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Saturday, July 30, 2011

Liquidity Trouble?

...from Marty Chenard - http://StockTiming.com/

"I'm starting to think this is ironic ...

The country is in debt and the Government's revenue cannot cover the current debt. In other words, the cash outflow is greater than the cash inflows, so we have a Liquidity Contraction situation.

What's ironic?

The ironic part is that the Stock Market now has its Long Term Liquidity flows in Contraction territory as you can see on today's chart (this chart is updated every day on our paid subscriber site).

Back in the 20's and 30's, it was Jesse Livermore who commented that the market was all about money ... Money flows in, and the market goes up ... Money flows out, and the market goes down.

So, it is one of the reasons we track money flows ... and Liquidity Levels are now in Mid-Contraction territory which is a dangerous place to be, and a place where Congress will be punished if they don't stop fiddling around.

FYI ... An interesting commentary from Wikipedia: "During his reign, Nero focused much of his attention on diplomacy, trade, and enhancing the cultural life of the empire. ... He is also infamously known as the emperor who "fiddled while Rome burned". Maybe Congress should stop fiddling around?"

Thursday, July 28, 2011

...from KWN...Jim Rickards Interview excerpt...The 4th Reich Conquers Europe

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/7/28_Jim_Rickards_-_Germanys_Fourth_Reich_Has_Conquered_Europe.html

With fear escalating around the financial world as the US debt ceiling deadline draws near, today King World News interviewed Jim Rickards to get his take on where things stand. One of the things KWN was surprised to learn was that while everyone has been focused on the US’s debt problem, the Germans with the cooperation of their political and financial foot soldiers have essentially conquered Europe.

Jim Rickards explains this extraordinary conquest, “It became more and more clear that there was no good way out, in other words you could just have an outright Greek default, which would be highly disruptive or Greece could have left the Euro and that’s another bad outcome. Not so much economically, but politically, Germany and France don’t want that because it would lead to the unraveling of the entire Euro project which has been going on since the early ‘50s.”

Rickards continues:

“So finally Germany did what everyone thought they would have to do at the end of the day, they stepped up and they have created this new facility (European Financial Security Facility or ESFS). But they have given it (the facility) vast new powers...In Europe for over ten years you’ve had the European Central Bank, which is the equivalent of the Fed, but they did not have the equivalent of a Euro Treasury.

So the best way to understand the ESFS, for the first time we have a European-wide Ministry of Finance. They don’t call it that, but that’s what it is, and it’s run by the Germans. So in effect Germany will be dictating fiscal policy to all of the Euro system from here on out. I think that’s what the Greeks haven’t realized at this point.

They (the Greeks) like the fact that their banks are being propped up, they like the fact that the austerity budget is not going to be as bad as it was. I think in the short run this is very positive for Greece because they won’t have quite the austerity straight-jacket that they would have otherwise been wearing. It’s probably a positive for Greek growth and it’s less disruptive to the market, so that’s the good news.

The bad news at least if you’re Greece or Italy or Spain or Portugal is that from now on your fiscal policy is going to be dictated by Germany. So this is what I call the financial ‘Fourth Reich’. Germany has accomplished financially what it has never been able to do militarily since the days of the Holy Roman Empire, which is to basically gain control over Europe.”

Wednesday, July 27, 2011

..from KWN - Peter Schiff interview - Expect Tremendous Global Inflation

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/7/27_Peter_Schiff_-_Expect_Tremendous_Global_Inflation.html

With gold and silver showing strength this summer, today King World News interviewed Peter Schiff, CEO of Europacific Capital. When asked about weakness in the US dollar Schiff stated, “Well as I’ve been saying gold is going to go higher as the dollar continues to lose value. That’s what’s happening, I mean look at the dollar even against other fiat currencies today, it’s at a new low against the Yen, a new low against the Swiss Franc, a new low against the New Zealand dollar, almost at a new low against the Australian dollar, a new yearly low against the Canadian dollar, so the dollar is sinking and gold is rising.”

“The record low was around the 70 level back in 2008, but 73.50 (dollar today) was a key low for the dollar index back on June 7th, then the dollar had a brief rally. But if you go back to April, the low in the last couple of years was about 72.70 and I think that is the next target, especially if we close below 73.50.

Once we take out 72.70, the only chart support that would remain and there isn’t much support, but that would be the all-time record low of 70.70. We’ve never traded below 70, we’ve never traded with a 69 handle, but I think that is coming.”

