Peter Schiff Explains What Today's Global Fed-Funded Bailout Means For The Future

If anyone is still confused by what has transpired today, here is Peter Schiff explaining in simple words, why what happened "may be one of the most important economic events of the year" and what to do next: "Today’s unprecedented announcement by the world’s most powerful central banks was a loud and clear bell ringing to buy precious metals. The move, disguised as an attempt to help the fragile state of the global economy, is in reality a move to prop up failing banks in Europe and the US. By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation. The result? The dollar will weaken, inflation will rise, and gold will soar. Gold was up more than $30 today, and the dollar got crushed. I urge you to take 7 minutes to watch the video I recorded exclusively for my subscribers a few hours ago. It explains, in plain language, what happened today – and what is the likely outcome for your portfolio. This may be one of the most important economic events of the year." And pardon Schiff's self-promotional piece at the end, but the truth is that he is essentially correct about what the actions means from a big picture perspective. Furthermore, as Goldman made all too clear, this is merely the beginning as more and more inflationary actions have to be undertaken by central banks to save banks from being crushed by untenable debt loads. Whether they succeed in overturning the deflationary tsunami is unknown. What is certain is that they will bring fiat currencies to the verge of viability (and beyond) in trying.

Fed supplies Massive Liquidity to the World/Massive Gold delivery notices and huge gold oz. standing, large silver oz standing

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 13 minutes ago

Good evening Ladies and Gentlemen:I guess you all heard that the Fed (backstopped by the USA taxpayer) supplied massive liquidity to the world today by entering into swap arrangements with various central banks. As I have mentioned to you on previous occasions, we do not have a liquidity problem but a solvency problem. This only kicks the can down the road for another couple of months. The

Goldman On Today's Coordinated Central Bank Bailout: "It Isn’t Enough To Save Anyone Or Solve Averything" And "Why Now?"

Naturally, if there was one party that would be disappointed by today's action, it would be Goldman Sachs: on one hand because it is nowhere near enough to actually fix anything, and on the other because it delayed the moment when the 2-3 European banks which we have been saying for over a week would keel over and die leaving a power vacuum for Goldman to fill, has just been delayed. As a result, Goldman dissatisfied note makes more than enough sense: "Up, up, and away for stocks after the coordinated ease this morning. USD funding just got cheaper, which is of course a good thing. But the difference between OIS + 50 and OIS + 100 isn’t enough to save anyone or solve everything. It’s the symbolism of policy-makers again acting in concert that I find most encouraging." But, and there is always a but: "Although there is the obvious counter: why act now – is there something lurking around the corner? Those are worries for tomorrow though." Indeed, and when the worries resurface, as they will, especially following the resumption in European record yielding auctions, which incidentally the Fed's action does nothing to fix, following France and Spain bond auctions. And who knows what else. Oh yes, Goldman just cut its GDP forecast for Europe from +0.1% to -0.8%: hello, recession, the very same catalyst which S&P said a month ago will be sufficient for it to downgrade France. As usual, Egan-Jones was way ahead of the crowd.

The Punch Line: "Crash Test - Bracing For Breakup"

And now it is time for our favorite monthly chart-only newsletter, The PunchLine by Abe Gulkowitz, who unlike the momentum chasing crowd which has an attention span measured in inverse significant digits, and has a brokerage account (but endless monopoly money) that is even smaller courtesy of always being on the receiving end of a market which actually needs commission payments on both sides of those candle charts, sees well behind the headlines designed to sucker in the feeble minded twitter-traders, and presents it all with gorgeous, chartific clarity. And the only thing better than the insight of his hand-picked charts is the focus of his narrative, which speaks volumes without actually speaking volumes: "European banks are dumping government debt, deposits are draining from south European banks and a looming recession is aggravating the pain, fuelling doubts about the survival of the single currency in the European zone. Between the bookends of economic data points, rating agency actions, and political developments - - market gyrations are seriously affected by policy directions. A key consideration for any 2012 forecast is the impact of public policy on risk premiums and business confidence. Persistent fears of major policy missteps could come to a head at any time regarding the U.S. fiscal nightmare and Europe’s responses to the sovereign and banking crisis. One now needs to believe that the policy environment – both in the US and Europe – could serve as significant headwinds to growth in 2012."




