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Will Gold Crash in a Recession?
By Bud Conrad and David Galland
26 Jan 2008 at 09:46 AM GMT-05:00
STOWE, Vt. (Casey Research Advertorial) -- From the 1990s until today, Americans have maintained their life style by borrowing. As the American consumer is about to find out, the bill for that life style is coming due.
So where will that lead the U.S. economy? Simply stated, surveying the landscape of current events, many of which are a direct consequence of excessive debt and an inevitable slowdown in consumer spending, we expect stagflation ahead. Loosely defined, that term refers to a general economic slowdown – a recession – but coupled with rising prices triggered by massive infusions of liquidity into the market.
That liquidity can come from governments – witness the billions upon billions now being thrown into the fray by the world’s central banks – or it can come from, say, some percentage of the 6+ trillion in U.S. dollars held by foreigners coming home to roost. On that latter point, in recent weeks there has been almost daily news about foreign corporations and sovereign wealth funds unloading their greenbacks in exchange for shares in some of America’s largest financial institutions. Doug Casey has correctly pointed out that it is when the trade deficit starts to shrink, which it recently has, that you need to look for cover... because, among other things, it means the tide of U.S. dollars is beginning to wash back up on U.S. shores.
Our view that the stagflationary scenario is the most likely is supported by a steady stream of data. For instance, despite an obvious slowdown in 2007 holiday season shopping, the Bureau of Labor Statistics reports that producer prices in November increased at the fastest rate in 16 years.
Rising prices make a stagflationary environment positive for gold, if for no other reason than that investors reallocate depreciating paper-backed investments into tangibles with a demonstrated ability to float as the intangibles sink.
So, our view remains that we are headed for a stagflation. But what if we are wrong?
What happens if the global economic crisis gets so bad that it trumps any and all inflationary influences and we enter a straight-up deflationary recession?
That is, we are sure, a question on the minds of many gold investors.
Some quick thoughts....
Gold in a Recession
Traditionally, gold has been a safety net against inflation. Inflation is good for gold, a case we don’t need to make again here.
But, in a typical recession, the demand for everything slows and the prices of many things fall. The knee-jerk reaction of most casual market observers, therefore, might be that if inflation is always good for gold, then the opposite is always bad.
Historically, however, that is not the case. The chart below shows the price of gold overlaid against official periods of recession as defined by the National Bureau of Economic Research. As you can see, about half the time gold actually rises in a recession.
(Note: this chart uses monthly averages, so you can see that current prices are, in nominal terms, higher than the 1980 high, based on those averages.)
Simply, there isn’t a specific historical precedent that demonstrates that gold will fall during a recession.
But could we have a general deflation, one that might tip gold into one of the down cycles? Of course.
The developing recession, based as it is on a global contraction in credit, looks to be especially long and deep. Almost daily now we learn of multi-billion-dollar debt defaults. Those, in turn, trigger both a freeze-up in easy credit and a flight from risk.
In response, the government has responded with its predictable "fix-it" tools – stimulus and bailouts. The tools of government stimulus are lowering the Fed funds interest rate, and potential new large-scale bailouts like the Resolution Trust Corporation (RTC) that was put into action to straighten out the Savings and Loan crisis of the 1980s, to the tune of $200 billion. While the Europeans have just unleashed an amazing $500 billion in new liquidity, so far, U.S. Treasury Secretary Paulson and Fed Chairman Bernanke and friends have been surprisingly slow to act. They started with denial and have moved to inadequate band-aids.
In the absence of any concentrated and well-funded program – such as the RTC – to try and keep the wheels on (and, at this point, it is not clear that any imaginable measure will suffice), the deflationary pressures of the housing collapse are winning.
But there is an important, longer-cycle pressure that is not talked about much, although it is increasingly obvious to the American consumer: the dollars they're spending are buying less. They see gasoline and heating prices rise, but don’t think much about the dollar itself as the underlying source of price inflation.
This decline in the purchasing power of the dollar is extremely important for the price of gold. That’s because the pressures on the dollar seem overwhelming when aggregated: huge budget and trade deficits, wars and retirement demands of baby boomers, unprecedented foreign holdings of U.S. dollars. Watching the prices of internationally traded goods, including oil at $90 per barrel and wheat at a record $10 per bushel, it is hard to imagine a situation of serious deflation emerging.
Looking for Alternatives
The flight to quality by investors who no longer trust packages of mortgage loans, or anything that is not strictly labeled as government backed, is unprecedented. The interest rate on government-issued two-year Treasuries dropped to 3%, reflecting the demand for safety. Concurrently, other interest rates have risen in response to increasing mistrust and uncertainty.
Gold, of course, provides a different form of safe harbor alternative – an asset that is not only readily liquid but, unlike government paper, positively correlated with the very same inflation that will erode the purchasing power of paper assets.
Right now, gold is not on the front burner, but this is only to be expected because of the state of flux of global financial markets. Like observers of a war of Titans, the market is confounded by the sheer magnitude of all that is going on, from the devastation being wreaked on the world’s best-known and most established financial institutions, to the unleashing of billions upon billions in experimental new liquidity measures by central banks.
As the fog of war begins to clear and it becomes obvious that not only will economic growth be severely curbed, but that the fiat currencies are going to be sacrificed in the fight, some percentage of the funds now sitting on the sidelines – much of it in U.S. Treasuries – will begin to move into gold and other tangibles. In the face of limited gold supplies, this surge in demand should create strong upward pressure on the price of gold and, for leverage, gold shares.
In sum, even though the relatively sluggish and inept responses from the U.S. government in the face of the current credit crisis could produce a severely slowing economy, creating periods of deflationary fears that put stress on the price of gold, we continue to believe that the most likely case is for massive inflationary bailouts that support a positive outlook for gold.
© Casey Research LLC. 2008
http://www.resourceinvestor.com/pebble.asp?relid=39855
Fed rate cut, jobs data may lift stocks
By Cal Mankowski
Fri Jan 25, 7:31 PM ET
NEW YORK (Reuters) - Wall Street may put the brakes on a steep decline next week, when a rate cut is anticipated from the Fed, and Friday's monthly jobs data may trigger a comeback for stocks after their January funk.
Even after this week's two-day rally, stocks finished Friday in the red and remain down sharply for the year so far. The Dow is down 8 percent, the S&P 500 is down 9.4 percent and the Nasdaq is down 12.3 percent.
The Federal Reserve's meeting is expected to result in a reduction of 50 basis points in the fed funds rate, now down to 3.5 percent.
The central bank's announcement will come only eight days after the Fed took emergency action on Tuesday and cut rates by 75 basis points. The move was surprising -- not only for its size -- but also because it came outside of a scheduled policy meeting. The Fed acted as stocks were falling worldwide and about an hour before the U.S. market opened on Tuesday after a three-day holiday.
The Federal Open Market Committee's announcement is expected on Wednesday, at the conclusion of a two-day meeting.
John Praveen, chief investment strategist for Prudential International Investments Advisers LLC in Newark, New Jersey, said investors will study the wording of the Fed's announcement. Indications that further rate cuts are possible will cheer the markets, while signs of future restraint or a "wait- and-see" attitude would be disappointing, he said.
But the Fed will not be the only game in town next week.
MORE: http://news.yahoo.com/s/nm/20080126/bs_nm/column_stocks_outlook_dc_1
*Multi-Post Financial crisis to hit 20,000 London jobs: report
Sun Jan 27, 2008 7:19am EST
LONDON (Reuters) - As many as 20,000 jobs in London's financial district are likely to be wiped out due to the financial crisis, a survey showed on Sunday.
The Sunday Telegraph reported that Experian, which provides data and forecasts to government and private bodies, had slashed its predictions for job growth in the City of London and Canary Wharf to a fall of up to 5 percent from its previous forecast of flat net employment this year.
