Tuesday, December 15, 2009

Christmas 2009 Gold Sale Continues. While Supplies Last.

Despite the Dollars unexpected strength today, Gold, and in particular Silver, proved most resilient. Rising Inflation is not the friend of any fiat currency. Today's Dollar strength was quite simply chicken little Dollar shorts exiting their trades.

Market psychology regarding the US Dollar has been turned on it's head lately because of the the sudden "strength" in the US jobs market reported two weeks ago. There is this rediculous notion that the Fed is going to suddenly raise interest rates. NOTHING could be further from the truth. The very last thing the Fed wants is for interest rates to rise. If they wanted interest rates to rise, why do they continue to buy Fannie Mae and Freddie Mac garbage from the banks? After all, they are buying this crap in an effort to keep interst rates on home mortgages low.

As we noted here a few days ago, the U.S. Treasury has $2 trillion in short term Treasury debt which has to be refinanced in the next 12 months. This does not include the net Treasury borrowing that will be required to fund the 2010 spending deficit. The U.S. has to borrow at least an additional $3 trillion next year to fund everything. Raising interest rates will increase the costs of borrowing money. I doubt the Fed, or the Treasury, wants to see interest rates rise anytime soon, or next year for that matter.

November's jobs numbers were hardly encouraging, no net new jobs were added to the economy. Retail sales for November were "overstated" by 50% as they were greatly influenced by the increase in the cost of gasoline. This rise in gasoline costs was confirmed by today's Producer Price Index numbers. Today's PPI numbers were a sharp increase month to month and year to year. THEY ARE INFLATIONARY any way you slice them. But they will NOT encourage the Fed to raise interest rates. This string of data has got Dollar Bears skittish, and fearing an increase in interest rates. Ain't gonna happen. The Fed will once again reiterate their 0 - 0.25 interest rate policy "for and extended time" mantra as they exit their Fed meeting tomorrow. Recall that Bumbling Ben Bernanke was quick to shoot down the thought of raising interest rates following the speculation sparked by the "unexpected" November Jobs number.

People! If the economy was so rosy, would Little Timmy Geithner have extended the TARP program until October 2010? If the economy was so rosy would the government have extended the home buyer credit, and expanded it, until April 2010?

And honestly, who gives a damn if they did raise interest rates? Are we gonna get our shorts in a bunch because the Fed raises interest rates to "gasp" 1%? Were not interest rates of one percent the cause of our financial crisis? Please, give this Fed raising rates nonsense a rest. Pure and simple, they can NOT raise them today, or next year. Higher interest rates would raise borrowing costs and squeeze corporate profits. They could send stock prices falling. And they risk derailing the economic recovery. The Great Christmas 2009 Gold Sale Continues. While Supplies Last.

"Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment."
-Alan Greenspan, 9 Sep 2009

U.S. producer prices soar 1.8% in November
Core PPI increases 0.5%; both rates come in higher than expected

Rise in wholesale inflation unlikely to last
WASHINGTON (AP) -- Evidence that the economic rebound could eventually raise inflationary pressures emerged in a report Tuesday that wholesale prices surged last month.

Most economists aren't worried, though. They think the economy remains too weak for the price increases to last.

Much of the overall increase reflected a jump in energy prices. Yet that increase will likely reverse itself. Analysts noted that oil prices have fallen about 10 percent since the start of the month.


Core Inflation may be held at bay going forward because of the floundering economy. But the jump in energy prices, particularly year over year, are unlikely to "reverse itself". Even with a recent 10% drop in the price of Oil, prices are 70% higher today than they were in December 2008. Oil prices bottomed in December 2008 at $35 a barrel. They then rose steadily over the course of this past year, peaking recently at $82 a barrel. It will be dificult for the next several months to "explain away" the year over year rise in the cost of energy because of this fact. Unless, of course Oil prices suddenly collapse over the next several weeks. That would seem unlikely, but in these rigged commodity markets, nothing can be ruled out.

Foreign demand for long-term US assets slows
WASHINGTON (AP) -- Foreign demand for long-term U.S. financial assets slowed in October and China's holdings of U.S. Treasury securities were unchanged.

Continued strong demand for U.S. debt is critical to financing America's soaring budget deficits and keeping domestic interest rates low enough to support a broad economic recovery.

Foreigners purchased $20.7 billion more in assets than they sold in October, down from a $40.7 billion increase in September, the Treasury Department said Tuesday.

Japan, the second largest holder of Treasury securities, had a total of $746.5 billion in October, down slightly from September's $751.5 billion.

The Treasury securities held by the United Kingdom dropped to $230.7 billion, from $249.3 billion, while the holdings of Hong Kong rose to $142 billion, from $132.2 billion.

Treasury securities held by oil exporting countries totaled $188.4 billion, up slightly from $185.3 billion in September. Russia's holdings totaled $122.5 billion, little changed from September's $121.8 billion.

Homebuilder sentiment index dips in December
LOS ANGELES (AP) -- Even a holiday gift from Uncle Sam couldn't brighten the homebuilders' outlook in December.

