All the major points regarding Europe have only been amplified over the last months, and I believe we are fast approaching a real resolution the European Debt Crisis, one that will involve some sort of an actual default of debt. We now we have open discussion of countries leaving the Euro whereas in the recent past politicians didn’t want to even acknowledge that possibility.
France & German politicians continue to try to save their countries banks whose ‘assets’ are filled with the debt obligations issued by Greece, Italy, Ireland, Spain & Portugal (among others), by trying to get the market to believe that they have the situation under control with the EFSF, leveraging the EFSF, IMF support (which is back door FED support), as well as trying to convince China and other BRIC nations to buy in. –these attempts have been unsuccessful.
Note France & Germany right up there with the big PIIGS
If there is a default France & Germany will recapitalize or nationalize their countries banks, and in doing so run the risk of downgrades on their own nations credit ratings, which would translate into higher interest payments (and the negative debt spiral ala Greece). Which is why the Eurocrats got the banks to ‘voluntarily’ take a 50% hair cut on the value of their Greek Debt so as not to trigger the Greek default CDS derivatives nightmare (definition of ‘default’ courtesy of the lobby group ISDA http://www2.isda.org/ International Swaps & Derivatives Association).
The chart below is quite a shocker, showing the amount of debt that is maturing and that needs to be rolled over over the next few years. The ECB continues to fight to keep rates low for Italy, by buying in the bond market, the chart below helps explain the reasoning, see how much larger they are than the PIGS. Too big to fail, but too big to save.
The producing, emerging countries of the world and other continue to buy gold
-The ECB president Trichet stepped down, and former Goldman Sachs Italian Draghi is president, his first stop was lowering interest rates, which supports those full of debt, and hurts savers and capital accumulation, also potentially weakening the Euro.
-Germany has ruled out letting their Gold be part of the backing for the ESFS.
-The BOJ (Bank of Japan) intervened again in the currency market to devalue the yen, estimations run up to 500 million USD. Because of the structure of the MOF (Ministry of finance) & the BOJ they are limited in the ability of them to carry out their operations.
-Many want the FED to be the lender of last resort for the European bank system, but with an election coming up they would be putting themselves in the spot light by coming to their aid as they did in 2008.
-The market has been violently trading on rumors out of Europe, and the U.S. dollar and the U.S. Treasury/Government are benefitting from all this negative press (resulting in lower interest rates), as the European inter-bank lending dries up, and people put their money at the ECB, the FED and U.S. Bond market. Right now the U.S. is the prettiest girl in the ugly contest, when Europe settles down or actually figures itself out, focus will return to the U.S. It may begin with the up-coming lack of results from the 'Super Committe' due out on November 23rd, 2011.
Deposits growing at the ECB = withdrawls from elsewhere within the bank system;
-At the same time the Chinese and others have been selling off treasuries, taking advantage of this ‘strength’ to divest some of their holdings.
The Chinese are happy to use their surplus from exports to support debt markets in Europe and/or the U.S., as the chart below shows what the status quo has been, but when those dollars/euro's don't come in en masse they cannot go back to the U.S./Europe en masse;
-U.S. savings rate continues to deceleratem, which temporarily is 'good' for the consumer based economy, sending more to producing nations;
-U.S. housing prices continue to slide, not the ATM's for expenditures as in the past;
Those on food stamps continue rise;
Presently and projected there is not much leftover for extra afer manadatory programs are paid for,
-This brings me to the Occupy WallStreet movement which continues to gain momentum, rightly upset at wall street and banks who privatized gains and socialized losses, who executives took 'golden parachute' retirement packages at the publics expense. This movement seems to be on the verge of being taken over by the powers that be; demanding more 'regulation' more 'taxes' & 'redistribution of wealth' by the government, by the same government system that enabled the bailouts, that supported those who made bad business decisions so they could stay in business because they are connected politically and economically. They should have been allowed to fail, reap what they sowed. Only with the constraint of sound, honest money would this have been possible. Obama’s administration has from the beginning been filled with those from Wall Street, the banks and the FED. Here are some interesting charts;
Obama is not the 'outsider' the bearer of 'change' that he was hoped to be;
Meanwhile the money has been, and continues to be debased
and diluted;
ontop of debasement & devaluation the amount of income has also fallen;
-The U.S. federal government is running head long into the next ‘Debt Ceiling’ and the ‘Super Committee’ doesn’t look like it is going to meet it’s low-bar target of $1.5 trillion debt reduction, and it looks like they will not even be able to delay this until after the election.
