Wednesday, January 20, 2010

Dollar Rally? A Fundamental Flop

"Well, son of a bitch... That sucks!"

I couldn't agree more. The Dollar hits a five month high versus the Euro and yesterday's breakouts in Gold in Silver become yesterdays news, pffft, just like that. But it just a setback, not a collapse. Higher Gold and Silver prices are baked into the cake.

Euro tumbles on Greek woes; China hurts risk appetite
NEW YORK (Reuters) - The euro fell to a five-month low against the dollar on Wednesday amid worries about Greece's ability to finance its deficit, while fear that China is trying to slow bank lending dulled demand for commodity currencies.

Analysts said the dollar also rose on hopes that the Republican upset victory for the vacant U.S. Senate seat from Massachusetts will force Congress to rein in the fiscal deficit.

"The momentum clearly favors the dollar right now, and the market seems willing to latch onto any reason to buy it," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

He said reports that Chinese banks were told to curb lending weighed on commodity currencies such as the Australian dollar and boosted the greenback. Tighter policy may slow China's recovery and cut demand for commodities, analysts said.

Ah, but no fears that California will be able to finance it's debt... China is doing the right thing. China is actually an economy that has growth, GREAT GROWTH. Tomorrow it is likely that China will announce fourth quarter GDP in excess of 10%. That's right, 10%. Their economy IS hot, and the flame does need to be turned down a bit. But is China's growth going to evaporate because they raise interest rats less that 1/2 of 1% and curb reckless lending? Not likely. Another knee jerk reaction to "analysts" portraying an Asian success story by trying to sully it with Western beliefs about "the economy". Have these analysts not come to the realization that the Western way of doing and looking at things has turned out to be a COLOSSAL failure? The Chinese, the damn communists, have learned from the West's mistakes at managing an economy and are merely moving to prevent the same mistakes from unraveling their Asian success story. It is really that simple.

These moves China is making will ultimately lead to a strengthening of their currency, and that strength in the Chinese Juan will lead to further weakness in the US Dollar. Give it time, the Chinese aren't stupid, the Western financial analysts are the stupid ones...and those "rushing to buy the US Dollar. I pity the fools...

Gold Sage Jim Sinclair summed it upped succinctly on his web site this morning:

Due to the Republican victory in Massachusetts yesterday, the general commentary on F-TV is that the USA looks really good. The MOPE on Greece is going wild.

The dollar is no safe haven and will not guarantee the maintenance of buying power.

The large purchases by non US entities of US Treasuries in the TIC report smells like Limburger cheese. The US dollar economic recovery is nothing more than pixie dust.

To sustain a US economic recovery, there first needs to be an economic recovery to sustain.

Unemployment now becomes an increasing concern for both parties.

The Fed is locked into QE and in all probability is supporting the US Treasury market via the Caymans and other countries internationally.

Buy the dollar and sell gold? You have to be kidding. That is the madness of the crowd and the actions of the Crimex in paper gold.

Regarding the stunning Republican victory in Massachsetts yesterday, at best it will help create a stalemate in Washington, but reign in deficit spending? That's a stretch. Both parties are addicted to spending. America may see the Health Care Bill crushed, but look out for the BIG JOBS STIMULUS BILL coming out of the Capitol sooner than you think...more spending is on the way. The election of Mr Brown to the Senate in no way makes the accrued deficit of over $12 TRILLION disappear or dissolve, and it doesn't change the fact that the US government needs to rollover $2 TRILLION of old debt this year and fund a government spending shortfall in the current fiscal year projected in excess of $1.5 TRILLION. There is still not one single fundamental reason to buy the US Dollar.

Home construction dips; permit applications surge
December's cold weather, especially in the Northeast, was seen as the main reason for the divergent results. "Old man winter might just be to blame for a substantial portion of today's construction anomaly," wrote Guy LeBas, an analyst with Janney Montgomery Scott.

Regardless of the cause, "the fact remains that housing is still the weak link in the economy," wrote Jennifer Lee, an analyst with BMO Capital Markets.

The industry has dramatically scaled back construction amid the worst housing bust in decades. Thousands of foreclosed homes have been dumped on the market at bargain prices that make it difficult for the builders to compete.

New home construction is down 75 percent from the peak nearly four years ago, but up 14 percent from the bottom last January.