When asked about John Embry’s comments on KWN regarding physical gold and silver shortages possibly setting the stage for an explosive move higher in gold Schiff replied, “I think so, plus you’ve got a lot of gold strikes now around the world in some of the gold mines and other metals. Miners are on strike, that’s going to disrupt supply, it will also raise the cost of production to the extent that the strikers are able to secure higher wages, that just makes it more expensive to mine.

Of course as people begin to focus on the real threat to the US dollar, which is not default on our Treasuries, but inflation where we repudiate debt by printing because we cannot pay the debt. So we have to default and the question is what form does the default take? People are now focusing on whether America just refuses to pay, even though that is not the most likely scenario for default....

“It’s that we do pay, we just don’t pay in money that has value or has nearly as much value as it does today. So people get their money back, but they don’t get their purchasing power back. As people start to realize that is the reality, then the dollar will decline even further. Eventually you could have the $1 bill disappear and the smallest could be $10 or $100 and we end up coming out with $1,000 bills or $10,000 bills.

A lot of wealth is going to be destroyed, it’s already been destroyed. The government has borrowed money and squandered it and the people who loaned money to the US government are not going to get it back, not in the purchasing power terms in which they loaned it. That’s the reality and a lot of people who believed they were going to get money from the government in the form of social security or medicare, they are in for a rude awakening. They may get the money, but it’s not going to buy what they think it’s going to buy.

I think at some point we will go back on the gold standard, the question is what country will be first to embrace it? How does it happen? I think it will happen here in America, but there will be a financial, a monetary, currency crisis, whatever you want to call it, before we go back on a gold standard, but ultimately that will be the solution to the problem.”

When asked about the fact that many businesses are constantly having to adjust their prices higher such as international fast food outlet Taco Bell, which has had three menu re-pricings in the last 30 days Schiff replied, “That’s going to start to be par for the course in the US, companies are going to be raising their prices. Eventually most business probably won’t even have their menus type-set, they will have them on chalk boards or electronic where prices can be easily changed because they will be changing their prices every week and maybe eventually every day.”

Tuesday, July 26, 2011

The Kabuki theater of America's debt ceiling

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, July 26, 2011

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011099/the-kabuki-theatre-of-americas-debt-ceiling/


Calm down. The United States will not miss a coupon payment on its $14.3 trillion debt next Wednesday.

A genuine default would be "Lehman on Steroids" in the words of Ex-Treasury secretary Larry Summers. Precisely for that reason President Obama will not pull the trigger, even if the debt ceiling talks break down in acrimony.

Obama still has a clutch of cards to play, in extremis.

As Yves Smith from Naked Capitalism argues, the White House can challenge the constitutionality of the debt ceiling in Congress.

The 14th Amendment of the Constitution states that the "validity of the public debt of the United States shall not be questioned."

Such recourse would kick it up to the Supreme Court, which would take its own sweet time. (Fortuitously a complex matter.)
Bill Clinton advised Obama to do just that: blaze ahead, break the debt ceiling in defiance of Congress, and "force the courts to stop me."
Or the US Treasury could eliminate the Fed's entire holding of Treasury bonds at a stroke, gaining an extra two years. This would be a simple accounting transaction. Ben Bernanke might feel uncomfortable, and gold might blast to $3,000, but the Bernanke Fed has proved itself supple.

The Treasury also has the authority to issue infinite amounts of platinum coins at any denomination it chooses (ie, like fiat paper currency, far above the metallic value): a chest of $1 billion coins, say. This is seignorage on steroids, pace Professor Summers.

You get the drift: nothing will in fact change when the deadline expires on August 2. The US is the world's paramount strategic and economic power, with debts in its own sovereign currency. It can do as it pleases.

Yes, the US may be stripped of its AAA by Standard & Poor's. A nice one-day story, but otherwise irrelevant. Global bond vigilantes are quite able to make their own judgement on the substantive default risk of the US. The rating agencies are out of their league on this one.

(By the way, the serial downgrades of Japan did not stop the yield on 10-year Japanese bonds falling to 0.5 percent at one stage. What matters is whether investors really believe that they will be stiffed. In Japan they did not, and still do not.)

Clearly, the bond markets do not yet take the threat of US default seriously, though currency markets are less sanguine. I know this puzzles many in Europe, and angers some, but the cold reality is that yield are still just 0.4 percent on two-year US debt, and 3.02 percent on 10-year bonds.

Those of us who have lived through many such soap operas on Capitol Hill (I covered the Clinton-Gingrich debt standoff in 1995 during my Washington years, as well as a few under the elder Bush and even Ronald Reagan) watch this brinkmanship with a jaundiced eye.

