Monday, May 4, 2009

The Picture Says It All





The capital well is running dry and some economies will wither
The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.
By Ambrose Evans-Pritchard
Unless this capital is forthcoming, a clutch of countries will prove unable to roll over their debts at a bearable cost. Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default.

Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions – not to be confused with transparent buying by central banks under quantitative easing. This cannot continue for long.

US hedge fund Hayman Advisers is betting on the biggest wave of state bankruptcies and restructurings since 1934. The worst profiles are almost all in Europe – the epicentre of leverage, and denial. As the IMF said last week, Europe's banks have written down 17pc of their losses – American banks have swallowed half.

"We have spent a good part of six months combing through the world's sovereign balance sheets to understand how much leverage we are dealing with. The results are shocking," said Hayman's Kyle Bass.

So where is the $6 trillion going to come from this year, and beyond? For now we must fall back on the Fed, the Bank of England, and fellow central banks, relying on QE (printing money) to pay for our schools, roads, and administration. It is necessary, alas, to stave off debt deflation. But it is also a slippery slope, as Fed hawks keep reminding their chairman Ben Bernanke.

"The crux of the problem is not sub-prime, or Alt-A mortgage loans, or this or that bank. Governments around the world allowed their banking systems to grow unchecked, in some cases growing into an untenable liability for the host country," said Mr Bass.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5220118/The-capital-well-is-running-dry-and-some-economies-will-wither.html

Gold Consolidation Nears End
By: Jim Willie CB, GoldenJackass.com
The battle for survival continues, as banks resorted to basic revisionist accounting (aka fraud) in order to claim improved health. Their reward was a financial sector stock rally of the most queer kind. The rally depended on all manner of contrived demand from the most sordid of chambers opposed to free markets, using tactics that are typically abhorrent. Next this beleaguered sector must withstand valuation checks and fair value scrutiny. Unless analyst dissent is declared illegal, the sector should fall in value. The new facade of Stress Tests has filled the void left by Financial Accounting Standards Board (FASB) concessions that led to phony balance sheets. These Stress Tests are neither a test nor a reflection of stress. They are rigged excuses for continued funds, and worse, might be used to coerce healthier regional banks into merging with dead Wall Street banks laced with insolvency and fraud. These ridiculously hollow institutions continue to engage in sales of USTreasurys with rampant failures to deliver funds in order to maintain cash flow, not mentioned in quarterly earnings reports. See a related article entitled “Wall Street Selling Imaginary Treasuries” on Market Skeptics (CLICK HERE). This is called naked shorting, counterfeit, and not even complicated fraud. Imagine selling lemonade at a stand and handing over empty glasses. Regulators remain quiet on the subject, a continuation of permitted fraud from lack of oversight that continues from the last administration to the new. Nothing changed except claims of change. The US financial sector is reminiscent of an army of zombies that usurp the vitality of any firm they come in contact with, aided by a guiding government hand that directs living firms into their snares (and shares).

The US Federal Reserve is trapped. Not only does the 0% monetary policy put them in a corner without options, but ownership of a couple trillion$ worth of heavily impaired bonds has given the august overseer of failure and fraud and money laundering a bad case of constipation on a dead end street. Any change in either situation pushes USTreasury interest rates up, pushes up USAgency Mortgage rates, and renders great harm to the credit markets. The dirty secret is that the USFed is stuck in mud with a bad diet of offal on a road to certain ruin. The dirtiest secret of all might be that the USFed is engineering an orderly collapse of the USEconomy from starvation of Main Street of economic bread, namely credit.

The gold consolidation has been like a crock pot slowly cooking a beef stew over a long stretch, as hungry observers whet their appetite with hors d’oeuvres with the promise of bountiful meals. The gold chart presented in the last articles took a more long-term view, as it described the formation of the Right Side Handle in a clear bullish reversal pattern. That consolidation continues. Since February when gold touched the 1000 mark, the selloff and profitaking have taken place amidst a sequence of extraordinary USGovt and US Federal Reserve policy decisions. Gold actually fell following the announcement of $1050 billion in monetized USTBonds and USAgency Bonds, if you can believe that! The reason was an avalanche of (probably illegal) short COMEX futures contracts timed simultaneously, much like calculated denial of oxygen to a runner at the start of a race. The propaganda was that investors were worried about continued deflation, without benefit of knowing what deflation is. Monetary inflation has been historically off the chart, which should include credit derivatives and futures contract commitments.