This chart shows the amount of jobs needed just to keep up with population growth
Meanwhile many stock markets have turned up, here are some charts to keep things in perspective;
-Remember countries such as Italy are super powers when it comes to their Gold holdings, and as long as money is not something tangible, can be created with a click of the mouse this cat & mouse, high stakes poker game will continue, one of the final hands that will be played is the re-monetization gold (silver) card. Until then it’s continuation with currency wars; competitive devaluations, quantitative easing etc.
-MF Global (one of the main brokerage firms and 1 of the 22 Primary dealer), has gone bankrupt because of CDS exposure, the firm (run by a former governor former Goldman Sachs man; Mr, Corzine) broke the law (or so it seems) and went into it’s supposed segregated customer accounts to cover the firms misplaced bets. The CFTC & the FBI have begun investigations. Many customers have only received 60% of their money. So we could be in for a many forced liquidations over the next week. Hopefully this will be a wake up call for those who haven’t yet withdrawn the unearned trust given to many of these institutions.
It is been an absolutely crazy month! I don't know what is happening behind the scene's but it seems to me that there may be something big in the works, and what will probably be trotted out is the SDR’s revamped, and after that fails, then a revaluation of gold as a monetary metal.
A lot has happened, so I’ll just hit these points briefly and give you links if you’d like to look deeper.
MARGIN HIKES
The CME has raised margin again (gold up 21%, Silver up 16%), Of course they waited to do this as the price drops, thus compounding falling equity (positive cash) in traders account with more margin (deposit) to cough up to hold those positions.
Some hedge funds have sold huge stakes in gold/silver, for a couple of reasons; 1. To book quarterly profits. 2. To meet margin requirements 3. To meet redemptions.
On a whole hedge funds have been doing very poorly this year, and many investors are pulling out money from the hedge funds forcing them to sell holdings to meet redemptions.
LEVERAGED ACCOUNTS:
Markets all across the board experienced great volatility, margin clerks were forcing many leveraged traders (Hedge/Institutional/Individual) to close their positions, and in some accounts their positions were so underwater that they had to liquidate all holdings and those traders lost everything. In a situation like that, people often sell what they can, what they've made some money on, to satisfy the margin call.
Recently a 'rogue' trader at UBS lost $2.3 billion resulting in CEO's resignation, I wouldn't be surprised to find out over the next week, if other bank or hedge funds also imploded over these moves last week.
REGULATORY FRONT
Meanwhile the CFTC in the U.S. has been sitting on it's hands, they're probably been threatened with world chaos if they actually did their job and conclude the investigation in silver manipulation, (the longest in CFTC history) and got the banks out of their still massive short positions!
What I see is a last ditch attempt by these banks with massive short positions, to put their 'houses', their contractual paper obligations (futures, stocks etc) to deliver the metal, in order before another attempt at revaluation of the metals as monetary metals. JP Morgan, Goldman's etc, are all just corporations, which are designed to do the bidding of and limit the risk of it's share holders, they can go bust, probably will, and that's probably the plan but not before they deliver their positions in the monetary/precious metals into the hands of their masters.
U.S. MONETARY POLICY
Many were expecting QE3 (fresh currency unit creation) but at this time it was too threatening, the FED has become too visible a target.
-Trading partners of the U.S. have been complaining about the devaluation of the dollar through the QE’s
-Thanks to Ron Paul, the FED is front and center of the U.S. Presidential debates, and the FED and those benefiting from it would like to keep the status quo, even Rick Perry (Presidential Candidate) called Ben Bernanke’s printing ‘Treasonous’.
They will eventually add another dose of the financial drug called QE but they will most likely wait until everyone is clamoring for more QE, because of market plunges etc, before the engage in more overt money printing, probably hoping that when they do, it’ll last through to the 2012 election. –I do think this may have been the part of the plan as Bernanke got this ball rolling (crashing of world markets) with his 'significant downside risk' quote in his most recent announcement. http://www.europac.net/commentaries/twist_paves_way_qe_iii
So the move that the Bernanke announced (coined "operation twist") doesn't create much 'new' dollars, as they are just re-shuffling their portfolio trying to bring the yield curve down (the interest paid on debt) on the middle to long end (15-30 year), by selling their present short term debt holdings (2-5 year). But please remember that 1. the FED have promised to continue to reinvest maturing debt (principal plus interest), 2. Keep interest rates low for at least 2 more years, and 3. buried in the details of the Fed announcement of Operation Twist is the policy of not letting the mortgage-backed securities roll off as they mature (remember all those ‘toxic assets’?). That means more "printing" to purchase the agency debt in order to keep the holdings at the same level. This is from their FOMC announcement: "To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. " So although there is less money creation there will continue to be some, and they’ve promised to hold down rates, if the market challenges them on this then we’ll see another round of QE (or whatever they want to call it).