Perhaps for that reason we may be caught off guard. (Just as veteran gold analysts were the last to understand that gold was in a bull market early. We stick lazily to our outdated paradigms.)

This time the drama certainly has a more threatening feel, and it comes at moment when sovereign states themselves have lost their sanctity.

I did not like the tone of President Obama's speech. Rather than trying to find a way out of the impasse, he seemed to be preparing the ground to blame Republicans for default. That creates a very nasty mood.

An epic battle is undoubtedly under way over the future shape of America: whether it should return to the frontier spirit and low taxation of the early Republic or ratchet ever upwards toward cradle-to-grave welfare and Euro-paternalism. And, of course, whether it really does drift toward bankruptcy down the road.

My sympathies are with those want to shrink the federal state, though I am not quite willing to join the chorus of abuse against President Obama. He has pledged to cut Social Security and the big entitlements of Medicare and Medicaid, and at one stage did commit himself to a $4 trillion fiscal squeeze over 10 years, much to the fury of arch-Keynesians such as Paul Krugman.

It is not clear to me that John Boehner's Republicans are more fiscally rigorous or genuinely willing to cull the sacred cows of entitlement.

The great health care cartel is in my view the villain here. It is the root cause of US ruin, and is itself responsible for the epidemic of diabetes, Alzheimer's, and several other mass ailments afflicting America. It has systematically failed to keep up with the scientific literature and refuses to abandon grievous policies when shown to be wrong. Americans need to confront this huge vested interest (nearly a fifth of GDP) before it destroys the country. But that is a rant for another day.

S&P cited Winston Churchill in its downgrade warning that "you can always count on Americans to do the right thing after they've tried everything else."

Or to quote the other Clinton as she tried to reassure Asians holding of $3 trillion of US bonds: "The political wrangling in Washington is intense right now. But these kinds of debates have been a constant in our political life throughout the history of our republic."

"Sometimes they are messy, but this is how an open and democratic society ultimately comes together to reach the right solution."

Exactly.

If I am wrong, we will all need to take shelter in nuclear bunkers next Wednesday.

Tuesday, July 19, 2011

So What

Take Five

Richard Russell via KWN

"And I compare it with the government we have today. It's too bad that the US is now led by men whose chief desire is to be re-elected. I doubt if the Founding Fathers ever planned it that way. Today we need men who are ready to sacrifice their sacred honor and their wealth to run the nation. This may be the fatal flaw in Democracy. We lack men of great character. We lack men and women who will die for the honor of making this a great and better nation.

During World War II I fought with young men (hailing from all over the nation) who were ready to die for freedom and Democracy and America. Who in Congress could match these young men today?

...The market is wondering whether Dr. Bernanke is ready to open the money spigots once again. The Russell guess -- Yes, he will continue to stimulate this lagging economy.

Gold seems to be more certain. Having climbed into all-time record territory, it's backing and filling (fluctuating) in the territory above 1580. Even the gold mining shares are finally showing signs of life. GDM is higher as I write, as are GDX and GDXJ.

Recently Professor Bernanke was asked “if gold was money.” His answer was “NO.” In that answer we can capture the essence of Dr. Bernanke. In his heart, he is a Fed advocate and an advocate of fiat (Fed-created currency). On his answer alone, I would agree with Presidential candidate Dr. Ron Paul -- “Get rid of the Federal Reserve and everybody even remotely connected with it.”

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/7/18_Russell_-_Gold_Market_is_Saying_Bernanke_to_Print_Money.html

Monday, July 18, 2011

Ben's Morning Gold Price Check

What will The Bernank think when he does his morning check of the Gold price?




Gold at $1600, Silver breaking through $40...and the dollar rallying..."WTF, I'm trying to debase the USD, yet it is going up with the precious metals...at least I don't have to testify to congress and get asked those uncomfortable questions by Ron Paul today..."