Experian expects between 10,000 and 20,000 jobs to be lost over the year, with the majority going from the financial sector.
With up to 400,000 people employed in London's financial district, a fall of this scale could severely affect the economy, dragging commercial property prices down and hitting related industries such as IT and telecoms, it said.
(Reporting by Miyoung Kim; Editing by Quentin Bryar)
========================
Landesbanks' subprime exposure 80 bln eur
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSL2651648120080126
=========================
DrBob TA Update * 1/26
The markets fell sharply after having rallied earlier in the session, a bearish reversal, on lighter volume than on Thursday or Wednesday which were rally days, a slight positive sign. But the stock market needs to follow-through on Wednesday's strong rally day within 2-3 days to signal a new rally trend.
Short-sellers tried to induce panic selling on Friday during the late decline and it will be important to see if they get selling follow-through on Monday. The market volatility continues for now as each day seems to have 300+ point swings.
The McClellan Oscillator gave a major move signal on the Nasdaq on Friday and just barely missed the same for the NYSE, so we can expect a major move within a few days.
With the recent market volatility, I guess we don't need a signal to expect it, but it just confirms the probability.
The Summation Indices are both at extreme low levels as were their 10% indexes, so the spike down on Tuesday and Wednesday might indeed mark a tradeable bottom, but a follow-through rally in the first 1-3 sessions next week is needed to confirm it.
IBD uses the idea that within 4 days after a strong rally day, there needs to be another one to confirm it. That is not a steadfast paradigm but statistically they have found it to be helpful.
Thus, the downtrend has not yet been reversed in the short-intermediate term of 2 wks to 2 mos until confirmation.
If it does get confirmed, then expect a short-intermed term rally, albeit choppy as it was the rally this week.
If it does not get confirmed then a test of the lows earlier this past week will likely get tested.
Usually extremes such as occurred this week to the downside are followed by short-intermed term rallies as occurred in March to April, 2000 and in the Fall of 1997 and 1998.
I do think that the odds favor a new bear market now and that whenever we do get a tradeable bottom and a corrective/retracement rally, it will be a technical rally within a bear market.
Bottoms are not usually marked by spikes but by double bottoms just as they are not usually marked by triple bottoms. The Spx blew out its pivot point at/near 1490 and then broke down below its double bottom at 1379-1400, and that last move portends or indicates a bear market.
It will take a strong and broad and long-lasting rally to change that viewpoint.
Despite Friday's sharp decline, daily stochastics and some other indicators remain improved and until they reverse, the market could work its way up, especially stock/sector leaders.
So we will eventually have a technical rally lasting weeks and it is possible we are now in that process. Next week will need to confirm that to be true or else bears will take control again.
It is likely that extreme volatility will be with us for the year as there are no longer NYSE trading curbs nor the short-selling uptick rule, resulting in sharp down moves from shorters and sharp upmoves from short-covering.
Also, it has been estimated that program trading and professional trading represents 50-70% of all trading now.
Long term capital gains may be hard to attain from now on as gains and losses will be changing on a weekly and monthly basis, not yearly or even quarterly.
regards,
drbob
SignalWatch(EdDowns):Dow gives back gains.
http://www.signalwatch.com/markets/markets-dow.asp
AmateurInvestors: Weekend Market Analysis 01/26
http://www.amateur-investor.net/Weekend_Market_Analysis_Jan_26_08.htm
Mauldin: What Does the Fed Know?
January 25, 2008
http://www.safehaven.com/article-9320.htm
It had been my original intention to devote this week's letter to the view from Europe, as I have been here for the last week, but events have changed that goal. The Federal Reserve made a very rare inter-meeting rate cut of 75 basis points this week, after the worldwide markets were in turmoil. Many pundits suggest the Fed was responding to the worldwide collapse in stock prices. This week we examine that suggestion, and I will offer an alternative explanation. I am beginning this letter in a London subway train. Quickly, the consensus wherever I go seems to be that Europe and the United Kingdom are also headed into recession. There is a lot of interesting ground to cover, so let's get started.
But first, I want to make a quick correction from last week. I do know the difference between monocline (a set of rock layers that all slope downward from the horizontal in the same direction) and monoline (a business that focuses on operating in one specific financial area). However, Microsoft Word doesn't. I *think* I had it right in the original version of the letter, but when I sent it to my editor, the word monoline was "helpfully" changed automatically to monocline. As we will be mentioning the monoline companies again this week, let's hope we can get it right.
Fed's Folly: Fooled by Flawed Futures?
In The Financial Times today the inside headline is "Markets ask if the Fed was duped?" It seems that a rogue trader (interesting how a lone trader who loses a lot of bank money is always a rogue) lost Societe Generale $7.1 million (4.9 million euros). Seems he knew how to override the risk control systems, had other employees' passwords, and built up a massive long position which was down about $2.2 billion by the time SocGen management found out. He produced the losses in just a few weeks. SocGen started selling everything to cover the loss on Monday morning, and the markets moved away from them, growing the loss to the $7.1. That constitutes a bad day at the trading desk. (As an aside, I have worked with SocGen from time to time over the years, and have always been impressed.)
Some suggest that it was the very selling by SocGen, which was 10% of the market trades, which caused the downside volatility. It seems the European Central Bank knew early on about the problems at SocGen, but the Fed got caught by surprise. The Fed holds an emergency FOMC meeting ahead of the scheduled meeting this week, and makes a shock and awe 75-basis-point cut. I can tell you that shocked a lot of very sophisticated traders and managers that I talked with here in Europe.
Everywhere I went I was asked, "Why an inter-meeting cut?" The Financial Times wrote, "The question being asked now by some in the markets is: was the Fed duped into a clumsy and panicked move by the clean-up operation for Jerome Kerviel's [AKA rogue trader at SocGen] mammoth losses for the French bank?"
My very good friend Barry Ritholtz seems to agree with that position. He was on CNBC with Steve Lissman and Rick Santoli and they suggested that the Fed responded to the volatility in the stock markets with the rate cut and that the Fed is now responding to the traders in the S&P futures pit.
Let's read Barry's take when he finds out that the volatility may have been the result of our rogue trader, in a blog entitled "Fed's Folly: Fooled by Flawed Futures?":
"Was it a misunderstanding of their mandate, inexperience, or just plain hubris?
Regardless, it took only 2 days to learn just how ill-considered the Fed's emergency market rescue plan was: To wit, a fraudulent series of losses led to a major European bank unwinding a huge trade: Societe Generale Reports EU4.9 Billion Trading Loss.
SG's $7.1Billion dollar unwinding led to panicked futures selling on Monday and Tuesday.
"Hence, we quickly learn what sheer folly and utter irresponsibility it is for the Fed to use its limited ammunition to intervene in equity prices. Their panicky rate cut was not to insure the smooth functioning of the markets, but rather, to guarantee prices.
As we have been saying for the past two days, this is not the Fed's charge. They are supposed to be maintaining price stability (fighting inflation) and maximizing employment (supporting growth) -- NOT guaranteeing stock prices.
"I guess the European Central Bank has it easier: Their only charge is to fight inflation: 'maintain price stability, safeguarding the value of the euro.' Tuesday's panicked 75 basis cut will prove to be an historical embarrassment, a blot on the Fed for all its days. Failing to understand what their responsibilities are is bad enough; allowing themselves to be bossed around by futures traders is inexcusable.
And, having been rewarded for their past tantrums, the market will now be screaming for another 75 bps next week. As Rick Santelli appropriately observed, the Pavlonian training is now complete."
I don't agree with that assessment, and Barry is not so thin-skinned that he will worry about my having a different view. So, let me throw out another scenario.
First, for years one of my central premises has been that we have to remember that when a normal human being is elected to the board of the Fed, he is taken into a secret room where his DNA is altered. Certain characteristics are imprinted. Now, he does not like inflation and hates deflation even more. He sees his role as making sure the financial market functions smoothly. He does not care about stock prices when thinking about rate cuts.
