Gold's Revaluation Underway

posted by Eric De Groot at Eric De Groot - 30 minutes ago

Gold's great revaluation continues to progess without a hint of understanding from the public. Headline: Bid to Use Gold as Collateral Advances Investors are closer to being able to use gold as a trading ...

Cost to Insure U.S. “Ponzi Scheme” Against Default Rises Sharply 

Submitted by Tyler Durden on 05/26/2011 07:08 -0400

Gold and silver are lower today with profit taking, Chinese bond buying and increased risk appetite being cited for the price falls. Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis. While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt. The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt. Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in the Wall Street Journal that the Federal Reserve’s bond purchases are a fraud and a “Ponzi scheme”. He advocated a U.S. default or a technical default, saying “"technical default would be horrible, but I don't think it's going to be the end of the world. It's not going to be catastrophic."

Ted Butler: U.S. commodity regulation -- a failed mission?

 

 

Join GATA in supporting appeal of Liberty Dollar founder

 

 

GDP Second Revision At 1.8% On Expectations Of 2.2%, Sub 1% Ex-Inventory Build; Initial Claims Surge To 424K 

Submitted by Tyler Durden on 05/26/2011 08:32 -0400

Contrary to expectations by the endlessly wrong Wall Street crew, the second revision of Q1 GDP came not as expected at 2.2% (up from 1.8% in the first estimate), but far, far lower at 1.8%. And while the number is largely irrelevant for the future and even current economy, it shows that the contraction is far more pronounced. More troubling is the shift in various GDP components contributing to the number: the biggest delta was Personal Consumption Expenditures which missed by a whopping 21%, plunging from 2.7% to 2.2%, on expectations of a rise to 2.8%. As a result as the chart below shows, the "growth" in Q1 was based on even shakier grounds: the contribution from PCE plunged from 1.91% to 1.16%, with Fixed Investment plunging from 0.93% to 0.26%. The plug: why old faithful of course - Inventories, which "added" 1.19% to growth, up from 0.09% in the first revision. Ex the now traditional inventory build, Q1 GDP growth was sub 1%. Which means that once the inevitable liquidations commence, the US will go into all out contraction. And confirming the keyword of 2011 "stagflation" is now firmly entrenched, was the BLS advising us that initial claims surged from 404K to 424K. So much for no QE3. Next up, as we have said ever since January, Jan Hatzius and Bill Dudley start having tete-a-tetes. Everyone knows what follows...

Second Consecutive Record High Bid-To-Cover Auction Closes As Treasury Sells $29 Billion In 7 Year Bonds 

Submitted by Tyler Durden on 05/26/2011 13:23 -0400

This week's trifecta of bond issuance closes with a thud as today's $29 billion in 7 Year bonds (Cusip: QQ6) price at the second consecutive record high Bid To Cover (3.24) following yesterday's also record 5 Year Record high BTD, despite the high yield coming well lower compared to lost month's 7 Year of 2.71%, pricing at just 2.43% High Yield, the lowest since November 2010. It appears investors just can't get enough of the belly of the curve where the best risk/return profile appears to be concentrated. The Indirect take down was 39.35%, just short of the LTM average of 41.57%; Dealers were happy to step back and purchase just 39.35% of the issue, the lowest relative amount allotted to Dealers in 2011. The balance was made up by Directs, who took down 13%, or the highest since September 2010. Once again the key difference was the overall competitive bid tendered which surged from $76 billion to $94 billion, with increases across all three categories (Directs from $8.7 bn to $12.4 bn, Indirects from $12.8 to $19.2 billion, and Dealers from $54.7 to $62.3 billion) and a resultant drop in the hit rate across the board. And like yesterday, the bond came well inside the WI to the tune of almost 1.9 bps. As for the underlying reason for this bond strength, we refer readers to the must read analysis by Gleacher's Russ Certo, indicating that contrary to expectations, this bond strength is merely a confirmation of increasing economic and policy instability.

Guest Post: It’s “Heads You Win, Tails You Don’t Lose” With This Currency 

Submitted by Tyler Durden on 05/26/2011 12:23 -0400

One of the most interesting things going on here in Hong Kong at the moment is the gradual displacement of the US dollar, and even the local Hong Kong dollar, by the Chinese Yuan. Walking around town, the signs are obvious: from shops that gladly accept Chinese Yuan cash for the goods they sell, to the money changers which now ALL display the Hong Kong dollar / Chinese Yuan cross-rate much more prominently than the US dollar / Hong Kong dollar cross rate. In many ways, this is a live economic experiment. Hong Kong has long had one of the world’s freest, most sophisticated economies; residents are free to choose what currency to accept (and save), whether HK dollars, US dollars, Chinese Yuan, gold, or anything else...US monetary inflation makes it inevitable that the Hong Kong Monetary Authority will come up with some sort of a scheme to either peg the Hong Kong dollar to the Yuan (rather than the US dollar), or perhaps even replace the Hong Kong dollar with the Yuan altogether. This would be a HUGELY popular move. Hong Kong is one of the few places on Earth with a net savings rate; the loan to deposit ratio its banking system, for example, stood at 81.7% at the end of March, meaning there are only 81.7 cents on the dollar lent out in Hong Kong for every $1 on deposit in the banks. Consequently, savers would love to see the Hong Kong dollar revalued higher by pegging it to the Chinese Yuan at the current Yuan/dollar rate of 6.50, rather than the current HK dollar/US dollar peg of 7.80. Bottom line, the clock is ticking on a Hong Kong dollar revaluation. 

 

 

 

 

 

Gleacher On The 10 Year's 2% Handle, QE6, And How The US Treasury Wins Again And Everyone Else Loses 

Submitted by Tyler Durden on 05/26/2011 10:30 -0400

Gleacher's co-head of rates Russ Certo asks: "Who needed to buy $112 billion 5 years near new range break out low yield prints? And who would pay 1.7 bps through in order to do so? I think it is obvious that there is "official" demand in the form of central banks and official institutions, pensions, excess reserve banking entities recirculating monies and the like. I feel goosed. Seems like we are on QE6, they just didn't tell you that it started. And we have seen this before." He sadly concludes that this forced Fed intervention to keep rates low means the bottom is about to fall out: "Maybe, the severity of the litany of unintended consequences of this low rate coordinated policy which is penalizing savers, reducing income based consumption, creating more leverage and robbing economic fundamentals from the future and the like, are more beneficial than the alternative of stakeholders perceptions how bad banking balance sheets are. Maybe, if you don't have sound financial institutions (or the perceptions of such) or sovereignties, both of which need a function of time, lower rates, higher net interest margin, to work their way out of insolvency, then all this is worth it. Maybe, solvency conditions of banks explain this seemingly confusing relentless easings of policy. No sound banking system, nothing sound."