The National Association of Home Builders said Tuesday its housing market index fell by one point to 16 this month, reflecting concern that job losses and a slow economic recovery will continue to stifle demand for new homes despite the extension of a federal tax credit for buyers.

The latest reading is the lowest since June, when it fell to 15. This was also the first monthly decline since October.

The worsening outlook was something of a surprise because it came one month after the industry received a major boost from Congress and the Obama administration.

New home sales got a lift this year from low mortgage interest rates and an $8,000 federal tax credit for first-time homebuyers. The incentive was set to expire on Nov. 30, but Congress extended it through April and expanded it to include $6,500 for existing homeowners.

In the latest survey of builder confidence, the reading for current sales conditions slipped one point to 16. Traffic by prospective buyers stood at 13. And builders' outlook for sales over the next six months fell by two points to 26.

The index reflects a survey of 514 residential developers nationwide. Index readings below 50 indicate negative sentiment about the market. The last time it was above 50 was in April 2006.

Purchases of US debt slow, and homebuilder confidence revisits the bottom. This sure raises my confidence in the US Economy. The Fed better get a hoppin on raising those interest rates!

Mission Not Accomplished
By: Peter Schiff, Euro Pacific Capital, Inc.
Although Barack Obama has refrained, at least for now, from delivering triumphant speeches in a naval flight suit, there is nevertheless a strong tone of accomplishment emanating from the President and his deputies. Over the weekend, top White House economic adviser Lawrence Summers even pronounced that the recession is now over. Without hedging his bets, Summers declared that thanks to the Obama Administration's wise stewardship, economic stimuli, and emergency bailouts, another Great Depression, set up by the prior Administration, had been narrowly averted. Summers saw no impediments to the return of sustainable growth. He may as well have delivered these remarks from the deck of an aircraft carrier.

I hate to shoot down these high-flying expectations, but the economy is not improving. All that has changed is that we are now more indebted to foreign creditors, with even less to show for it. Washington's current policies have once again deferred the fundamental, market-driven reforms needed to redirect us onto a sustainable path. Instead, through aggressive monetary and fiscal stimuli, we are trying to re-inflate a balloon that is full of holes. This was the Bush Administration's exact response to the 2002 recession. It's shocking how few observers note the repeating pattern, especially the fact that each crash is worse than the last.

Obama's claim of success largely derives from the slowing tally of job losses, the seemingly renewed strength in the financial system, the pickup in home sales and home prices, and the positive GDP figures. But these 'achievements' fall apart under close examination.


Some Key Numbers To Watch in Gold
By: Rick Ackerman, Rick's Picks
This has been a great year for gold, but investors can’t seem to shake the jitters they acquired in 2008, when prices plunged 35% between March and October after poking briefly above $1000 for the first time. Is last week’s 10% selloff the beginning of another murderous correction? We don’t think so, although it could take a few more weeks for prices to consolidate for the next strong push. But more immediately, we expect the Comex February contract to ease to a minimum $1090 in the days ahead. That would represent a $38 decline from yesterday’s settlement price and bring the total correction to slightly more than 11 percent.

Technical considerations aside, there is nothing in the news to suggest that any of the factors driving gold’s spectacular rise have changed. Mostly, it’s a case of large dollar reserves weighing on foreign holders who would rather be holding something else. They will continue to exchange those dollars for gold in particular, notwithstanding occasional news stories that would have us believe that the dollar and U.S. Treasury debt represent a safe haven in a crisis. What they represent is a carry-trade speculation that sometimes unwinds precipitously to the detriment of those who have borrowed dollars. The resulting short-squeeze effect has the ability to keep an otherwise leaden dollar buoyant, at least for short stretches, but the resulting surges in the dollar should not be confused with signs of strength.

This dynamic seems to be what is troubling gold bulls the most. Although they can rattle off a dozen good reasons why the price of gold is absolutely likely to continue higher, the dollar side of the equation can seem relatively mysterious. There are some pretty good technicians out there who are bullish on the dollar, and we ourselves have made the case that short-squeeze forces could cause the dollar to turn unnaturally strong. For what it’s worth, however, we see more bluster than strength in the Dollar Index’s rally from early December’s lows. Actually, Friday’s sharp thrust showed a trace of chicken-heartedness in failing to take out early November’s peak at 76.82 (see chart above). Serious rallies do not shy from such challenges, and that’s why we think this rally, even though it left the launching pad a week ago in a shower of sparks, is not destined for greatness.


Gold retested Friday's lows this morning and vaulted off them on news of the unexpectedly high PPI numbers. This, again, in the face of a rising Dollar. I continue to believe that the 38% retracement level in Gold at 1104 is key support in this current reaction. The Fed is most likely to ignore yesterdays PPI report [and Wed. mornings CPI report] and once again reaffirm their intent to hold interest rates near zero for "an extended period". This reaffirmation should put a little pep back in Gold's step heading into the close of 2009.

1 comment:

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