Then what was the reason for the cut if not stock prices? Why an inter-meeting cut much larger than the market was expecting next week, just seven days later? What was so urgent that we needed a shock and awe rate cut a week early?
I am not sure if panic is the right word, but I think very deep concern is also a little understated. It has to be something serious for an inter-meeting cut. Looking around for problems I came up with the following thoughts that I shared with investors and managers while here in Europe.
What Does the Fed Really Know?
I believe the monoline insurance companies like Ambac and MBIA are in worse shape than most realize, the counter-party risk in the $45 trillion Credit Default Swap market is much worse than we realize, and the exposure by various banks to their problems is much larger than currently understood. The Fed understands this, and realizes that they have been behind the curve but need to catch up. Let's go back and look at this quote from my letter just last week:
"If you are a bank or regulated entity, and you have mortgage-backed securities that have been written by a AAA monocline company, you can carry that debt on your books as AAA. But as the companies get downgraded, you have to write down the potential loss. Quoting from a recent note from Michael Lewitt:
" 'MBIA's total exposure to bonds backed by mortgages and CDOs was disclosed to be $30.6 billion, including $8.14 billion of holdings of CDO-squareds (CDOs that own other CDOs, or mortgages piled on top of mortgages, or, to quote Jeff Goldblum's character in Jurassic Park again, 'a big pile of s&*^'). MBIA was being priced as a weak CCC-rated credit when it issued its bonds last week; it is now being priced for a bankruptcy. MBIA's stock, which traded just under $68 per share last October, dropped another $3.50 this morning to under $10.00 per share.
"'The bond insurers' business model is irreparably broken. In HCM's view, it will be all but impossible for these companies to raise capital at economic levels for the foreseeable future and certainly in enough time to work out of their current difficulties. The performance of MBIA's 14 percent bond issue will prove to have been the death knell for this business. The market needs to come to the realization that the so-called insurance that these companies were offering is not going to be there if it is needed. The fact that these companies were rated AAA in the first place will remain one of the great puzzles of modern finance for years to come.'
"You can bet that the $8 billion in CDO-squareds is gone. It is a matter of time. MBIA's market cap is about $1 billion [it is now at $1.74]. Current shareholders will be lucky if they only get diluted 75%."
Think this through. MBIA is still rated AAA. Ratings downgrades are just a matter of time. Banks that raised $72 billion to shore up capital depleted by subprime-related losses may require another $143 billion should credit rating firms downgrade bond insurers, according to analysts at Barclays Capital.
Banks will need at least $22 billion if bonds covered by insurers, led by MBIA Inc. and Ambac Assurance Corp., are cut one level from AAA, and six times more than that for downgrades by four steps to A, as Paul Fenner-Leitao wrote in a Barclays report published today. Barclays' estimates are based on banks holding as much as 75% of the $820 billion of structured securities guaranteed by bond insurers. (Source: Bloomberg)
The stocks of MBIA and Ambac have risen on speculation of take-overs or a rescue. But MBIA is going to have to cover that $8 billion of CDO squareds. With what cash? MBIA makes about $5 billion a year. It will take almost two years' earnings just to deal with the losses from CDO squareds. Not to mention the subprime mortgage exposure.
But what if the above-mentioned monolines are downgraded to junk, as was ACA when it could not raise capital? As the downgrades on various mortgage assets and the CDOs continue to increase, the ability of the monolines to deal with the problems is going to come under increasing question. The losses at major banks could be much worse than $122 billion if they are downgraded to the same junk level that ACA was.
And that is just the credit default swaps (CDSs) from the monolines. What about the trillions that are guaranteed by banks and hedge funds? There are a total of $45 trillion CDSs outstanding.
No one is really sure who owes what and to whom, and what is the risk that there may be no one to pay that CDS when it comes due? The entire mess is going to have to be unwound in the coming quarters. It may take a year or more.
I think the concern that there is the potential for a much worse credit crisis than we are currently experiencing is what is driving the Fed. They are looking at the problem from the inside, and realize that they simply have to engineer a much steeper yield curve to allow the banks to make enough profits so that they might be able to grow their way out of the crisis over time.
If I am wrong and the Fed was responding to the stock market, then we will likely not see a cut this next week. But if we get another 50-basis-point cut, as I think we will, then it means the Fed is responding to concerns about the credit crisis. And we will get another cut the next meeting and the next until we get down to 2% or below.
A 50-basis-point cut takes the rate to 3%. It they had cut the rate by 1.25% next week, the market would have collapsed. Better to do it in two leaps is what I think they are thinking. We will see. And it is not just the Fed that is concerned.
Brother, Can You Spare a Billion?
"The risk of a deeper capital shortfall may help explain why New York's Insurance Superintendent Eric Dinallo is trying to arrange a bank-led bailout of the bond insurers. Downgrades would cast doubt on the credit quality of $2.4 trillion of bonds the industry guarantees. Dinallo met with executives of banks and securities firms this week to ask them to extend capital to bond insurers and stave off credit rating reductions.
"Barclays Capital has come up with a very big and very scary number," said Donald Light, an insurance analyst at Boston-based consulting firm Celent. "It indicates that the cost of a bailout of the bond insurers is a lot less than the cost of shoring up these banks' mark-to-market losses."
You can bet that the various investment banks being asked to shore up the capital of the monoline companies are not going to do it as a donation. They are going to get the equity and debt of the company. I don't often make bets about the stock prices of individual companies, but I think those who think a "rescue" of MBIA and AMBAC and others will be good for shareholders are going to be in for a rude awakening. It will not be pretty.
The Barclays report said that Financial Guaranty Insurance Company is likely to be downgraded. They have insured just $315 billion in bonds.
The Financial Times reports that several groups are looking into setting up new monoline insurance companies. Once Warren Buffett announced that he planned to do just that, several other groups decided to follow. "The plans by TPG, Mr. Ross and others have not been finalized and could come to nothing, but any attempt to bring fresh competition to the market would complicate the capital raising hopes of Ambac, MBIA and others." That is a mild understatement.
$5 Billion a Quarter
Here is how I think the next few quarters are going to play out. Each new downgrade triggers more losses at financial institutions. You don't write down a bond insured by MBIA as AAA until there is actually a write-down. And then you do, and announce it at the end of the quarter. Along with the rest of the losses caused by new downgrades. We are going to see massive write-offs every quarter by the same financial institutions that have already written off $100 billion. We are only in the beginning innings.
There are very serious suggestions that several extremely large banks (and not just in the US), of the "too big to be allowed to fail" size, technically have negative equity. With each announcement of a new massive write-off, we will see yet another large capital investment announced as well.
And every time it happens, the market is going to be disappointed. And continuing disappointment is what keeps a bear market intact. Couple that with earnings disappointments from companies with exposure to consumer spending, and you have a recipe for a bear market that could linger for awhile.
I think there is very serious risk that taxpayer money is going to have to be spent on shoring up some of the financial players that are at risk. There will be much screaming and wailing and gnashing of teeth before that happens, but it is quite possible.
As I am closing this letter (as I have yet another meeting tonight), I take special note that Bank Credit Analyst has changed their forecast. They now are forecasting a recession, but they see one that is worse than I am predicting. They think the recession will last a year and that GDP will be around a -2% for that time period. I will call Martin Barnes when I am back in Texas next week and get an update for you. Martin is one of the best economic minds I know, and I value his opinion highly.
Next week I will review my thoughts from this whirlwind trip to Europe. Let me say that at least the people I met with were generally more bearish than I am. That is a little disconcerting. A few think I am quite the Pollyanna. And now that Martin is bearish, maybe I should enjoy being the "optimist" in the crowd.
