Sunday, May 23, 2010

Euro Weakness: A Cheap Magician's Trick

"Keeping up with today’s dysfunctional markets is very difficult because they change hour by hour. The problems of Europe have stolen center stage from US problems. The focus is on Europe, but we all should remember trillions of dollars have been injected into the US financial system since mid-2007. All are attempting to maintain the façade that all is well, when in fact all is not well."
-The International Forcaster
http://news.goldseek.com/InternationalForecaster/1274626800.php

“U.S. Remains the Proverbial Elephant in the Bathtub”
“…reporting of contained CPI inflation by the U.S. government should be relatively short-lived, as global financial market concerns eventually shift from systemic solvency issues in Europe to those in the United States. Concerns for U.S. stability eventually should dominate most other market issues…

Indeed, the greatest risk to global markets and systemic stability and solvency remains the United States. Already in the midst of an intractable fiscal disaster (see the Hyperinflation report), the U.S. economy is on the brink of an intensified/renewed economic downturn. Such is signaled by annual contraction in real (inflation-adjusted) M3, a solid leading indicator to U.S. economic activity…

As the federal budget deficit and Treasury funding needs explode in the year-ahead, eventually domestic and foreign balking at buying U.S. Treasuries should become widespread, with Fed becoming the buyer of last resort, monetizing that federal debt. Coincident with that likely will be heavy dumping of the U.S. dollar and dollar-denominated paper assets. Such should spike U.S. money supply and dollar-based oil prices. The pace of inflation would tend to pick up significantly in response to these circumstances, setting the stage for the hyperinflation referenced earlier.”
-John Williams’ Shadow Government Statistics, Commentary Number 297, 5/19/10

Markets Warnings & Opportunities Alert!
DEEPCASTER LLC
Gold has recently reached a nominal high of $1,237/oz, whereas Silver, although up too, has lagged somewhat behind. And there are Manifold Causes for Gold, the Ultimate World’s Reserve Currency, to have hit record highs. Among them are the increasingly threatening Sovereign Debts bubbles, the as-yet-unresolved System-Threatening Financial Regulation Issues, and a Middle Class and Housing Market that are not recovering.

But in spite of all the Causes for Gold and Silver to continue to skyrocket, they have pulled back recently – Gold is down by nearly $60/oz as we write. In light of all the aforementioned Gold-price positive, Market-Negative developments, Why?!

The Major Factor is the Active Suppression of Gold and Silver Prices (as we and other commentators have increasingly noted in recent years), effected by a Fed-led Cartel of Major Banks and their agents and allies, whose main motivation is to prevent the increasing recognition of Gold and Silver as ultimate Stores and Measure of Value (as the World’s Reserve Currencies), so that their Fiat Currencies and Treasuries Securities have greater legitimacy, and the Mega-Bankers’ Profits remain unimpaired.

Until a few weeks ago, that Cartel* had considerable success in periodically taking down Gold and Silver prices with relative ease, especially at certain times at which Revelations of a weakening financial system have indicated that Gold and Silver should skyrocket.

One case in point is the Bear Stearns collapse in the Spring, 2008, which, given that it reflected the increasing fragility of the Financial System, should have been accompanied by a Gold launch. Instead there was a considerable Gold Price takedown catalyzed by The Cartel.

Even so, notwithstanding Cartel Manipulation, when priced in ounces of Gold, the U.S. S&P has lost a whopping 78% of its value since 2002, as J.S. Kim points out.

Moreover, in recent weeks, as the evidence (collected over many years by the Gold Anti-trust Committee Action and others) of Cartel Manipulation Gold and Silver markets has been increasingly reported, even recently in the Mainstream Media, we have seen a significant Reduction in the Potency of the Cartel.

One other Cause of the Reduction of that Cartel Potency (a Cause which is also very Gold- prices friendly), is the allegations which have been given increasingly broad distribution that not all the major Gold funds and Repositories actually have as much Real Physical Gold as they claim. This of course has been surely been communicated to Major Buyers, who now are much more likely to demand to take physical possession, a Wise Strategy in our view.

