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I was trying to calculate what the real price of gold should be relative to the amount of base money supply in circulation and revolving credit. I think the figure comes out to 24,000/ per ounce. How does that figure sound to you. ? All fiat currencies eventually go to zero. And I'm guessing the fundament driver of gold is dollars in a bear market.
What a timely post.
Credit didn't act that bad today.
But I'm surprised over the end of day rally.
Any thoughts?
While the avg joe's hangover still looms, this is one that no hair of the dog is going to cure...
Happy New Year!
According to recent numbers, the top 25 banks in the United States now have a grand total of more than 236 trillion dollars of exposure to derivatives. But there are four banks that dwarf everyone else. The following are the latest numbers for those four banks… JPMorgan Chase Total Assets: $1,945,467,000,000 (nearly 2 trillion dollars) Total Exposure To Derivatives: $70,088,625,000,000 (more than 70 trillion dollars) Citibank Total Assets: $1,346,747,000,000 (a bit more than 1.3 trillion dollars) Total Exposure To Derivatives: $62,247,698,000,000 (more than 62 trillion dollars) Bank Of America Total Assets: $1,433,716,000,000 (a bit more than 1.4 trillion dollars) Total Exposure To Derivatives: $38,850,900,000,000 (more than 38 trillion dollars) Goldman Sachs Total Assets: $105,616,000,000 (just a shade over 105 billion dollars – yes, you read that correctly) Total Exposure To Derivatives: $48,611,684,000,000 (more than 48 trillion dollars) If the stock market keeps going up, interest rates stay fairly stable and the global economy does not experience a major downturn, this bubble will probably not burst for a while. But if there is a major shock to the system, we could easily experience a major derivatives crisis very rapidly and several of those banks could fail simultaneously. There are many out there that would welcome the collapse of the big banks, but that would also be very bad news for the rest of us. You see, the truth is that the U.S. economy is like a very sick patient with an extremely advanced case of cancer. You can try to kill the cancer (the banks), but in the process you will inevitably kill the patient as well. Right now, the five largest banks account for 42 percent of all loans in the entire country, and the six largest banks control 67 percent of all banking assets. If they go down, we go down too. That is why the fact that they have been so reckless is so infuriating. Just look at the numbers for Goldman Sachs again. At this point, the total exposure that Goldman Sachs has to derivatives contracts is more than 460 times greater than their total assets. And this kind of thing is not just happening in the United States. German banking giant Deutsche Bank has more than 75 trillion dollars of exposure to derivatives. That is even more than any single U.S. bank has. This derivatives bubble is a “sword of Damocles” that is hanging over the global economy by a thread day after day, month after month, year after year. At some point that thread is going to break, the bubble is going to burst, and then all hell is going to break loose. You see, the truth is that virtually none of the underlying problems that caused the last financial crisis have been fixed. Instead, our problems have just gotten even bigger and the financial bubbles have gotten even larger. Never before in the history of the United States have we been faced with the threat of such a great financial catastrophe. Sadly, most Americans are totally oblivious to all of this. They just have faith that our leaders know what they are doing, and they have been lulled into complacency by the bubble of false stability that we have been enjoying for the last couple of years. Unfortunately for them, this bubble of false stability is not going to last much longer. A financial crisis far greater than what we experienced in 2008 is coming, and it is going to shock the world. ———-
What a sobering reality we live in. Nonetheless I wish you a happy & prosperous New Year.
I don't know how you feel about Dr. Paul Roberts, but I find him to be brutally honest.
http://thenewsdoctors.com/us-stupid-enough-to-cause-nuclear-war-dr-paul-craig-roberts/
Merry Christmas GLD! I'm expecting an exciting year. Bubble pops this year!
Amazon is a disaster waiting to happen in my opinion. Have a good weekend.
I hope the new world reality post fed hike is a new world continuum, where bad is really bad and good no longer matters as much.
Thanks Gld. I always appreciate your insight.
this is the thing people aren’t talking about – we live in a global economy. If the dollar strengthens too much too quickly, global borrowers who borrowed in U.S. dollars because U.S. interest rates were the lowest in the world, which adds up to about $9 trillion in loans, would be facing higher debt service costs as their currencies fall in value relative to the dollar.
Then consider what would happen if those foreign borrowers have to earn revenue in their own currencies selling commodities like oil, copper, iron ore, or steel, the prices of which keep falling as global growth slows and the U.S. dollar appreciates.
No one really knows what would happen, who would default, if countries saw massive capital flight and their currencies collapsed, what kind of recession or depression we might enter, or which countries would be at risk of social unrest, or worse.
The Fed can’t normalize rates any time soon. All they can do is raise rates a small amount and see what happens.
But just because the Fed can’t raise rates much or for long, doesn’t mean even a small raise wouldn’t upset financial markets here and globally. It could happen.