Planes, Trains, and Santa Barbara
And Charlie Wilson's War
I fly back tomorrow on a 777, and am still waiting to hear what caused both engines in a 777 to simply fail at the same time at Heathrow last week. Speaking of deep concern.
Then Tiffani (my daughter and the person who runs the business) and I fly to Santa Barbara to meet with Jon Sundt and his team from Altegris for two days of planning at Jon's ranch. It has been a few years since we have been there, and I really enjoy the views of the ocean from his mountain retreat. Not to mention the food, as we all take turns trying to out-do the last cook. Jon is actually quite good.
The train ride from Geneva to Zurich is one of my favorites. It is such a lovely country. This was my first time to Zug; and I can see the attraction, as one hedge fund after another is moving there as the canton offers serious tax advantages. I like to see competition between various governments as to who can offer the best tax advantages. I wish the US would consider such a move.
I like the proliferation of cheap airlines in Europe. But if you can, I would suggest avoiding Clickair. In addition to cheap fares, they offer the most cramped seating of any plane I have ever been on.
One final suggestion. Go see the movie Charlie Wilson's War. Besides being one of Tom Hanks' roles (he should get an Oscar), it offers a different view of Afghanistan and the anti-communist movement in the '80s. I suggest that before you go you should read Chip Wood's essay called "It wasn't just Charlie Wilson's War" at http://list.soundpub.com/subscribe/archive/WilsonsWar.html.
While there is much to enjoy about the movie, they did stretch a point. The role played by Julia Roberts was fictional. The real hero was a man many of us know and respect, called Jack Wheeler. Read Chip's well-written and fascinating essay for the rest of the story. It is worth the time.
Enjoy your week. I am off to dinner with Tom Fischer from Jyske Bank, who has come from Copenhagen to meet with me. It is always a pleasant time with him. It has been a good week for making new friends and meeting old ones. My time with my partners at Absolute Return Partners here in London has been especially enjoyable. And for whatever reason, jet lag did not seem to bother me this week. I usually struggle for a few days with it when I come to Europe. More on the view from Europe next week. Enjoy your week, and keep those hedges on.
Your ready to get back home and watch the Mavs analyst,
Fed. Ops: 17.75B Matures this week.
Mon: 3.75B 3day
Thu: 6.00B 14day
>>> 8.00B 7day
Float 22.75B
=========================================================
Temp Ops:
Perm Ops:
=========================================================
Public Debt:
Limit ~ $9,815 T
1/24 ~~ $9,195 T
=========================================================
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
Fed. Ops: 17.75B Matures this week.
Mon: 3.75B 3day
Thu: 6.00B 14day
>>> 8.00B 7day
Float 22.75B
=========================================================
Temp Ops:
Perm Ops:
=========================================================
Public Debt:
Limit ~ $9,815 T
1/24 ~~ $9,195 T
=========================================================
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
SWC
Stillwater Up As Rivals Halt South African Operations
Last Update: 1/25/2008 11:52:03 AM
By Jerry A. DiColo
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of Stillwater Mining Co. (SWC) rose 22% Friday on
record platinum prices and high palladium prices resulting from recent production
curtailments in South Africa due to uncertain power supply conditions.
Spot platinum reached a record $1,697 a troy ounce, up 15% from Wednesday's low
and up more than 50% from year-ago levels.
Spot palladium recently traded at $384.50 a troy ounce, up 5.3% from Wednesday's
low.
On Friday, a spokesman for Anglo Platinum Ltd. (AMS.JO), the world's leading
producer of platinum, announced it has suspended all operations in South Africa
after the country's power supplier said it couldn't make guarantees about the
supply of electricity to mines.
And Impala Platinum Holdings Ltd. (IMPUY), the global platinum number two, also
halted operations at its largest mine near Rustenburg, South Africa, said
spokesman Bob Gilmour.
Stillwater, a Columbus, Mt., platinum and palladium mining company, operates
mines in south central Montana, and according to its most recent annual report is
the sole producer of platinum and palladium in the U.S.
"Commodities are up, people want to play that theme, but they're not sure if they
can play it with South African stocks," said Victor Flores, an analyst with HSBC
Global Research.
South Africa has been hit with an escalation in the number of power cuts, or load
shedding, for more than a week as power company Eskom Holdings Ltd., the supplier
of about 95% of electricity used in the country, struggles to meet demand due to
repairs and maintenance work at plants.
Stillwater shares recently were up $1.84 to $10.20 on nearly twice the average
daily volume.
-By Jerry A. DiColo, Dow Jones Newswires; 201-938-2007; jerry.dicolo@dowjones.com
(Robb M. Stewart contributed to this report.)
(END) Dow Jones Newswires
January 25, 2008 11:52 ET (16:52 GMT)
http://stockcharts.com/h-sc/ui?s=SWC&p=D&yr=0&mn=6&dy=0&id=p88369089267
Stillwater Up As Rivals Halt South African Operations
Last Update: 1/25/2008 11:52:03 AM
By Jerry A. DiColo
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of Stillwater Mining Co. (SWC) rose 22% Friday on
record platinum prices and high palladium prices resulting from recent production
curtailments in South Africa due to uncertain power supply conditions.
Spot platinum reached a record $1,697 a troy ounce, up 15% from Wednesday's low
and up more than 50% from year-ago levels.
Spot palladium recently traded at $384.50 a troy ounce, up 5.3% from Wednesday's
low.
On Friday, a spokesman for Anglo Platinum Ltd. (AMS.JO), the world's leading
producer of platinum, announced it has suspended all operations in South Africa
after the country's power supplier said it couldn't make guarantees about the
supply of electricity to mines.
And Impala Platinum Holdings Ltd. (IMPUY), the global platinum number two, also
halted operations at its largest mine near Rustenburg, South Africa, said
spokesman Bob Gilmour.
Stillwater, a Columbus, Mt., platinum and palladium mining company, operates
mines in south central Montana, and according to its most recent annual report is
the sole producer of platinum and palladium in the U.S.
"Commodities are up, people want to play that theme, but they're not sure if they
can play it with South African stocks," said Victor Flores, an analyst with HSBC
Global Research.
South Africa has been hit with an escalation in the number of power cuts, or load
shedding, for more than a week as power company Eskom Holdings Ltd., the supplier
of about 95% of electricity used in the country, struggles to meet demand due to
repairs and maintenance work at plants.
Stillwater shares recently were up $1.84 to $10.20 on nearly twice the average
daily volume.
-By Jerry A. DiColo, Dow Jones Newswires; 201-938-2007; jerry.dicolo@dowjones.com
(Robb M. Stewart contributed to this report.)
(END) Dow Jones Newswires
January 25, 2008 11:52 ET (16:52 GMT)
http://stockcharts.com/h-sc/ui?s=SWC&p=D&yr=0&mn=6&dy=0&id=p88369089267
Stillwater Up As Rivals Halt South African Operations
Last Update: 1/25/2008 11:52:03 AM
By Jerry A. DiColo
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of Stillwater Mining Co. (SWC) rose 22% Friday on
record platinum prices and high palladium prices resulting from recent production
curtailments in South Africa due to uncertain power supply conditions.
Spot platinum reached a record $1,697 a troy ounce, up 15% from Wednesday's low
and up more than 50% from year-ago levels.
Spot palladium recently traded at $384.50 a troy ounce, up 5.3% from Wednesday's
low.
On Friday, a spokesman for Anglo Platinum Ltd. (AMS.JO), the world's leading
producer of platinum, announced it has suspended all operations in South Africa
after the country's power supplier said it couldn't make guarantees about the
supply of electricity to mines.
And Impala Platinum Holdings Ltd. (IMPUY), the global platinum number two, also
halted operations at its largest mine near Rustenburg, South Africa, said
spokesman Bob Gilmour.
Stillwater, a Columbus, Mt., platinum and palladium mining company, operates
mines in south central Montana, and according to its most recent annual report is
the sole producer of platinum and palladium in the U.S.
