
The Communist Party in Greece, say that they want the “cancellation of the debt” and the “disengagement from the EU”. You might think to yourself what sort of lunatics are these? Are they a handful of disgruntled workers who started their own blog? No this group is PAME and they have 800,000 Greek workers in their membership ranks.
“To come to power, working people and the people’s alliance that I mentioned earlier will need to have as its goal the satisfaction of the needs of the popular strata of society, of working people. This is the sort of development and growth that we want for the people of our country. This path of development goes hand in hand with disengagement from the EU and the unilateral cancellation of the debt.”
Here we see the issues of Greek austerity and the ECB dominance from the eyes of the “people” …
“More or less all of you would know that we are facing in Greece what is described as a controlled bankruptcy. With the latest agreement concluded at the last meeting of the European Union on October 26, new measures were decided that will be added to the series of measures that have been implemented in recent years. These measures included a program for the complete sell off of public assets, further cuts to the public sector, the laying off of more than 300,000 public servants over the next few years and huge reductions in wages and pensions.
“Unemployment, which according to official figures is at 20 percent, is estimated to rise to 25 percent in the coming year. Unemployment for women and young people has reached nearly 40 percent.
“There are extra taxes being imposed – crushing taxes on ordinary people. An example of these new taxes, which are added to the usual income tax, is a residence tax that is levied on citizens through their electricity bill. It can be used as blackmail in that if you don’t pay the tax, the electricity will be cut off. The Social Democratic Party (PASOK) that was elected in 2009 revealed that it could not manage this crisis under all this pressure.”
Once again bankers take control of the government, something we have seen here in America for many years now. What was Hank Paulson? Geithner? Rubin? Corzine? We have had countless other “bank politicians” throughout our history. The struggle for the “legal tender” …
“They call themselves a government of “national salvation”. They’ve chosen an ex-banker [Lucas Papademos] who was previously vice-president of the European Central Bank and who is fully supported by the European system of finance capital as their prime minister.”
As in every Communist doctrine there is always the ever present “capitalists”. Here we read the real reasons for the Greek crisis …
“The truth of this crisis is that it is an international capitalist crisis. They never say, they never reveal what the real policy of the EU was, including towards Greece. They don’t say, for example, with this type of policy hundreds of Greek companies would transfer their operations, their factories and so on, outside the country to elsewhere where the labour force is cheaper. None of this profit was returned to Greece but was deposited instead into accounts in Swiss banks or other tax havens around the world. If you were able to access the amounts deposited in Swiss banks, you would find that they contained twice the total of the current public debt.
“While they are discussing selling off public assets, strategic sectors of the economy, while they are talking about cuts to health and education, they keep spending huge amounts on the military. During the crisis when the first memorandum was being signed, the government bought six or seven submarines from German monopolies. They never said that with the entry of Greece into the Eurozone or adopting the European currency the only beneficiaries from this would be the bankers, big business owners, ship owners and the capitalist forces in general.”
In classic Communist thinking the solution is to turn over the property rights and the production rights to the “people”. Been there – done that!
Once again there are no real “solutions” to this Greek crisis according to PAME other than canceling the debt and start with new debt. Exactly who is it that owns the “capital” and if you could put yourself in the shoes of the “owners of capital” would they want to invest more of their capital into a government that insists on canceling debt as a policy?
Of course none of the PAME principles ever touch on the real issue of indebted currencies, which is how exactly does so much debt get created? Perhaps it is the monetary system itself that needs to be cancelled and not the debt.
http://www.cpa.org.au/guardian/2011/1531/11-pame-visit-to-australia.html
PAME-All Workers Military Front
http://www.pamehellas.gr/main.php?lang=2
It is interesting that this PAME video on UStream opens with an ad from Helzberg Diamonds, a Warren Buffet company, and one of the top capitalist pigs that PAME stands against.
http://www.ustream.tv/recorded/17969883
I am not for Communism but I cannot help ponder it’s message will be more and more appealing as more and more of the World’s youth remains unemployed and struggles to make ends meet. I agree with the Greek Communists though on many minor points, but they leave off the major points of monetary systems and “free capitalism”. Still “austerity” is tough, no matter the causes. I have personally suffered my own self-imposed austerity, probably much worse than any government could conjure up and still get voted back into power.
Even the USA has had its bouts with “austerity” in the past. Here we can see the last time the USA had any real “austerity”. How about 3 gallons of gas a week? Who could survive on that today?
http://www.youtube.com/watch?v=ldjK6YWLVfM
BIS THIS
A show of hands here … Aside from some of the ETFs, who here trades derivatives directly? Who here knows if the ETFs they hold utilize derivatives? If so which ones and how often are they traded? Of the emerging markets ETFs, do you know if your ETF holds a KIKO or a TARN? Do you even know what a KIKO or a TARN is?
Now we hear from the monopoly of the money monopoly itself the BIS as they define the derivatives markets that cannot stop growing. But at whose expense are these largely unregulated and largely unreported brokers going to be backstopped? Shadow banking system indeed …
If you tuned into the last SOUND MONEY you saw how hypothecation and rehypothecation has skewed liabilities upward in the Shadow Banking system. The BIS is supposed to be the central bank of all central banks, in other words the ultimate global central bank.
Before you read these numbers make a mental note that there are only eleven (11) countries whose central banks actually report derivatives data. In fact in Table 8 below you will see that near half of the known $32.4TRIL in CDS derivatives alone are held by “non-reporters”. What we have learned in the past is that losses for hedge funds and banks are hidden, off-balance sheet, usually in offshore shell companies or accounts that have no reporting requirements in unregulated markets. Also note in Table 8 that the vast majority of those CDS are held “abroad” outside of the country of the bank/dealer headquarters; $26.5TRIL of the total $32.4TRIL. The only exception is CDS, which only has ten (10) countries reporting.
