The Idea That Gold Is In A Bubble Is Idiotic

Ambrose Evans-Pritchard: Euro bailout in doubt as 'hysteria' sweeps Germany

 

 

German Coalition Partner CSU To Propose Bankruptcy Procedure To Kick Out Chronic Eurozone Debtor Nations

The news out of Europe just keeps getting worse. While earlier we described how the squabbling within Merkel's own party could scuttle her political career, not to mention hopes for ongoing German funding of European bailouts, next we learn that she has not only outright rejected Finland's demands for loan collateralization out of Greece (which would in turn make Greece a selective Debtor In Possession lender, or, in other words, a prepack bankruptcy candidate 101), a move which Finland will likely balk over and very likely unilaterally exit from the second Greek bailout (remember that whole "Greek Bailout #2 is Dead on Arrival" from June 5?), but what is worse, according to Der Spiegel, tomorrow CDU coalition partner CSU will likely propose several "explosive ideas" which not only reject a common "economic government" for the eurozone (thereby slapping Sarkozy fully across the face), but also consider "creating a bankruptcy procedure to kick out of the euro countries that aren't willing to stick to the debt limits laid out in the euro zone's Stability and Growth Pact." In other words zero steps forward, and as many steps back as it takes to get us to before not only the July 22 Greek bail out, but all the way back to the beginning of the year. Only this time, the market is fully aware that both Italy and France are also on the hook: that can not be unwound with any paper.

Guest Post: Has Gold Unwound its Overbought Status?

What we do have to note is the most recent parabolic run away from the 20EMA created an abnormal spike never before seen in history with a reading of 2718 or price closing $271.8 away from the 20EMA. So the next logical question becomes what do we make of this and is it the end of this massive uptrend? Our view is this is unlikely, considering the historical relationship to the 20EMA as noted before (8% of time below). In fact, we may consider a pullback to the 20EMA to be a healthy thing as it will put Gold through a re-distribution phase and allow the order flows behind it to start another run higher. But, the extreme nature of this suggests price is likely to pullback to the 20ema within the next 2mos or by year end. Across most instruments, price rarely has this kind of extreme or unstable relationship to the 20EMA and usually means the orders behind such movements have to normalize a bit before starting another run. Keep in mind, this does not have to happen with a violent sell-off and could be the result of price hanging around the $1700-$1900 range while the 20EMA catches up to current price levels.






September 23: The Beginning Of The End For Merkel... And The Eurozone?
Every time we discuss the futility of the n^th bailout of [Greece\PIIGS\Europe\the Euro] we make it all too clear (most recently here) that the trade off between Germany onboarding ever more peripheral financial risk in one after another all too brief attempt to prevent the implosion of European capital markets and its currency, is not only a relentless creep higher in German default risk (and lower in the German stock market, as August has so violently demonstrated) but increasing political discontent, which after claiming countless political regimes across the world, has finally settled down on one that truly matters: that of German chancellor Angela Merkel. And as Reuters reports, Merkel's disappointing response to an ever escalating set of crises, both domestic and international, means that the beginning of her end (and by implication of the Eurozone, and of the Euro) may be as soon as September 23, when the vote over the expansion of the latest and greatest European bailout lynchpin, EFSF, will take place. To wit: "Germany's Angela Merkel faces the biggest challenge to her leadership since coming to power in 2005, with traditionally loyal conservative allies openly criticizing her approach to the euro zone crisis and her hands-off Libya policy in shambles....it is Merkel's piecemeal approach to the euro zone's worsening debt crisis that has come under fire over the past week and now threatens her iron grip on power in Germany." The biggest problem for Merkel is that she has gone "Japanese" in the opinion of the public: doing neither nothing, nor enough, to halt the European crisis in its tracks: "For some in Germany, she has gone too far by bailing out stricken euro zone members and agreeing to intervention in the bond markets to prop them up. For others at home and abroad, she has not done enough, shirking bold steps that might solve the debt crisis because they would be unpopular at home." This latest attempt to placate everyone, while achieving precisely the opposite, will come to a head on September 23 when the vote to expand the EFSF takes place: she is for the time being expected to have a sufficient number of votes to pass the critical for the eurozone proposal. "If it's not enough, Merkel would be forced to resign. It would lead to a crisis." And should there be a crisis, it will be the end for the European experiment as well, since with the political situation at the Euro's biggest financial backer in flux, the free fall in European risk will be one that no one, certainly not the ECB, will be able to arrest. Cue even more improvised bailouts by the central banker oligarchy, yet without Germany, the credibility of any and all such deseprate measures will be nil. This incremental political uncertainty will likely make the life of the FOMC's Sept 20-21 meeting slightly easier, as an adverse monetary announcement by the Fed, contrary to that priced in, coupled with the risk of a full blown European crisis, will be very frowned upon by the Status Quo^TM.

NYSE Announces Robotic Frontrunning To Resume Tomorrow At 9:30 As Per Usual

The NYSE has just announced that precisely zero vacuum tubes were inconvenienced by the biggest climatic let down since global warming.







PIMCO Missed the Trade of the Year in the Treasury Market

Posted by: EconMatters

Post date: 08/28/2011 - 14:02

Bond King's cardinal sin at the Treasury market analyzed..... 