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No Major Clearing House Can Fail

November 30, 2011, at 5:48 pm
by Jim Sinclair 

My Dear Friends,

I have not written much about the recent failure of a major clearing house out of respect for my friends who are caught in that situation.

A clearing house of note is the mechanism of the marketplace without which trading simply does not occur. This is a situation where "Too Vital to Fail” trumps “Too Big to Fail."

You want to know why the Fed organized the do nothing European leaders in concerted action along with China? The answer is no major clearing house can be allowed to fail because then the market mechanism is broken.

The reason that sovereign debt cannot fail is the five largest US banks hold trillions of dollars of credit default swap OTC derivatives guaranteeing that garbage against failure.

If euro debt fails, the Western financial world implodes, so it will not now.

"QE to Infinity" and gold at $4500 is coming as sure as death and taxes. Good call, Alf!

What a head fake gold gave last week, turning almost everyone, even some big guys, gold bearish. They should have known better.

Regards,
Jim

In The News Today

November 30, 2011, at 5:37 pm
by Jim Sinclair 

Dear CIGAs,

This is called united system ease. It increases liquidity. It scratches the surface of QE, but is not QE.

QE is inevitable. It is the only tool that can stop a run on a bank, be it sovereign, investment or commercial.

Alf Fields is right when he says "Once this correction has been completed, Intermediate Wave III of Major Three will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way."

Click here to read the full speech from Alf Fields…

Six Central Banks Take Joint Action to Enhance Global Liquidity The New York Times
Wednesday, November 30, 2011 — 8:52 AM EST
The Federal Reserve, the European Central Bank and four other big central banks took coordinated action on Wednesday to ease the strain of the European debt crisis on the world economy.
The Fed, the E.C.B., the Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank agreed to reduce the interest rate on so-called dollar liquidity swap lines by 50 basis points, among other measures.
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the Fed said in a statement.
More…





Jim Sinclair’s Commentary

You asked yesterday who would be the lender of last resort and today got your answer.

Fed bails out Europe while ECB dithers
Commentary: Making dollars more accessible won’t solve crisis By MarketWatch
WASHINGTON (MarketWatch) — On one level, it’s almost funny to call offering dollars at a cheaper rate to foreign banks “coordinated” action.
It’s only coordinated in the sense that the Federal Reserve is printing the dollars and the European Central Bank and other central banks put the greenbacks in the virtual vaults of mangled commercial banks that are drowning in European debt.
But it’s not coordinated in the sense that the ECB taking any bold action of its own to stem the euro-zone debt crisis.
The ECB on Tuesday accidentally wandered into quantitative easing, basically when banks didn’t want to commit to lending money to the Frankfurt-based central bank, which effectively meant that a tiny sliver of the purchases of Spanish and Italian debt it made were funded from money printed out of thin air.
That money printing, called quantitative easing, is old hat at the Fed, as well as at the Bank of England and the Bank of Japan. The results are admittedly debatable, but in ECB circles it’s unthinkable to contemplate, as the ghost of the Weimar Republic continues to haunt German policy makers.
More…





Monty Guild’s Commentary

Here is a Bloomberg London article. We could not agree more that gold stocks are cheap, especially juniors with quality assets.

Cold Shares Cheapest Since 2002 Are ‘Coiled Spring’ for Rally: Commodities By Thomas Biesheuvel – Nov 30, 2011
Gold mining stocks are trading at their cheapest level in at least nine years even as the industry’s profits are estimated to almost double this year and bullion trades close to its historic high.
The benchmark NYSE Arca Gold BUGS Index (HUI) that includesBarrick Gold Corp. (ABX), Newmont Mining Corp. (NEM) and AngloGold AshantiLtd. ended last week at 17 times earnings, the lowest since at least November 2002 and below a five-year average of 37 times.
Investors sold equities across the board as Europe’s debt crisis soured the corporate profit outlook, and they’re ignoring analyst projections for bullion and gold producers. The gold index’s 16 members will increase combined per-share earnings 94 percent this year, according to estimates compiled by Bloomberg.
“When you look back in history, you will say this was a buying opportunity,” said John Wong, a portfolio manager at CQS Group’s New City Investment Managers in London and lead manager of the $200 million Golden Prospect Precious Metals Ltd., a fund holding gold and silver stocks. “It’s like a coiled spring.”
Gold equities have fallen 4.7 percent this year, heading for the first annual decline since 2008. Gold reached a record $1,921.15 on Sept. 6 and is set for an 11th annual gain.
“The market doesn’t trust big spikes,” said Jon Bergtheil, an analyst at Citigroup. “People will wait to see if gold holds above $1,600 for a while.”
More…