The above chart shows a decrease in “market values” and gross credit exposure. We have seen time and again how “market values” are skewed and with the failure of Bear Stearns, Lehmans and now MF Global how can we be sure the BIS has an accurate measurement of real “credit exposure”? As I have noted above there are only eleven countries central banks reporting, the G-10 plus Switzerland (BIS). No surprise that CDS has grown.
They need to change it to the G11, since there are technically eleven.
You never hear much about the SMITHSONIAN AGREEMENT, which replaced Bretton Woods in 1971 when Nixon closed the gold standard down. This is the agreement that moved currency valuation to the floating mode.
By 1970, however, it was clear that the exchange rate regime was under threat, as the United States dollar was greatly overvalued because of heavy American spending on Lyndon B. Johnson's Great Society and the Vietnam War. The American economy was also coming under serious inflationary pressures due to the aging economic infrastructure; competing for scarce resources for purposes of destruction (war) versus purposes of economic viability (infrastructure). Are we not in this same boat yet again as infrastructure in the USA is faltering while we continue to engage in war in the Middle East?
In response, on August 15, 1971, President Richard Nixon unilaterally suspended the convertibility of dollars into gold, ending the gold standard. The United States then entered negotiations with its industrialized allies to appreciate their own currencies, in response to this change.
Meeting in December 1971 at the Smithsonian Institution, the G10 signed the Smithsonian Agreement. In the Agreement, the countries agreed to appreciate their currencies against the United States dollar. Not much spirit of cooperation exists today between the G10 as every country is in a race to see who can improve their economy via exports using debased currency. Even now the Swiss are not above such tactics. President Obama has stated his goal to increase US exports by 50% during his first term, which means he intends to enlist the US central bank to debase the USD in order to achieve that goal. Thanks to his very close association with unions and the Davis-Bacon Act the USA cannot compete with foreign labor markets on price inputs. Add in the myriad of US government regulations on everything from safety to pollution to taxation (meaning excise and payroll).
Although the Smithsonian Agreement was hailed by President Nixon as a fundamental reorganization of international monetary affairs, it quickly proved to be too little and of only temporary benefit. The gold value of the dollar was realigned again in 1973, from $38.02 to $42.22 per ounce. In addition, further devaluation of the dollar occurred against European currencies. The end of the system came in March 1973 when the major currencies began to float against each other, as governments still had difficulties maintaining the exchange rates within the +/-2% band stated in the agreement, essentially bringing into effect the floating exchange rate system which determined exchange rates based on the market forces of supply and demand.
The table below clearly shows that a majority of derivatives are based on interest rate contracts.
The idea that there is a market, partially unregulated, with a notional value that is 16 times the size of total global debt is astounding. The fact that it is permitted to exist is astounding!
Total global debt clock … Now at $44.1TRIL and counting …
http://www.economist.com/content/global_debt_clock
Total global GDP is only $62TRIL USD. The total derivatives market is $708TRIL USD, which is 11 times more than total global GDP. There are not enough people in the World or GDP to be a counterparty. To socialize the losses of just the “gross market value” (roughly $20TRIL USD) would wipe out one third of total global GDP and about half of total global debt. Why is this tolerated?
A statistic for the 99%, in global terms, the population of the world is 7 billion people and out of that 7 billion the total that is paid less than $2USD per day is 3.25 billion. That is approximately 50%. What about that 50%? What can they occupy? Maybe they should occupy the 99% in America that consume most of the world’s resources!
http://en.wikipedia.org/wiki/World_economy
The U.S. Consumer
• The United States, with less than 5 % of the global population, uses about a quarter of the world’s fossil fuel resources—burning up nearly 25 % of the coal, 26 % of the oil, and 27 % of the world’s natural gas.
• As of 2003, the U.S. had more private cars than licensed drivers, and gas-guzzling sport utility vehicles were among the best-selling vehicles.
• New houses in the U.S. were 38 % bigger in 2002 than in 1975, despite having fewer people per household on average.
Social Impacts of Consumption in the U.S.
• An estimated 65 % of U.S. adults are overweight or obese, leading to an annual loss of 300,000 lives and at least $117 billion in health care costs in 1999.
• In 2002, 61 % of U.S. credit card users carried a monthly balance, averaging $12,000 at 16 % interest. This amounts to about $1,900 a year in finance charges—more than the average per capita income in at least 35 countries (in purchasing power parity).
The United States finds itself at a critical juncture, as environmental degradation and resource depletion threaten the capacity of the U.S. economy to generate wealth for the indefinite future. The choice is not between the status quo and sustainability. The choice is whether the United States builds sustainable prosperity through prudent choices now or declines into sustained impoverishment because it failed to steward its assets when it had the choice.
In a comparative analysis of sustainability, the United States ranks barely in the top third of nations. Despite growing awareness of the need to build a sustainable national economy, U.S. output continues to be characterized by linear flows of materials, heavy dependence on fossil fuels, disregard for renewable resources, and resource use that is strongly connected to economic growth.
http://www.worldwatch.org/node/810
Moving on … We see the “grand total” on the first line of Table 1. Notional amounts have increased way more than 2009-H2, while “gross market value” has declined very little since 2009-H2.
Given the high concentration of interest rate contracts and the severity of debt levels at the US Treasury combined with consumer debt in the USA, of which mortgages and credit cards are rate sensitive, is it possible for America to experience another Volcker style Fed Funds Rate of 20%? What about a Fed Funds Rate of 3%? The US Fed must commit to further Treasury purchases, because the alternative to rising rates would be catastrophic to the US consumer and the US Treasury as well as derivative counterparties, but whose real interest does the US FED serve here?
As you see in Table 7 the CDS contracts are up in the H1 2011 (first half), versus H1 2010, but look who holds most of them. I see the “non-financial firms” with the majority, some $13.12TRIL USD with financial firms second. As multi-national corporations do business globally they hedge their irredeemable floating currency using CDS. We all know that many ETFs have derivative components also. Only a little over half of the derivatives contracts are with “reporting dealers”, leaving $14.8TRIL with “non-reporters”.