"Commodities are up, people want to play that theme, but they're not sure if they
can play it with South African stocks," said Victor Flores, an analyst with HSBC
Global Research.
South Africa has been hit with an escalation in the number of power cuts, or load
shedding, for more than a week as power company Eskom Holdings Ltd., the supplier
of about 95% of electricity used in the country, struggles to meet demand due to
repairs and maintenance work at plants.
Stillwater shares recently were up $1.84 to $10.20 on nearly twice the average
daily volume.
-By Jerry A. DiColo, Dow Jones Newswires; 201-938-2007; jerry.dicolo@dowjones.com
(Robb M. Stewart contributed to this report.)
(END) Dow Jones Newswires
January 25, 2008 11:52 ET (16:52 GMT)
http://stockcharts.com/h-sc/ui?s=SWC&p=D&yr=0&mn=6&dy=0&id=p88369089267
Fed. 3day RP + 3.75B [net Drain -2.50B
Fed. 3day RP + 3.75B [net Drain -2.50B
South African power crisis shuts down all major gold and platinum mines
The power crisis in South Africa which has been leading to electricity outages across the country, has led to the country’s gold and platinum mining majors to shut down their operations until continuity of supplies can be guaranteed.
Author: Lawrence Williams
Posted: Friday , 25 Jan 2008
LONDON -
The power crisis across Southern Africa, and in South Africa itself in particular, has led to the temporary shutdown of all the latter country's major gold operations. Power failures at major mining operations, particularly given the depths of the operations, would be dangerous in that hoisting capacity to bring the miners out of the workings, which would be necessary because of possible ventilation breakdowns, would be severely limited.
South African state electricity provider Escom has reportedly told the mines it cannot guarantee the continuity of electricity supplies and, as a result Anglogold Ashanti, Gold Fields and Harmony have had to take the decision to shut down their operations until power supplies can be guaranteed.
While South Africa is still the world's largest gold producer, although it is being overtaken by China, any continued disruption of operations would have a significant impact on world gold supplies.
South African gold mine stocks fell on the news, and the disruption to supplies was also a factor in the gold price rising to new highs this morning where it reached just on $920 at the time of writing.
The power crisis will also have a similar impact on other sectors of the mining industry and platinum supplies will be particularly vulnerable with the country being by far the world's largest producer of platinum group metals. The world's two largest producers., Anglo Platinum and Impala, have also had to shut down their operations and smaller operators will be following suit. World platinum prices have also reached new records as a result.
The crisis is a major blow to the South African economy as well as to the country's miners.
At the moment there is no indication as to how long the closures will continue, but comments from South Africa suggest that the situation may get worse before it gets better. Watch this space!
South African power crisis shuts down all major gold and platinum mines
The power crisis in South Africa which has been leading to electricity outages across the country, has led to the country’s gold and platinum mining majors to shut down their operations until continuity of supplies can be guaranteed.
Author: Lawrence Williams
Posted: Friday , 25 Jan 2008
LONDON -
The power crisis across Southern Africa, and in South Africa itself in particular, has led to the temporary shutdown of all the latter country's major gold operations. Power failures at major mining operations, particularly given the depths of the operations, would be dangerous in that hoisting capacity to bring the miners out of the workings, which would be necessary because of possible ventilation breakdowns, would be severely limited.
South African state electricity provider Escom has reportedly told the mines it cannot guarantee the continuity of electricity supplies and, as a result Anglogold Ashanti, Gold Fields and Harmony have had to take the decision to shut down their operations until power supplies can be guaranteed.
While South Africa is still the world's largest gold producer, although it is being overtaken by China, any continued disruption of operations would have a significant impact on world gold supplies.
South African gold mine stocks fell on the news, and the disruption to supplies was also a factor in the gold price rising to new highs this morning where it reached just on $920 at the time of writing.
The power crisis will also have a similar impact on other sectors of the mining industry and platinum supplies will be particularly vulnerable with the country being by far the world's largest producer of platinum group metals. The world's two largest producers., Anglo Platinum and Impala, have also had to shut down their operations and smaller operators will be following suit. World platinum prices have also reached new records as a result.
The crisis is a major blow to the South African economy as well as to the country's miners.
At the moment there is no indication as to how long the closures will continue, but comments from South Africa suggest that the situation may get worse before it gets better. Watch this space!
Fed.(2)3)7day RP + 8.00B
3)Fed. 1day RP + 6.25B
Fed.(2)3)7day RP + 8.00B
3)Fed. 1day RP + 6.25B
Fed. 14day RP + 5.00B [ Drain sofar,
will be out dr. appt
Fed. 14day RP + 5.00B [ Drain sofar,
will be out dr. appt
DrBob*TA Update 1/23
The market made a huge bullish reversal today, as the Dow had been down over 300 pts, only to reverse in the last couple of hours, to close up about 300 pts.
The Spx tested yesterday's low of 1274 and took it out intra-day by going as low as 1270, then it too reversed impressively, to close at the highs of the day.
The volume was huge on the NYSE, 7B shares, with a/d of 11/4 and u/d vol 5/2, while the Nasdaq which had been relatively weaker, had a/d of 17/11 and u/d vol of 4/3, on heavy volume of 3.5B shares.
Today's action, in conjunction with yesterday's session, probably constitutes a capitulation even though today did not meet the requirements for a selling climax such as the 90% rule (which was reached yesterday at the opening).
I see Spx ST moving averages at 1365, 1380 and a very important one at 1405, while the 50 dma is at 1480 (it had been at 1490 along with it being a pivot point from support/resistance levels previously) and dropping, and will likely provide stronger resistance.
The NYSE McOsi reading had given a signal for a big move this week and it occurred today.
Overnight Asian mkts and tomorrow morning's European markets should rally hard from our mkts today and there is a chance of a strong opening tomorrow morning.
Short-sellers will be covering more of their positions tomorrow as the large institutions that short need days to cover, not hours.
Thus, we may have finally reached a tradeable bottom as the markets overshoot to washout sellers to reset the supply/demand balance.
The daily stochastics have crossed up while the MACD has not but its fast average has flattened out at least and the McClellan Oscillators are greatly improved.
If this market has changed trend for the time being, then the range of trading should be higher tomorrow and a firm close should occur, with positive internals regardless of the Dow being up or down.
jmho,
drbob
We won't know for sure until tomorrow and the next several days. As IBD states, you need a follow-through 4 days subsequent to the initial rally/reversal day to confirm it.
Leadership is needed and if the leadership sectors are manifest, then it will increase the odds of a technical rally lasting weeks, not hours or just a few days.
Perhaps the exchanges such as CME and ICE will resume their leadership roles, along with agriculture, such as MOS CF MON POT, along with select energy stocks such as PBG PMG SU ATW TTES RRC, along with solar stocks such as FSLR SPWR STP, along with tech stocks such as BIDU RIMM, along with biotech stocks such as ISRG, and if so, then this market can surprise some bears.
There has been massive selling the past few weeks and few days, thus possibly washing out many sellers for the time being, and so many are sitting on lots of cash or bonds right now.
Bonds are extremely overbought and parabolic and moneys could be rotated out of bonds and into stocks if the psychology of panic selling changes.
For the time being, the jury is out until we get confirmation of today's rally and reversal, but odds might favor the long side in the short term.
Watch for improved internals daily and intra-day, and firmer closes, and for leadership sectors and stocks to show up again and if they do, then bulls might get the upper hand for a change.
No, but have some cable prob today just
back up from about 12:30 chit.
US mining law rewrite faces uphill battle in Senate
Wed Jan 23, 2008 12:14pm EST
By Chris Baltimore
http://www.reuters.com/article/marketsNews/idUKN2363335420080123?rpc=44
WASHINGTON, Jan 23 (Reuters) - A bill passed by the U.S. House of Representatives last year that would impose stiff new royalties on hardrock mining companies will likely be toned down by the Senate, where pro-mining lawmakers hold more sway.