Ironically this type of 'restraint' (if printing less new money than they have been can be called that) is what is needed, but we won't get it for long enough to make the USD a solid currency again, click on the link to have Marc Faber explain it best! http://www.youtube.com/watch?v=JQOAQzaESZo
At the same time that Bernake can say he’s 'tightening' (with Operation Twist) he’s also opened up unlimited currency swap agreements with central banks around the world. As mentioned in previous posts, the dollar is still the reserve currency of the world and most contracts are still in dollars, so perversely there can be rush into them, creating a increase in demand (when viewed in FX pairs) to get paper dollars to fulfill those contracts while at the same time they are being depreciated. Smoke and Mirrors. -and the problems in the Euro only help to support the dollar.
Bernanke is getting a lot of flack from the banking sector too, as this takes away much of their profit from lending. The banks are reluctant to lend, trying to repair their balance sheet (one of the reasons for, as of now, benign inflation), so this puts them in an even more precarious position. http://www.newsmax.com/MichaelCarr/carr-Operation-Twist-Hurt/2011/09/28/id/412533
And of course pensioners and those living off the interest from their savings, are having to risk more chasing higher yields!
Still trying support a debt, consumption based economy. It’s time to allow capital accumulation through savings, which will lead to investment and job creation in the private sector.
U.S. FISCAL POLICY
I’m not even going to comment on Obama’s $400+ Billion plan, gimmicks and tricks to say that it’ll be paid for. The U.S. is fast approaching another ‘debt ceiling crisis’ in Congress, as the amount needed to continue to pay off debt escalates the time between needing to get new cash will get shorter and shorter. –I don’t think they’ll get to the election without dealing with this again.
EUROLAND
Over in Europe there no 'solution' in sight, there has been a yo-yo of rumors and talks recapitalizing the banks, nationalization of banks, hair cuts on PIIG bonds of 50--75% and growing calls that the ECB, EIB, EFSF (a 440Billion Euro fund) may need to buy 2 trillion Euro's of PIIGS debt to paper over the problem. --its still the same mess, but heading towards a resolution in the very near future! All of this has been helpful for the dollar, U.S. Government financing as people pile into the ‘safety’ of U.S. Treasuries. Some world leaders, particular treasury secretary Geithner wanted the Europeans to leverage the EFSF, but there is strong resistance to this in Europe.
FDP and CSU not fond of further increase of EFSF. Leading figures from the FDP and the CSU, the Bavarian branch of the CDU, rejected any thoughts of a further increase of the EFSF (either directly or indirectly through leverage). FDP general secretary Lindner said that ” the chancellor should make clear immediately that there is no change to the business model of the EFSF”.
Foreign banks are pulling funds out of the PIIGS banks, and other European banks are putting their money at the ECB deposit facility (where they get a little interest but less than intra-bank market) rather than leave it each others banks. See the chart below.
This combined with the citizens of European nations pulling out money from their banks, we have the ingredients for a bank run and collapse. Which ties back into the earlier point mentioned; the currency swap agreement between central banks for unlimited dollar funding.
U.S. Mutual funds (money market funds) have long pulled out massive amounts of buying of Euro Sovereign Debt.
The Euro has always been about political unity, and starting with a monetary union was the first step, those in power want more and to do so they are going for fiscal unity, euro debt issuance, a supra-national institution which euro-states voluntarily turn over their sovereign fiscal policy to. Then they can come into the country and demand changes, like the IMF, ECB, WB are doing with Greece now, demanding that they sell off assets, and cut spending. This fulfills the intent behind the present euro creation;
"I am sure the Euro will oblige us to introduce a new set of economic policy
instruments. It is politically impossible to propose that now. But some day
there will be a crisis and new instruments will be created."
- Romano Prodi, EU Commission President, December 2001
SWISS FRANC?
–Safe Haven no more! Swiss draw line in the sand to cap runaway franc
Here is a chart of the minutes before and after the SNB (swiss national bank) promised unlimited purchases of the euro to peg the franc at 1.2, with new freshly created francs. Look at what the central banks did to the gold price moments before the announcment lest this extremely bullish factor lead to even higher gold prices and collapse in fiat faith.
GOLD IN SWISS FRANCS
JAPAN
Japan, has once again seemed peaceful, on the economic front, not yet announcing new measures to devalue against the world’s currency’s. This has allowed its citizens to continue to enjoy low inflation, invest abroad, buy up assets. --But you can bet that they’ll take their turn to devalue, as the export sector complains. They have already announced their intentions, set up the facilities, and the precedents, it’s a matter of timing, not everyone can devalue at the same time. Right now it is the emerging economies that are being given the chance to devalue against the dollar, see these charts below;
CHINA
Finance Minister Xie Xuren, in a statement released at the IMF meeting in Washington, said the IMF should also “promote diversification of the international reserve currency system and build the international reserve currency system into one with stable value, rule-based issuance and manageable supply.”