Clearly Latin American equity-linked contracts are being dominated by a single player, see Table 9f below. Such a concentration does not bode well for prudent risk management.
http://www.bis.org/publ/otc_hy1111.pdf
A more visual view of the growing derivatives markets …
Outside of the 11 reporting countries we have this from the IMF … Remember I asked earlier if you knew what a KIKO is? What about a TARN? How do you know that one of the companies in your emerging markets ETFs is not holding a KIKO or a TARN?
What is a KIKO?
What sort of losses have we seen using these emerging market derivatives?
First of all notice that according to the BIS report a very large portion of the derivatives market is in “non-financials”, equities and interest rate contracts. Would even major reporting institutions like JP Morgan include KIKOs and TARNs in their data? Or could they “vanillafy” them? How would anyone know that? When it comes to international emerging markets derivatives and the ETFs in those markets you must always consider … BUYER BEWARE!
Once again we see the all too familiar pattern of the usual suspect in banking putting their stamp on the emerging markets. What is left of American fiscal and financial credibility with these kinds of fraudulent operations?
The IMF report …
http://www.financialpolicy.org/kiko.pdf
From the world of insane derivative markets to just the “world” we live in … Something that in the past meant “exotic”!
THE ISLAND EURO
Just to show you how perverse and subliminal all this EU and EURO drama is in my head I wrote on my calendar “Island Euro” instead of “Island Uro”! My urologist appointment that is …
Getting off the propaganda of the EU and the Euro let’s look at a brief history of Hawaiian money …
In the beginning, of course, Hawaiians didn’t have any money. They didn’t even know what money was. They simply traded things, bartered, to avail themselves of the things they needed. Even after explorers started arriving in the 1700s, barter still was the only way they could obtain staples.
Gourds were the most valuable commodities. They could be used for food storage and as drinking cups, eating utensils, water containers, rattles for children and hula dancers, and containers for holding belongings. When a young woman set a goal of marrying the richest man in the community, she checked out his garden for gourds.
Nails became a form of money. Early Hawaiians had never seen metal and had no idea of its many uses. When exposed to nails, they discovered that nails could be fashioned into fishhooks, with which they could catch a lot more fish than they could with their old-fashioned bone fishhooks.
In fact in James Moorehead’s book “The Fatal Impact” he quotes from Captain Cook’s journal that Cook had to keep an armed guard on the nail kegs with orders of shoot to kill because his sailors could no longer have free sex with the native girls as the girls demanded payment in nails. Cook feared his store of nails would vanish and he would have no way to make repairs for the journey back to England.
Later, sandalwood became the currency of choice because, when trade began between Hawaii and China, the Chinese couldn’t get enough sandalwood for their aromatic chests and boxes that sold for very high prices. In return for the prized wood, Hawaiians received brocades and silks, dishes, spices, teakwood furniture and firearms.
The Ali`i (royalty) of the day demonstrated their status by wearing magnificent yellow and red feather cloaks and helmets. The feathers from certain birds used for the garments became virtually priceless. Only the Ali`i could wear the garments, but commoners could catch the birds and grab the feathers, and the feathers became common currency.
Eventually, the value of silver and gold was recognized in Hawaii. Silver came in the form of Spanish pesetas or Spanish-American dollars, half-dollars and reals. Unfortunately, commoners weren’t allowed to have silver and gold; only the Aili`i could play that game. FDR did that to American “commoners” as well back when he was King!
In 1847, King Kamehameha III issued an official copper cent, which could be used as currency by anyone. By 1883, the Hawaiian coinage and money system was made to conform with that of the U.S. gold standard and money had to be earned, not grown, picked or plucked.
Now let’s go back to the 1980s and 1990s to evoke times when sanity was much more prevalent …
THATCHERISMS
On the ECB …
Margaret Thatcher debates the flaws of the ECB in 1990, about none years prior to the Euro.
http://www.youtube.com/watch?v=rv5t6rC6yvg&feature=related
This video is from 1983 in which she addresses government’s duty to its citizens.
http://www.youtube.com/watch?v=xvz8tg4MVpA&feature=related
A new movie coming - The Iron Lady …
http://www.youtube.com/watch?v=yDiCFY2zsfc
“Credit expansion is the government’s foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.” – Ludwig Von Mises, Human Action, 1947
“I don't believe I'll ever get credit for anything I do in foreign affairs, no matter how successful it is, because I didn't go to Harvard.” – Lyndon B Johnson
“Women know what men have long forgotten. The ultimate economic and spiritual unit of any civilization is still the family.” – Clare Boothe Luce
“Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are now living through.” – Timothy Geithner
“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense... that gold and economic freedom is inseparable.” – Alan Greespan
“The desire of gold is not for gold. It is for the means of freedom and benefit.” – Ralph Waldo Emerson
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report
Comments
Econoday Today
RSI Summary as of EOD 2011-12-26
Accumulation Zone: Monthly 10, Weekly 3, Daily 3
Distribution Zone: Monthly 7, Weekly 6, Daily 23
Cara 100 Ratings Changes For Tuesday
Good morning.
09:00 Case-Shiller 20-city Index
10:00 Consumer Confidence
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There are NO Cara 100 Ratings Changes to report at this time.
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"Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it." ~ Richard Lamm
Subsidies/tariffs U.S. ethanol industry ended?
Wishful thinking by a lobby group?
"For the first time in more than three decades of generous US government subsidies for the domestic ethanol industry, coupled with a steep tariff on imports, the United States market will be open to imported ethanol as of January 1st, 2012, without protectionist measures. The adjournment of the 112th Congress means both the US$0,54 per gallon tax on imported ethanol and a corresponding tax credit of US$0,45 per gallon for blenders, the VEETC (Volumetric Ethanol Excise Tax Credit), will expire as expected on December 31st."
http://tinyurl.com/6ptlm6r
Re: Subsidies/tariffs U.S. ethanol industry ended?