The House in November passed the Hardrock Mining and Reclamation Act of 2007, which would update mining laws that have been in place since 1872 and slap hefty new royalties on gold, silver, copper and other minerals mined on public lands.
If it becomes law, it would be the first major overhaul of the General Mining Law since President Ulysses S. Grant signed it 136 years ago to encourage Western land development.
However, key lawmakers on the Senate Energy Committee want to rewrite the legislation from scratch rather than use the House-passed version as a starting point.
Big mining concerns like Freeport-McMoRan Copper & Gold Inc (FCX.N: Quote, Profile, Research) and Newmont Mining (NEM.N: Quote, Profile, Research) could see royalties they pay to the federal government rise substantially if the House bill becomes law.
The House bill would levy an 8 percent royalty on the gross revenue from new hard-rock mining activities and impose a 4 percent royalty on existing operations.
Harry Reid, Senate majority leader whose home state of Nevada accounts for nearly 90 percent of U.S. gold production, has said he will block the 8 percent royalty assessment on new mining operations.
The Energy Committee will hold a hearing on the legislation on Thursday -- a precursor to the panel writing legislation that would still have to be approved by the full Senate.
"Senator Reid will see to it that no royalties be placed on existing mines," said Jon Summers, Reid's communications director. "In regards to royalties on new mines, that is something that has yet to be worked out."
Nevada production accounts for 87 percent of the total U.S. gold production and is the third-largest producer in the world behind South Africa and Australia.
US mining law rewrite faces uphill battle in Senate
Wed Jan 23, 2008 12:14pm EST
By Chris Baltimore
http://www.reuters.com/article/marketsNews/idUKN2363335420080123?rpc=44
WASHINGTON, Jan 23 (Reuters) - A bill passed by the U.S. House of Representatives last year that would impose stiff new royalties on hardrock mining companies will likely be toned down by the Senate, where pro-mining lawmakers hold more sway.
The House in November passed the Hardrock Mining and Reclamation Act of 2007, which would update mining laws that have been in place since 1872 and slap hefty new royalties on gold, silver, copper and other minerals mined on public lands.
If it becomes law, it would be the first major overhaul of the General Mining Law since President Ulysses S. Grant signed it 136 years ago to encourage Western land development.
However, key lawmakers on the Senate Energy Committee want to rewrite the legislation from scratch rather than use the House-passed version as a starting point.
Big mining concerns like Freeport-McMoRan Copper & Gold Inc (FCX.N: Quote, Profile, Research) and Newmont Mining (NEM.N: Quote, Profile, Research) could see royalties they pay to the federal government rise substantially if the House bill becomes law.
The House bill would levy an 8 percent royalty on the gross revenue from new hard-rock mining activities and impose a 4 percent royalty on existing operations.
Harry Reid, Senate majority leader whose home state of Nevada accounts for nearly 90 percent of U.S. gold production, has said he will block the 8 percent royalty assessment on new mining operations.
The Energy Committee will hold a hearing on the legislation on Thursday -- a precursor to the panel writing legislation that would still have to be approved by the full Senate.
"Senator Reid will see to it that no royalties be placed on existing mines," said Jon Summers, Reid's communications director. "In regards to royalties on new mines, that is something that has yet to be worked out."
Nevada production accounts for 87 percent of the total U.S. gold production and is the third-largest producer in the world behind South Africa and Australia.
steep learning curve,
had mine years ago buying some from friends Dad @ his pawn shop
in Columbia SC.....
selling was my curve, 3 of 12 coins were fake, be careful!!
yup, read all his stuff
sorry that l sold the coins a few months back.
Fed. 1day RP + 7.00B [ net drain -3.00B
Fed. 1day RP + 7.00B [ net drain -3.00B
Goldman Sachs no longer recommends shorting gold
By Steve Goldstein
Last update: 6:29 a.m. EST Jan. 23, 2008Print RSS Disable Live Quotes
LONDON (MarketWatch) -- Goldman Sachs said it no longer recommends shorting gold, as it has since Dec. 11, which on paper resulted in a loss of $54 an ounce. After the Fed rate cut, "we believe that there is now greater pressure for continued U.S. dollar weakness. We have long held that the gold price trades inversely with the U.S. dollar; thus, with the increased uncertainty in global financial markets and a higher probability of continued U.S. dollar weakness, we believe that the risk/reward of our short gold trade has diminished," it said.
Goldman Sachs no longer recommends shorting gold
By Steve Goldstein
Last update: 6:29 a.m. EST Jan. 23, 2008Print RSS Disable Live Quotes
LONDON (MarketWatch) -- Goldman Sachs said it no longer recommends shorting gold, as it has since Dec. 11, which on paper resulted in a loss of $54 an ounce. After the Fed rate cut, "we believe that there is now greater pressure for continued U.S. dollar weakness. We have long held that the gold price trades inversely with the U.S. dollar; thus, with the increased uncertainty in global financial markets and a higher probability of continued U.S. dollar weakness, we believe that the risk/reward of our short gold trade has diminished," it said.
DrBob* TA Update 1/22
The Fed cut rates by 3/4 pt before the opening, resulting in a not as sharp a down opening as the futures had forecasted prior to it, and the market slowly and steadily rallied for about half the session, then fluctuated between being down slightly to being down moderately.
The market stabilized but did not scream ahead after the opening, so the capitulation at the opening was not the ideal type.
Today the internals ended negative with the NYSE a/d at 2/3, u/d vol 2/3, for a TRIN near 1.00, neutral, on heavy volume of 6.4B shares.
The Naz a/d was about 1/4, so its TRIN was well about 2.00, a negative reading, as the quality stocks in the NYSE outpferformed.
The NYSE McClellan Oscillator changed by +1, so it could portend a sharp move in the next few days, and it may be attempting to rally as some breadth momentum has dissipated a bit.
The Spx coincidentally reached the 1225 support level I have discussed, printing 1224, after having breached the higher support of 1275 without any trouble.
If the PPT and Feds are working together to increase the liquidity in the financial markets and prompting broker-dealers to have their clients and institutions accumulate (buy) stocks en masse, then the market in the U.S. could mount a choppy rally in the next few weeks.
Tomorrow's action and close will likely portend the next major move in the market, but in any case, it will be very choppy as traders are extremely nervous and won't be holding postions very long.
Bonds are overbought so there could be some rotation out of bonds as a safe harbor and into stocks which are very oversold.
The market bulls have a lot to prove in order to orchestrate a technical rally of signficance and even more to prove to reassert the bull market as most indications are that we have entered a secular bear market.
First order of business for bulls is to push this market above ST moving averages, then have several strong closes in 4-5 day period, and fight its way to the 50 dma while making a series of higher highs and higher lows in the hourly charts, and then the dailies.
We shall see,
regards,
drbob
Real-Time Forex Streamers (2)
http://www.netdania.com/QuoteList.asp
http://www.forex-markets.com/quotes.htm
Fed. 1day RP + 10.00B [net add + 6.50B
sofar they are holding well,
folks have to raise cash so sellin winners, i will wait a bit & may add some PM's....
Fed cuts rates in emergency 1/22/08
WASHINGTON (MarketWatch) - Hoping to prevent a market meltdown and recession, the Federal Reserve lowered its overnight lending rate by 75 basis points to 3.50% on Tuesday in a rare move between formal meetings.
The cut came after global financial markets sold off in dramatic fashion on fears that bad bets in credit markets could spread further and drive the U.S. economy into recession. See full story on London markets.
It was the largest rate cut by the Fed since the early 1980s.
After a conference call Monday evening among the 10 voting members of the Federal Open Market Committee, the FOMC released a statement saying downside risks to growth remain. One member of the committee, William Poole of St. Louis Fed, voted against the move.