Friday, July 15, 2011

...from Richard Russell - A Dramatic Juncture for the US Economy


7/13/2011
Up to now it's been obvious that the "safe haven" money has gone into the Dow, gold, Treasuries and the dollar. But Monday the Dow was the "odd man out". Why? I wonder, was the Dow left out in the cold? Could it be that the economy is starting to deteriorate even further? Could it be that the stock market is following in the footsteps of the great stock market rally of 1929-1930 -- at a time when the economy declined all during the great advance?
As matters stand, I'm concentrating on RISK. The US dollar and Treasuries have been doing quite well, but I see risk in both of them (as does Bill Gross of giant PIMCO). Today there's risk in everything from commodities to T-bills, but I sense that the least risk lies in gold.
If, for the sake of argument, we're on the edge of the second Great Depression, then Ben Bernanke will sense it, and he'll open wide the monetary spigots. We know one thing about the studious Professor Bernanke. He will not tolerate deflation or a failing economy. I don't care what the good professor says about the end of quantitative easing he'll keep short rates at anywhere from zero to minus-zero while he thinks of some way to secretly introduce more monetary juice and stimuli into the economy. Remember his famous helicopter warning?
Make no mistake about it. We are at a dramatic juncture in the US economy. The action of the Dow and the Transports tell me that. If after five 90% down days, the markets can't rally, then Wall Street is marching to a different drum than anything I am used to. Five 90% days should have cleaned out much of the stock (supply) that was up for sale.
Now, NOW, the market "should" be ready to rally -- or else.
Below we see the Dow with RSI rolling over to the downside. The blue histograms are turning down, and the slow stochastics at the bottom of the chart are also rolling over and heading down. Safe haven money continues to pour into the Dow, but the upside force is becoming weaker.
dow jones industrial average

Thursday, July 14, 2011

"We won the whole thing"

Funny video of guy taking mom around Laguna Seca race track in Vette. Watch it to the end.

Stock Timing - Bond Related Problems Ahead?


Bonds, Interest rates, and Mortgage Applications ...
Pimco's Bill Gross made the News headlines today, when he said that: "The Federal Reserve is unlikely to change monetary policy for years as the economy remains mired in an extended period of slow growth".   "But it's not an endorsement of Treasurys. For months now they have been more of an insurance policy than an investment."

What is Gross suggesting?
He is suggesting that the economy isn't going to recover anytime soon ... possible years.  He's not he only one to think we are going to see a really tough economy for a some time.  There are some strong vocal opinions that think the economy won't even hit bottom until 2013 to 2015.   If this turns out to be true, then Bill Gross will be correct ... even though it means Americans will have to go through more pain.

How can you tell if Gross is correct by looking at charts?
A good way to do that, is by looking at what is happening to the 30 Year Bond Yields (interest rates).   As it turns out, a Point & Figure chart of the (TYX) 30 Year Bond Yields gives a very clear picture of the CRITICAL juncture we have come to. 

In fact, for months, we have been saying this about the upcoming juncture: 

     "A market decision point, or face-off is fast approaching. ***Do not under-estimate the importance of such an event. It will be a "game changer" that causes market pressure on the economy along with the necessary re-evaluation of future economic forecasts."

Take a quick moment to look at the 17 year chart below, and you will understand where we are now.    This is a Point & Figure chart of 30 Year Bond Yields which also has a relationship to mortgage rates.
If you look at the upper red resistance line,  you can see that the 30 Year Yields have descended for 15 years.  That's a very long 15 year down trend that is now being challenged, because the resistance line has been slightly penetrated 3 times since 2009.  

The market forces have been trying to push rates above line and put an end to the 15 year down trend.  Why?  Because investors want to be paid higher returns for the "higher risks" they are taking.   At the same time, Bernanke has been using Federal Reserve Funds to buy down rates and keep them low.   The housing market has not recovered yet, and accelerating mortgage rates would put a real hurt on a problem that is already in tough shape. 

So now, look at the circled area on the chart below.  That is where the interest rate fight is going on now.   If the TYX rises above 45.9, there would be a real serious threat to the current 15 year down trend.   Bernanke, home owners, and the economy all need Bill Gross to be right ... even then, it will be a hard road ahead until enough debt de-leveraging has been accomplished.

There is no "happy answer" as to which way investors should want interest rates to go.  Both will create pain given the current international market conditions and problems.   But as in all scenarios, there is always money to be made in different sectors, in going long, or going short.    The worse kind of market is a sideways market, and I don't think you will be getting that anytime soon.

P. S.  Feel free to share this page with others by using the "Send this Page to a Friend" link below. 
     
                   ________________________________________________ -Stock 

Wednesday, July 13, 2011

The cost of a suit and the value of a dollar


One ounce of gold in 1900 would buy you one or maybe two really nice suits. One Ounce of gold today would buy you one or two nice suits. So when you remove the dollar amounts gold still buys you what it did 100 plus years ago. Try the same thing except this time see what a dollar bought you 100 years ago and then today. The question was asked what good would the gold standard do in the age of big dollar cyber transactions. A gold standard would only insure that the dollars being used in cyber space or over the counter had real value. The true value of a dollar could not be manipulated in the same way or as easily as the “fiat paper” we use today if backed by gold. The only value the dollar has today is the good word of our government and the worlds belief in the US economy. Those two things are worth less every day while gold is just gold.