The incident at the end of March involving Deutsche Bank and the COMEX pointed out serious exchange violations in all likelihood, as D-Bank surely did not hold 90% of its short gold positions in collateral. The German flagship bank almost defaulted. None of the big four banks hold proper gold collateral, routinely, and regulators look the other way. That is just another form of naked shorting, without prosecution. D-Bank in a panicky fashion came up with 850 thousand ounces of gold so as to satisfy a delivery, precisely at a time when the Euro Central Bank just happened to sell 1.141 million ounces of gold. The EuroCB event was anything but ordinary, but was treated as an asterisked event, with no explanation.

Regardless of market interference, despite all that the Powerz throw at gold, the weekly chart looks promising with a possible stochastix crossover in the making and a MACD momentum ready to turn up. The cyclicals look promising. A big battle is being waged. The bulls need a run above the trendline set from February joining three local tops. A move to 925 would establish the bullish rise out of the current pattern. The bear case would have a breakdown below the 860 mark toward 850 again. However, the moving averages show support, especially the 50-week MA. In the last week, some solid support has been seen with the less stable 20-week MA. Other extremely important factors are at work behind the scenes, which weaken the position of the gold cartel significantly this spring and into the summer. Whatever risk was present at the end of March will be more acute at the end of June.

http://news.goldseek.com/GoldenJackass/1241103600.php

How Gold Will Top $2,000 Per Ounce
By: Chris Mayer, The Daily Reckoning
For the first time in a couple of decades, some of America’s most successful, big-name investors are buying gold. David Einhorn, the hedge fund manager who predicted the downfall of Lehman Bros., recently bought gold for the first time. And then there is John Paulson, the guy who made billions of dollars by correctly anticipating the housing bust and credit crisis.

Paulson just plunked down $1.3 billion for an 11% stake in AngloGold. He’s also got a big position in Kinross Gold.

Peter Munk, the 82-year-old chairman and founder of Barrick Gold, also offers up his own anecdote about gold’s broadening appeal. “I have had more phone calls in the past six months than ever before – from people who have $120,000 inherited from grandmother, and from hedge fund managers with millions,” he says. “I am not saying George Soros, but people of that caliber have told me they are buying gold.”

You no longer have to be a gold bug to think gold will rise in price. In fact, this buying by some of the world’s greatest investors may be the leading indicator for a quick 116% climb – to $2,000 per ounce or higher. Give gold the cold stare of a professional handicapper and the odds look very good, indeed.

Why? The biggest reason is that the value of the dollar looks about as brittle as a 90-year-old’s hip socket. And if you worry about the value of the dollar – or any paper currency – then gold is a good alternative.

I have a good friend who advises institutional clients on investing. As he reminds me, the really big money hasn’t started buying yet. There are no big pension funds or endowments with significant gold holdings. That could change. If so, the gold price will go wild.

“Gold is a small market,” Munk notes. Munk’s career spans 60 years and he knows the gold market as well as anyone. Says he:

“Let’s say a small percentage of the world’s central banks – or simply the United Arab Emirates itself – do not believe President Obama’s pledge that he will halve the U.S. deficit by the end of his first term. They shift some of their dollar reserves to gold. It would not take many decisions of this kind to push the price above $2,000 per ounce.”

That’s how gold gets to $2,000 per ounce – just a bit of doubt turning into action. The mind boggles at what would happen if China decided to hold more gold! Gold could well hit $5,000! As long as President Obama, Fed Chief Bernanke and pals treat the dollar like confetti, gold should continue to gather new fans. And gold stocks should do even better.
http://news.goldseek.com/DailyReckoning/1241121436.php

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