"The committee took this action in view of a weakening economic outlook and increasing downside risks to growth," the Federal Open Market Committee said in a statement. See full story.
"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households," the FOMC said. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
"Appreciable downside risks to growth remain," the statement said. "The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."
By cutting rates now instead of waiting a week, the FOMC showed that it's much more concerned about the financial markets and the economy slipping into recession than it was just a month ago, when the committee cuts its target for the federal funds rate by a quarter percentage point to 4.25%.
Over time, rate cuts should stimulate economic growth by making it cheaper to borrow money for consumption or investment. Banks typically lower their prime lending rate for their best customers in lockstep with the Fed. Many consumer and business loans, however, are based on interest rates set in competitive markets, which may or may not follow the Fed's lead.
The Fed has now lowered interest rates by 1.75 percentage points since Sept. 18.
The rate cut wasn't a complete surprise to markets that have been anticipating aggressive rate cuts by the Fed, although the timing of any intermeeting rate cut was uncertain.
On Jan. 10, Fed Chairman Ben Bernanke had signaled the Fed's willingness to act boldly when he said it would "remain exceptionally alert and flexible" and was prepared "to take substantive additional action as needed to support growth."
It was the first time since Sept. 17, 2001, that the Federal Open Market Committee had changed the federal funds target rate outside of a regular meeting.
The next meeting is scheduled for Jan. 29 and 30. Markets anticipate another rate cut, possibly a half-point cut, at that time.
Futures (2) + World Indices
http://www.cme.com/dta/del/globex.html
http://money.cnn.com/data/premarket/
World Indices (2) Mini Charts
Updates every 60sec ~ Watch the dates!!
http://www.wwfn.com/commentary/oscharts.html
http://www.allstocks.com/markets/World_Charts/Asian_Stock_Markets/asian_stock_markets.html
When governments print money, buy gold
Jeff Randall
Last Updated: 1:08am GMT 19/01/2008
Have your say Read comments
"If you don't trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars?"
- Kenneth J. Gerbino
The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence.
News: Delay capital gains reform, Gordon Brown told
Gold has been a store of value for
more than 5,000 years
"The modern mind dislikes gold," said Joseph Schumpeter, "because it blurts out unpleasant truths." With gold trading at about $900 an ounce - more than 200 per cent higher than it was at the turn of the millennium - today's message from the bullion market is not comforting.
In the eight years since the arrival of the 21st century, the FTSE-100, the London stockmarket's main index, has lost about 15 per cent in value. The shares in companies that comprise "Footsie" usually pay dividends, sometimes more than five per cent a year. Gold pays none: never has, never will.
So why have investors been abandoning conventional assets, such as government bonds and stakes in blue-chip businesses, in favour of a metal that appears to offer no reward for holding it? The answer, I'm afraid, is crumbling faith in the world's central banks, and in particular the US Federal Reserve, where the presses have been working overtime.
Some argue that the soaring gold price has been driven by temporary anxiety over global instability. The metal is a safe haven in troubled times. But answer me this: when was the last time the world felt like a cosy hideaway? Ever since mankind turned up, Planet Earth has never been a safe place.
advertisement
Wars in Iraq and Afghanistan, a more muscular Iran and the unpredictability of Moscow are contributing to nervousness. But what's really upsetting investors is the speed at which money is being printed by governments, especially America's, that cannot face the problem of funding wild expenditure plans solely from reserves or taxation.
In that sense, the gold price's journey towards $1,000 is a resounding vote of no confidence in authority. It's the market flashing a red light.
This week, the BBC's World Editor, John Simpson, reported under cover from Zimbabwe, where the cost of a meal for himself and some friends in a Harare restaurant was 290,000,000 Zimbabwean dollars. Ever the gentleman, Simpson left a ten-million-dollar tip. In this nightmare state, as Simpson put it, "everyone is a millionaire", yet also, "grindingly poor".
This is an extreme version of what happens when a currency is debauched. Zimbabwe is at the very end of a road down which all excessively wasteful administrations travel. It is a long haul, and not many go all the way like Robert Mugabe. Nevertheless, the price of gold is signalling fears that the US dollar, and to a lesser extent sterling, is on course for painful corrosion.
Currencies come and go, but gold has been a store of value for more than 5,000 years. Gold is rare, but, thanks to Gutenberg, paper money is not. Presented with an opportunity to churn out extra cash at little expense, it takes a special kind of government to resist. Few seem able to do so.
According to former Fed chairman Alan Greenspan: "There is no inherent anchor in a fiat-money regime [a currency not underpinned by gold]. What constitutes its 'normal' inflation rate is a function solely of a country's culture and history." For many, that flexibility has proven ruinous.
Inflation wrecks currencies in the same way that termites destroy wooden houses. The world's two most successful currencies, the US dollar and the British pound, both of which are still used by other nations to hoard wealth, have each lost more than 95 per cent of their value in the past 100 years.
Since 1971, when Richard Nixon broke the dollar's formal link to gold, America has pumped out trillions of new dollars. Money from thin air. China alone is sitting on more than $1,000 billion of reserves, as American consumers pile up debts to buy "essentials" from factories in Shenzhen and Guangdong. No wonder the buck has lost its fizz.
By contrast, there is a finite supply of gold. This keeps it honest. As financial commentator Peter Burshre pointed out: "Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War [American War of Independence], the Civil War, the presidency of Franklin Roosevelt and today."
Gold doesn't always appreciate in price, of course. In 1980, it was selling at more than $800 an ounce. Twenty years later, it had dropped to $275. It is theoretically possible to get rich by betting on fiat currencies and against gold. But the scoring average of all those who try is pretty poor.
Ask Gordon Brown. He achieved what most expert dealers can only dream of. In 1999, he spotted the bottom of the gold market, a 20-year low. The trouble was, Brown's order was "sell". As Chancellor, he told the Bank of England to dump nearly 400 tonnes of British gold reserves, since when the price has shot up. That decision cost the Treasury billions.
Control-freak politicians abhor gold because it ignores them; it won't do what it's told. It defies economists and laughs at central bankers.
Sophisticates claim that, in a world of electronic money, gold is a barbarous relic. But as the sub-prime horror ravages the international banking system, millions of ordinary savers know better. While ministers debate the merits of flooding the global system with liquidity to ease the credit crunch, Delhi taxi drivers are buying gold, accelerating the shift of wealth from west to east.
"Practically all governments of history," said Friedrich von Hayek, "have used their exclusive power to issue money to defraud and plunder the people." Gold stands in the way of this process; it is a protector of property rights.
If you are still not convinced, let me remind you of what Hitler had to say: "Gold is not necessary. I have no interest in gold. We'll build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration camp. That's the bastion of money."
The Third Reich was supposed to last 1,000 years. It fell apart a long way short of that, but gold is still here.
At some stage, the recent price surge will cool. When? No idea. But I do know that, to equal the last peak of $846, in November 1980, the price today would have to reach $2,500.
Have your say
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=YNZZQBZK5QPDDQFIQMGSFFOAVCBQWIV0?xml=/money/2008/01/18/do1801.xml
When governments print money, buy gold
Jeff Randall
Last Updated: 1:08am GMT 19/01/2008
Have your say Read comments
"If you don't trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars?"
- Kenneth J. Gerbino
The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence.
News: Delay capital gains reform, Gordon Brown told
Gold has been a store of value for
more than 5,000 years
"The modern mind dislikes gold," said Joseph Schumpeter, "because it blurts out unpleasant truths." With gold trading at about $900 an ounce - more than 200 per cent higher than it was at the turn of the millennium - today's message from the bullion market is not comforting.
In the eight years since the arrival of the 21st century, the FTSE-100, the London stockmarket's main index, has lost about 15 per cent in value. The shares in companies that comprise "Footsie" usually pay dividends, sometimes more than five per cent a year. Gold pays none: never has, never will.