Amazing, we're finally stamping out the ethanol silliness. Next step: get rid of sugar tariffs. That should stamp out high fructose corn syrup. Nobody else in the world uses the stuff, only us. Our prices for sugar are twice what they are in other places.
Stat from wiki:
"The average American consumed approximately 37.8 lb (17.1 kg) of HFCS in 2008, versus 46.7 lb (21.2 kg) of sucrose."
That's a quarter of a pound of sugar a day - about 400 calories.
Short-term funding gets out of Fed control - what does it mean?
http://www.boj.or.jp/en/mopo/mpmsche_minu/minu_201...
With regard to U.S. dollar funding conditions through foreign exchange swap
markets, the three-month cost of swapping euros into U.S. dollars had risen to the 1.5-2.0 percent range, significantly exceeding interest rates on the U.S. dollar funds-supplying operations, as there were concerns about counterparty risks in relation to European financial institutions that held a large amount of government bonds issued by those countries facing serious fiscal concerns.
This is drawn from the minutes of the most recent BoJ policy meeting on November 30.
Brandt was offering his readers a Christmas present - short Eurodollars. He writes "There is a very strong chance the Fed has lost control of short-term interest rates." http://peterlbrandt.com/my-christmas-present-to-yo...
So I can see the counter-party risk in swapping dollars for Euros - I suspect the currency swap arrangement and more recently the ECB's efforts are directed towards easing these risk concerns.
But I look to the Eurodollar chart and I see we're back to previous lows before the swap was announced. What gives? And what does it mean?
According to the Economist from a 2008 article reflecting on Fed ZIRP policy, it sounds like a de facto tightening of monetary policy might be coming up.
http://www.economist.com/node/12607243?story_id=12...
http://en.wikipedia.org/wiki/Zero_interest_rate_po...
That doesn't sound good in an economy that is only gently expanding. One can see from Brandt's long term charts interest rates rising during periods of economic expansion, which is understandable.(take 100 as zero percent and add 1% for every round number that the Eurodollar drops through. e.g., 99.00 equals a 1% interest rate cost to borrow global dollars).
During periods of economic expansion dollars are in demand for more productive investment. But now? Isn't most bank funding done using short-term interest rates?
I'm worried that existent Fed tools are failing in effectiveness and we might be about to see some new fancy footloose monetary experiments from Ben the chopper Bernanke.
I wonder if Bill might yet see his 50 year bond sooner rather than later.
For the more knowledgeable in the crowd, please correct any misunderstandings I may have regarding Eurodollars - it's a subject I keep pushing myself to understand better.
China Bans Gold Exchanges
"The central bank said it would lead a team to clear up the mess — gold exchanges will be altered or closed, banks will stop providing clearing services to them; and some people will be put under police investigation, PBOC said."
http://www.cnbc.com/id/45794782
See Kaimu's Sound Money
Above.
Re: Short-term funding gets out of Fed control - what does ...
Ambrose EP has more to say on recent actions by the ECB and their short-term, 'averting a Lehman-style meltdown' tactical efforts.
http://blogs.telegraph.co.uk/finance/ambroseevans-...
What is more interesting is the thoughts coming out from London as to what Mr Draghi may do shortly:
The small band of City specialists who really have their fingers on the pulse of the ECB are split on what happens next:
The Herr Draghi camp thinks he means what he says about respecting the EU Treaties and Lisbon’s Article 123 prohibiting monetary financing of deficits.
The Signor Draghi camp thinks he is slowly combining an alliance of ECB doves ready to spring a trap on the Bundesbank, with rate cuts to 0.5pc by February and then signals of forthcoming QE – most likely by playing the forward-looking "deflation card" and muttering about impaired "monetary transmission channels".
One notes that Signor Draghi dodged the crucial the question on QE in his interview with the Pink Paper on Monday. The transcripts show that he refused to rule out printing money. "We take that as a yes," said David Owen from Jefferies Fixed Income.
Something to watch from the ECB in the next couple of months. Yet that is a lifetime in this market. As it is a couple of banks, notably French and Italian, getting hammered in a relatively restless European market. See attached.
US rail traffic is strong
From the Credit Suisse weekly report, we learn that Week 50 RR carloads had a 9.2% increase on a y/y basis. The key commodity types, intermodal and coal, are up 3.7% and 2.5% (coal was up 15.2% on a y/y basis during Week 50, 2011), respectively. Motor vehicles are up an impressive 15.8% y/y while metallic ores are up 8.0% y/y. Ag product carloads are the sole major commodity type that is down on a y/y basis.
For the week, y/y carload growth by rail were as follows:
CSX: +17.7%
NSC: +15.6%
CP: +11.7%
KSU: +9.8%
BNI: +6.7%
CNI: +6.4%
UNP: +4.7%.
Santa rally is working
but not so much in miners. Did I bet the wrong horse?
Japanese vehicle production up 4.5% YoY in Nov
http://jamaserv.jama.or.jp/newdb/eng/index.html
The database above lets interested parties peruse their preferred measure. So the tsunami and earthquake might have slowed, but certainly have not contracted, Japan's major export.
----------------------
HOUSING STARTS (YOY) Japan for Nov
Actual: -0.3% Cons.: -4.9% Previous: -5.8%
ANNUALIZED HOUSING STARTS Japan for Nov
Actual: 0.845M Cons.: 0.802M Previous: 0.745M
http://www.fx360.com/calendar/
US economic data - consumer confidence rebounds
S&P/CASE-SHILLER HOME PRICE INDICES (YOY) Oct
Actual: -3.4% Cons.: -3.2% Previous: -3.5% Revised from -3.6%
------------------------
CONSUMER CONFIDENCE Dec
Actual: 64.5 Cons.: 58.5 Previous: 55.2 Revised from 56.0
------------------------
RICHMOND FED MANUFACTURING INDEX Dec
Actual: 3 Cons.: 5 Previous: 0
The survey including information on shipments, new orders, order backlogs, and inventories conducted by Federal Reserve Bank of Richmond provides information on current activity in the manufacturing sector (mailing 220 business organizations).
http://www.fx360.com/calendar/
Watching TLT, Euro, 1266 resistance on ES, and breadth
if 1266 can be busted through, buying will accelerate today.