If the Fed doesn’t raise rates at their next meeting, we’ll have to watch the financial markets to see how they react. They could rally, or they could sell off… but no one knows because we’ve never been here – or anywhere near here – before.
If they raise rates and markets sell off, the dominos will begin to fall – stocks will tumble, bond prices will take a hit, and commodities could see fresh new lows. The dollar will rise, hitting emerging economies particularly hard.
And what would be a better play than being long on volatility. I really like TVIX in this environment. All the best...
I love it!
Never heard this one. When I was a student in England I ate a lot of McDonald's . I think two years later it was the cause of a gallstone . I also reminder during the credit crunch as we called it there McDonald's stock performed quite well...
GLd- what's the rational explanation for today's rally,? As we speak crude is at 36.76 and credit is lukewarm.
Today's bond auction is
further evidence there is no growth on planet earth and the prospects for future growth is even lower. when central banks are playing leapfrog over each-other for 2.00-2.50%, u know theres a problem. don't have to look further than their involvement in these treasury auctions to answer the question "what do they know that we don't?"
The answer is simple:
The bonds support the fiat ponzi as the basis for collateral. The dollars trade on market while the debt collects dust. The increasing debt/currency weakens the real payout. This is why the richest men in the world are buying arable land and picassos - they know when the levee breaks there will be no place to hide exept finite goods.
The credit mkts are putrid today. Equities belong at least 5 percnt lower to relfect credit risks.
Looks like the impossibility is going to happen after all... The fed to raise rates. I guess they want to pop their own bubble party they created 7 tears ago. I mean years, that will end in tears. Since September where has the Dow gone? No where really. It's been going sideways there is no traction and depth to it. They just keep making statements Draghi and here at home to tame the fear. Looks like NIRP will also come into play at a theater near you ... The old roman proverb rings true for all time : FELIX QUI Nihil Debit
Keep it inflated as much as possible before the rate hike announcement and then....
That's a significant chart. We remember 2011. DOG is a nice play on a sinking market.
Maybe our Christmas gift will arrive in December. I sure hope so.
Sooner rather than later the "natural" forces of the market will wipe out all this fed induced artificial manipulation of the likes which you have never seen. So be patient the longer the stall the greater the fall
Experientia magistra rerum.
Happy thanksgiving- GLd!
Vix trading like a penny stock. Can't wait for Cramer to tell me this is indicative of a healthy market.
Commodities outweigh the Feds decisions. I don't even bother following their comedy show. Their indecision is laughable. I look at oil- copper- and the US DOLLAR
Will retrace late August and early September. And continue down
Q): how does your hedging change if the US dollar continues its rise?
Oil, copper and the dollar.
Paramount.
Iceland rejects EU bid!
Bravo!!
It's true. It won't matter who takes office. It's all a Shakespearean drama with scores of actors with various roles to play. Chile sounds good to me. I actually like Iceland. They seem to have the right attitude towards the globalist bankers and the corporatocracy that has replaced sovereignty of nations and rule of law practiced in democratically elected governments.
It stands to reason that if 70% of the US economy is based on consumption, then a direct monetary financialization of the US economy, or helicopter drop in the words of Milton Friedman would be a valid and serious consideration once the alternatives have been exhausted. i.e. QE and ZIRP. If we go to NIRP then money paid directly to the American citizen would seem inevitable maybe even logical.
If the Fed is unable to raise rates from zero, it will also be have no ability to cut them to fight the next recession. So the next time an economic downturn occurs (one may already be underway), the Fed will have to immediately launch the next round of QE. When QE4 proves just as ineffective as the last three rounds to create real economic growth, the Fed may have to consider the radical ideas now being contemplated by the Bank of Japan.
So this is the endgame of QE: Exploding debt, financial distortion, prolonged stagnation, recurring recession, and the eventual government takeover of industry and the economy. This appears to be the preferred alternative of politicians and bankers who simply refuse to let the free markets function the way they are supposed to.
If interest rates were never manipulated by central banks and QE had never been invented, the markets could have purged themselves years ago of the speculative bubbles and mal-investments. Sure we could have had a deeper recession, but it also could have been much shorter, and it could have been followed by a far more robust and sustainable recovery.
Instead Washington has joined Tokyo on the road to Leningrad.
Zh
No more swing trading for me. Buy and hold. I could care less about contango. I'll just keep adding to my position
Wasn't able to access I Hub in London. Just read this. You started a hedge fund? Congrats!
Commodities to the rescue!!
Investors who don’t understand that forces like the prices of oil and copper – which may not be raw inputs or have anything whatsoever to do with a company’s business – can move stocks better learn quickly what to watch and why.
Or they’ll get blindsided quickly.
Right now, the price of oil is extremely important – even critical – to the markets.
While falling oil and gasoline prices are considered good for consumers and economic growth in the long term, there’s another side to this story. In the short run, if oil prices were to drop back to their recent lows, stock prices would immediately start to skid.
