Archive for June 2012

Why QEs [printing] *must* continue.   Leave a comment

Why QEs *must* continue.

If rates rise
changes in outstanding ‘interest rate swaps‘  means derivitive mkt disaster.
ie iaw w the interest rate rise
JPMs & GSs variabl rate payout would rise
abov the rate they are receiving
from the fixd rate instrument they sold
resulting in *major* losses
affecting the US financial system

also, It is a fact that
in the US and Europe tax revenues do not cover
retirement of debt and govt spending;
so, borrowing to cover bond rollover and new expenses,
by issuing bonds, is required.

But if the necessary borrowing,
under present conditions of:
–large scale borrowing,
–poor economy [poor tax revenues], and
–hi debt to GDP ratios,
would cause hier rates:

“Imagine what the US economy would look like
with the base rate set to Italian levels of six per cent.
Asset values from bonds to stocks to real estate would be decimated.
a deflationary
[cause of inability to pay off the debt at such hi rates
and the fall in asset values]
depression would set in.”

Therefore, to avoid such a rate rise
and deflation
printing *must* continue
so so that govt can buy back its own bonds
at higher prices than other bond buyers would bid
ie hi bond prices = lo int rates.
ie the deficits must be monitized

The handwriting on the wall:

1. “The fed has become a significant buyer of debt,
purchasing some 75 percent of US treasuries last year
because there were no other buyers.”

2. LTRO, the ECB‘s  longer-term refinancing operation
[which has now loaned out above a trillion dollars]
lends banks cash  at about 1%
by loaning against sovereign bonds
that those banks currently hold,
so the banks can, in turn, lend to their domestic governments
by buying newly issued bonds.

The question is not wether QEs [printing] will continue,
the question is,
Is there a way to get off the merry-go-round ?

QE3 Impact

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Gold
Wednesday, May 16th  Keith  Weiner

On Monday, May 14, something happened
that hasn’t happened since Dec of 2008.
Two successive near-month precious metals futures contracts
were in backwardation at the same time

the May silver contract is giving away a 3% annualized profit
to anyone who would sell physical silver and buy a May future
that delivers in a few weeks (thus recovering the same position).
Even more incredibly,
no one can or will take the profit that is dangling out there!

I think that it is a lack of unencumbered metal.
The markets for precious metals, silver more than gold,
have become quite tight.

Sunday, June 3, 2012  Adam

May was the highest monthly volume in the history of GDX
(with a bullish monthly candle to mark a bottom)
and Friday was the highest daily up volume in the history of the GDX ETF.
clearly, the big boys … have now established their positions.

Commercials are eliminating gold shorts.

Commercials are building a heavy long euro position.

A dollar drop may be in the cards.

The Three primary movers of the price of gold.   Leave a comment

Gold 2

1 The Trend
Eastern Central Bank buyers
most having made  purchases
in Q1 2012:

China, India, Russia, Vietnam,
Ukraine, Turkey, Argentina, Mexico,
Philippines, Khazakstan, Thailand,
Malaysia, Indonesia, Gulf States,
and now Iran.

And,

Over the past decade,
the demand mix has changed toward investment,
starting at 4% of demand in 2000 and growing to 38% by 2009.

Gold is in vogue.

2 Real Interest Rates

“The real interest rate
is the 3 Month T-bill Yeild
minus the CPI.”

“The Fed has pledged to keep rates at “exceptionally low levels”
at least through 2014.”

“The real interest rate
is the nominal interest rate
minus the EXPECTED rate of currency depreciation.

I read:
World money supply growth is 7% per year.
Gold supply increase is            1% per year.

3 Liquidity

the Fed has become a significant buyer of debt,
purchasing some 75 percent of US Treasuries last year
because there were no other buyers.”

Trillions in European bonds to be refinanced.

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GOLD 1
The commercials [JPM and possibly HSBC]
who are in the process of covering their shorts

have tried three times in May
to  break the Dec 29, 2011 gold low
and cover their shorts
by buying the sell stops below.

Anyone who wants gold around that low level
probably could not buy the stops below the low
cause JPM probably put their orders in for those stops
when they started to drive the market down.
And, as I understand it
the High Frequency Traders [JPM]
pay off the exchange
for the privlage of front running other orders.
So, other purchasers must place their orders
above the Dec low.

If the Chinese [or any sovereign nation]
wants to buy gold,
as JPM sells to drive the price down
they can grab that gold for sale
at no cost to them,
because they can buy gold
the same way they buy bonds.
When an enterprise does business in dollars
and wants to exchange those dollars for Yuan,
the government takes the dollars
and prints the Yuan for payment.
They then use the dollars received to buy bonds…
or gold.

Since the gold is paid for in printed money
and is free to the government
[tho not to the taxpayers]
their purchasing power is unlimited.
They can hold a basket above the low,
indefinitely.
The huge buying volume
on June 1st
appears to be capitulation by JPM
and loading of longs
for the next move up.

There is reason to believe
the gold price will be at $1950
before it will fall below $1523.