Consumer confidence numbers beat
Consumer Confidence Improves Much More than Expected, Rising to 64.5 in December from 55.2 in November
let's see how prices react
See correction to Sound Money
The second US Treasury quote, In the first section, "TREASURIZED", has been corrected. Now reads:
Here we see total “net debt” added to the US PUBLIC DEBT in less than three months time …
Net Change in Public Debt Outstanding ... $333,501
Buying gold in Europe
Since my local bank has run out of gold bars, I was searching for gold vendors online in Europe.
The best I could find was this:
www.coininvestdirect.com
Very reasonable prices. They even buy back at good prices. For example, today, they will sell a 100g bar at 4,007 Euros and buy it back for 3,912 Euros; thus making the spread 2.4%.
Looked up a few forums and they seem to have many happy customers. I am ordering from them soon and will let you know how the transaction goes.
In Europe, there is no VAT on the purchase of gold and no capital gains to pay if you sell for a profit.
Re: Buying gold in Europe
thank you jr. At some point I'll need some avenues with which to unload, preferably in Europe. Bookmarked.
Cara 100 Update (Final)
WHR - Whirlpool downgraded to Neutral from Buy at Sidoti and lowered Whirlpool estimates citing weaker emerging market growth and tough North American margins. Price target cut to $50 from $74.
Christmas gift spending
This year I thought I would go light on Christmas gifts.
Well, after tabulating $, looks like our family of 4 spent circa $900 on gifts, below average per capita. Yet, there were plenty of gifts under the tree. How did your spending go?
This chart gives an international flavor: http://www.freakonomics.com/2011/12/13/christmas-s...
Re: Buying gold in Europe
Les,
A couple of other vendors with good prices:
http://www.oegussa.at/
http://www.atkinsonsthejewellers.com/
and if you are in Bruxelles, these guys have good rates:
http://www.gold4ex.be/html/contactuk.html
or http://westgold.de/html/contact_secure.php in Netherland
Reminder as we stumble into
Reminder as we stumble into the new yr:
Jan 3, 2011
S&P
Open 1257.62
High 1276.17
Low 1257.62
Close 1271.89
Vol 3.6B
Nasdaq
Open 2676.65
High 2704.34
Low 2691.52
Close 2691.52
Vol 1.9B
ECB reports record cash deposits from banks
If you are insolvent, no one will put their money with you, no matter how much money the ECB pumps into the system:
http://www.bbc.co.uk/news/business-16338395
Perhaps they will stop reporting this data at some point (like the Fed stopped it's M3 reporting).
Kaimu's sound money
Loving the new KSM.
I think though, that sometimes we demonize those who react to the currency fraud. If it weren't for the currency, derivative and debt fraud perpetrated by the bankers and their political co-conspirators, our currency would be a store of value and there would be no vacuum for communism or even unions to fill.
Communism merely fills the vacuum left by the corruption of those who manipulate the system. Unions exist only because so-called capitalists (those in cahoots with bankers and government frauds) create the need for them.
We know that the international public and private debts will be eliminated in one of several ways. 1. They get paid. (harumph!) 2. They are defaulted upon.
3. They are paid back in devalued currency (AKA here as wooden nickles).
Workers and labor didn't create this problem, bankers did. If currency was a store of value and fair interest or returns made any sense, there would be far less private debt and only that debt that was productive would exist. People could take time to save and earn interest and pay cash, knowing their currency wouldn't constantly be losing value. But in a system where currency is always losing value, people are forced by common sense to spend it now before it disappears. Savers are penalized. Similarly, workers are forced to seek a means of stemming that tide, since any wages and pension money they put aside also loses value as does a static pay scale, so they unionize in order to maintain their standard of living. This is not to say that all is wonderful about unions, but they didn't create the vacuum, they fill it with a purpose because of the fraud perpetrated by the bankers and their political stooges.
Rather than blaming communism and unions, we should instead re-focus our scorn on those responsible for designing and abusing what should be a sound money policy of a value holding currency. By solving one problem we could solve numerous others with little effort. This is also not to say there isn't a need for a more level field of play. Those in developing nations should have a living wage and environment that is commensurate with the developed nations. Nations should then concentrate on their natural advantages and resources and not on victimizing their people.
In writing this I'm merely saying we should seek to resolve the cause of our problems and not blame the natural reactions resulting from those causes.
When we see Tea Parties (the real tea party, not the movement hijacked by the wealthy crooks), OWS movements, Unions, and Communism, we need to realize they are reactions to a crime against the people. When we address the crime, we eliminate or reduce the need for 'police'.
jpm bullish wedge on 5 min.
jpm bullish wedge on 5 min. IF that follows thru to upside and takes XLF with it, all boats are lifting this afternoon.