Are now being given a chance to devalue against the euro/dollar spheres, in this latest phase of currency wars, although it enhances exports making them competitive it has it's disadvantages, see below.
If you think Gold/Oil fell it's probably because of the currency lens you are viewing it in;
BRENT CRUDE IN INDIAN RUPEE
GOLD IN BRAZIL REAL
GOLD IN MEXICAN PESO
SCRAMBLE FOR PHYSICAL
Bolivia's central bank will buy gold from local producers to boost its
international reserves, the Andean country's Vice President Alvaro Garcia
Although many don’t recognize the causes, the social consequences of end of this 40 year debt super cycle, are continuing to rise, and at least it’s effects are being discussed.
-N.Y. Mayor Bloomberg warns of riots unless there are more jobs; http://www.newsmax.com/InsideCover/economy-bloomberg-riots-obama/2011/09/16/id/411312
Michael Moore says; http://www.realclearpolitics.com/video/2011/09/22/michael_moore_threatens_the_rich_lets_deal_with_it_nonviolently_now.html
Wrongly the blame will be put on gold/silver, free markets and capitalism, and not enough government and not enough regulation. When in fact debt based fiat money, fractional reserve banking, government intervention in the reallocation of capital (recessions), and redistribution of wealth through taxes and entitlement programs, bailing out politically connected financial institutions & companies, and bloated government agencies the world over are responsible. As it’s been said;
http://www.youtube.com/watch?v=iHtL3hUTAaQ
I feel for my generation, I fear that they will also choose socialism, and an authoritarian state rather than the present crony socialism/capitalism. There are young people who are going to be out of work, angry at the establishment, but many not understanding the reasons. Like the ‘Occupy Wall Street’ protest which are continuing for nearly 2 weeks now,
We'll have the G20, the IMF and ECB try and calm the markets again probably promise more money printing ('liquidity'), once they’ve exhausted themselves and that seems pretty close, as even the IMF needs a ‘bail out’ (see link below) they may try to bring SDR's up again, kicking the debt can up to a global entity, but after that doesn’t work, I believe it'll be back to revaluating the monetary metals. --not out of choice, but necessity and market forces.
My physical metals haven't changed, but I've lost quite a bit of 'value' built up in paper positions over the year! --all in 24 hours! I'm changing part of my strategy, moving more to physical, and the structure of my portfolio, but will continue to add. They've taken the 'safe haven' status away from the Swiss Franc, the Yen is still trying to shake it, and now they've given gold and silver a good kick in the pants, this will buy them some more time, and faith from the masses to keep their savings in paper money. –I’m sure many who were looking at protecting their purchase power by buying gold/silver have been scared out over this last week!
Many dealers were cleaned out of inventory over the last weekend, many refused to sell inventory as it was purchased at much higher prices, those that do sell have raised premiums across the board, but most notably on silver. --and China/India and every creditor nation are more than happy to exchange their fiat paper IOU money in for tangibles at these lower prices, which may have also been part of the deal between these nations to keep things creditor nations happy and playing the game a little longer. We'll see what the open interest and bank participation reports say, but I doubt if these manipulators will telegraph their intentions before hand, so I'm not going to try and pick a bottom, just follow it down as best I can, and then if it keeps going lower and I don't have any paper left, it's time to sit it out. -it won't be too long.
I'll leave you with 2 long term charts;
Since I finished yesterday there have been 3 important points mentioning;
1. The German parliament OK the expansion of the EFSF. There is still the restraint demanded by the Constitutional court, but this is inflationary, more money to bail out banks (recapitalize/nationalize), and probably buy PIIGS debt.
3. I should have seen this 9/16 press release from the CFTC, it would have been a clue to what was in the works, they are telling the public that they've allowed the banks 'relief' from following the rules to be enforced until Nov 30th, 2011, basically giving these large banks the ability to pile on more, without having to worry about reporting. --hopefully the CFTC will enforce position limits after that. -we'll see,
Sorry for the delay in getting this meager update out, I had meant to have this out at the end of August. We enjoyed a busy summer vacation and are happy to have the older children back in school.
Here are some interesting articles, and points about the gold/silver market.
IS GOLD IN A BUBBLE?
First off is a short clip which accurately explains why gold is not in a
bubble, not even close! I have used many articles that talk about gold, as
what relates to gold most always also relates to silver. In some cases even more so, both are monetary metals, however the situation in silver is even more acute
through the depletion of world inventories because of the industrial uses of
silver (the 2nd most used commodity with over 10,000 uses) so that it is now
even more 'rare' than gold! It is a smaller market (market capitalization),
there is more commercial bank short selling concentration in silver than
gold. We are still in the very early innings of the precious metals bull
market. But as we experienced in May this year, it's not going to be a one
way street, plenty of volatility.