For all of last year, builders started construction on more than 550,000 homes, down nearly 40 percent from a year earlier and lowest on records dating back to 1959.

The report comes after a survey showed builders' sentiment about the market remains weak. The National Association of Home Builders said Tuesday its index of industry confidence fell in January to the lowest level since last summer. The drop reflects fears that demand for new homes will be sluggish despite the extension of a federal tax credit.

To give a boost to the still-struggling housing market, Congress decided in November to extend the deadline for a tax credit of up to $8,000 for first-time homebuyers until April and expanded it to include $6,500 for existing homeowners who move.

When in doubt, blame the weather. The housing market sucks no matter how the media tries to paint the picture. I don't know many folks without jobs that can afford to buy a house no matter how much of a "credit" the government offers. By the way, how many homes would even be being bought these days if there was no tax credit to entice buyers? The housing market is not in recovery. At best it is simply bouncing along the bottom.

Producer price up 4.4 percent in 2009
WASHINGTON, Jan. 20 (UPI) -- The Producer Price Index
for finished goods in the United States climbed 4.4 percent in 2009, the Bureau of Labor Statistics reported Wednesday.

The annual increase was one tenth of a point less than economists had predicted. The consensus estimate called for a 4.5 percent price rise.

For the month, prices rose 0.2 percent in December, following a 1.3 percent increase in November and a 0.3 percent increase in October, the bureau said.

Core prices in the month -- prices with the variables of food and energy prices taken out -- were flat, while food prices rose 1.4 percent and energy prices fell 0.4 percent after rising in the two previous months.

"But there is no inflation..." ...yeah, whatever.

US Debt: Look At It This Way
By: Adrian Ash, BullionVault
Seven ways to put the United States' national debt into perspective...

The SHEER SIZE of the US government's debt hasn't put off new bond buyers so far in 2010.

You've got to wonder what kind of news – or debt – it might take to deter them.

In just two days this week, the Treasury issued $61 billion in new debt – twice as much money as
Japanese households put into their domestic equity funds during all of 2009, itself a 50% jump from 2008.

Yet one "
big bidder" still opted to lend the federal government one fifth of that sum, according to bond analysts speaking to the Financial Times at least. And overall, the government's creditors offered to lend Washington three times the money it sought.

Now, if the Treasury didn't need that $61,000,000,000 to cover 6.3 days of
spending, the money raised in new bonds between Tuesday and Wednesday this week could cover 12 days of interest due on the outstanding debt, already running above $12.3 trillion and outweighing the market value of every company listed on the New York Stock Exchange.

Put another way, the United States national debt is greater than the GDP forecast this year for Japan, China, Brazil and Canada added together. (That's excluding the $107 trillion of
unfunded liabilities yet to come, of course.) If today's lenders ever see their money again, they could just about buy all the gold ever mined in history – all 165,500 tonnes of the stuff – twice over at today's prices.

Or they could simply pay twice today's gold price, of course.

Repaying the US national debt looks a struggle, however. Settling $1 per second – rather than racking up an extra $37,132 every second, as the federal government's scheduled to do in 2010 – would take until the start of February A.D. 392,372. Settled for cash, and
piled up in $1 bills, the current US debt would reach to the moon...and back...and back to the moon again...and then round the moon's equator ten or perhaps 20 times, depending on how much you squashed them.

Or to put the US national debt into historical perspective – a very historical perspective – the US government has borrowed the equivalent of $2.46 each and every day since the beginning of time...last computed to have occurred some
12.7 billion years ago, back when $2.46 really meant something.

For creationists sticking with
Archbishop Ussher, that's $2 billion per year since God said "Let there be light"...back when fiat really meant something, too.

And lo! The bond market still kept on buying.

Gold Outlook for 2010 - Gold Resuming its Historical Monetary Role – as the Anti-Currency [informative reading]
by Nick Barisheff
In 2009 gold resumed its historical monetary role - as the anti-currency. Therefore, the influences and events that affect its price are not simple commodity supply/demand fundamentals, but the more complex global monetary issues.

So let's start with the obvious gold events of the past year. It was the first time in 20 years that gold purchases for investment purposes outpaced gold purchases for jewellery demand. However, in terms of significance, central bank buying of gold this past year upstaged all other events. For the first time in over 20 years, central banks became net buyers rather than net sellers of gold. This is a watershed event.