And if oil downright collapses, stock markets all around the world will tank.
With declining oil prices, it’s what’s playing out behind the scenes that matters most.
Let me show you…
Bothersome Forecasts
When oil falls, it’s from lack of demand, oversupply or both.
And right now, it’s both.
When oil demand starts growing at a slower rate, it’s a sign that economic growth itself is slowing.
That’s happening now.
According to a brand-new report from the International Energy Agency, global demand growth is expected to slow from its five-year high of 1.8 million barrels a day this year to 1.2 million next year – which the IEA says is “closer towards its long-term trend as previous price support is likely to wane.”
Recent reductions in global growth forecasts are having an impact, the IEA report says.
At the same time demand is easing, oil supplies keep increasing. The U.S. Energy Information Administration’s newest outlook – released this month – says “global… production continues to outpace consumption, leading to strong inventory builds throughout the forecast period.”
Global oil inventory builds in this year’s second quarter averaged 2.3 million barrels per day, compared with increases of 1.8 million barrels a day back in the first three months of the year.
Slowing economic growth, as evidenced by slowing demand growth for oil, isn’t good for stocks.
What’s worse, if the price of oil tanks, the banks that have huge loans out to energy companies will get hit.
And hit hard.
More than $500 billion worth of “junk bonds” issued by energy companies that have been bought by mutual funds and exchange-traded funds (ETFs) will get clobbered. Falling oil prices will rekindle deflation. And perhaps most frighteningly, collapsing oil prices could destabilize oil-producing countries in the Mideast – most notably Saudi Arabia.
West Texas Intermediate (WTI), the U.S. oil benchmark, is trading around $43.50. If WTI falls below $38 – thereby breaching its recent cyclical lows – there’s no telling where the bottom is.
The lower oil goes, the more selling it ignites. Lower prices cause futures prices to fall as energy players rush to hedge inventories and future production, which puts more pressure on spot prices.
Big drops in the stock prices of energy companies will take down the rest of the market.
And then there’s copper.
The End of Days
Everyone knows that markets went into a panic sell-off mode back in August.
But here’s what they missed: the reason investors panicked in the first place.
In an almost humorous “Eureka!” moment, China had to instantly backtrack a day after announcing it wanted to devalue the yuan by 2% against the U.S. dollar.
Emerging markets tanked instantly, Asian stocks free-fell, European stocks tumbled and U.S. stocks freaked out.
What wasn’t funny was that Beijing momentarily forgot that – in spite of its slowing economy and its hope to help revive exports by lowering the country’s currency – there’s an almost $2 trillion game being played in China having to do with copper, interest rates and the value of the yuan relative to the U.S. dollar.
Surprise!
Almost instantly, investors and speculators in the Chinese copper “carry trade” began to unwind the bet that the Bank for International Settlements estimates is somewhere between $1.2 trillion and $2 trillion. I’m going with the $2 trillion figure because the BIS is notoriously conservative in its estimates of leveraged positions.
The copper carry trade works like this.
Chinese and other investors and speculators get loans in U.S. dollars, because U.S interest rates are so low, and buy copper that they warehouse in China. Chinese lenders then make loans in yuan, using warehoused copper as collateral. The “investors” then park their borrowed money in higher-yielding Chinese fixed-income securities, sometimes in stocks, and most of the time buy more copper to warehouse and borrow more against.
You see where this is going?
If China’s currency falls in value, it will take more yuan to pay back the U.S. dollar-denominated loans that carry-trade investors and speculators took out in the first place. If China ratchets down internal interest rates to stimulate growth – which it did Friday – the rate of return that carry-trade speculators get on their Chinese investments gets cut back.
And that makes the carry trade less profitable – and riskier.
Then there’s the final nail in the coffin of this $2 trillion monster…
The price of copper.
If the price of copper starts falling, the value of the collateral all these trades are based on also drops. Not only will there be margin calls, there’s fear globally (for those who understand what’s really going on in China) that some unknown amount of warehoused copper has been pledged as collateral several times over for different loans.
Right now, copper is trading around $2.38 a pound. If it falls below $2.20 to $2.25 per pound – where it has some technical support – the decline will likely set in motion a cascade of selling as carry-trade speculators start unwinding their trades because they’re getting margin calls.
A copper sell-off will trigger the unwinding of the massive copper carry trade and put extraordinary pressure on other commodities, on emerging markets that export them, on Australia whose economy is driven by commodity exports and on global markets that will see panic rush of “risk-off” selling.
Watch the stock market all you want. But if you want to know if a Category 6 hurricane is about to blow over you, watch the price of oil and copper.
Via Money Morning
Yes we are. Great entry point into TVIX. All the best to you
Sounds good to me.
At least a 10% drop I wouldn't be surprised if it was more