...from Ed Steer - Yesterday in Gold and Silver


After briefly flirting with the prospect of breaking through $1,555 spot in early Far East trading on Tuesday morning, gold got sold off about fifteen bucks...hitting its low of the day shortly after high noon in London.
From that low, the gold price spent the New York Comex session grinding its was back to Tuesday's closing price. Shortly after it got there, a serious buyer showed up about fifteen minutes before the Comex close, and bid the price up twenty bucks in just over an hour.
After the buyer vanished, the gold price sold off a few dollars into the close of electronic trading at 5:15 p.m. Eastern time...but still managed to close the day at a new record high price. For a summer trading day, volume was pretty heavy.
Silver pretty much traded sideways up until about a half hour before London opened...and then got sold off to its low of the day at the exact same moment that gold hit its low, which was shortly after twelve noon in London. This looked like a slightly late silver fix to me.
From that point, the silver price then pretty much duplicated the run-up in price that the gold had...but a willing seller showed up shortly after the price broke through its 50-day moving average...and that was that for the rest of the trading session in the New York Access Market. Volume was pretty heavy.
The dollar opened around the 76.00 cent mark...and then proceeded to rally a hair over 70 basis points, hitting it's zenith a few moments before 4:00 a.m. Eastern, which was shortly before 9:00 a.m. London time.
From that high, which was more than three hours before gold and silver hit their lows, the dollar headed south with a vengeance...losing about 90 basis points...and hitting its low of the day shortly after 2:00 p.m. in New York. The dollar gained back about 20 basis points before the end of the New York trading day...and the buck closed within an eyelash of unchanged.
Once again the two precious metals traded with a mind of their own relative to the dollar.
While we're on the subject of the almighty dollar...although this applies to all fiat currencies...here's a chart that Nick Laird sent me in the wee hours of this morning. Since the bottom in gold in the first quarter of 2001...the U.S. dollar has lost almost 85% of its purchasing power vs. the yellow metal since then. I would think that the chart for every other currency on Planet Earth would bear a striking resemblance to this chart before you.
(Click on image to enlarge)
Even though the gold price was not back above its Monday opening price, the gold stocks were in the black almost from the moment that the equity markets began trading in New York at 9:30 a.m. Eastern time.
Once the HUI was up about a percent, it traded sideways until the big breakout at 1:15 p.m. Eastern..and that point is not hard to pick out on the chart below. The HUI closed just off it's high of the day... up 3.09%.
For obvious reasons, the silver stocks didn't do quite as well as their golden brethren, but they turned in a very respectable performance nonetheless...with Nick Laird's Silver Sentiment Index up 2.31% when all was said and done.
(Click on image to enlarge)
The CME's Daily Delivery Report showed that one gold, along with 201 silver contracts, were posted for delivery on Thursday. In silver, the big issuer was Merrill with 191 contracts...and the biggest stopper/receiver was the Bank of Nova Scotia [108 contracts] and JPMorgan [45 contracts] in their client account. The link to the action is here.
The GLD ETF received a very chunky 357,113 ounces of gold yesterday...and there were no reported changes in SLV.
The U.S. Mint had a smallish sales report yesterday, as they reported selling 1,000 ounces of gold eagles.
The Comex-approved depositories reported receiving 613,435 ounces of silver on Monday...and shipped 17,788 ounces out the door. 