Re: WIR #52 Re: Euro
davefairtex -
"I've noticed you use that word 'hyperinflation' a lot, but I'm not quite sure what you mean by it. In the case of the split eurozone, would your 'hyper-inflationary' outcome mean a devaluation by 50%? Or you once again imagining postage stamps overnight?" 12/26 #102797
Thank you for your lucid comments re: the North/South Euro split suggested in the WIR. My concern is with Spain since it cannot embrace austerity with 20%+ unemployment amongst young males. It's a big economy with lots of manufacturing. But the ECB controls Spain's sovereign option to print. Because of this, Spanish and all other EU gov't debt acts as a proxy to currency exchange. The ECB may boot Spain from the Euro once it devises a plan to save the big banks holding its credit or watch with amusement as the Spanish 2-year debt, almost equivalent to cash (cash = zero-term debt instrument as you know) hyperinflate a la Greece's 2-year debt. Click on the 5-year chart and note that Greek 2-yr debt has a hyperbolic yield from 1.7% in late 2009 to almost 150% today. That's hyperinflation (88x) abeit not as severe yet as the Weimar or Hungarian hyperinflations but hyperinflation nonetheless. Hyperinflation is common but stealth in the Euro structure with sovereign debt as the proxy to sovereign currency.
http://www.bloomberg.com/apps/quote?ticker=GGGB2YR...
I just don't see a Southern Euro that would not succumb to Gresham's Law without sovereign debt defaults. You outlined a scenario for high controlled inflation to resolve the debt but the ECB cannot resolve all sovereign political challenges at once like the Bernank and the QE to infinity. See Ireland and Greece. Following Bill's wisdom, all eye's should be squarely on the European banks. If Spainish/Italian/French debt yields launch, it'll be time to cash in the IRAs and run for cover.
"Smart money will move money into Bunds now, and then move it back in buying real goods for cheap (or paying off debt) once rates adjust and that alone will make things stabilize." - dave
Yup but only in the PIIGS debt instruments with lower default risk while the others will be hung out to dry as austerity = riots.
For 2012, I plan to trade for a quick gain and own the giants like JNJ plus the railroaders/miners and just pray my IRA accounts aren't subjected to an MF Global/JP Morgan pilferage. My non-IRA funds are out of cash and the markets and in metals and real estate.
Dave, am I nuts or what?
1.31 Euro and financials.
1.31 Euro and financials. basically all i am watching
path of least resistance for
path of least resistance for general market is up right now. keep in mind volume is typical of this week.
BAC is holding back the XLF
BAC is holding back the XLF money train.
once bac and ms can get on board, this train is leaving station.
or anything is possible too.
browsing the finance blogosphere
there are so many e-newsletter, 2 day private courses, "i will teach you to trade in x days and be consistently profitable" promises on the web.
ugh. please do not fall for that type of crapola. nothing worth while is easy. and to learn to fish vs buying fish, is the utmost importance. at the very least doing your own diligence of the people who are selling the training/services.
one of my mantras has always been, no one will care more about you keeping your money than you.
Now that i am on my own, i do like to keep a pulse on group think. luckily services like twitter and stocktwits is great. but not to find direction. I look for people who have larger followings, read their "tips" and thoughts and see where my own analysis falls. Most of those with high count followers have "click for our trade room service" or "learn to trade in an hour" type stuff.
to say again, we are very lucky to have Bill and his team teaching for free or at cost.
Re: BAC is holding back the XLF
pivotal point here as BAC attempts to break this down trend line of resistance formed since this spring. Drops back under 5 bucks and we're in trouble. Let's see if smart money is accumulating for an intermediate ride up.
took 4 stabs. paid
took 4 stabs. paid commissions to watch.
Re: took 4 stabs. paid
Hi NYU Grad - Not saying it will last but you may want to look at the Bakken names for your intra-day trading scenarios instead of the e-minis or whatever it is you trade. Seems like the leaders take turns from day to day to the point of being predictable. Your illuminating chart on the 350-250 day moving averages on the S&P 500 gave me pause. Hope all enjoyed the Holiday. Thanks to each and every one of you, but especially to Bill & Pat. Happy Trading
Re: took 4 stabs. paid
NYUG,
Not sure what you were trying to do in your trades, but thought I would add my 2 pips to your post about BAC. The trend is your friend they say, but it can also be your enemy. If you look at my attached chart of BAC, I have shown a linear regressive wedge heading consistenly down since before March. The blue arrows up show signals to go long, and the orange arrows down show signals to go short. These are very reliable signals that I often use athough it may not look so on the chart. On an expanded chart it is quite obvious.
Look at the time between long signals and then the reversing short signals. The short periods are much longer than the long which is telling you that unless you are very adept and quick on the trigger that until the trend reverses itself and you are sure of this reversal that you should not even consider the long side.
You see the same Tell on the MACD where the MACD line is consistently below zero, and any breaks of the signal above the line are purely short term counter trend trades that quickly reverse. The SloSto corroborates the MACD and only pops above 20 for a short time before reversing back. Modified RSI is Red almost all the way telling you the same thing.
What often happens and catches our attention is that there is a gap up on a given day and this stimulates our trading juices, making one believe that the stock is running away from us and we buy in, in order to be part of the gain, forgetting about the larger trend which caries more weight.
Unsure if this helps you or merely repeats things you already know and you find this boring.
Re: took 4 stabs. paid
BAC 'bowtied' on March 5th or so and has been in a primary downtrend since.
A 'bowtie' being when the fast MA's cross the slower MA's to the downside.
A great short.....
The signal of a possible transition (for longer term trades) will be when they flip back up again and are on top of the slower MA's. This is visible on a daily 12 mo chart or a weekly chart. The weekly chart shows the real distance between the price bars and each MA, which is significant. Additionally, the 200 DMA is angled down which also speaks to the weakness in BAC and appears to be getting steeper.
It does appear to be losing some of the downward momentum (angle of decline of price bars) but I suppose that could level off at zero!
Those with shorter time frames might want to trade some of those fake outs from the low fives to near seven.
Re: took 4 stabs. paid
Agree with Luggie but don't want to jinx myself as I've done well in these.
Still a strong upward trend in these co's and the underlying.
Boom time for workers at the mining giants
If the mining industry is this busy it SHOULD show up in stock prices someday .
" Over the past five years, the average employee at the "big four" mining giants of BHP Billiton, Rio Tinto, Anglo American and Xstrata has received an additional 211pc of his or her salary, according to Deutsche Bank analysts: "In other words, the average employee has received just over two years' additional pay on top of what would have been received had salaries remained flat on 2005 levels."