In light of this, what are the prospects for Gold and Silver prices? Indeed, in our view, not only are Gold and Silver prices clearly on a bullish trend, for reasons we indicated in our recent Alerts, but, with one Major Caveat, we expect that Trend to continue.

The Caveat is that the aforementioned Revelations and the consequent dramatically increased demand for “Physical” does not mean The Cartel cannot still effect Takedowns and ongoing Price Suppression. This week’s Takedown ($60/oz as we write) bears witness to this continuing Cartel Potency.

The aforementioned Revelations merely mean that it is now more difficult for them to achieve Takedowns of the Depth and Duration of their Takedowns in earlier days.

http://news.goldseek.com/GoldSeek/1274450940.php

"A recent poll reported on Bloomberg showed 97% of all money managers were STILL bearish on the euro and bullish on the dollar. How come no one is talking about the short euro/long dollar trade being too crowded? Given that the big banks have been buying all the euros being sold by funds, and selling dollars to all the buyers, the higher probability bet here is to get long the euro and short the dollar. I can't recall since the internet stock bubble when fund manager/public sentiment was this massively skewed in one direction."
-Dave Kranzler, The Golden Truth
http://truthingold.blogspot.com/2010/05/wtf-heres-deal.html

Euro Panic Buying Op
By: Adam Hamilton, Zeal Intelligence LLC
Fear has to be extreme to drive a panic, and we are certainly seeing the euro plagued by extreme fear today. But extreme emotions are never sustainable. Excessive fear quickly burns itself out. Soon everyone who wants to sell has already sold, and when selling pressure climaxes the panic is over. And somehow the world marches on as the news that whipped up the emotional frenzy quickly fades from memory. The more extreme the emotions the less sustainable they are, and hence the shorter the event.

This is why panics, and the ridiculously-low prices they generate, represent the best buying opportunities ever witnessed in the financial markets. In early
March 2009, I was railing against the same type of fear extreme in the US stock markets. I wrote, “Despair reigns supreme and seemingly only fools hold out hope that things will materially improve anytime soon. … When things look the bleakest is exactly when we need to hold our noses and buy. …all the ingredients are in place for a monster rally.”

And indeed between that very week and late April 2010, the SPX rocketed 79.9% higher in one of the biggest stock-market rallies of modern times. The brave contrarians like our subscribers not afraid to buy into extreme fear made fortunes, but the vast majority of investors lacked the courage and missed most of the upleg. Due to the euro’s deeply-oversold technicals and extreme fear, I believe a similar epic buying opportunity exists in it today.

Most would laugh derisively at this heretical assertion. They would bludgeon it with many fundamental arguments on why the euro has to continue plunging. Yet the majority said the same thing at the March 2009 stock-market lows. They argued fundamentally that a new depression was upon us, and that the new big-government-socialist regime in Washington would suck the life out of any recovery. But despite these popular and seemingly-logical arguments, the stock markets still soared 80% in just over a year.

Lows driven by extreme fear are never sustainable because extreme fear itself is never sustainable. Investors faced with a new situation today that terrifies them will quickly adapt to that new reality. And within weeks this very same situation will no longer terrify them. Their extreme fear will evaporate as the threat becomes old news and routine. If you are scared of snakes now, a few weeks working in a reptile garden will largely eliminate that visceral fear response.

Europe has problems, no doubt. But big government and out-of-control spending has been a problem all over the world for centuries. And it has grown far worse in the decades since gold’s iron discipline was kicked out of the world currency system. Yet somehow, over the past decades and centuries life has soldiered on despite endless government excesses. No matter what happens in Greece, it doesn’t matter! At less than 3% of Europe’s GDP, Greece is trivial. So are the other troubled countries.

The incredibly bullish outlook on the euro today is not based on fundamentals, but technicals and sentiment. There is no better time to buy anything than when everyone thinks it is heading to zero in the heart of a panic. Nathan Rothschild’s famous quote of “buy when there’s blood in the streets” is one of the core tenets of contrarianism. With today’s wild popularity of the euro-to-zero trade, and the universal extreme fear, this time-proven wisdom has never been more appropriate for the euro.