Market Commentary From Monty Guild

November 30, 2011, at 5:36 pm
by Monty Guild 

Central Bankers Hold A Conference Call…Very bullish
We imagine that a significant phone call occurred on 11/29/11 between the central bankers from the U.S., Switzerland, U.K., Japan, Canada, and Europe.  The first five are going to provide needed liquidity to help the sixth, and send a message to the world.  The short-term financing market that banks rely on had dried up for European banks. The first five of these central banks agreed as a group to provide low cost liquidity; sending a message that it is safe to fund European banks.  These five national central banks are the same ones who have been supportive of Quantitative Easing (QE) as a tool to spur economic growth worldwide. 
This coordinated effort to strengthen the banking system of Europe when it runs into a funding problem is essential for markets to regain confidence.  Is it hard to imagine that they will do the same thing should Quantitative Easing be needed in the future?  No.  It is obvious to us that this will be the choice of the world’s central bankers should the banking system run into trouble again. 
Remember that the U.S. Federal Reserve alone provided over $7 trillion of liquidity during the U.S. banking crisis of 2008.  It has been reported that on one day alone the Fed provided $1.7 trillion.  Clearly, the entire Euro zone needs less than $7 trillion in support, so there is little doubt that all these central banks in coordination can do similar things if needed.

China Also Sends A Message To The Markets
Earlier today, China lowered its reserve requirements for the first time in three years, signaling their renewed focus on strong economic growth.  We view this as a clear sign that China wants to provide liquidity to its economy, and is satisfied that the real estate bubble that was forming has been stopped or substantially delayed. 
Growth will continue in China and that it will soon return to the strong levels that the world has been used to.  We have always believed in a soft landing for China, and this action shows that the governmental economic powers want to continue to see annual growth of 8% plus.

More Is Needed For A Final Resolution To Europe’s Banking System Problems

The following three things will have to happen before we can call the problems ‘solved’:

1.    Banks must have sufficient liquidity to fund their day to day needs.

2. Banks need to write down bad paper on their balance sheets so investors will trust the balance sheets to be accurate representations of the banks’ condition.  They must have sufficient capital to fulfill their purpose, which is to lend new money to companies who need financing to operate, to employ people, and to expand.  This is what creates economic activity and economic growth.  Note: The clean-up of bad bonds on bank balance sheets during the U.S. crisis took place through the Troubled Asset Relief Program [TARP] and other similar programs.  Eventually, European governments will work together to create a program similar to TARP for Europe.

3. Banks need to raise capital from investors to improve the quality of their capital base.  This is necessary to create confidence in the long term viability of any banking organization.  This will happen after the European banking system gets initial capital infusions from the European nations themselves. Once European nations have shown a commitment to the banks, the banks will be better able to convince investors to buy their stock offerings.

Additionally, We Saw Some Things In Europe Late Last Week That Changed Our View On The U.S. Market To Positive
After the ECB announced late last week that they had bought bonds to create demand for the bond auctions of this week, they further stated that they had not sterilized all of those purchases.  Some viewed this as a bearish event, but it made us become more bullish and we began to buy stocks on Monday 11/28.  Europe’s bond buying without sterilization is QE, or money creation.
New data came out yesterday saying that the ECB and Euro zone’s 17 national central bank’s balance sheets have grown to an all-time high of 2.4 trillion Euros [about 3.3 trillion dollars].  Some see this as a bad thing…we disagree…we see this as proof that central banks have provided and will provide liquidity when necessary.
Readers will recall that we have been arguing that this would happen in Europe and now it has begun to happen.  It was not a lot, but it is a start.  As a result of this signal we bought some stocks on Monday and yesterday.  It is now Wednesday, and the markets are up a lot these past three days, so we might take some profits: the tone of the markets has improved.