Nowhere is the phenomenon more evident than in Australia, where the scarcity of workers to feed Asian demand for commodities has not been helped by tight restrictions on immigration. Even truck drivers are now getting paid salaries of A$150,000 to A$180,000 (£96,000 to £116,000) and they can be trained up from scratch. The more skilled professionals whose experience commands a premium – mining engineers, resource geologists – are in even tighter supply. " http://tinyurl.com/cgkcbo9
Re: took 4 stabs. paid
Hi, I do not trade bac or any individual cos
I watch a dynamic list of etf's sectors etc while trading s&p futures.
Re: WIR #52 Re: Euro
Dr S. - "Dave, am I nuts or what?"
You're well set up for a money printing outcome. Judging by history, that has a decent probability of happening. But its not the only outcome, nor will the path between here and there necessarily be a straight line. And the deflationary forces that are inherent in a credit bubble pop are very, very strong.
I think if a deflationary event happens, the miners will not do well. Nothing will do well except cash, but not ALL cash in all currencies. I know we all read history and imagine Homestake Mining redux, but - that's back when gold really was money, and right now gold is just something you sell when you have a margin call to pay off your debts denominated in fiat. Long term people worry about printing, but banks live in a short term world where borrowed money must be repaid in fiat, immediately when it is due. Debt rollover and repayment issues trump all during one of these credit/deflationary impulses. Only one thing repays debt - cash in the currency in which the debt is denominated. Everything else gets thrown under the bus.
Here's the thing. People say gold is money, but it isn't. This bit of wishful thinking can kill you if you have debt and are expecting to pay it back using gold. Back under the gold standard, someone in debt could sell an infinite amount of gold to meet their margin calls, and not affect the price, thanks to the Treasury. Now that's not true. Players meeting margin calls with gold DOES affect the price. This makes a huge difference in perceived risk of holding gold (and by extension gold miners). Today your gold holdings today can extinguish your debts or meet your margin calls. But how about tomorrow? Who can say?
Gold today might be best thought of as another currency, but one in which you cannot pay your debts - and one in which there is NO FIXED EXCHANGE RATE. As a result, you must exchange out of it for it to extinguish debt, and that act of exchange affects price, worldwide. And since there is a really large amount of debt out there, a credit crunch results in gold (and everything else) getting hammered.
I'm not saying "don't hold gold." But I am saying be clear headed on what it is exactly, and how it might behave during a credit crisis, so you aren't surprised.
I have trouble picking out the path this will all take. The decision seems on the surface to be a binary one - print, or don't print. But in reality, the steps along the way determine just how painful the holding period will be. The initial deflationary impulse may be so dramatic it outstrips the ability of the central bankers to control. Germany may decide to allow printing, but too little and too late.
You have often talked about loss of confidence and how critical confidence is in a currency. Loss of confidence in some circumstances lead to hyper-inflationary outcomes. I think crises in confidence can also lead to sudden deflationary outcomes as well. A bank run is exactly that, a confidence crisis causing bank collapse and thus deflation. We're seeing a slow-motion systemic bank run in europe right now. What happens when one of the zone actually leaves and defaults? The bank run will likely increase dramatically, especially in the nations in similar debt positions. Money will flee banks in the eurozone even faster, and this will be deflationary, since it will cause euro banks to sell stuff in order to repay debt. (Debt repayment is always deflationary). And there is a LOT of debt out there.
Will people in a bank run leave bank deposits for physical gold? That's hard to know. They can't pay rent with gold, or buy food, or pay their debts. In times of great trouble, people want safety above all else. Money printing or dramatic devaluation may change this attitude, of course. Perhaps during the initial deflationary impulse gold gets hammered, and during the next one it actually goes up. The market really does love to be perverse like that. Or maybe it stays flat, since banks may sell and people (or asian central banks) might buy in roughly equal amounts.
I honestly don't know what the outcome will be. I see multiple paths this could take. It will depend on the policy response and the human response too. This large level of uncertainty is why I like having bank deposits, cash and CEF, using no leverage so I am not forced to sell under any circumstances. I too am praying my trading account won't vanish due to MF Global confiscation issues. Also I'm betting FDIC will ultimately pay me for my bank deposits in the event of systemic failure, simply because the US monetary system would collapse if it didn't, and that would have to be a conscious choice of the Fed, which I don't think they'll do.
And I continue trading, because I think that a systemic failure is not the most likely outcome.
gold is money at KWN
James Turk did an interview on KWN that highlights exactly the kind of thinking I was referring to. Some selected quotes:
* "When you're buying gold, you're buying money"
* "Everyone has to have some liquidity needs - I recommend gold & silver be your liquidity"
* "even if gold downdrafts, everything else is going to go down more. during the 1930s...the prices of everything went down...but with gold at $35 after the revaluation, gold maintained its purchasing power."
Left unsaid was that THE critical mechanism for this to happen was that the Treasury had committed to buying an infinite amount of gold for $25 (later $35) per ounce. When the government does this for other things, we call it a price support. This price support - this commitment is what made gold = money, not some intrinsic value of the metal itself.
Because of the commitment of the Treasury to that price support, holders of gold could 100% count on being able to repay their debts with gold. AND, a gold mining company could explicitly translate ounces in the ground into dollars which were used as payment for labor, equipment, expenses, and debt. Gold mining was literally "mining money", but only because of the US Treasury's policy.
The guys on KWN are smart, but you can't let them do your thinking for you. If we get caught up in "gold smash" conspiracy theories instead of focusing on the actual mechanics of a credit crunch, debt repayment, fiat currency, and the pricing of gold, we may end up surprised when things don't work out the way James Turk says they will.