As of this week, the euro was back down to early-2006 levels. Is this rational? Given the euro’s superior fundamentals (slower monetary growth, more conservative monetary policy, higher interest rates, under-allocation by central banks), does it make any sense for this currency to erase several years’ worth of bull-market gains in several months? Is it rational to see the euro now trading below its lows from the stock panic, when global investors really feared a new worldwide depression? No way.

On the other side of this coin, today’s dollar levels look just as irrational. The USDX is back up near its panic highs! We are talking about places it went when the VXO fear gauge was running in the high 80s in October and November 2008 and the mid-50s in early March 2009. Lately it has only been in the low 30s, so general fear isn’t even close to as high as the last time the USDX saw these levels.

And given Washington’s out-of-control spending, the asinine zero-rate policies of the Fed, the Fed’s incredibly
inflationary monetary growth, central banks’ massive over-allocation in US dollars, and the terrible yields on US Treasuries, does it make sense for the US dollar to be trading at levels last sustained in early 2006? Nope. Today’s dollar highs are merely an emotionally-driven anomaly just like they were during the stock panic. The extreme fear hammering the euro and driving the dollar buying will be no more sustainable than the stock-panic fear was.

Investing and speculating are about buying low and selling high. The reason contrarians are the most successful at this game is because we ignore our own emotions and buy into extreme fear and sell into extreme greed. Extreme fear and greed manifest themselves on the charts as exceedingly large moves in short periods of time. The faster and more anomalous any move, the more intense the emotions that drove it and hence the less sustainable it is.

As I wrote last week in an essay on
euro gold challenging €1000 for the first time ever, I am no fan of the euro. Like the US dollar, it is a fiat currency backed by nothing but faith in its issuing governments. It will slowly devalue towards zero just like all paper currencies. But fundamentally it is the lesser of these two fiat-paper evils. It has been in a strong secular bull while the dollar has languished in a long secular bear. These fundamentals didn’t suddenly evaporate due to little Greece’s sovereign-debt problems.

The euro is radically oversold today while the dollar is radically overbought. Fear permeates every aspect of the euro while greed clouds traders’ fundamental judgment on the dollar. Neither of these emotions, nor the extreme price anomalies they have recently driven, are sustainable. Going long the euro today is as good of bet as going long the SPX was near its March 2009 lows. When everyone expects anything to go to zero, when the entire financial media harps on this incessantly, it is an epic buying opportunity.

Interestingly, I suspect this euro-plunge causality might not be working in the direction everyone assumes. Today everyone thinks Greece fears are driving Europe worries which are hammering the euro, commodities, and stock markets while the dollar rallies as a consequence. But perhaps, just like during the euro’s late-2008 plunge, the US stock markets are the stealthy dominant driver.


The bottom line is the recent precipitous plunge in the euro was either a panic or panic-like event. It was driven by extreme fear that simply isn’t sustainable. The fate of Greece, or the other small peripheral debtors, is irrelevant. The euro fell too far too fast and hit totally irrational levels that have nothing to do with fundamentals, and everything to do with runaway emotions. Odds are this will soon reverse with a big and fast euro rally.

This has widespread implications for the US dollar, the US stock markets, and commodities stocks. A fast-rallying euro will directly hammer the dollar and calm Europe fears, leading to new stock-market and commodities buying. The commodities stocks, many very oversold thanks to this SPX pullback, have the potential for exceptional gains. But as usual, only the emotionally-neutral contrarians will capitalize.

http://news.goldseek.com/Zealllc/1274458038.php

The Dollar Rally Is Hugely Bullish For Precious Metals
By: Stewart Dougherty
The current Dollar rally proves without question that enormous sums of money are running to safety. Big Money knows that the Dollar does not represent genuine safety, but it is the only storm port it knows, at least for now. What is significant is that gold has risen from $250 to $1,200 per ounce without Big Money; that move was engineered by Little Money, which is early, quiet and smart. When Big Money wakes up to the paucity of viable options, and sees the large opportunity precious metals represent, the flood of money into the sector will become a torrent.