The next level of news events had implications that might not have been so obvious at first glance. On October 6, Robert Fisk, a veteran Middle East correspondent writing for the UK’s Independent, published an article entitled "The Demise of the Dollar." The article described how "Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading." Although the central banks immediately rejected these rumours, the market treated their denials as a clear admission of guilt and gold broke through year-long resistance at $1,020 an ounce into an entirely new trading range that day.

Another event whose implications may require some extrapolation was the move by the Chinese government to encourage and facilitate gold buying by the Chinese public. China watchers know the Chinese have a long-term love for gold. In fact, on December 9, Reuters announced that China had surpassed India as the world’s largest gold buyer, for the first time in recorded history. The Chinese have also demonstrated a strong propensity for saving. With their government making no secret of its displeasure with the US dollar, and with few other safe investment options available, the Chinese public could provide the fuel to move the gold price to new highs. One ounce purchased by each of the 80 million middle-class Chinese would equate to 2,500 tonnes of gold. It is important to remember that during the last gold bull, the Chinese public was unable to participate. This is a story that definitely bears watching.

Finally, in the third category, is the news we might compare to the first spark of a match that either extinguishes uneventfully or ignites a raging, out-of-control forest fire. Most of us in the gold industry have discovered that we ignore these flickers at our own peril. Many of the stories that started as hints or rumours a few years ago are now accepted as fact. The first of these issues we are watching is the imbalance between gold derivatives and paper proxies and the amount of physical gold in existence. This is important because despite its best efforts, Wall Street still cannot print gold.

Since almost all the gold ever mined remains in existence and gold reserves and production estimates are monitored meticulously, such discrepancies will show up faster in the relatively small gold market than they might with other commodities. As Wall Street churns out new gold investment vehicles, people are starting to do the math. If it becomes apparent that financial institutions have sold more paper gold than actually exists in physical form, then the price of paper gold and physical gold could diverge.

This year, many analysts began to apply increased scrutiny to the gold and silver ETFs. In mid–July, hedge fund giant Greenlight Capital announced they were moving assets out of the world’s largest gold ETF – SPDR Gold Shares – and into physical gold. Greenlight is an industry leader whose movements are carefully studied and often emulated. Although Greenlight’s manager, David Einhorn, claimed it was cheaper to own and store physical gold than it was to pay the ETF fees, the fact that a major, industry-leading fund would move to physical bullion set off many alarm bells.

Since ETFs do not actually purchase their assets, there is nothing prohibiting Authorized Participants from contributing baskets of borrowed gold. The amount of borrowed gold held by ETFs is a matter of speculation. With multiple claims on the bullion, ETF investors may suffer unexpected losses under stress conditions when they need their gold the most.

Along with many others in the gold industry, we have noticed that fund managers are starting to buy gold as long-term insurance, which they intend to hold for several years. By one estimate, if the world’s pension funds and hedge funds moved only five percent of their assets into gold, which these days seems quite conservative, gold would trade above $5,000. With leading wealth managers such as David Einhorn, John Paulson and Paul Tudor Jones allocating significant amounts of their portfolios to gold, the process may have already begun.

In conclusion, the events of the past year bode well for the price of gold in 2010. At the recent highs of $1,200 many thought that gold was overbought. For those who feel this way, I would like to close with some recent words from investment legend Richard Russell who said, "If gold is going parabolic, then there’s no such thing as 'overbought'," Almost any of the events of 2009 I have highlighted could trigger such a parabolic rise. Right now the Chinese and Indian public, the non-Western central banks, the sovereign wealth funds, the pension funds and the hedge funds of the world are all looking for ways to increase their long-term gold holdings. The pull-back from the recent highs of $1,200 seems to be over, providing an attractive entry point for investors. In 2010 we will likely see prices rise to at least $1,300 to $1,500.

Yeah, I think I better dump my Gold and Silver and rush out to get me some of those fiat Dollars. The Precious Metals are a long-term bet. Trade them at your own peril. Was Gold a good buy at 1137? Was Silver a good buy at 18.62? In hindsight 24 hours deep, maybe not. But, in the big sheme of things, there is no bad buy when it comes to Gold and Silver these days. Get some while you still can!

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