Recommendation
Investors should buy partial position in U.S. stocks to benefit from a trading opportunity during the current short squeeze, and add to these positions when the inevitable periodic stock market declines take place.  As we have continually said, QE will be the last resort, and when major European QE takes place world markets will rally vigorously.
S&P 500 Index 1 year chart.

Shanghai Composite 1 year chart.

***graphs: courtesy of Bloomberg
Recommendations

	Date	Date	Appreciation/Depreciation
Investment	Recommended	Closed	in U.S. Dollars
Commodity Market Recommendations
Gold	6/25/2002	Open	+427.2%
Wheat	10/24/2011	Open	-5.9%
Oil	10/24/2011	11/17/2011	+16.4%
Corn	4/20/2011	8/3/201	-6.3%
Oil	2/11/2009	8/3/2011	+157.1%
Corn	12/31/2008	3/3/2011	+81.0%
Soybeans	12/31/2008	3/3/2011	+44.1%
Wheat	12/31/2008	3/3/2011	+35.0%
Currency Recommendations
Long
Canadian Dollar	10/24/2011	Open	-2.5%
Long
Singapore Dollar	10/24/2011	Open	-1.9%
Long
Canadian Dollar	9/13/2010	9/21/2011	+2.2%
Long
Chinese Yuan	9/13/2010	9/21/2011	+5.8%
Long
Swiss Franc	9/13/2010	9/21/2011	+12.1%
Long
Brazilian Real	9/13/2010	9/1/2011	+6.4%
Long
Singapore Dollar	9/13/2010	8/3/2011	+10.9%
Long
Australian Dollar	9/13/2010	6/29/2011	+14.1%
Long
Thai Baht	9/13/2010	6/22/2011	+6.5%
Short
Japanese Yen	4/6/2011	7/27/2011	-9.7%
Short
Japanese Yen	9/14/2010	10/20/2010	-3.3%
Equity Market Recommendations
U.S.	11/30/2011	NEW	0.0%
IShares MSCI Emerging Market Index	10/24/2011	11/21/2011	-0.8%
U.S.	10/24/2011	11/21/2011	-1.6%
U.S.	9/14/2011	9/21/2011	-2.3%
India	4/6/2011	9/21/2011	-21.6%
Malaysia	6/29/2011	8/3/2011	+0.1%
U.S.	6/29/2011	8/3/2011	-4.6%
Japan	2/15/2011	8/3/2011	-9.5%
Australia	2/15/2011	6/22/2011	-0.9%
Canada	3/24/2011	6/22/2011	-7.1%
Colombia	9/13/2010	6/22/2011	+2.6%
Malaysia	4/6/2011	6/22/2011	+0.8%
Canada	12/16/2010	3/11/2011	+7.9%
U.S.	9/9/2010	3/11/2011	+18.1%
South Korea	1/6/2011	3/3/2011	-2.9%
Colombia	9/13/2010	2/2/2011	+3.9%
China	9/13/2010	1/27/2011	+5.0%
India	9/13/2010	1/6/2011	+7.9%
Chile	9/13/2010	12/16/2010	+8.9%
Indonesia	9/13/2010	12/16/2010	+9.5%
Malaysia	9/13/2010	12/16/2010	+1.3%
Peru	9/13/2010	12/16/2010	+32.2%
Singapore	9/13/2010	12/16/2010	+4.8%
Thailand	9/13/2010	12/16/2010	+11.9%
Bond Market Recommendations
30 YR Long Term
U.S. Treasury Bond	8/27/2010	10/20/2010	0.0%

More…

Jim’s Mailbox

November 30, 2011, at 11:15 am
by Jim Sinclair 

Liquidity Is the Only Easy Solution  
CIGA Eric

Central bankers despite their best efforts are not in control of the markets. The futures might be soaring today, but infinite liquidity cannot turn distribution into accumulation in global equities or unemployment into employment for the US workforce.
Gross aptly suggests that Europe won’t escape its debt straightjacket for years. This is why the central banks have become increasing reliant on coordinated liquidity injections to maintain confidence within a crumbling monetary system.