Gold has been the story for August, Chavez has formally requested his 211
tons be brought to Venezuela from the U.K. setting off a scramble for the
physical. At the same time he is moving his countries cash to Russia, China
and Brazil. --this is a similar step that Iran took years ago. CLICK HERE
Remember at the CFTC hearings (march 25th 2010) Jeffery Christian testified when being questioned by Chairman Gensler that there is about100 paper claims/trades for every 1 oz of physical. If you've never seen this clip, the whole piece is good, but the part about the ratio 100-1 is at the end, start around the 4min mark.
Chavez is also nationalizing his countries gold mines. China has already done this to an extent, as they are buying up all the locally mined gold (under market prices).
Kazakhstan is also giving it's central bank preferential buying power from
it's countries mined gold. CLICK HERE
I believe a very important change has occurred in the metals markets, particularly the silver/gold, while all other equity markets and commodities were crashing these held steady to higher, taking on the role of 'currency' as they should. --a trend that is likely to strengthen.
NO PLACE TO HIDE
Meanwhile on the currency front the world's 'safe haven' currencies (Yen/Swiss Franc) are sick and tired of taking the brunt of the rest of the worlds governments orchestrated devaluations. Everyone wants to try and export their economies out of problems, Obama's stated he wanted to double exports in 5 years, the only way to really do that in such a quick time frame is by devaluing the currency "even the playing field". The problem is everyone can't do it as the same time.
The Japanese implemented their a solo intervention of $55 billion since the G20 intervention (aka devaluation attempt) after the March 11th disaster, allowing many multinational Japanese corporations to unload their foreign earnings for more yen, this helped for only about a week, as you can see from this chart below
As that only lasted a week they set up a new $100 billion dollar facility CLICK HERE for the express purpose of devaluing the yen, it will take some time (and perhaps a Japanese Government funding crisis) to effectually devalue the yen, but running the printing presses (and their electronic equivalents) will eventually do it. --The race to the bottom continues. or should I say 'easing' CLICK HERE On that note I have to wonder if the Japanese Government went out of their way to get a downgrade from Moody's rating agency, the same agency that wouldn't downgrade the U.S. recently.
Here is a great picture putting the unsustainable U.S. debt into perspective for the average Joe
Anyway back to currency's the Swiss have intervened, threatened to peg to the euro, put negative rates on deposit, where is a investor supposed to go now when no one wants to have a strong currency?
Th FED is trying to fill to fill the bath tub with the faucet while the drain is open. People deleveraging, paying down debt removes money in circulation (m3 through fractional reserve banking) is the drain unplugged in the tub, and the FED increasing the money supply (QE, QE2 and the most recent promise to keep interest rates low for 2 years etc) is adding money to the system from the faucet. If the FED did not do this then there would be a collapse, as only through continuously adding more debt to the economy does it enable growth and repayment of the formerly created debt. -- a true ponzi scheme.
Other articles;
Former FED chairman Greenspan, correctly states that the U.S. can never
technically default as the "U.S. Can Pay Any Debt It Has Because We Can
Always Print Money" http://www.youtube.com/watch?v=fbI_6m75wZU
Obama's approval ratings are down, 'job creation' has grounded to a halt in
the U.S. The FED has promised 2 years of low rates, once again hurting the
savers and protecting borrowers. The FED will have a 2 day meeting coming up
in mid-September to discuss the tools to use to get the U.S. Economy growing
again. Some say they will announce QE3, others say that they may change to zero
the .25% interest they currently pay on Bank Reserves held at the FED,
'forcing' banks to look for yield, thereby unleashing bank credit through
fractional reserve lending. Others say we may have higher explicit inflation targeting.
The Euro zone has two main sources of problems; 1. the resistance (riots etc) to
the 'austerity measures' by the would be recipients of the ;bail outs; in
(PIIGS Portugal Ireland, Italy, Greece & Spain) and 2. the resistance to the
assistance (bail outs/money printing) given by the creditor nations'
populations, particularly Germany the most important in this equation. Next
week the German constitutional court plans to rule on whether German
participation in the EFSF (bail outs) is legal. This could have huge
ramifications. One must remember though that the Euro was created as a political tool to unite a fractious warring continent, that is first and foremost in the minds of the Euro politicians, thus saving the Euro is very important, but as it is currently set up, it is set up for failure.