Tuesday, July 12, 2011

...Ambrose Evans-Pritchard: German 'nein' leaves Italy and Spain in turmoil

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, July 11, 2011
Italian and Spanish bond yields soared to post-EMU highs in a fresh day of credit turmoil after Germany blocked any meaningful measures to defuse the crisis.
Chancellor Angela Merkel called for more "frugality" in Italy, sticking to her script that Rome can solve its woes with an austerity budget. Her finance minister Wolfgang Schauble said any boost to the EU's E500 billion (L440 billion) bailout machinery was "out of the question."
Mr Schauble denied reports that Berlin was ready to empower the fund to purchase Spanish and Italian bonds pre-emptively on the open market, a move seen by experts as vital to halt dangerous contagion to the larger economies.
The market's verdict on EU foot-dragging was instant and brutal. Yields on 10-year Spanish bonds smashed through the 6pc barrier for the first time since 1997, made worse by warnings from the Castilla-La Mancha region that its deficit had become "extremely serious."
Italian yields jumped 44 points to 5.7 percent, a level that starts to threaten the sustainability of the country's finances. Markit's iTraxx SovX Western Europe, Europe's sovereign stress gauge, saw the biggest one-day rise ever. "Contagion was the word on everybody's lips," said Gavan Nolan, Markit's credit chief.
EU leaders seem unable to keep pace with the fast-moving events. Eurogroup finance ministers focused yesterday on details of "burden sharing" for banks that lent to Greece, no longer the most urgent matter. A summit of top EU officials ended with no hint of how the crisis could be contained.
"We've painted ourselves into a corner. At this point, either someone -- Germany, the European Central Bank -- has to fundamentally shift position or everything blows up," an EU official told Reuters.
Berlin has resisted any move to buy or guarantee the bonds of distressed debtors, viewing it as a slippery slope towards a fiscal union and a breach of Germany's Basic Law. The ECB in turn has refused to buy Spanish and Italian bonds, saying it is the task of EU governments.
The euro tumbled over two cents to under $1.40 against the US dollar. Gold rose to $1,556 an ounce on safe-haven flows. Italy's stock market led the rout of global bourses, dropping 4 percent despite moves by the regulator Consob to curtail short-selling. Italian bank shares were pummelled again. Unicredit fell 6 percent, and Intesa SanPaulo fell 7 percent. London's FTSE 100 fell 1 percent, while the Dow was off 1.3 percent in early trading.
Escalating woes in Italy and Spain raise the stakes dramatically. The pair have E6.3 trillion of total debts between them. Jean-Claude Trichet, the ECB president, said Europe is now at "the epicentre of a global problem."
Yet EU attention remains focused on curbing the rating agencies, a campaign that is turning shrill. Viviane Reding, the EU Justice Commissioner, said the authorities must "smash the cartel of the three US rating agencies." Fitch is, in fact, French-owned.
Barclays Capital said EU leaders must recognise that Greece is insolvent and prepare for an orderly debt restructuring, perhaps one that shares the pain between private creditors and the EU taxpayer and gives Greece a way out of its trap by easing the debt burden by 60 percent.
Such a move requires back-stop defences to prevent contagion, perhaps by using the EFSF bailout fund to shore up Club Med bond markets. The solution is elegant; what lacks is political will.
Gary Jenkins at Evolution Securities said the EU cannot keep stalling. Italy's borrowing costs are ratcheting toward the fatal line of 7 percent. "It is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10-year yields. What would keep me awake at night if I was a European finance minister is that we are only about 2 percent from potential disaster," he said.

...and from David Einhorn...


“According to current banking regulations, sovereign credits are considered “risk-free.”   This means that banks can take on as much sovereign credit risk as they like without setting aside any capital.  Under such a structure, selling short CDS protection is akin to free money for the banks.

Likely, the real worry is that the first default will expose the fiction that sovereign debt is risk-free.  If the authorities permit one default, their credibility to prevent additional defaults will be lost.  No one knows how much aggregate exposure to sovereign debt and CDS is hidden in the banking system, and no one is itching to find out.   The European regulators are trying to calm the market by conducting “stress tests” on the banks.  This might be comforting if the stress tests included testing the possibility of a sovereign default.  They do not.  What is the point of a stress that fails to test the most obvious and visible risk facing the banks?"
- David Einhorn,  Greenlight Capital     July 7, 2011

Monday, July 11, 2011

...from Dr John

"...Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) was also well ahead of this apparent "surprise," noting last month that "You're not going to see the quarter of a million jobs on average anytime soon." Unlike the emergent weakness we saw in 2010, the recent weakening in leading measures of economic growth have been more in line with what he calls the "Three P's." Achuthan argues that the oncoming global economic slowdown is likely to be pronounced, persistent, and pervasive - "not a one or two month affair" - though the data is not sufficiently discouraging to warn of an outright recession at this point (and we would agree). ECRI suggests that "the broad economy is going to slow alongside the industrial sector... it's all going to be synchronized."



"...Unlike 2010, there appears to be little latitude for a robust fiscal or monetary response to the weakening in leading economic measures. Not that we would view any of those responses - aside from facilitating debt restructuring - as promising in any event. Before contemplating a round of QE3, the hawks on the Fed are likely to ask what benefit QE2 provided to the real economy, aside from Fed sponsored speculation, market distortions, and commodity price inflation.

Moreover, as of Wednesday July 7, the Fed's consolidated balance sheet shows $2.87 trillion in assets, versus $51.7 billion in capital, for a leverage ratio that is now up to 55.6-to-1. This isn't getting any better, and is far beyond where Bear Stearns, Lehman, Fannie Mae or Freddie Mac were at just prior to their respective insolvencies. Of course, nobody is going to shut down the Fed just because it is approaching technical insolvency, but we ought to recognize that anytime interest rates rise, the interest being paid on Treasury debt is quietly being used to cover the Fed's capital losses."