Headline: Stock futures soar after central banks act globally
(Reuters) – Stock index futures soared on Wednesday as investors welcomed a coordinated action by major central banks to provide liquidity to the global financial system.
The Federal Reserve, the European Central Bank as well as the central banks of Canada, Britain, Japan and Switzerland agreed to lower the cost of existing dollar swap lines by 50 basis points starting from December 5.
The actions came as China unexpectedly cut its banks’ reserve requirements in hopes of boosting an economy running at its weakest pace since 2009.
S&P 500 futures jumped 33.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 269 points, and Nasdaq 100 futures added 58 points.
Source: reuters.com

Headline: Gross Says Europe Won’t Escape Debt ‘Straitjacket’ for Years
Investors should recognize that Europe’s problems are global and it will be years before nations in the region can escape from their “straitjacket” of debt, Pacific Investment Management Co.’s Bill Gross said.
With global growth likely stunted for years and interest rates kept artificially low, investors should consider risk assets in emerging economies such as Brazil and countries in Asia, Gross, manager for the world’s biggest bond fund, wrote in a monthly commentary posted today in the Newport Beach, California-based company’s website.
“Consider Brazil with its agricultural breadbasket and its oil. Consider Asia with its underdeveloped consumer sector but be mindful of credit bubbles,” Gross wrote in the note.
Source: bloomberg.com
More…

 

 

Holding the EU together by Money Printing and Force

November 30, 2011, at 11:12 am
by Greg Hunter 

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The European Union is frantically trying to come up with a plan to fix the debt crisis that is threatening to cause a worldwide financial calamity.  It seems every day there’s a new idea to save the union.  The latest is some sort of backdoor bailout through the International Monetary Fund (IMF).  Why doesn’t the European Central Bank (ECB) just take care of the bailout by itself?  It legally can’t according to the treaty that formed the European Union.  That hasn’t stopped the central bank from bailing out countries anyway.  But now, debt levels are reaching a critical stage as in a possible default, and the biggest problem is Italy.  Todayonline.com is reporting, “If Italy defaults on its debt of 1.9 trillion euros, the fallout could spell ruin for the euro zone and send shockwaves throughout the rest of the world. Yesterday, Italy’s borrowing rates skyrocketed to record highs in a 7.5 billion euro bond auction. The yield on its 3-year bonds surged to 7.89 per cent, 2.96 percentage points higher than last month, while yields on 10-year bonds spiked to 7.56 per cent, up 1.5 percentage points.”  (Click here for the complete Todayonline.com report.)
The key to saving the euro is Germany because it is the richest of the EU countries and can use its industrial might to help support a bailout fund.  But, Germany has been reluctant to bail out deeply indebted countries.  Now, calls to bend to pressure to save the day and keep the union together are reaching a fevered pitch.  The Guardian UK reported earlier this week, “The Polish foreign minister, Radoslaw Sikorski, urged Germany to save the EU from “a crisis of apocalyptic proportions.”  The Moody’s ratings agency predicted that a euro exit by any country would trigger a cascade of sovereign defaults across the eurozone. Jean Pisani-Ferry, director of the influential Bruegel think-tank in Brussels, said that “real businesses” as well as the financial markets were now “pricing in a break-up scenario … If disaster expectations build up and a growing number of players start positioning themselves to protect themselves from it, the consequences could become overwhelming.”  (Click here for the complete Guardian UK story.)
So, “any country” that stops using the euro “would trigger a cascade of sovereign defaults across the eurozone.”  This reminds me of the verse from the song “Hotel California” that goes “You can check out anytime you like, but you can never leave.”  The EU sounded so good when it started, but now it has turned into a nightmare where democracy is smothered by bankers.  Defaults would, no doubt, cause the bankers to lose power and lots of money.  That is not going to happen without a knockdown, drag out fight.  Paul Craig Roberts, former Assistant Treasury Secretary in the Reagan Administration, wrote last week, “The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.”
More…

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