Recently Finland demanded some collateral for it's participation in the next bailout of Greece and now many other countries are scrambling/threatening to demand collateral, and Greek/Italian/Spanish Gold is in the conversation, although of course they haven't been willing to give over at these prices. But of course all of these countries will be solvent when Gold is re-valued in the future. http://in.reuters.com/article/2011/09/02/idINIndia-59110820110902
I just wanted to get a quick note off this Sunday before the world goes back to work Monday, I continue to suggest getting savings out of paper if you are in a position to.
In the U.S. an agreement was reached to raise the debt 'ceiling', adding more debt to a debt problem, & there has been quite a bit of volatility in the worlds markets, over $2 trillion wiped off the worlds markets and things could accelerate rapidly from here. A point barely talked about is who is going to buy that new $2 trillion U.S. debt, the Japanese are repatriating their holdings, the Euro countries are in no position, the Chinese are lowering their holdings and openly calling for less debt issuance, the Arab nations are paying a lot for social programs to keep a lid on dissent, it seems clearer than ever that the FED must come back and monetize or risk rising rates.
Euro zone national debt interest rates continue to rise & now threaten Spain & Italy. With investors fleeing the Euro nation debt markets and stocks plummeting last week, the U.S. Treasury debt issuance has been well received (coincidence? -maybe), and they issued a massive $238 billion the day after the debt 'ceiling' was raised. Then after Friday's trading closed news came that the U.S. has been downgraded by rating agency S&P (for the first time it's history) and put on negative watch. This after Tim Geithner (Treasury Secretary) said there was 'no risk' in being downgraded.
The ECB continues to believe the way forward is monetization of the debt and now they are openly discussing buying Spanish and Italian bonds, on top of the nations they are already propping up with the EFSF (the bankrupt supporting the worse bankrupt). -expect a backlash from voters in Germany, it's more dilution of the euro for the politically connected. If rates in the U.S. rise, look for more downgrades and negative spiral in the worlds economy.
The Bank of Japanese government wants to devalue the yen, and last week acted alone in the Forex market to devalue it, making it's largest intervention in history. Us living in Japan have been immune to much of the inflation and monetary debasement that the rest of the world has felt for these past years, but I'd say don't get too comfortable, Japan's economy is based on exports, the strong yen has lowered input costs for raw material, but that can only be a positive for a period of time and at certain rates, and then it turns negative, and we may have reached that critical juncture. --Savers in paper yen beware.
Gold has been making new all time highs as expected, silver has been rising (but lagging relative to gold), however all this headline news is precious metals positive, and as of all this continues to play out I believe silver will again lead. The debt problems of 2007/2008 were simply transferred from the private sector to the public sector, now the public sector has been over burdened. This debt must be paid back or defaulted on, there aren't any simple, painless ways around it, so it is inevitable that these 'debt problems' will return. The revaluation of the metals will happen (by government dictation or market forces) and reset & re-liquefy the worlds finances.
I'm going to be making an order today (Sunday night) before trading begins on Monday in Asia. If you want to join we have 1 oz Canadian Maples at 3650Y per oz (not including shipping). The Bank of Korea just bought 20 tons of gold, the first purchase in 13 years, and a customer of ours wants some Gold Canadian Maples brand new 2011's so if you want some gold we can add to any order;
Maples 1 oz at 141,750
Maples 1/2 oz at 75,000
Maples 1/4 oz at 39,500
Maples 1/10 oz at 16,500
Payment would need to be made first thing Monday morning, any amounts are OK.