To put the opportunity in context, one statistic is illustrative. At $1,200 per ounce, the total gold reserve of the United States of America is worth around $314 billion. The country’s fiscal year 2010 deficit is projected to be $1.6 trillion. In other words, this year’s deficit will amount to more than FIVE TIMES the value of the nation’s gold. To fund the deficit, the government and Federal Reserve will have to create that $1.6 trillion out of thin air, and over the next decade, it will have to create, at minimum, an additional $7.5 trillion to cover projected federal deficits. This is above and beyond the existing national debt of $13 trillion, which alone is FORTY-ONE times the value of the nation’s gold.

To put this in another way, the fiscal year 2010 deficit in the United States alone would purchase, at today’s price, 30% of the gold ever mined since the beginning of civilization. In other words, one nation just lost, in one year, the equivalent of one-third of the total global value of the gold that has been mined worldwide over the past 5,000 years. That same nation has promised to lose, over the next decade, far more than the current total value of all gold in existence. Do you think there might be a supply issue when more and more people figure out what is really going on?

Nations throughout the world face the same deficit and debt pandemic. They can print money high into the sky, but they cannot print precious metals. Big Money is going to do its sums, and it is going to like what it sees.

Not to mention that Golden Swans are aloft, and are preparing to land any time. We estimate the probability that America’s Fort Knox gold reserve exists as-stated by the government to be between 0 – 5%. In other words, there is a 95+% probability that some or all of America’s gold is gone. The Federal Reserve’s panic about being audited, and its outright refusal to audit the nation’s gold supply can ONLY be cause for grave concern; or, optimism, if you have traded Federal Reserve Notes for gold. What is the Fed so worried about? America’s gold supply (or what is left of it, if anything) belongs to the people, not The Federal Reserve, the Treasury, JP Morgan Chase, Goldman Sachs, HSBC, the White House, or Congress. Why won’t the government show its citizens their gold? The likely reason is that it is not there any longer, because it was peddled away by a Fed that got in way over its head, and played derivative and swap games that blew up in its face. If that particular Golden Swan comes in for a landing, which we view as inevitable, the price of gold will go in the opposite direction, skyward.

http://news.goldseek.com/GoldSeek/1273258635.php

Gold Is In a Classic Cup and Handle Formation Targeting 1,450
Jesse's Café Américain
A "Cup and Handle" is a bullish continuation pattern in an uptrend.

The 'cup' is best shaped as a "U" and the broader the bottom the better. The 'handle' is a retracement when the right side of the 'cup' reaches its prior highs. The handle often resembles a bullish pennant.

The retracement usually does not exceed 1/3 of the advance of the cup to its second high, although it can go as deep as 1/2 in a volatile market.

Here is the daily chart of Gold.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPum1-A4C3UAbr2WOY5JKbNx1JzPQCzh57E1iNGnWq60mUI5XEtKJ71qBm6mLrCs_va4JlOPYVZFiFilci_3WAFoLt2kHxiQVSK-5-wfGeWMlrzTDx_cBILeWnm6W3vp55rpn-1jN6Cvk/s1600/golddaily3.PNG It is in a classic cup and handle formation, with the handle having dropped down today near the 1/3 retracement target of 1183. A number of technicians have been watching it form. The advance to a new high, and the subsequent pullback, have made it now worth noting.

The handle has been shaping for four days from the peak at 1249.30. The handle generally takes from four days to two weeks to form before price advances again with fresh buying to retest the resistance around the prior high.

One might watch for the current Comex option expiration to pass next Tuesday, given the large concentration of calls around the 1200 level before gold can make its move higher. There is always the possibility of a counter squeeze, but it is difficult to fight paper with paper given the wide availablility of derivatives, and the laxness of regulation by the CFTC despite recent noises made about reform. Nothing has changed yet.

http://jessescrossroadscafe.blogspot.com/2010/05/gold-is-in-classic-cup-and-handle.html

No comments:

Post a Comment