"...From a fiscal standpoint, there is little political latitude for further attempts at "stimulus," aside from a possible expansion of the payroll tax holiday. From a broad fiscal perspective, we have just passed the edge of the well-anticipated "cliff" where the bulk of prior Federal stimulus now rolls off. Analysts who regularly criticize Meredith Whitney for her concerns over state and municipal balance sheets don't seem to take account of the fact that nobody expected (or should have expected) much strain until we passed June 2011.

Globally, even with the approval of further austerity measures in Greece, yield spreads on government debt there continue to price in a 100% probability of Greek default (assuming 60% recovery) within about two years. The only material change with respect to peripheral European debt is that last week, yield spreads in Portugal and Ireland also shot to levels that imply 100% probability of default (again assuming 60% recovery), but within about four years rather than two."

Sunday, July 10, 2011

Saturday, July 9, 2011

Gold and Silver Appreciation v World Currencies - first half 2011

Take a moment to examine how gold and silver have performed against their fiat currency competition through the first half of 2011.
Gold has appreciated an average of over 3.4% versus over 70 fiat currencies though middle 2011. 

Base Currency vs. 1 oz Gold1-Jan-1130-Jun-11% Gold 
Afghanistan Afghanis 61,15864,5995.6%
Albania Leke148,940146,745-1.5%
Algeria Dinars 104,548107,8503.2%
Argentina Pesos 5,6426,1659.3%
Australia Dollars 1,3891,4020.9%
Bahamas Dollars 1,4211,5025.7%
Bahrain Dinars 5365665.7%
Bangladesh Taka100,212111,69611.5%
Barbados Dollars 2,8433,0055.7%
Bermuda Dollars 1,4211,5025.7%
Brazil Reais2,3592,348-0.5%
Bulgaria Leva2,0812,028-2.6%
CFA BEAC Francs 696,322680,021-2.3%
Canada Dollars 1,4181,4492.2%
Chile Pesos 664,883702,1005.6%
China Yuan Renminbi9,3699,7133.7%
Colombia Pesos 2,722,0772,659,070-2.3%
Comptoirs Français Francs 126,675123,709-2.3%


Base Currency vs. 1 oz Gold 1-Jan-1130-Jun-11% Gold
Japan Yen 115,351121,1945.1%
Jordan Dinars 1,0061,0676.0%
Kenya Shillings 114,427134,19317.3%
Kuwait Dinars 4004123.2%
Lebanon Pounds 2,132,1752,275,2326.7%
Malaysia Ringgits4,3844,5343.4%
Mauritius Rupees 42,35941,839-1.2%
Mexico Pesos 17,57117,6080.2%
Morocco Dirhams11,84211,759-0.7%
New Zealand Dollars 1,8211,815-0.4%
Norway Kroner8,2738,098-2.1%
Oman Rials 5475785.7%
Pakistan Rupees 121,690129,1236.1%
Peru Nuevos Soles 3,9874,1273.5%
Philippines Pesos 62,03265,0954.9%
Poland Zlotych4,2094,125-2.0%
Qatar Riyals 5,1755,4715.7%
Romania New Lei 4,5414,388-3.4%
Russia Rubles 43,32241,898-3.3%

Base Currency vs. 1 oz Gold 1-Jan-1130-Jun-11% Gold 
Saudi Arabia Riyals 5,3315,6345.7%
Singapore Dollars 1,8261,8441.0%
South Africa Rand 9,42410,1748.0%
South Korea Won 1,592,8771,606,3450.8%
Sri Lanka Rupees 157,696164,4574.3%
Sudan Pounds 3,5514,01313.0%
Sweden Kronor9,5549,509-0.5%
Switzerland Francs 1,3281,265-4.8%
Taiwan New Dollars 41,42143,2594.4%
Thailand Baht42,67246,1738.2%
Trinidad and Tobago Dollars 9,0129,5405.9%
Tunisia Dinars 1,9922,0533.1%
Turkey Lira 2,1852,43811.6%
United Arab Emirates Dirhams5,2215,5185.7%
United Kingdom Pounds 9119372.9%
United States Dollars 1,4211,5025.7%
Venezuela Bolivares Fuertes6,1126,4605.7%
Vietnam Dong 27,711,16830,812,15911.2%
Zambia Kwacha6,794,5317,263,6176.9%






Take a moment to examine how silver has performed against its fiat currency competition through the first half of 2011.
Silver has appreciated an average of over 10% vs over 70 fiat currencies through middle 2011.