The European Union has again tried to contain the debt crisis in Greece, and their most recent measure has, for the time being, staved off default. Further integration is required to keep the Euro (as we know it today) together, and again the tax payers and to the 'soundness' of the Euro has been sacrificed. The EFSF (European Financial Security Facility) will issue more bonds to paper over the problems, more debt to solve debt problems. The conclusion that I have come to is that Euro nations are going to try and further integrate by setting up their own version of the U.S.'s Treasury, this will mean more Euro 'printing' and bailing out, which is inflationary and will depreciate the Euro (against hard assets gold/oil/silver). The market does not seem to be buying into the deal, as the interest rates on most Euro nations debt has continued to climb, and Euro falling against dollar/yen. The problem is strucutal in nature, and can't be fixed by these band-aid solutions. For example here is a graph showing the debt that Greece will mature over the next 5 years;
And that graph shows only Greece, each of the worlds developed economies have huge debt burdens. The main fear by politicians around the globe is the CDS market (Credit Default Swap), which if a Euro sovereign default occurred would trigger contractual payments, and no one knows how much counterparty risk there is. --As the meltdown by AIG showed. These CDS's can be written by any financial institution, they can write naked positions with risk lying with the issuing financial institution, or they can have a buyer and a seller lined up and earn a commission on the buy/sell spread. At present there is no open exchange for CDS, and since it has been most the most lucrative source of income for these writers, they ( the ISDA & Banks ) have lobbied hard to protect it. They take the profit and the tax payers of the world take the risk when they go bust with bailouts. Here is an older graph from May which shows the inter-connected nature of the Eurpoean debt, the real reason that France & Germany are trying 'help' Greece (and the PIIGS nations) their own banks could not stand the writedown;
Across the pond the U.S. 'debt ceiling' crisis continues, Obama and democrats are trying to get a bill passed that will fund beyond the 2012 presidential elections. Obama has threatened seniors with being unable to send out Social Security checks and other entitlements if there was a default. The fact is that the U.S. won't default (yet), with their income they can pay off the interest on their debts, but like someone who has maxed out their credit card they just won't be able to take out new loans, and will have to prioritize payments with remaining income. The 'default' to come will most likely be a stealth default, by continuing to depreciate the currency. Freshman Republicans recently elected to the house of representatives were sent there a on specific mission to reduce the size of government, stop bail outs and bring some fiscal sanity to D.C. ideological this is opposite of what the democrats want to do, which is 'share the wealth' (redistribution through taxes) and continue to grow government. --but raising taxes have a negative multiplier through out the economy, and we have reached the saturation point of debt;
so all this threatens to derail this modest 'recovery'. The U.S. economy will at some point restructure without the heavy influence of government, the path it is on is simply unsustainable;
the restructuring of the economy will be painful, it will effect everyone, it may lead to social unrest, but this probably won't happen until all other options have been exhausted; when the value of the dollar is all but destroyed and productive elements of society have a hard time operating and expanding business. An agreement on raising the debt ceiling means more debt, which is in inflationary, a 'Default' would painfully force the restructure immediately and may create a backlash to sound government finances so......roll out the bread and circus. The FED FOMC minutes came out as well, and they discussed 'QE3' if the economy worsens, which by the looks of it may happen before the end of the year, this has sent the USD down, and sent gold up in all fiat currency prices, and if you haven't seen this enjoy;
The yen, comparatively speaking, has not had many problem this month, and has risen. Part of this is 'safe haven' trade, along with a reparation of funds from Japanese investments, and further unwinding of the carry trade. The post-earthquake intervention to lower the yen has been thrown on its back, Japanese finance minister Noda is threaten to do more to lower the yen, but the BOJ has been leery of outright monetization of the government debt for rebuilding, which is probably where we are headed. Another opportunity for those of us who live/work in yen to continue to transfer out of paper into tangibles
Meanwhile Gold & Silver are being treated as the currencies, gold making all time highs, and silver moving up once again. The new Hong Kong metals exchange opened this month, and a new China exchange will be opening up as well, and with Chinese inflation running high there are great expectations for huge inflows into the metals.
I continue to and suggest to accumulate silver/gold, but still silver over gold, demand for silver remains very strong even for this seasonally weak period, I believe the end of the year we should be back up to near or over $50, next year probably considerably higher. The major revaluation of the metals is still on the horizon, gold north of $5000 and silver around $300, this will re-liquefy the worlds financial institutions, and give a foundation for sound money supply growth and solid expansion of economies, the restructuring will be painful, those dependent on governments for checks & hand outs, will find their promises fulfilled in nominal terms but lost in the depreciated purchasing power of the currency units received, we are coming to this inflection point.
Silver inventories at the COMEX warehouse are falling, and as can be seen in the chart below the Long Commerical Short position (Major banks that have pre-sold) has fallen to levels not seen since 2009, when the price was well below $20. As can be seen clearly in the chart below the price increase seen until May 2011 was on the back of huge liquidation by these same commerical sellers, this fall in price has been a godsend to them allowing them to continue to liquidate.
It comes back to supply and demand, there will be continued amounts of currency units (paper & digital) being created to service debt and bailout those that are connected, the supply of the worlds metal on the other hand is limited, see the graph below. AG is silver, and AU is Gold on the periodic table,
Historically the summer months have been quiet in the Precious Metals markets, but this is no ordinary summer, a loss of confidence, a 'black swan' event, could easily trump the expected seasonality of the metals, and send it off, time will tell.
I know that some bought near the recent high of $50, (most well below $30) if I had a crystal ball I would have suggested waiting, which is why I when I am asked about near term price action, I always point to the long term picture, as that is clear, the fundamentals of supply/demand are clear, the short term anything is possible, especially in a manipulated leveraged paper market. Some recently said to me 'I hope the market moves the way you want', I do want and expect the price to go up, however honestly I am happy for an extended period below the nominal high of $50, as I hope to be able accumulate more, and help as many others to do the same.