Guest Post: Field Of Economic Dreams

The consumer driven recession has begun. Keeping it very simple of the four GDP components (consumer, fixed investment, government and net trade) the consumer has simply rolled over. In Q1 2011 the consumer contributed 1.46% to the 0.4% total GDP. In other words if it was not for consumer growth or even if .5% of that growth was removed the economy contracted in Q1 2011. Fast forward to Q2 where the consumer component is now 0.3%. In other words the trend of the consumer is deteriorating. Representing roughly 70% of total GDP the consumer is the economy. Confidence drives the consumer, the consumer drives demand and demand drives the economy. Well judging by the epic fall in University Of Michigan Sentiment, now at multi year lows the economy is in serious trouble. To get a sense of the economic reality facing the US look at the historic correlation between sentiment and real GDP.

The Idea That Gold Is In A Bubble Is Idiotic

And the promoters of this idea are complete morons or completely corrupt.  This morning I heard an ad on the radio by an outfit called Empire Diamond explaining that they wanted to pay the best price in the market to by your gold and silver in any form (i.e. jewelry, silverware, junk, etc).  Their tagline was "Don't wait for the price of gold to drop before you sell."  LOL.  Then I open the front section of the Denver Post and the center pages featured a full-color ad from The Great Estate Roadshow, which will be set up in 4 locations around Denver all next week and it wants to buy any and all scraps of gold/silver that you want to sell them.  The ad was like a Playboy centerfold featuring a very detailed reproduction of all the items the outfit will buy.   This ad is not cheap and neither is the event being staged, meaning that some outfit is spending a LOT of money to try and coax the public into unloading their gold and silver in any form.  The question is, who wants to buy it so badly?  It also indcates that public is still selling a lot of gold and silver and has a lot left to sell.  That is not the sign of an asset in an investment bubble.

Every time I turn on the news media or open the newspaper I encounter "experts" and gold/silver buyers counselling the public that price of gold is going to fall.  They never ever suggest that the price might actually go up.  Contrast this with the internet/tech stock bubble and then the subsequent catastrophic housing bubble:  how many promoters were telling the public that the price of these "investments" could actually drop? 

It never ceases to amaze me the extent to which profit-seekers will go to in order to separate the public the from their money.  For anyone questioning the strength and longevity of the gold bull, I ask you to consider that the marquee indicator of an investment product in the peak frenzy of a bubble is the endless aggressive promotion to seduce YOU into buying THEIR investment - not THEM seducing YOU to sell them your's.  Some things will never change and snake-oil salesmen fleecing the public in one way or another is one them and the idea that an investment can be considered a "bubble" when the public is still being aggressively seduced to sell is another.

That so few of people in this country understand why gold and silver are doing what they are doing further adds to the basic fundamental factors pushing the precious metals higher.  This is reinforced by the fact that so few large institutional investors understand the dynamics driving metals higher and fiat currencies lower.  In fact, I saw one "expert" mutual fund manager recommend getting long the dollar last week.  Next time you hear that gold and mining stocks have peaked and the bubble has popped, open up the quarterly report from you favorite mutual fund and see what percent of the fund is invested in mining stocks.  I would bet it has no exposure.  Until you see your mutual fund investments heavily invested in precious metals and mining stocks, you can be assured that the bull market in this sector has a long way to go.

IMF Chief Urges European Banks To Raise More Cash

Christine Lagarde, the head of the International Monetary Fund (IMF), has called for European banks to be forced to raise more cash as the world economy enters a "dangerous new phase" which could end in recession. – (Source: Telegraph)

In a remarkably gloomy assessment of the world economy, Ms Lagarde warned that urgent action is required to stave off the threat of global recession and another credit crisis.
Sounding a stark warning to stronger European countries such as Britain and Germany, the new IMF chief said: "We could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis."

I want to remind my readers that notwithstanding the fact that there are safe haven assets out there, a liquidity crisis doesn’t spare any asset class.  If there truly is a mad scramble to liquidate then nothing is safe from the selling.  Anything with a bid will be hit. 
Just how bad is the condition of European banks?

Analysts from Royal Bank of Scotland have already warned that "European banks' short-term wholesale funding markets continue to send growing signs of stress" and "the intense level of financial system interconnectedness means this is… negative for all European banks' equity values".
Rumours have swept the markets in recent weeks, causing a number of high-profile banks to deny that they have liquidity problems.
The French bank Societe Generale was forced to issue a statement saying "all market rumours" were untrue, after it led a pack of French banks with plunging share prices.
However, despite Ms Lagarde's concerns, only nine banks failed the European Banking Authority's (EBA) stress tests in July, which meant they only had to raise €2.5bn (£2.2bn) in total.
Britain and France's lenders received a clean bill of health, but five banks in Spain, two in Greece and one in Austria failed the tests.
Another German bank would have failed, but dropped out of the tests due to a dispute over its capital. A further seven Spanish, two Greek, two Portuguese and two German lenders were among the 16 identified as perilously close to danger.

And back in North America we have the ever growing problems swirling around Bank of America.




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