So why have investors been abandoning conventional assets, such as government bonds and stakes in blue-chip businesses, in favour of a metal that appears to offer no reward for holding it? The answer, I'm afraid, is crumbling faith in the world's central banks, and in particular the US Federal Reserve, where the presses have been working overtime.
Some argue that the soaring gold price has been driven by temporary anxiety over global instability. The metal is a safe haven in troubled times. But answer me this: when was the last time the world felt like a cosy hideaway? Ever since mankind turned up, Planet Earth has never been a safe place.
advertisement
Wars in Iraq and Afghanistan, a more muscular Iran and the unpredictability of Moscow are contributing to nervousness. But what's really upsetting investors is the speed at which money is being printed by governments, especially America's, that cannot face the problem of funding wild expenditure plans solely from reserves or taxation.
In that sense, the gold price's journey towards $1,000 is a resounding vote of no confidence in authority. It's the market flashing a red light.
This week, the BBC's World Editor, John Simpson, reported under cover from Zimbabwe, where the cost of a meal for himself and some friends in a Harare restaurant was 290,000,000 Zimbabwean dollars. Ever the gentleman, Simpson left a ten-million-dollar tip. In this nightmare state, as Simpson put it, "everyone is a millionaire", yet also, "grindingly poor".
This is an extreme version of what happens when a currency is debauched. Zimbabwe is at the very end of a road down which all excessively wasteful administrations travel. It is a long haul, and not many go all the way like Robert Mugabe. Nevertheless, the price of gold is signalling fears that the US dollar, and to a lesser extent sterling, is on course for painful corrosion.
Currencies come and go, but gold has been a store of value for more than 5,000 years. Gold is rare, but, thanks to Gutenberg, paper money is not. Presented with an opportunity to churn out extra cash at little expense, it takes a special kind of government to resist. Few seem able to do so.
According to former Fed chairman Alan Greenspan: "There is no inherent anchor in a fiat-money regime [a currency not underpinned by gold]. What constitutes its 'normal' inflation rate is a function solely of a country's culture and history." For many, that flexibility has proven ruinous.
Inflation wrecks currencies in the same way that termites destroy wooden houses. The world's two most successful currencies, the US dollar and the British pound, both of which are still used by other nations to hoard wealth, have each lost more than 95 per cent of their value in the past 100 years.
Since 1971, when Richard Nixon broke the dollar's formal link to gold, America has pumped out trillions of new dollars. Money from thin air. China alone is sitting on more than $1,000 billion of reserves, as American consumers pile up debts to buy "essentials" from factories in Shenzhen and Guangdong. No wonder the buck has lost its fizz.
By contrast, there is a finite supply of gold. This keeps it honest. As financial commentator Peter Burshre pointed out: "Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War [American War of Independence], the Civil War, the presidency of Franklin Roosevelt and today."
Gold doesn't always appreciate in price, of course. In 1980, it was selling at more than $800 an ounce. Twenty years later, it had dropped to $275. It is theoretically possible to get rich by betting on fiat currencies and against gold. But the scoring average of all those who try is pretty poor.
Ask Gordon Brown. He achieved what most expert dealers can only dream of. In 1999, he spotted the bottom of the gold market, a 20-year low. The trouble was, Brown's order was "sell". As Chancellor, he told the Bank of England to dump nearly 400 tonnes of British gold reserves, since when the price has shot up. That decision cost the Treasury billions.
Control-freak politicians abhor gold because it ignores them; it won't do what it's told. It defies economists and laughs at central bankers.
Sophisticates claim that, in a world of electronic money, gold is a barbarous relic. But as the sub-prime horror ravages the international banking system, millions of ordinary savers know better. While ministers debate the merits of flooding the global system with liquidity to ease the credit crunch, Delhi taxi drivers are buying gold, accelerating the shift of wealth from west to east.
"Practically all governments of history," said Friedrich von Hayek, "have used their exclusive power to issue money to defraud and plunder the people." Gold stands in the way of this process; it is a protector of property rights.
If you are still not convinced, let me remind you of what Hitler had to say: "Gold is not necessary. I have no interest in gold. We'll build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration camp. That's the bastion of money."
The Third Reich was supposed to last 1,000 years. It fell apart a long way short of that, but gold is still here.
At some stage, the recent price surge will cool. When? No idea. But I do know that, to equal the last peak of $846, in November 1980, the price today would have to reach $2,500.
Have your say
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=YNZZQBZK5QPDDQFIQMGSFFOAVCBQWIV0?xml=/money/2008/01/18/do1801.xml
DrBob - TA Update 1/20/2008
The Spx has broken down badly below the 1370-1390 support level and implies that we are in a bear market now as we have made a decidedly lower low, along with Dow Theory's signal. It seems that we have a broadening top formation and will continue to see a series of lower highs and lower lows.
The Russell 2000 and some other indices already have declined over 20%, a definition of a bear mkt. The Dow and Spx have held up a little better but the daily and weekly charts on those two and the Nasdaq are indicative of a downtrend.
The market is oversold but has been oversold for the last Spx 100 pts down.
To increase the chances of a tradeable bottom, one needs to see either a double bottom (at a lower level than where we are now) with bullish divergences, or a selling climax, which by definition has the 90% rule and an intra-day bullish reversal on very heavy volume.
Due to the lack of the uptick rule for shorting and elimination of trading curbs, a panic selloff could mean the Dow down over 500 pts and the Spx down over 50 pts.
The downgrade for Ambac could trigger a selloff in open exchanges on Monday and in the U.S. when it resumes trading on Tuesday.
In any event, it seems that the next 50-75 point move could be down in the Spx, and if we see down days without capitulation, then it could be more severe than that.
The VIX probably needs to spike up to the mid-30's at a minimum for capitulation. Sentiment is also not yet indicating a bottom yet.
Crude oil, gold and most commodities are also vulnerable as almost all assets are being sold. Only bonds have strength.
A market crash is more possible now than ever. The Feds need to intervene with a sharp rate cut of at least 75 basis points and immmediately so, to avert a crash, in my opinion.
Hopefully most investors have raised cash and become at least somewhat defensive in the past week or two.
Bear markets have sharp rallies but it is difficult to "catch a falling knife." Bear markets can be parabolic to the downside for a long time.
If we can attain a capitulation/tradeable bottom, then only very high relative strength stocks should be considered.
If we just drift lower without capitulation/panic selling, then all bounces will fail, if history is any guide.
Bernanke needs to take strong action on Tuesday or on any sharply down day this week to avert a crash. I am being redundant intentionally.
Let's hope he knows what to do.
regards,
drbob
Mauldin: The Continuing Crisis MustRead
Excerpt from this report, read again.
http://www.safehaven.com/article-9261.htm
Credit Default Swaps: The Continuing Crisis
As noted above, I said three weeks ago that the big story for 2008 would be the counter-party risk for credit default swaps. That story is coming faster and larger than I thought. Bill Gross of Pimco suggests that the ultimate cost could be another $250 billion dollars on top of the $250-plus billion in subprime losses. That means we have only seen the tip of the iceberg in write-offs in the financial sector.
The real problem is the "monoline insurers" like ACA, Ambac, and MBIA. Here's a quick primer on how they work. Let's say you are a small municipality and want to borrow $10,000,000 for a bond offering to build a road or a water treatment plant. If you went to the market with your credit rating, it would be a low rating and the cost of the money would be high. But if you get one of the seven monoline insurers to guarantee your bond, then you get whatever their credit rating is. The fees for such insurance are lower than the savings you get on the bond, so everyone wins.
But over the years, most of the monocline insurers went from boring municipal bonds and jumped into the mortgage-backed security markets, selling credit default swaps that significantly juiced up their earnings. But it also added a lot of risk that they clearly, in hindsight, did not understand.