Base Currency vs. 1 oz Silver1-Jan-1130-Jun-11 % Silver 
Afghanistan Afghanis 1,329.801,493.9212.3%
Albania Leke3,238.493,393.624.8%
Algeria Dinars 2,273.252,504.9110.2%
Argentina Pesos 122.67142.5816.2%
Australia Dollars 30.2132.437.4%
Bahamas Dollars 30.9134.7412.4%
Bahrain Dinars 11.6513.0912.4%
Bangladesh Taka2,178.982,582.2218.5%
Barbados Dollars 61.8269.4812.4%
Bermuda Dollars 30.9134.7412.4%
Brazil Reais51.2954.305.9%
Bulgaria Leva45.2446.883.6%
CFA BEAC Francs 15,140.5815,723.283.8%
Canada Dollars 30.8433.508.6%
Chile Pesos 14,456.9816,236.7812.3%
China Yuan Renminbi203.71224.7310.3%
Colombia Pesos 59,187.8661,580.564.0%
Comptoirs Français Francs 2,754.372,860.383.8%

Base Currency vs. 1 oz Silver1-Jan-1130-Jun-11 % Silver 
Costa Rica Colones15,549.5617,447.5312.2%
Croatia Kuna 170.55177.023.8%
Czech Republic Koruny577.46583.341.0%
Denmark Kroner172.07178.793.9%
Dominican Republic Pesos 1,149.761,323.6815.1%
East Caribbean Dollars 83.4593.8012.4%
Egypt Pounds 179.42207.3915.6%
Euro 23.0823.973.8%
Fiji Dollars 57.2461.497.4%
Hong Kong Dollars 240.24270.3512.5%
Hungary Forint6,432.166,375.60-0.9%
IMF Special Drawing Rights 20.0721.718.2%
Iceland Kronur3,555.913,977.6411.9%
India Rupees 1,381.571,552.9812.4%
Indonesia Rupiahs 278,167.50297,740.857.0%
Iran Rials 318,439.97370,751.6316.4%
Iraq Dinars 36,069.0540,561.5612.5%
Israel New Shekels 109.66118.077.7%
Jamaica Dollars 2,617.872,947.8812.6%

Base Currency vs. 1 oz Silver1-Jan-1130-Jun-11 % Silver 
Japan Yen 2,508.142,802.5811.7%
Jordan Dinars 21.8824.6212.5%
Kenya Shillings 2,488.053,103.3524.7%
Kuwait Dinars 8.699.549.7%
Lebanon Pounds 46,361.2552,235.0512.7%
Malaysia Ringgits95.33104.9910.1%
Mauritius Rupees 921.04984.946.9%
Mexico Pesos 382.05407.166.6%
Morocco Dirhams257.48271.635.5%
New Zealand Dollars 39.6041.976.0%
Norway Kroner179.88187.264.1%
Oman Rials 11.9013.3812.4%
Pakistan Rupees 2,645.992,989.5713.0%
Peru Nuevos Soles 86.7095.5210.2%
Philippines Pesos 1,348.801,507.1211.7%
Poland Zlotych91.5395.374.2%
Qatar Riyals 112.53126.5112.4%
Romania New Lei 98.74101.472.8%
Russia Rubles 941.98968.792.8%

Base Currency vs. 1 oz Silver1-Jan-1130-Jun-11% Silver 
Saudi Arabia Riyals 115.91130.2912.4%
Singapore Dollars 39.7042.657.4%
South Africa Rand 204.92235.2914.8%
South Korea Won 34,634.9437,137.797.2%
Sri Lanka Rupees 3,428.883,804.9711.0%
Sudan Pounds 77.2192.8120.2%
Sweden Kronor207.74219.845.8%
Switzerland Francs 28.8829.251.3%
Taiwan New Dollars 900.641,002.1311.3%
Thailand Baht927.841,067.6415.1%
Trinidad and Tobago Dollars 195.95222.3513.5%
Tunisia Dinars 43.3247.379.4%
Turkey Lira 47.5256.3818.6%
United Arab Emirates Dirhams113.53127.6212.4%
United Kingdom Pounds 19.8021.669.4%
United States Dollars 30.9134.7412.4%
Venezuela Bolivares Fuertes132.90149.3912.4%
Vietnam Dong 602,541.71712,736.6418.3%
Zambia Kwacha147,737.85169,367.8914.6%