I do not depend on gold for my liquidity. I depend on fiat currency for that, because debts are denominated in currency. My landlord does not accept gold grams, he accepts Thai Baht, because the bank he owes money to requires him to pay off his debt in Baht.
It is possible that the asian central bank buying will act as that same sort of price support for PM. But it is not explicit, so there is no guarantee.
With no explicit price support mechanism, the price of gold is guaranteed to fluctuate, and during a credit crunch, it may well fluctuate in the downward direction. If money printing overwhelms debt deflation, gold will go up for sure. But I think it is important not to blindly follow anyone, including the smart people at KWN who seem to have forgotten it was the US Treasury price supports that gave gold its deflation-fighting ability, not some magical property of the yellow metal itself.
Re: gold is money at KWN
What about credit withdrawal? What do you think metals and other hard assets will be worth in the event of all credit being withdrawn? There's not enough cash in circulation to cover the tab, so what are financial systems likely to do following this event?
What will my bank ask in collateral to cover the debt if and when credit is no longer extended? Will they foreclose, cause that's an event that will happen at a global level - systemic failure. Or will the banks, like what emerging market economies are pressing for, once again recognise gold and silver as monetary assets as a new and probably global currency system is thrashed out when the chit has hit the fan?
This is what I anticipate, but intend to maintain a 25% perspective that Faber advises. 25% cash, 25% real estate, 25% gold (I choose silver), 25% equities. My local branch of the domestic bank we work with has a non-functioning vault in the base of its building. I suspect that it will be pressed back into service at some point in the future as banks cease to be debt peddling, paper issuing ATM's and they once again return to the role of preserving hard assets for their clients.
Some of what I buy today will be left for our children, and I suspect it will be worth more than what it is today. But that is an ultra-long term view.
Re: gold is money at KWN
Yeah credit withdrawl is what I mean by a credit crunch. If all credit is withdrawn, but the banks remain alive, PM should drop like a stone. All those gold futures contracts are 20:1 leverage, all based on credit. But if nations start with capital controls, defaulting, devaluations, then printing money, and this causes the credit or banking issue, physical PM may become a safe haven, especially in the PIGS. Maybe these two things will happen simultaneously, causing some confusing cross-currents. We might be able to see this in realtime by watching physical PM spreads above spot. As the magic 8 ball says, "reply hazy, try again."
http://en.wikipedia.org/wiki/Magic_8-Ball
But I think the downside deflationary forces from a credit crunch should not be underestimated.
I like Faber's position quite a bit. And FWIW I also agree with your vision of the future where banks safely store real things rather than just paper.
BHP & China
I continue to watch BHP.AX as a barometer of global commodity output and for some (albeit limited) perspective on investor confidence in China (surely the heart of Asian economic growth).
Like the BAC chart I showed yesterday, it has been in solid down trend since Spring and is closing in on the apex of a descending triangle with support at A$34. A triangle that builds too close to the apex should fail says the literature, so I watch for a break down fake out followed by a reversal in the other sense.
But if everything should start breaking down - US banks in these descending triangles, miners etc - while the US dollar lifts off from 80 support, then it will be time for me to walk.
The Shanghai composite weekly illustrates how far China has come back to earth since 2009. It is at the support created by the previous low. ROC illustrates bullish divergences and stochastics has bottomed. But this is a weekly chart and patience will be required for this market to turn around - if indeed it does.
UK contingency planning for euro breakup
Not sure if this is predictive, or a contrary indicator saying that its time to buy euros.
For any PIGS resident, owning physical PM (even with the possibility of a credit crunch) probably beats the living crap out of having a bank deposit in their home country.
http://www.telegraph.co.uk/finance/financialcrisis...
"The Treasury is working on contingency plans for the disintegration of the single currency that include capital controls.
Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. Capital flight from weak euro nations to the UK would drive up sterling, dealing a devastating blow to the Government’s plans to rebalance the economy towards exports.
Capital controls form just one part of a broader response to a euro break-up, however. Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.
The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights."
One chart that speaks volumes in silver futures
http://www.financialsense.com/sites/default/files/...
Look at the net commitment of commercial futures traders. Seems that 600'000 ounces JPM stole from MF customers has come in handy in closing up the massive net short positions commercial traders held this year. It's disgusting, but that is the game being played by HB&B and Washington regulators.
http://www.financialsense.com/sites/default/files/...
Commercials are now massively long the Euro as well, Bill's preferred currency for precious metal strength. Interesting.
While physically owned precious metals have held their value, leveraged speculators in futures and options have been demolished. If three-day takedowns and volatile price movements didn’t ruin them, outright theft of their assets from MF Global and the COMEX did. Silver and junior mining stocks suffered a similar fate and are now swinging in the desert wind.
If mining itself wasn’t risky enough, 2011 proved that everything from government confiscation of mining assets, illegal shorting selling attacks, naked shorting, to outright theft qualify as categorical risks. Producing silver miners such as PAAS, SSRI, and SVM lost roughly half their value during the trading year. PAAS and SSRI were plagued by socialist policies of Argentina including new capital controls, and an illegal short selling scheme lead by an anonymous trader known Alfred Little attacked SVM.
In the meanwhile actual earnings and cash flow for these companies grew at double and triple digits. The result has been a massive PE compression in which companies growing at double and triple digit rates now have PE ratios of less than 10 – which are based on the current low metals prices. Many of the miners are also using part of their cash flow to increase dividends and stock buy backs in addition to their operational expansion programs.
http://www.financialsense.com/contributors/chris-m...
Re: One chart that speaks volumes in silver futures
Hmm that is interesting. Appears to be serious liquidation by the large and small speculators in silver. Large specs get hit with a credit crunch, small specs get swept along for the ride, perhaps. Credit crunch is helped right along by margin increases. If you don't have your conspiracy hat on, you could say that leverage of all types (long and short) is leaving the marketplace.
I know all too well about the compression in silver mining stocks' PE - my "buy and hold" position is partially comprised of silver miners.