Thus for me the plan, is still the same, continue to accumulate precious metals that will be revalued many multiples higher in the future.
Fundamentally nothing has changed, we are now only circling the proverbial toilet drain faster, with turmoil in the middle east, Europe's debt problems leading to riots and protests, debt ceiling limits reached in the U.S., and the end of the FED's money printing program QE2 (ending June 30th), it should make for a very hot summer.
Re: QE I have no doubt there will be QE3, it'll come, but it’s a matter of timing at this point, if/when the world markets tank then nearly everyone will clamor for more printing,
There are also many articles out there explaining how the present balance sheet of the FED is so huge (nearly 3 trillion USD) that just reinvesting the maturing debt back into the market will be another form of QE, AND they can re-arrange their portfolio, by changing the debt maturity levels at any time, for example if the 10 year note gets out of hand (rising interest rates) they can move specially into that one, at the expense of the 30 year, etc. http://investmentwatchblog.com/lets-recap-what-jim-rickards-has-said-about-the-qeiii-subject/
Anyway as the 'beauty' pageant for the ugliest fiat currency continues, the EURO has taken the lead, and many are pulling out of that fiat currency favoring a higher dollar, but the smart ones and going to Precious Metals; http://www.ft.com/intl/cms/s/0/c986823e-9bf8-11e0-bef9-00144feabdc0.html
Gold has made new Highs this last month priced in both the U.K. Sterling and the EURO;
I also expect that Greece will default (after that maybe Portugal, Spain, and Ireland), and go the way of Iceland (just say no to repayment) and perhaps reinstate the drachma (which they can then devalue against other currencies and climb their way out).
There comes a point where if the ECB prints too many Euro's (to 'help' the PIIGS Portugal, Ireland, Italy, Greece & Spain) that the very integrity of the EURO is questioned, http://www.fgmr.com/is-the-ecb-solvent.html
Unless they use the 'golden bullet' and re-price the gold they hold reserves at much higher multiples. --a step was made recently moving Gold from Tier 3 Capital (50% discount) to Tier 1 Capital see here for details, this would have a huge impact on Gold/Silver http://www.usfunds.com/investor-resources/frank-talk/?i=5935
But the Paper Precious Metal markets are full of counter party risk, and at the end of the day what a central bank has in it's vaults may not be the central banks. A prime example ---The Belgian Bank admits 41% of reserves lent out http://www.zerohedge.com/article/41-belgian-central-bank-gold-has-been-lent-out
All the while silver inventory available at the COMEX continues to leave their depositories.
The commercial shorts added about 1500 contracts to their 'presold' ledger according to the June Bank Participation report (as of June 10th), however non-U.S. bank went from short 3,600 in May to long 66 in June, which is positive. The Bank Participation report when released gives the clearest view of the market positions as it is up-to-date when released, the weekly Commitment of traders report released every Friday, only gives a snap shot of Tuesday--Tuesday action. COT reports after the June 10th Bank participation report continued to show liquidation by the commercials, but as explained in previous posts they want to do this on falling prices, at all costs (literally!).
Here is the June Bank Participation Graph;
Here is the 'days to cover' chart;
Asians & other Creditor Nations continue to accumulate precious metals;
-Fear trade; Negative real interest rates, deficit spending, political policy fighting deflation
-The Love trade, Asians give gold as gifts and many of these nations were not around in the 1980's market, and the worlds population has doubled since then.
-Central Banks will continue to be buyers, and with Basel 3 capital requirements being implemented in the Fall, gold will no longer held on their balance sheets at a 50% discount to market value, making it more attractive to hold.
On this note, one must realize that fiat money has it's own 'market' characteristics as well, based on supply and demand, and events as seen in the May silver 'Crash' when the CME raised margin requirements over and over, or the FED ending QE2, they in essence created a demand for cash, and squeezed leveraged paper participants. Being able to take advantage of any drops in price would be ideal, the flip side to having 'attack capital' available, is that when the S***T hits the fan, you'll have some fiat money that will be late (maybe too late) for the inevitable take off of Precious Metals. -At this point I am conflicted as many probably are, I have to keep some in fiat for this and other business going, taking stock of your own plan and re-evaluating every now and then is probably the only way to go. Savings I feel differently about.
Why anyone would want to trust their savings, storing their purchasing power in the USD (or other fiat currencies), controlled by the FED (or other centrally planned/issued currency) is beyond me,
he said "We don't have a precise read on why this slower pace of growth is persisting."
he should know;
I tend to agree with Peter, he's trying to save the debtor's by debasing the currency in which their debt is denominated, he's said they want at least 2% inflation, do some compounding math on 2% per year, and you'll find it doesn't take too long take to take the value of something to 0!
